Negative interest rates–yes, interest rates below zero–are receiving a lot of attention these days. Central banks in Japan, Germany, Sweden, Switzerland and Denmark all are experimenting with negative short-term interest rates. Yields on longer term bonds have also fallen below zero in many of these countries; it’s estimated that between $3 and $7 trillion worth of bonds worldwide now carry a negative yield. Even the US Federal Reserve, which only recently raised short-term rates, has indicated it will consider a negative interest rate policy (NIRP).
Until recently, the concept of an interest rate below zero was mostly confined to the realm of theory. But as economies around the world struggle, central banks have taken extreme measures in an attempt to stimulate economic growth and avoid price deflation. Negative interest rates are one of their tools.
The theory is that negative interest rates encourage more business borrowing and spending on plant and equipment, as well as encouraging investors to seek out riskier investments with higher expected returns. In turn, that pushes up asset prices and perhaps stimulates consumption. A negative interest rate could also depress the currency in foreign exchange markets, making that country’s exports more competitively priced. The jury is decidedly out on whether any of this actually works. Some suggest that negative interest rates do more harm than good, sapping consumer and investor confidence by sending a message that the economy is in dire straits. (more…)
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2015. The excerpt is posted here for the benefit of our blog subscribers.
Emerging markets woes were a major theme in 2015, with Greece and China dominating headlines at various points during the year. While fears of a Greek meltdown and contagion have subsided for the moment, China’s slowing economy remains an area of intense focus.
With China’s transformation to a more service-oriented and consumption-driven economy, economists agree a long-term slowdown in growth is to be expected. However, cyclical slowdowns in industrial output and a contraction in exports are making matters worse. The International Monetary Fund (IMF) expects China’s GDP growth rate to slow to 6.8% in 2015, and 6.3% in 2016, while various private observers estimate China’s growth at less than half these levels. Official Chinese government figures are viewed with skepticism, making it difficult to confidently assess the state of its economy. Still, China has further room for policy easing, which could come in the form of further interest rate cuts and other structural reforms.
What is clear about China’s slowdown is its negative impact on commodity prices. Prices of basic materials such as copper, iron and other industrial commodities have plummeted, and while oil’s decline is largely attributed to excess supply, a China-related slowdown in demand is adding to the pain. Lower commodity prices hurt commodity export-driven economies like Brazil the most. Compounding Brazil’s problems, the country is struggling through major corruption scandals, which distract policy makers from potential measures that could boost the economy.
Finally, an appreciating US dollar has taken a toll on emerging markets. Many commodity prices tend to fall when the dollar rises, hurting commodity exporters’ earnings. In addition, foreign countries and companies that have borrowed US dollars find repayment more challenging as the local currency loses value against the greenback.
To continue reading, please see our entire Economic and Market Review here (link will open in a new window).
President Obama’s recent signing of the Bipartisan Budget Act of 2015 enacted new rules for claiming Social Security benefits. It’s important to note that most of the benefits of Social Security will remain the same, but there will be some who need to move quickly to capture maximum lifetime benefits. Changes to benefits and filing limits stem from an effort to close perceived loopholes.
After May 1, 2016, individuals will no longer be able to “file and suspend,” and those who plan to file a restricted application for spousal benefits in lieu of their own worker’s benefit must have reached the age of 62 by the end of 2015. These claiming strategies allowed married couples to claim spousal benefits while earning delayed retirement credits, which increases future benefits.
Keep in mind, the calculations of worker, spousal, and survivor benefits will remain the same, but for a small percentage of households, the timing and coordination of spousal benefits will be limited. The bottom line is, individuals will no longer be able to claim benefits as a spouse and later change to their own worker’s benefits.
Here is one example of how a couple would have taken advantage of claiming their Social Security benefits prior to the new rules. (more…)
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Third Quarter of 2015. The excerpt is posted here for the benefit of our blog subscribers.
The US recovery held steady this past quarter, even in the face of market volatility, concerns over China, and mixed economic indicators. But signs of a potential softening are emerging.
The US entered the quarter posting substantial growth, with GDP expansion for Q2 now estimated at a solid 3.9%. Gains in consumer spending are key to the current momentum. In an encouraging report, July sales of durable goods like appliances and automobiles lifted 2%. These indicators are critical, since personal consumption accounts for about 70% of national GDP.
Elsewhere, the outlook is less clear. Domestic manufacturing has suffered, as the strong dollar makes US exports more costly to overseas buyers. Unemployment, a vital benchmark, remains at a seven-year low of 5.1%. Yet the labor force participation rate, the share of working-age individuals either employed or actively seeking jobs, is unimpressive. Last month participation dropped yet again to 62.4%, a low point not seen since the 1970s. Hiring in September was weaker than expected, with the US adding 142,000 jobs instead of the projected 200,000. Job creation for August and July was revised downward as well. We will be watching carefully to see if job numbers make a rebound, or if they indicate the transition to a phase of slower growth.
The turbulence in US and global financial markets has also clouded the picture, with analysts debating the significance of recent swings in US indexes. Though we believe the US can weather some slowing abroad, recent signs of deceleration suggest that overseas distress may have begun to weigh on domestic performance.
To continue reading, please see our entire Economic and Market Review here (link will open in a new window).
It’s hard to believe, but the fourth quarter is almost upon us. With it comes the inevitable hustle and bustle of the holiday season, and for many investors and advisors, a last minute rush to complete a variety of portfolio tasks before the end of the calendar (and tax) year. For some, this entails taking required minimum distributions (RMDs) from IRAs or looking for tax-loss harvesting opportunities in their portfolios. For others, year-end brings a focus on making last-minute donations to their favorite charities and causes.
The surge in charitable giving near year-end corresponds both with the aim of making annual gifts to valued organizations, as well as the desire to obtain tax deductions in the current tax year. Charitable giving is a very rewarding activity any time of year. It’s an opportunity to help others, and scientific studies have shown that giving actually makes you happier and healthier.
With so many great reasons to give, the question remains—how best to do so? Many individuals opt for the ease of writing a check, giving cash, or even putting a charitable donation on a credit card to earn cash back or other rewards. While the convenience factor of giving cash is certainly high, it may not be the most tax-efficient way to give for many investors. Here are two strategies investors can employ to stretch their charitable dollars and maximize their tax benefits. (more…)
The theory is that negative interest rates encourage more business borrowing and spending on plant and equipment, as well as encouraging investors to seek out riskier investments with higher expected returns. In turn, that pushes up asset prices and perhaps stimulates consumption. A negative interest rate could also depress the currency in foreign exchange markets, making that country’s exports more competitively priced. The jury is decidedly out on whether any of this actually works. Some suggest that negative interest rates do more harm than good, sapping consumer and investor confidence by sending a message that the economy is in dire straits. (more…)
Finally, an appreciating US dollar has taken a toll on emerging markets. Many commodity prices tend to fall when the dollar rises, hurting commodity exporters’ earnings. In addition, foreign countries and companies that have borrowed US dollars find repayment more challenging as the local currency loses value against the greenback.
Elsewhere, the outlook is less clear. Domestic manufacturing has suffered, as the strong dollar makes US exports more costly to overseas buyers. Unemployment, a vital benchmark, remains at a seven-year low of 5.1%. Yet the labor force participation rate, the share of working-age individuals either employed or actively seeking jobs, is unimpressive. Last month participation dropped yet again to 62.4%, a low point not seen since the 1970s. Hiring in September was weaker than expected, with the US adding 142,000 jobs instead of the projected 200,000. Job creation for August and July was revised downward as well. We will be watching carefully to see if job numbers make a rebound, or if they indicate the transition to a phase of slower growth.
The surge in charitable giving near year-end corresponds both with the aim of making annual gifts to valued organizations, as well as the desire to obtain tax deductions in the current tax year. Charitable giving is a very rewarding activity any time of year. It’s an opportunity to help others, and scientific studies have shown that giving actually makes you happier and healthier.