W.P. "Bill" Atkinson, III

Certified Financial Planner TM / Attorney

Access Financial Resources, Inc.

3621 NW 63rd Street, Suite A1

Oklahoma City, OK  73116

(405) 848-9826

www.afradvice.com / bill@apaplans.com

October 2018 Newletter
Market Update
(all values as of 03.29.2024)

Stock Indices:

Dow Jones 39,807
S&P 500 5,254
Nasdaq 16,379

Bond Sector Yields:

2 Yr Treasury 4.59%
10 Yr Treasury 4.20%
10 Yr Municipal 2.52%
High Yield 7.44%

YTD Market Returns:

Dow Jones 5.62%
S&P 500 10.16%
Nasdaq 9.11%
MSCI-Europe 4.60%
MSCI-Pacific 5.82%
MSCI-Emg Mkt 1.90%
US Agg Bond -0.78%
US Corp Bond -0.40%
US Gov’t Bond -0.72%

Commodity Prices:

Gold 2,254
Silver 25.10
Oil (WTI) 83.12


Dollar / Euro 1.08
Dollar / Pound 1.26
Yen / Dollar 151.35
Canadian /Dollar 0.73

Macro Overview 

The Fed raised rates for the third time this year, signaling it was on track for further hikes over the next few months. Rates moved higher across the fixed-income spectrum, with the 10-year Treasury bond piercing the 3% mark, a level last reached in May of this year. The Federal Reserve also revised its estimates for GDP growth from 2.8% to 3.1% for 2018, with an eventual slowing to 1.8% by 2021. Newly imposed tariffs by the Department of Commerce on Chinese imports became effective in late September. The $200 billion worth of tariffs – which the American people pay, not the Chinese – will begin at a 10% rate and increase to 25% by year end should the two countries not come to an agreement. Moreover, the Department of Commerce is incentivizing U.S. companies to shift production of goods in China to the U.S. by allowing companies to redirect production prior to year end before tariffs are scheduled to reach 25% on Chinese made products. However, a tariff on imported goods curtails the supply of less costly goods and encourages the supply to the domestic market of more costly, inefficient domestically produced goods – which could very well undermine the U.S. economy in the long run.

Equity markets brushed aside ongoing concerns over escalating international trade tensions and instead focused on economic expansion in the United States. Analysts are seeing the benefits of the recent tax cuts and deregulation translate into expanding earnings for U.S. companies. Economists are also citing the tax cuts as a monumental factor in economic expansion. But, for how long, and does it make sense for the government to cut its revenue sources and increase its spending at the same time?

For example, according to the Department of the Treasury, corporate tax receipts during the first nine months of fiscal year 2018 fell by 28 percent — from $223 billion in 2017 to $162 billion this year.  An analysis published in June by the Tax Policy Center highlights my concerns: “[the new tax law] will stimulate the economy in the near term. But, most models indicate that the long-term impact on GDP will be small…. It will make the distribution of after-tax income more unequal, raise federal debt, and impose burdens on future generations.” See the projected spending vs. revenue chart.

In any event, oil prices headed higher in September topping levels not reached since 2014. Global energy markets reacted to limited production from OPEC, Saudi Arabia, Russia, and the United States. The price for a barrel of Brent oil, which is priced internationally, reached $80 while the price of domestic oil priced as WTI surpassed $72. Adding to the supply strain were recently imposed sanctions on Iranian oil exports along with production constraints in the U.S.

(Sources: Fed, Dept. of Commerce, Heritage Foundation, Moody’s, Mises Institute, Peter G. Peterson Foundation)









Economic Data and Rates

Economic Data Influences Stocks – U.S. and International Equity Update – Major domestic equity indices all posted gains for the third quarter, with the S&P 500 advancing 7.2%, the Dow Jones Index gaining 9%, and the Nasdaq rising 7.1%. It was the single best quarter for stocks since 2013, buoyed by recent corporate tax cuts, improving earnings, and stable economic growth. A notable shift occurred in the third quarter as equities surpassed real estate as the largest portion of household wealth. Investments by companies in the S&P 500 Index increased to $341 billion in the first half of 2018, exceeding the same period last year by 19 percent. Several analysts are forecasting that the positive effects of the recent tax cuts will begin to fade as higher interest rates begin to inflate capital borrowing costs. Growth estimates from the Organization for Economic Cooperation and Development (OECD) place U.S. economic growth at 2.9% for 2018, up from 2.2% in 2017, making it the fastest pace of growth since 2005. (Sources: S&P, Bloomberg, OECD, Dow Jones, NASDAQ)

However, international markets struggled as European markets reacted to a possible impasse regarding negotiations surrounding the exit of Britain from the EU, also known as Brexit. Six months remain before the formal separation between the two occurs. Developed and emerging market equity indices are having a tough time keeping up with U.S. equities, with most major international indices posting negative returns for the year. Emerging markets welcomed a weaker dollar as trade tensions wore on the U.S. currency. Rising oil prices levied an additional burden on larger developing nations including Turkey, India, the Philippines, and South Africa as these countries import the majority of their oil. Higher oil prices tend to spur inflation for countries dependent on imports and laden with debt payments. (Sources: Eurostat, Reuters)

Rates On The Rise and their Impact  – The Fed announced its third rate hike for the year, indicating another rate increase anticipated in December and three more to follow in 2019. The Fed’s key policy rate, the Federal Funds Rate, now stands at a range of 2% – 2.25%, the highest in ten years. Of the various fixed income sectors, U.S. corporate high-yield bonds had the least amount of price declines in September, outperforming both government and investment grade debt. Some analysts view this as a validation of improving financial conditions for U.S. companies and their ability to repay debt (remember their tax rate was reduced). Moreover, borrowing rates are increasing in various consumer sectors including autos, appliances, and home mortgages. Higher interest rates, however, is a result of inflation as it is the direct “cost” to borrow money.

No matter how you slice it, higher short- and long-term Treasury rates mean that the federal government’s borrowing costs will also rise, thereby generating significant consequences for the budget and the national debt. Growing spending is driving government deficits to ever higher levels. The cost of servicing the public debt is projected to triple before the end of the decade. By 2023, the government will spend more on interest than national defense. When the US closed fiscal 2018 on September 30, the total gross national debt in fiscal 2018 rose by $1.271 trillion to an all time record of $21.52 trillion. (Sources: Treasury Dept., Federal Reserve, Bloomberg, Peter G. Peterson Foundation, Heritage Foundation, Zero Hedge)

Tariffs and Banruptcies

When Taxes Replaced Tariffs – A Historical Note

As a young country, the first of tariffs enacted to protect American business interests was the Tariff Act of 1789. The act was written to raise funds for the newly established government, reduce debt from the Revolutionary War, and protect U.S. companies from unfair foreign competition. At the time, Congress passed tariff amounts from 5% to as high 50%. For the next 150 years, tariffs generated the vast majority of revenue for  the federal government, until Congress ratified the 16th amendment in 1913 allowing the imposition of federal income taxes. Tariffs began to lose their importance thereafter once federal tax revenue began coming in.

Presidents varied on their views regarding tariffs over the decades, yet Abraham Lincoln said in 1847 that “Give us a protective tariff and we will have the greatest nation on earth.” Tariffs eventually paid for some of the costs of the Civil War for the north. By the end of the second World War, the U.S. economy had become enormous with American companies dominating the international markets. For the next 60 years, U.S. policy sought to reduce trade barriers and tariffs in order to expand and maintain commerce throughout the world. (Sources: Library of Congress; https://archive.org)

Senior Bankruptcies Surge 

The rate at which seniors file for bankruptcy has more than tripled since 1991 amid reductions in retirement and benefit payments. Of the people that are filing for bankruptcy each year, 12.2% are aged 65-74 versus 2.1% for the same age group in 1991. Medical debt is the leading cause for bankruptcy filings nationwide, accounting for roughly 62% of all bankruptcies, as a growing number of medical procedures are not covered by insurance or Medicare. Chapter 7 bankruptcy allows one to discharge most if not all debts and turn over nonexempt assets to the court. Determining whether or not Chapter 7 is an option is based on income. On the other hand, chapter 13 bankruptcy allows one to keep assets, such as a home, and repay debt via a court approved payment schedule.

The most significant asset for many seniors happens to be their home, which in many circumstances, have large amounts of accumulated equity. Whether or not that equity is vulnerable to creditors in a bankruptcy filing is contingent on the state of residence. Homestead exemption rules vary from state to state and should be reviewed carefully before making any final decisions. Because many seniors have large amounts of equity accumulated over the years, the biggest risk is losing accumulated equity or a home to creditors.

Social Security income can be a factor when filing for bankruptcy. With a Charter 7 bankruptcy, income received from Social Security is not counted and is protected from creditors. A Chapter 13 bankruptcy does include Social Security income when calculating what the arranged debt payments are. (Sources: American Bankruptcy Institute, National Council On Aging, benzinga.com)



Scams and Trusted Contacts

Leading Scams Targeting Seniors

Retirement Planning The National Council on Aging estimates that nearly 1 in 10 Americans over the age of 60 experiences some form of financial elder abuse.

IRS Scams – Callers claiming to be IRS agents often call unsuspecting seniors at home, accusing them of owing back taxes and having to pay immediately. The IRS impersonators threaten to foreclose on homes, garnish social security, and even threaten arrest unless payment is made immediately by phone. The truth is that the IRS never makes outing calls to anyone, all correspondence is done via USPS or the IRS secured internet site. In addition, the IRS will never ask for payment information over the phone nor demand immediate payment.

Technology & Internet Fraud – Phone calls from individuals claiming to be from a major technology company target seniors. Callers ask for remote access to computers in order to gather sensitive data and financial details. Pop-up ads claiming to fix pop-up ads many times are fraudulent advertisements used to gather credit card numbers and personal details.

Sweepstakes Scam and Other Scams – Unreasonable or ridiculous calls regarding a prize or major sweepstakes winnings. Fake charities and relatives needing money. Be sure to review bank and credit card statements carefully for fraudulent or suspicious activity. If fraud is suspected, it is suggested to contact credit bureaus and relatives. (Sources: National Council On Aging, IRS.gov)

Designate or Change Your Account’s Trusted Contact &/Or Power of Attorney on Your Brokerage Account

To provide additional account security, you have the option to designate a “trusted contact” for each of your Fidelity accounts. So, in the event you cannot be reached, or if Fidelity suspects financial exploitation, then Fidelity will reach out to your trusted contact. The person’s role is to help Fidelity contact you; to provide the identity of any legal guardian, executor, trustee, or holder of power of attorney; or to help Fidelity look into possible financial exploitation.

A designated “trusted contact” does not have the authority to access your account or make transactions on your behalf. A trusted contact should be someone that you trust to act on your behalf, will know how to reach you, and is at least 18 years old. However, if you already have a power of attorney established, then you may wish to establish that person as a trusted contact and a power of attorney on your account. A designated power of attorney would have the authority to access your account and make transactions on your behalf, which could be very beneficial if quick action is needed. We are here to help guide you in the right direction, so please let us know if you have any questions.