Meetings will be a central topic for investors this week. The G7 meeting ended with acrimony as the United States communicated its desire for trade agreements more beneficial to U.S. firms. While much of the posturing was for the purpose of negotiation, the meeting signaled trade risks continue to increase. Our expectations remain for renegotiations to produce moderate benefits for the United States as many other countries have more to lose.
Disagreements about trade were the reason for heightened tensions among world leaders. At the end of May, the United States extended tariffs on aluminum and steel imports to U.S. allies. They had previously been exempted. These countries “account for nearly two-thirds of the [United States’] $3.9 trillion annual merchandise trade,” reported The Washington Post.
Retaliation to U.S. sanctions was fast and furious. Mexico implemented “…a 20 percent tariff on U.S. pork legs and shoulders, apples, and potatoes and 20 to 25 percent duties on types of cheeses and bourbon,” reported Reuters.
Canada imposed $16.6 billion in tariffs on U.S exports of “…steel and aluminum in various forms, but also orange juice, maple syrup, whiskey, toilet paper, and a wide variety of other products,” says Reuters.
The European Union has a 10-page list of goods targeted for sanctions, including bourbon and motorcycles, reported The Washington Post. Complaints that U.S. tariffs are illegal also are being filed with the World Trade Organization.
Difficult relationships with allies are “expected to complicate U.S. efforts to confront China over trade practices that the administration regards as unfair,” reports The Washington Post.
Canadian, Mexican, and U.S. stock markets remained unfazed. Major indices in each country moved higher last week. Some American indices reached new highs. European markets fared less well. Markets may be bouncier this week as investors digest the costs and benefits of trade sanctions.
On Tuesday, President Trump and President Kim, of North Korea, will meet for a summit in Singapore. We do not expect a full-blown nuclear disarmament deal to be announced, but we hold out hope for some progress on lowering the number of North Korea’s weapons. Lacking astounding news on the nuclear front, an announcement officially ending the Korea war would be a positive.
The Federal Reserve meets Wednesday. As the nearby chart shows, the Fed has steadily hiked rates at its recent meetings. Most market watchers expect another hike of 25 points. More attention will be paid to the press conference language regarding the Fed’s outlook on the economy and whether it will raise rates once or twice this year.
Key points for the week
⦁ G7 summit reinforces concerns over trade.
⦁ The Fed is likely to raise rates on Wednesday.
⦁ Expect some positive announcements from the Trump-Kim summit.
Social Security and Medicare Trust Fund Update
The combined reserves of the Social Security trust funds are expected to be depleted in 2034, the same time frame projected last year, according to the latest annual report from the Social Security and Medicare Board of Trustees released Tuesday.
If Congress fails to enact needed Social Security reforms before then, there would be sufficient funds to pay just 79% of promised benefits in 2034, slightly better than the 77% of benefits projected in last year's report.
Despite the projected depletion of the trust funds in 2034, the hypothetical combined reserves of the Old Age and Survivors Insurance and Disability Insurance trust funds grew by $44 billion in 2017 to a total of $2.89 trillion (In reality, the OASI and DI insurance programs are separate entities, but they are combined for annual report purposes.)
But that may be the last year of growth for the foreseeable future. The total annual cost of the OASDI program is projected to exceed total annual income in 2018 for the first time since 1982 and to remain higher throughout the 75-year projection period. As a result, asset reserves are expected to decline this year.
When considered separately, the OASI trust fund is slightly worse off and the DI trust fund's outlook has improved since last year's report. The OASI trust fund is now expected to be depleted in late 2034 compared to last year's estimate of early 2035.
The DI trust fund, on the other hand, is projected to be exhausted in 2032, extended from last year's estimate of 2028. A 2015 budget agreement extended the solvency of the Social Security Disability Insurance trust fund by temporarily allocating a larger share of the payroll tax to fund the disability program, which was in danger of imminent depletion.
Last year, total program income — which includes payroll taxes, taxation of Social Security benefits and interest earnings — amounted to $997 billion, exceeding total expenditures of $952 billion. But when interest income is excluded from the equation, program costs exceed income throughout the 75-year projection period.
During 2017, 174 million people had earnings covered by Social Security and paid payroll taxes. During the same period, about 62 million people received benefits, including retired and disabled workers, their eligible family members and survivors of deceased workers.
Treasury Secretary Steven Mnuchin said the latest report shows that Social Security and Medicare remain secure, but long-term problems persist.
"Lackluster economic growth in previous years, coupled with an aging population, has contributed to the projected shortages for both Social Security and Medicare," Mr. Mnuchin said in a statement following the release of the trustees' report. "The Administration's economic agenda — tax cuts, regulatory reform, and improved trade agreements — will generate the long-term growth needed to help secure these programs and lead them to a more stable path."
Nancy Berryhill, the acting commissioner of the Social Security Administration, acknowledged that while the projected depletion date of the combined Social Security Trust Funds has not changed, "The fact remains that Congress can keep Social Security strong by taking action to ensure the future of the program."
Most Social Security reform proposals call for a combination of increasing payroll taxes and cutting benefits, including recommendations to raise the full retirement age or scale back on inflation protections.
"The continued delay in enacting legislative repairs renders effective solutions more elusive and poses particular risks to economically vulnerable populations," Charles Blahous and Robert Reischauer, both former public trustees of the Social Security and Medicare Trust Funds, wrote in a joint report published by the Bipartisan Policy Center in advance of the
"The historical reluctance of lawmakers to reduce benefits for current beneficiaries means that each successive year of delay excludes another large cohort of baby boomer retirees from contributing to the solution, thereby reducing the numbers of those among whom the burden of balancing system finances must be spread," the two former trustees warned.
Rather than cutting benefits, the Democratic-leaning Social Security Works coalition supports expanding benefits as a solution to the nation's looming retirement crisis by asking the wealthy to contribute more.
"With modest legislated increases in revenue, Social Security will be able to pay all scheduled benefits for the foreseeable future," the nonprofit organization said in a background report issued in advance of the trustees' report.
The main trust fund behind Medicare, the U.S. health-care program for the elderly and disabled, will be exhausted in 2026, three years earlier than was projected a year ago, the government said Tuesday.
Medicare's Board of Trustees blamed the earlier depletion forecast on lower payroll taxes in 2017 as a result of lower wages, less revenue from taxing Social Security benefits and higher-than-expected spending last year.
What are we reading?
Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.
The Washington Capitals won the first Stanley Cup in team history on Thursday night. As the city celebrated, Deputy Mayor Keith Donahue tweeted out a tongue-in-cheek tardy note signed by the D.C. government for fans to fill out and present to their employers. The note stated the employee stayed out past a reasonable hour celebrating the victory and to please excuse their lateness. The deputy mayor also added a P.S. stating the employee will be taking a sick day the following week to attend the victory parade.
2018 Internet Trends Report. Some highlights…. About 3.6 billion people have internet access, which is about ½ the world's population. There are approximately 450 million Wi-Fi networks globally, up from 100 million in 2013. The average adult spends 6 hours per day with a digital device.
10 Common Scams and How to Avoid Them
As we age, we may become more susceptible to fraudsters who make a living preying on retirees. This can be especially true for widows and widowers who are making decisions alone and may be particularly trusting of friendly strangers. In order to protect ourselves and those we love, it’s important to be aware of the most common scams older Americans fall for.As we age, we may become more susceptible to fraudsters who make a living preying on retirees. This can be especially true for widows and widowers who are making decisions alone and may be particularly trusting of friendly strangers. In order to protect ourselves and those we love, it’s important to be aware of the most common scams older Americans fall for.
⦁ Lottery Scam - You get an unsolicited phone call or email saying you’ve won a large prize. All you need to do is send money to pay for shipping, taxes or some ancillary fee. You send the money, but the fictional prize never arrives.
⦁ Grandchild Scam -Your grandchild calls to confess her troubles. Or so you think. It’s not uncommon for someone posing as your grandchild to call and, preying on your compassion, claim to be in a crisis situation and need money urgently. She may also beg you not to call her parents (which would give the scam away).
⦁ Charity Scam -You donate to one charity and end up being on every charity list. That’s because they sell your name, phone number and email to other nonprofit and commercial organizations. These could include companies with similar names to charities you support – but they exist solely to scam donations.
⦁ Computer Scam - Someone calls pretending to be from a major company, such as Microsoft, and says he can see that your computer has a virus. He offers to help you get rid of it by asking you to log into a website that lets him control your computer – then steals your ID information.
⦁ Timeshare Scam - If you own a timeshare, you may get a call from someone claiming they’re authorized to sell it for you, for a fee. After paying, however, you never hear from them again.
⦁ Homeowner Scams - A man comes to your door and offers to clean your gutters or trim your trees, which sounds like a good idea. Until he asks for prepayment and never completes the job.
⦁ Medical Scam - You get an unsolicited call about a discounted price for some kind of medical equipment (i.e., heart monitor, wheelchair or bathtub bench). He asks for a deposit and your personal information or Medicaid number to send the equipment, which never arrives.
⦁ Foreclosure Scam - You’re approached by a “professional” who claims your home is under threat of foreclosure and offers to pay off your mortgage or taxes if you sign over the deed to the property. With your deed, the fraudster can then refinance the mortgage for the full value of your home and take the money. Keep in mind, even if you sign over a deed to someone, you are still liable for your mortgage obligations.
⦁ Caregiver and Sweetheart Scams - These predators claim to care deeply for you or your well-being, but after winning your trust, they gain access to your accounts to steal money or identity information.
⦁ Title Company Scam - Before purchasing or closing on a new property, a scammer intercepts an email from your realtor or title company. You’re then sent fraudulent payment instructions to complete the transaction. Red flags include last minute changes to instructions, a change in tone or word choice from prior emails, a new sender address and multiple payment requests.
These scams are common and widespread. But speaking with trusted loved ones or your financial professional before making decisions can help you avoid these traps. Additionally, keep in mind these tips for staying safe:
⦁ Don’t pay for things you don’t remember ordering.
⦁ Don’t give your personal information to unknown third parties.
⦁ Work with financial institutions that use fraud protection to safeguard your credit card and banking information.
⦁ Don’t click links in the body of suspicious emails, especially if they claim to come from your bank, credit card company, realtor or title company. Instead, log in to the company’s official website or call them directly to verify.⦁ Don’t let strangers into your house. Instead, ask for a business card and say your spouse, kids or lawyer will be in touch.⦁ Be wary of caregivers and suitors, especially if you notice signs of substance abuse or other red flags.
⦁ Limit the purchases and donations you make by check, which may list your home address or other key data.
The Struggle is Real.
Millennials are known – and often disparaged – for being innovators and disrupters. According to Business Insider, the generation has been credited with ‘killing’ everything from starter homes to napkins. There’s a reason for that. Millennials are the biggest generation and have become the world’s most powerful consumer group, reports Financial Times:
“The coming of age of the world’s 2bn millennials is not only a generational shift, it is one of ethnicity and nationality. Forty-three percent of U.S. millennials are non-white, and millennials in Asia vastly outnumber those in Europe and the U.S. Despite China’s former one-child policy, it has 400m millennials, more than five times the U.S. figure (and more than the entire U.S. population) while Morgan Stanley estimates that India’s 410m millennials will spend $330bn annually by 2020.”
Millennials have different buying habits and preferences than previous generations. They opt for access rather than ownership, reports Goldman Sachs, which has helped fuel the growth of the gig economy’s sharing services.
As the first digital natives, Millennials also tend to favor brands that offer the greatest convenience at the lowest price. The most successful brands have
“Millennials are more aware of society's many challenges than previous generations and less willing to accept maximizing shareholder value as a sufficient goal for their work. They are looking for a broader social purpose and want to work somewhere that has such a purpose.”
~ Michael Porter, Harvard Business School Professor
“Doubt kills more dreams than failure ever will.”
~ Suzy Kassem
“There are no secrets to success. It is the result of preparation, hard word and learning from failure.”
~ Colin Powell
Links & Disclaimers
RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein. There is no assurance any of the trends mentioned will continue in the future. Any opinions are those of the author and not necessarily those of RJFS. Any expression of opinion is as of this date and is subject to change without notice.
Opinions expressed are not intended as investment advice or to predict future performance. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Past performance does not guarantee future results. Investing involves risk, including loss of principal. Consult your financial professional before making any investment decision. Stock investing involves risk including loss of principal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock companies maintained and reviewed by the editors of the Wall Street Journal. Please note direct investment in
Links are being provided for information purposes only. RJFS, SPC
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, “Caution sets in”, then scroll down to the recap chart)