Best Strategies for Retirement Planning – Part I

With interest rates continuing to hold near historical lows since 2008, retirees increasingly find themselves in a struggle to produce enough cash flow to pay their bills. In addition, life has a way of producing financial surprises that force people to dip even further into their savings. Whether you are a pre-retiree (10 years or less away from planned retirement) or already retired, here are some strategies you can use to boost your retirement cash flow:
· Get a handle on your retirement expenses. Take a moment to sit down and go through your expected expenses for the next twelve months. For retirees, the best place to start is to review your expenses for the past twelve months. Pre-retirees should go through the same exercise but note which expenses will likely change during retirement years. To help you I’ve created a simple Retirement Cash Management form. Visit the Resource Center at www.WelchGroup.com; click on ‘Links’; then ‘Budget- Retirement Cash Management’.
· Downsize your home. For most people, their home is their single largest asset. Our goal for our clients is to be totally debt free, including home mortgage, by the time they retire. If you are debt free at retirement, downsizing will release some of your home equity which can be invested for additional cash flow. If you are retired but still have a mortgage, your goal should be to downsize enough to be mortgage free. You will have effectively increased your retirement cash flow by your mortgage payments. When you downsize, be sure to carefully evaluate the maintenance costs of your new home. Look for a property that will be low maintenance.
· Downsize your geography. A lot of people are not willing to pack up and move to another town or state but if you are, you can significantly reduce your living expenses including housing costs, property taxes, healthcare expenses and state income and sales taxes. For a list of possibilities, Google “Most affordable places to live for retirees”.
· Take a reverse mortgage. Reverse mortgages have come a long way since they were first introduced in the early 1960’s. Today they are highly regulated by the U.S. Department of Housing & Urban Development (HUD) so you don’t have to worry about shady operators or getting a bad deal. With a reverse mortgage, you choose to have the mortgage company either:

1. Pay you monthly payments for life
2. Give you a lump sum to invest as you please
3. Provide you with a line of credit that you can draw on as needed
The mortgage company takes all of the risks associated with the loan and you can never end up owing them money because your house value falls below your total loan amount. This is true for your heirs as well. The loan stays in place for as long as you live in the house. If you move out because of nursing home needs, death or any other reason, the home must be sold, generally within six months, and any proceeds left after satisfying the loan are returned to you or your heirs. For more information, visit the Resource Center at www.WelchGroup.com; click on ‘Links’; then click on ‘Reverse Mortgages’.
· Work longer. For pre-retirees, it’s critical that you do a detailed retirement cash flow analysis to determine how much capital you’ll need to meet your retirement income goals. This is one instance where you should seek professional advice. In my experience, it takes a lot more money than most people think to fully fund a retirement. The result of the analysis may strongly suggest that working a few more years than you originally planned is your best solution.
Next week, I’ll continue with Part II of Best Strategies for Retirement Planning.

Best Strategies for Retirement Planning – Part II

Last week, I began a discussion of retirement planning strategies. If you missed that column, visit the Resource Center at www.WelchGroup.com; then click on ‘Stewart’s Column’. Here are the remaining strategies:
· Save more money. If you are a pre-retiree, a detailed retirement analysis will likely suggest that saving more money is needed. Figure out how you are going to do this now! Two suggestions are to take at least one-half of any raises and commit that money to your retirement savings plan. You can do the same thing with any bonuses. Look for ways to cut unnecessary expenses in order to boost savings. In my experience, everyone can cut a minimum of 10% from current spending without feeling deprived at all. We simply waste that much money.
· Start a new career. Whether you are a pre-retiree or retiree, think about what you love to do just for fun. Now realize that everything you love to do, somebody is making a very good living doing it right now. That person could be you! Turning a hobby into a business can be fun and a money-maker. Start small and build gradually or go for it in a big way! Realize that even a small amount of income can significantly help your retirement picture.
· Delay Social Security. If you’ve made a decision to work longer, consider postponing starting Social Security payments. For every year you delay beyond full retirement age (currently age 66), up to age 70, you’ll get an 8% boost in payments…which benefits you as long as you live. If you start payments as soon as you are eligible (age 62), you’ll lose 25% of your full payment amount (called Primary Insurance Amount). My father, who is age 95, waited as long as possible (age 70) and has enjoyed substantially higher payments for twenty-five years!
· Invest in dividend-paying stocks. I couldn’t cover the topic of retirement income without at least a brief discussion of the role dividend-paying stocks have in a retiree’s portfolio. When investing for retirement, you’ll want your money divided between fixed income investments (money market accounts, CD’s and bonds) and stocks. For the past several years, fixed income investments have paid paltry interest payments. Most money market accounts, for example, pay well below one percent. This has been devastating for current retirees who need cash flow for paying bills. Dividend-paying stocks have offered a bright spot for retirees looking for higher returns. A basket of blue-chip dividend-paying stocks can easily produce 3% or more in annual dividends. Look for a basket of at least twenty companies who have a long history of consistent dividends. Stock prices, even for the most conservative blue-chip companies, will fluctuate but you can remain focused on their consistent dividend payments as you wait for stock prices to rise. You should consider seeking the help of a professional advisor in constructing a portfolio of this type so that it can be tailored to your particular situation.
· Annuitize a portion of your retirement cash flow. I’ve never been a big fan of annuities mainly because of high fees, commissions, and the fact that at death, there is typically nothing left for heirs. But if leaving heirs is of little concern to you, an immediate annuity might be worth considering at least to cover your basic living expenses. If you are interested in pursuing this strategy, be sure to shop hard for the best pricing and be careful to choose a highly rated insurance company because that company (or companies) serves as the security for your lifetime payments. I would only consider this strategy if you are in excellent health with an expectation and family history of longevity.
What’s most important is that you approach retirement having thoroughly assessed your financial situation, reviewed all of your alternatives and developed a decisive plan of action. If this feels like an overwhelming process, I encourage you to seek the assistance of a qualified professional.

Free Credit Protection for 1 Year

Identity theft thieves are proliferating across America and are using ever more sophisticated techniques to hack your personal information. There have been well-publicized thefts of customer information by Target, Neiman Marcus and other high profile retailers. I suspect identity theft will become one of the big financial stories this year. After the Target breach, their fourth quarter profits dropped nearly fifty percent.
Target’s losses could provide you a free benefit. In an attempt to win back customers, Target is offering free credit monitoring for twelve months. Here are the details as well as information on how you can sign up:
· Target has struck a deal with Experian, one of the three major credit reporting companies, to provide credit monitoring through their proprietary ProtectMyID program. With this program they monitor use of your credit and send you emails regarding any suspicious activity; monitor internet activity related to use of your personal information including Social Security number, debit cards and credit cards; have a team available to help resolve theft of identity related issues. It also provides $1 million of identity theft insurance protection but this coverage is fairly limited. For more information visit www.ProtectMyID.com.
· To sign up through Target’s offer, visit http://creditmonitoring.target.com. At this site you’ll sign up for, and be emailed, an ‘activation’ code within seventy-two hours. You must request your activation code before April 23, 2014. Once you have your activation code, visit www.ProtectMyID.com/target and register for Target’s free offer. This must be completed by April 30, 2014. As a footnote, I could not find any information about this program on Target’s web site so you’ll need to access the offer through the web by copying (exactly) the web address: http://creditmonitoring.target.com (it’s a well hidden secret!).
· As part of the enrollment process, you’ll be required to provide your personal information including your name, date of birth, address, and Social Security number.
As part of this program, you’ll receive a free credit report from Experian. It does not include credit reports from the other two credit bureaus: TransUnion and Equifax. Remember, each credit bureau must provide you a free report once every twelve months. My recommendation is to spread out these requests so that you are ordering one every four months instead of all at once.
This program also does not provide you with your credit score which you can purchase for a modest fee. At the end of twelve months, you’ll have the opportunity to continue the service for about $16 per month.
So, is this a good deal and should you sign up? Understand that this is not a panacea and won’t prevent identity theft but these monitoring services are quite good. I personally use this type of service and do get regular emails about my credit activity. I also signed up for Target’s credit monitoring program and found it easy and quick to do. If you have any concerns about identity theft, I recommend that you sign up for the service and determine for yourself over the next twelve months if it’s a service worth keeping.

4 Strategies to Protect Yourself from Identity Theft

Hackers breached Target’s security system and stole credit information from an estimated 110 million customers. Just this past week, upscale retailer, Neiman Marcus reported that their security systems had been breached and customer credit information was also stolen. I predict that these incidents will turn into a trend and become one of the biggest financial news stories of the year. At the epicenter of the story is the current technology used by credit card companies in America. Our credit cards use primarily a ‘swipe’ system to collect data at the cash register. The more technologically advanced systems, used in Europe, use a ‘smart chip’ to encrypt the customer data. You can expect to see our credit card companies migrate to the smart chip technology but the conversion will likely take several years. What can you do to protect yourself in the meantime? Here are 4 steps you can take right now:
1. Get your free credit report. Federal law allows you to get a free credit report (visit www.annualcreditreport.com) once every twelve months from each of the three credit bureaus: Equifax, TransUnion and Experian. Use these reports to check for accuracy in your file and to make certain no accounts have been opened in your name that you are not aware of.
Tip: Financial Advisor, Beth Moody, CFP, suggests instead of ordering all three reports at one time, order one every four months. Beth said, “That way you keep an active watch on your credit file… a lot can happen in a year!”
2. Monitor your credit card and bank account activity. Virtually all credit card companies and most banks have a smart phone app that allows you to quickly review your account activity. Personally, once every day or two, I’ll log in to my accounts and scan the recent activity. It takes me less than ten minutes and if there’s a fraudulent purchase, I’ll catch it quickly.
Tip: Fraudulent credit card charges are typically easy to handle with little or no losses to you. Debit cards are an entirely different story. If a thief uses your debit card information to purchase something or access your ATM that money is gone from your checking account and won’t be restored until your bank goes through an investigative process. This can take weeks and you’ll be out the money until it’s resolved. If you have and use a debit card, guard it and your information very closely and I recommend monitoring your account activity on a daily basis. If there is a problem, you’ll want to catch it early!
3. Set up fraud alerts and credit freezes. If someone has stolen your credit information or you suspect you are vulnerable to theft, you can place fraud alert or credit freeze on your account. Fraud alerts are good for ninety days and then are automatically removed unless you re-establish them. This alerts any company seeking your credit file that you may be a victim of fraud and they should take extra precautions to verify that new or additional credit request are valid. A credit freeze is designed to prevent your credit file from being released without your expressed permission. Credit freezes are ‘good until cancelled’ and you have the option to ‘temporarily’ remove the freeze if, for example, you are applying for a loan or additional credit. If you have been a victim of credit fraud, there is generally no charge for these services; otherwise a small charge may apply.
4. Hire a monitoring service. If you don’t have the time or are not inclined to do this yourself, there are services that will do this for you for a monthly fee of around $20 to $30 per month. You’ll want to stick with well-established companies such as LifeLock, Identify Guard, TrustedID and Identity Force or use the service offered by one of the three credit bureaus mentioned above.
Understand that you need to be vigilant on two primary fronts. Thieves can steal your personal credit card or bank information and use it to make fraudulent credit card purchases or withdraw funds from your bank. The second way thieves can attack is to steal your information and use it to open new accounts in your name. By implementing one or more of the strategies above, you’ll go a long way towards protecting your identity and money.

Obamacare and Your Financial Future

Obamacare will, I believe, be recorded in history as the most sweeping social program of our time. How will it impact you and your finances and what adjustments should you be begin making now to prepare for your financial future?
For sake of discussion, I’ll skip past the disastrous roll-out of the healthcare.gov web site even though it does draw attention to the red flag inherit in government bureaucracy. The web site will get fixed and those problems should soon be behind us.
On the positive side, Obamacare addresses several problems that have plagued the healthcare field for decades. Healthcare insurance lifetime spending caps have placed families who experienced extraordinary medical costs in financial peril. Even lifetime limits of $1 million, which was common in policies, are easily exceeded in this day of high medical costs. Obamacare also eliminates pre-existing conditions which similarly made it both difficult and expensive to get insurance coverage for people with existing medical issues. Obamacare also strongly encourages preventive medicine. Solving these problems is a good thing but it is not free. The insurance companies now must spread the additional expenses for this coverage across all policyholders; meaning the healthy insured’s must pay more…maybe a lot more.
The early numbers regarding enrollment suggest that those signing up are weighted more heavily than hoped towards older people. Older people tend to have at least two incentives to have coverage. One, they get sick more and use healthcare services more frequently so they see the value of being insured. They also tend to have accumulated assets which they want to protect from the claims of would-be creditors such as healthcare providers. Virtually everybody, including President Obama, agrees that for Obamacare to work, young healthy Americans need to buy insurance coverage. But will they? I have a friend who heads a number of hospital emergency rooms across the Southeast. They’ll have uninsured people come through the emergency room and run up thousands of dollars in medical and physician bills. Upon discharge, the emergency room physician group offers to settle their entire bill for a single payment of $75. This means there’d be no creditor claims for the patient; no bill collectors calling. Want to guess how many patients accept this offer? According to this ER physician, only about 2%! When I think of the young “invincible’s” that we are counting on to step up and buy health insurance…people who in the past have not purchased health insurance and who rarely, if ever, visit a doctor; they seem unlikely to buy health insurance because of either a modest penalty or a celebrity based marketing initiative. Many are either unemployed or under-employed and have precious little free cash flow. They are struggling to pay their bills and many are returning to live with their parents in order to save money and survive financially. Will they choose to pay a $150 annual penalty or will they choose to pay a health insurance premium of $50 to $300 per month? The jury is still out.
What physicians are saying
I have yet to speak with a physician who is excited and optimistic about the future of healthcare in America. The physicians that I know all work hard, long hours and have seen their incomes come under significant and increasing pressure due to declining reimbursements. Some physician clients have already headed to the exits, retiring earlier than planned because they could afford to and were fed up with a system that increasingly is telling them how best to care for their patients. Others are telling me they want to retire as soon as they’ve accumulated the financial resources to do so. So if great, hardworking physicians increasingly have their eyes on the exits and you add millions of patients to the healthcare insurance roles, it seems likely that the quality of healthcare will deteriorate over the next couple of decades. Recently, one of my associates was told she’d have to wait two months to see a specialist. I suspect these wait times, and much worse, will become commonplace.
Four predictions
1. Politicians love to give away money…especially taxpayer money. I predict the number of people eligible for a healthcare premium subsidy will expand greatly over the next decade. Under the current plan, a forty-year-old couple earning $90 thousand per year with two children can qualify for up to a $200 per month health insurance premium subsidy!
2. Insureds who do not qualify for a premium subsidy will see their insurance premiums rise dramatically over the next decade and beyond.
3. Because of a doctor shortage, nurse practitioners will assume a much larger role in patient care.
4. Concierge physician services will blossom. People with financial means will seek out the highest quality services and will be willing to pay extra to have timely access to high quality physicians.
What you should do
If you fall into the ‘not eligible for a subsidy’ category, saving for retirement will become much more challenging. You’ll want to revisit your retirement planning and assume that your healthcare costs will rise fifty to one-hundred percent over the next decade. Don’t make the mistake of thinking you can wait to begin funding your retirement planning…start right now! If you are not currently saving 10% to 15% of your gross income towards retirement, you are most likely not on the road to financial independence.

I Can Predict Your Financial Future in 2014!

After thirty-something years working with individuals and families on their personal finances, I’ve developed the uncanny ability to predict their financial futures, often after spending just a few minutes with them. You see, financial success, or lack thereof, comes down to a mindset…a decision to succeed followed by an implemented plan of action. Today I’m going to use my so-called crystal ball to predict your financial success in 2014.
1. I predict… that if you create financial goals for 2014, you’ll increase your chances of significantly improving your finances by 20%. I’m reminded of the scene in Alice in Wonderland where Alice is wandering through the woods and comes to a fork in the road where the Cheshire Cat is perched in a tree. The cat asks Alice, “Where are you going?” Alice responds, “I don’t know.” The cat says, “Then any road will take you there!” Ok, I took a lot of literary license with my quotes but the point is that most people have no goals and wonder why their finances are in such shambles. Luck does happen but for most people, creating financial success starts with goals and a plan for achieving those goals.
2. I predict… that if you write down your goals for 2014, you’ll increase your chance of success to 60%. It’s not enough to just ‘think’ your goals. Research suggests that the mere act of writing down a goal significantly increases the chance of achieving it. It’s hard to explain why this is, but I’d suggest that something happens deep in our subconscious that creates a ‘tension’ between where we are now versus where we tell ourselves we want to be.

Here’s my recommendation: grab a pen and sheet of paper right now…don’t wait! Write down one to three simple, achievable financial goals for 2014. Examples might include:
· Reducing your debt by a specific dollar amount;
· Increasing your long-term savings and investing by a specific dollar amount;
· Starting a college savings plan for your child or grandchild.
Don’t just ‘think it’, write it down. It’s the act of writing that makes the difference.
3. I predict… that if you take each written goal and place them where you’ll see them every day, your chance of success will rise to 80%. One of my partners uses an index card for each goal and places them in his wallet. That way every time he reaches in to pull out his credit card he’s reminded of his financial goals. Achieving financial goals often comes down to the simple choice between satisfying an immediate ‘want’ versus the delayed gratification of a future desire. Each day ask yourself, “What can I do today to move me towards my goals?”
4. I predict… that if you ‘automate’ your goals, you’ll increase your chances of success to 90%. The single best way to achieve a goal is to set in motion an automated system for achieving it. For example, let’s assume one of your goals is to save $1,000 towards your child’s college education. Your best action is to go to the www.CollegeCounts529.com website; open the account; then have $83.33 automatically drafted from your checking account each month. In other words, “Talk is cheap. Action speaks volumes!” The single best way to fail to achieve a goal is to rely on your own self-discipline.
5. I predict… that if you create a big enough ‘Why’ related to your goals, there’s a 100% chance that you’ll achieve your goal! There’s a saying, “If you create a big enough WHY, the ‘how’ will take care of itself. Take a moment to look at the goals you’ve written down (you did stop and do this, right?). Why is each one important to you? Whatever your WHY is, write it down next to the goal. For example, if your goal is to begin a college fund for your daughter, why is that important? I have a friend who always excelled academically. In her senior year of high school, she applied for, and was accepted to an outstanding private school. She was so excited and couldn’t wait to tell her parents. Imagine her disappointment when her parents told her that they couldn’t afford the tuition. How important is it to you for your daughter to be able to attend the best college that she can qualify to attend?
There, I’ve done it. You follow these five steps and let me know this time next year how well my predictions turned out. I’m betting that you’ll be happy with your results. Have a happy and prosperous New Year!

Stocks Rebound on Optimism

 
Up to date in less than 2 minutes:
Last week, U.S. stocks rose driving the Standard & Poor’s 500 Index to the largest weekly gain since July 2009, amid optimism over corporate earnings and steps by European leaders to support the region’s banks. For the week, the Dow, S&P 500, NASDAQ, and Russell 2000 all gained +4.9%, +6.0%, +7.6%, and +8.6%, respectively.

 

Equity Performance Table
Last Week
Year to Date
Last 52 Weeks
Dow Jones Industrial
+4.9%
+0.6%
+5.3%
S&P 500 (Large Caps)
+6.0%
-2.6%
+4.1%
NASDAQ (Technology)
+7.6%
+0.6%
+8.1%
Russell 2000 (Small Caps)
+8.6%
-9.1%
+1.3%
International Stocks (EAFE)
+4.5%
-8.9%
-7.1%
Dow Jones Total Stock Market (Broad Market)
+6.4%
-3.8%
+3.7%

 

 

Interest Rates
Prime Lending Rate
3.25%
Interest Rate Bias
Short-Term = Neutral; Intermediate Term = Neutral; Long-Term = Neutral
90 T-bill Rate
0.02%
90 Day LIBOR
0.41%
TED Spread
0.39%
30-Year Mortgage Rate
4.19%
15-Year Mortgage Rate
3.49%
5-Year Adjustable Mortgage Rate
3.07%
30-Year Treasury Yield
3.23%
10-Year Treasury Yield
2.25%
5-Year Treasury Yield
1.11%
2-Year Treasury Yield
0.27%

 

 

Notable Dividend Increases – 2011
Lockheed Martin (“LMT”)
33.3%
NextEra Energy (“NEE”)
10.0%
United Technologies (“UTX”)
12.9%
Proctor & Gamble (“PG”)
9.0%
Abbott Labs (“ABT”)
9.1%
Clorox (“CLX”)
9.0%
Colgate Palmolive (“CL”)
9.4%
Chevron Corp (“CVX”)
8.3%
General Mills (“GIS”)
8.9%
International Business Machines (“IBM”)
15.4%
Union Pacific Corp (“UNP”)
25.0%
Intel Corp (“INTC”)
33.0%
McDonalds Corp (“MCD”)
14.8%
Kimberly Clark (“KMB”)
6.1%

 

 
Now, all the details……………………
Last week, the S&P 500 climbed +6.0% to 1,224.58, the highest level since August 3rd.  The measure has surged +11% since October 3rd, when it closed within +1% of a bear market, or -20% plunge, from its high in April.  The Dow rose 541.37 points, or +4.9%, to 11,644.49. “It’s cautious but a little more optimistic,” John Carey, a Boston-based money manager at Pioneer Investments, said in a Bloomberg telephone interview.  The firm oversees about $250 billion. “People are shifting their attentions back toward earnings with announcements under way this week.  They’re hopeful that, at least for now, disaster can be averted in Europe.” Stocks rallied the most since August on October 10th after German Chancellor Angela Merkel and French President Nicolas Sarkozy said they will deliver a plan to recapitalize European banks by November 3rd.  The Group of 20 began talks last week to address the debt crisis. The S&P 500 has rebounded after dipping below 1,100 in early October for the first time in more than a year and posting its biggest quarterly loss since the end of 2008.
Corporate earnings helped drive U.S. stocks higher last week.  Alcoa Inc. (“AA”), the first company in the Dow to report results for the third quarter, announced earnings that trailed analysts’ projections, while Google Inc. (“GOOG”) jumped after sales and profit beat estimates.  The owner of the world’s most popular search engine rallied +15% to $591.68 as demand for online advertising vaulted third-quarter sales past analysts’ estimates.
Profit for S&P 500 companies will climb +17% in the third quarter and rise +18% to a record $99.77 for all of 2011, according to analyst estimates compiled by Bloomberg.  The S&P 500 is trading for 11.1 times forecast earnings for 2012, compared with its five-decade average of 16.4 times reported income, according to data compiled by Bloomberg.
The S&P 500 extended its weekly advance last week after a report on U.S. retail sales beat estimates.
“The systemic fear is definitely subsiding,” Robert Carey, chief investment officer at First Trust Portfolios LP, said in a Bloomberg telephone interview.  The Wheaton, Illinois-based firm oversees about $46 billion.  “We’ve got earnings coming in better than expected, and valuations are quite low on a price-to-earnings basis, so there really isn’t a lot of downside risk to the market.”
It’s time to “extend risk,” Jonathan Golub, chief U.S. market strategist at UBS AG, wrote in a note dated October 10th.  “As macro concerns subside, stocks which have experienced the greatest price declines are likely to snap back the quickest.” Golub said industrial, raw-material and energy shares are the most attractive.  Those groups are among the ones that fell the most since the S&P 500 dropped from a three-year high at the end of April.  Last week, the Morgan Stanley Cyclical Index advanced +8.5%, the biggest gain since July 2009.
Last week, energy stocks rallied the most out of 10 groups in the S&P 500. Crude oil rose to a three-week high as the S&P GSCI Index of 24 commodities jumped the most in 10 months.
Apple (“AAPL”) surged +14% to $422.  The world’s biggest technology company by market value released the iPhone 4S in the U.S., Australia, Canada, France, Germany and Japan.  U.S. sales may reach as much as 4 million units in the first weekend, according to Boston-based Yankee Group.
The MSCI EAFE Index (broad developed international index) rose +4.5% last week. The Americas rose +6.3% with Brazil up +7.4%, Mexico up +5.6%, and Canada up +4.3%. Europe rose +2.8% with Germany up +5.1%. Asia-Pacific rose +3.3% with Australia up +1.0%, China up +3.1%, Hong Kong up +4.5%, India up +5.2%, Taiwan up +2.0%, and Japan up +1.7%.
Treasuries dropped in price with the 10 year yield rising to 2.25% from 2.08% in the week earlier.
The Baltic Dry Index, which tracks transport costs on international trade routes and may be a good leading indicator of economic activity, ended the week at 2,173, up from the prior week’s level of 2,000. The index reached a high of 11,793 on May 20, 2008 and a low of 663 on December 5, 2008. The index last peaked at 4,661 set on November 11, 2009.
The TED spread measuring the difference between LIBOR and Treasury bill rates, which rose as high as 464 basis points during the liquidity crisis of 2008, is currently in more of a normal range of 39 basis points, but has increased as of late due to Euro bank concerns. The TED spread is a gauge of the willingness of banks to lend to one another. The lower the TED spread the more willing banks are to lend with each other. The TED spread fluctuates over time but generally has remained within the range of 10 and 50 bps (0.1% and 0.5%) except in times of financial crisis. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.
Last week, oil was up +4.6% and closed at $86.80 per barrel. Year-to-date oil is down -5.0%. The average price of unleaded gasoline rose +2.0% last week to end at $3.462 per gallon per October 16th data provided by AAA. Year-to-date, unleaded gasoline is up +12.7%. Natural gas was up +6.4% last week and closed at $3.703/MMBtu. Year-to-date, natural gas is down -15.9%.
Last week, gold rose +2.9% closing at $1,681.80 per troy ounce. Year-to-date, gold is up +18.3%. The dollar was down -2.7% last week as measured by the U.S. Dollar Index with that index closing at 76.623. Year-to-date, the U.S. Dollar is down -3.0% as measured by the Dollar Index. The Euro was up +2.6% against the U.S. dollar closing at $1.3793/Euro. Year-to-date, the Euro is up +3.2% against the U.S. Dollar.
In the coming week, look for a slew of corporate earnings from the likes of Citigroup (“C”), Wells Fargo (“WFC”), IBM (“IBM”), Coca-Cola (“KO”), Goldman Sachs (“GS”), Apple (“AAPL”), Intel (“INTC”), Abbott Labs (“ABT”), Nucor Corp (“NUE”), and Verizon (“VZ”) to name a few. Look for economic reports this week on producer prices, consumer prices, housing starts, building permits, and weekly jobless claims data.
Sources: Bloomberg, The Wall Street Journal, Barron’s, The New York Times, ValueLine.