The Cost of War?
If the Federal Reserve’s signal to raise interest rates and sop up excess liquidity in the financial system were not enough, we have to deal with rogue nations threatening to invade their global neighbors!
It’s not simply a former Soviet parcel kicking back at Mother Russia, but a seminal test of the Biden Administration’s mettle and resolve… China is weighing every single national government reaction concerning Russia’s invasion of Ukraine, as Taiwan could be the main course, after the Hong Kong/Macao hors-d’oeuvres.
War is so very anti-productive! It is laborious to fabricate devices which are designed to disintegrate themselves and the unfortunate collateral near their epicenters.
Armed conflicts misdirect resources which could have more productive applications, reducing real Gross Domestic Product – while driving inflation and interest rates higher.
Beyond inflation, loss of life is the biggest waste of productive resources, forever scarring family survivors grieving such unwarranted deprivation.
The easiest issue to address is where one should put their investment dollars to harvest the normally ill-effects of inflation and rising interest rates. Following are a few “buys and sells” which the wise may want to implement.
Interest Rate Sensitive Certificates of Annuity; and, eventually,
Bank Certificates of Deposit.
Consider Selling … Corporate, Municipal, High Yield and US Government Bonds; Stocks of High Flying Unprofitable Companies; and,
Preferred Stocks with a Fixed Dividend.
The world has benefited from a decline in interest rates since 1981. This favorable cycle is officially over, providing a formidable headwind resisting a rise in asset prices for the next four decades.
You hear the headlines….........
But what does this actually mean to your financial future and investment results?
Blame Covid or profligate Washington spenders or our country’s loss of its moral compass… Regardless, our Federal Reserve has been doing the
“unthinkable” for nearly a decade.
History tells us that any country living beyond its means needs to fund that excess spending by selling bonds (Government IOUs). But the current policy of our Central Bank and others have stretched “bad policy” to “deplorable policy.”
For when there are not enough willing global and domestic buyers of Uncle Sam’s IOUs, the Federal Reserve has filled the shortfall – to the present tune of $1.5 trillion per year.
Where do they get the money to buy all the debt? They literally create the fiat currency by declaration – grossly expanding money supply faster than Organic GDP (economic growth). This is untenable and never ends well…!!!
Higher inflation with higher interest rates find blistering bond-holders and truncating stock market valuations ensuing… ergo, tough-sledding for the markets, which have generally risen nicely over the past few decades.
Wise investors shift their risk onto others… i.e., instead of buying bonds directly, buy a fixed annuity. The money you deposit shall still principally go toward high-quality Corporate-bond purchases, but the annuity company takes the risk while you get interest returns rivaling the banks!
The same technique can be implemented to shift stock market risk to an annuity company as well… where one enjoys a percentage of the market gains but suffers no loss in years where the market actually declines.
Don’t be a hero in the face of rising interest rates, especially during a sea-change where rates have been declining while margin debt (as well as household debt) has increased dramatically.
Major debt (the result of stock investors borrowing money using the securities as collateral) is at record levels – closing in on $1 trillion. This is called “margin” debt.
If the market declines enough to trigger margin “calls,” more securities shall hit the market to pay for the margin calls. Any willing buyers will demand cheaper prices – pushing the market even lower – triggering fearful responses from others who remember the 1987, 1999, 2008, and 2009 crashes!
Where the stock market actually peaked in 2007, it would be another 4 ½ years (to get through the crash) before prices would fully recover. “Yeah, but it always recovers!” While this would be true… it all comes down to how much time you’re willing to wait.
If we were slurping noodles and sucking down sake in Tokyo right now, we would still be lamenting the fact that the Japanese (known for their high savings rate) stock market is only 80% of where it peaked “32 years ago”! Will it ever regain its 1989 high? Maybe in another 18 years or so – meaning one would have to wait half-a-century to get back to even.
Most people blindly risk what becomes ever more difficult (by virtue of age) to recover.
Be wise. Take some chips off the table – opting for higher-yielding guaranteed-deposit accounts with liquidity, which normally beats bank CDs. We can show you how.
Office 813-693-5511 Kevin Leonard
By Justin Lavelle - BeenVerified
Tax season is upon us, and people are rushing to pull together their important documents and other information in preparation to file their taxes by the April deadline. Due to the amount of tax preparation being moved online through DIY software, tax scams are ever-evolving. The reason they are so popular is that they are so profitable. Between October 2013 and August 2015, the IRS logged more than $20 million in losses just from one type of scam.
Learn the Facts so You Don't Get Scammed This Tax Season:
• IRS Phone Scams - If you haven't already been attacked by one of these prevalent scams, consider yourself lucky. While IRS phone scams are a year-round threat, they amp up through deadline day and beyond. The key to avoiding these scams is to know that the IRS does not make threatening phone calls, nor do they request wire transfers over the phone. If someone calls saying they are from the IRS, have the confidence to hang up the phone, and don't call back if they leave a voicemail.
• Online Tax Software Phishing Emails - A newer emerging tax season threat executed by con artists sends phishing emails with official-looking logos from mainstream online tax providers. These con artists are looking for you to part with your Social Security number and other key details or trying to infect your computer with malware. Your safest bet is to not open any emails or click on any links that you're not 100 percent sure about.
• Fake Tax Refund ID Theft Scams - Beware! Identity thieves will steal Social Security numbers to file fraudulent tax returns and get a large tax refund early in the season. Guard your Social Security number and online identity fiercely. Paperless e-filing and online tax software has made it easier for this type of scam to proliferate. Watch closely for your W2's in the mail. If they're not delivered in a timely manner, find out where they went and if they were filed falsely.
• An Invitation to High-Priced Seminars - A long-running tax-season scam involves invitations to seminars, typically costing upward of $1,000, where attendees are given bullet-proof strategies for lessening their tax bills or avoiding certain types of taxes altogether. Unfortunately, most of these strategies are either invalid or outdated, and are often completely useless when dealing with the IRS. When participants figure it out, the con artists have vanished.
• Tax Return Preparer Fraud - Unfortunately there is an unsavory bunch of people acting as tax-return preparers falsely preparing your taxes. Most tax professionals provide honest, high-quality service, but there are some dishonest preparers who perpetrate refund fraud, identity theft and other scams. Return preparers are a vital part of the U.S. tax system, with about 60 percent of taxpayers using tax professionals to prepare their returns. To find a trustworthy tax preparer, check with the Better Business Bureau, use a well-known and respected company, or get a referral from a friend or co-worker.
Justin Lavelle is the Communications Director for BeenVerified.com, whose mission is to help people discover, understand, and use public data in their everyday lives. With millions of app downloads and millions of monthly visitors, BeenVerified is a leading source of online background checks and contact information. BeenVerified allows individuals to find more information about people, phone numbers, email addresses, and property records.
By Justin Lavelle - BeenVerified