HI Market View Commentary 06-20-2022
I take a little different approach to my webinar
Every so often you have stop and smell the roses
When the market gets tough are you comfortable with the invest methodology you are using
My tag line “I’m always watching so you don’t have too!!!”
Lance is back!!!! Welcome back and his comments are going to be more appropriate because since he has left 50% of the portfolio has disappeared (roughly 400K)
We owe stock ownership that gives us in theory forever to have the stocks come back, we dollar cost average with protection on the way down, we sometimes add more protection to make up more on the way down, sometimes have a quick bounce back where we don’t make much of anything on those days
Our goal is making a decision on where the market heads to
What are the catalyst (upside): Election results for the Republicans to cause gridlock in the government, inflation going down, better than expected earnings, war cooling off,
What are the catalyst (downside): inflation, oil prices, more rate hikes, war, leadership, housing market collapse
|Market Recap WEEK OF JUN. 13 THROUGH JUN. 17, 2022 The S&P 500 sustained substantial losses last week and entered bear market territory on the heels of last week’s surprise CPI print, fueled by fears that accelerating rate increases by the Federal Reserve will lead to an end to economic expansion. The benchmark index was down 5.4% in the latest week at 3,691.28 from last week’s close of 3,900.86, making this the 10th time in 11 weeks that the index has closed in the red and the third consecutive negative close. It was the steepest weekly drop in the index since March 2020. Every sector suffered losses with the energy sector taking the brunt of last week’s swoon. The risk of a recession and demand destruction for fuel drove the sector 17% lower. The pressure on the sector was exacerbated by efforts by the White House to reign in profits generated by oil companies. Every name in the sector ended the week in the red led by oil services provider Schlumberger (SLB) and Coterra Energy (CTRA) both of which lost almost 23% in value in just last week alone. Recession-resistant consumer staples were largely insulated from the worst of last week’s carnage but still lost a collective 4.3%. The only stock in this sector to close in the plus column was Monster (MNST) which was underpinned by its board’s approval of a share buyback and a price hike in its signature brand, Red Bull. The healthcare sector was lower by 4.5% with bellwethers Johnson & Johnson (JNJ) and Cigna (CI) lower as investors take a risk-off approach. Shares of HCA Healthcare (HCA) fell to their lowest level since February 2021 after abandoning its merger with Steward Health. With a loss of 12%, it was among the worst-performing stocks in the healthcare sector. Faced with diminished demand for loans due to higher interest rates, the financial sector fell by more than 4.9%. The stock finishing the week with the biggest loss was Signature Bank (SBNY -14%). With a heavy exposure to free-falling cryptocurrencies, the stock has already lost more than half of its value in 2022. Industrials were down 5.8%, led by losses in airline stocks amid worries that a recession will choke off spending on travel and entertainment. American Airlines (AAL), Delta (DAL) and United Airlines (UAL) were all lower for a third consecutive week with losses of more than 13%. Reporting its strongest revenue increase in more than 10 years, Oracle (ORCL) closed with a gain of 0.9% last week, the only stock in the technology sector that closed in the green. With the remaining stocks all in the red, the tech sector shed 5%. Of the remaining sectors, the communication sector was down 4.6%, real estate stocks were down a collective 5.4%, consumer discretionary stocks were down 5.5%, while materials and utilities were lower by 8.3% and 10.8%, respectively. The headline event last week was the Federal Reserve Open Market Committee meeting in which the Fed delivered its largest rate increase since 1994 in an effort to tame red-hot inflation. The aggressive move came despite signs that the economy is beginning to cool with retail sales contracting in May, and the National Association of Home Builders housing market index dropping to its lowest level in two years amid higher mortgage rates and diminished home affordability. Next week’s holiday-shortened week includes data on existing home sales, new home sales, the Chicago Fed index, and manufacturing and services PMIs for June. Additionally, Fed chair Jerome Powell will deliver his semi-annual monetary policy testimony before the House and Senate banking committees. Given the events of the past week, Powell will undoubtedly be grilled by Congress on his plans to navigate the economy to a soft-landing while at the same time driving down the highest inflation the country has seen in more than 40 years. Provided by MT Newswires|
Where will our markets end this week?
DJIA – Bearish
SPX – Bearish
COMP – Bearish
Where Will the SPX end June 2022?
Wed: WGO, FUL, KBH
Thur: DRI, RAD, BB, FDX, SWBI
Mon: JUNETEETH HOLIDAY
Tues: Existing Home Sales,
Thur: Initial Claims, Continuing Claims,
Fri: New Home Sales, Michigan Sentiment
How am I looking to trade?
Currently protection on all core holding
www.myhurleyinvestment.com = Blogsite
History says the next bull market is just months away, and it could carry the S&P 500 to the 6,000 level, according to Bank of America
Last Updated: June 18, 2022 at 1:43 p.m. ETFirst Published: June 17, 2022 at 10:16 a.m. ET
If the S&P equity benchmark hits 3,000, it’s time to ‘gorge,’ advises B. of A. Global Investment Strategy B. of A. is considering which levels would light a fuse under the S&P 500 now that it’s entered a bear market. ROCKET LABS When it comes to bear markets, investors can take comfort from history, which suggests that where there’s a beginning, there’s always an end. And according to Bank of America, investors have only got a few bear-market months left to endure after the U.S. benchmark S&P 500 SPX, +0.22% tumbled into bear territory at the start of this week. And then will come a bull market. Per history, B. of A. Global Investment Strategy’s chief investment strategist, Michael Hartnett, points out, the average peak-to-trough bear-market decline is 37.3% over a span of 289 days. Matching that pattern would put the end of the pain on Oct. 19, 2022, which happens to mark the 35th anniversary of Black Monday, as the stock-market crash of 1987 is widely known, with, again according to statistical averages, the S&P 500 likely bottoming at 3,000. A popular definition of a bear market defines it as a 20% drop from a recent high. As of Thursday, the index was off 23.55% from its record close of 4,796.56 on Monday, Jan. 3, 2022. And an end typically marks a new beginning, with Bank of America noting the average bull market lasts a much longer 64 months with a 198% return, “so next bull sees the S&P 500 at 6,000 by Feb. 28,” said Hartnett. Meanwhile, another week saw the bank’s own bull-and-bear indicator (below) fall as far as it can into “contrarian bullish” territory. B. OF A. GLOBAL INVESTMENT STRATEGY That indicator previously fell to 0 in August 2002, July 2008, September 2011, September 2015, January 2016 and March 2020, observed Hartnett. When it has previously zeroed out, except in the case of a double-dip recession such as 2002 or in the event of systemic events, as in 2008 and 2011, three-month returns have been strong, as the table below shows. B. OF A. GLOBAL INVESTMENT STRATEGY “Positioning dire, but profits/policy say nibble at [an S&P 500 level of 3,600], bite at [3,300], gorge at [3,000],” added Hartnett. That’s even as B. of A. clearly doesn’t think the selloff is over. The chart below presents a reminder from B. of A. that the Federal Reserve tends to “break something” in its tightening cycles. B. OF A. GLOBAL INVESTMENT STRATEGY, BLOOMBERG, GLOBAL FINANCIAL DATA More data from the bank showed $16.6 billion flowed into stocks in the most recent week, $18.5 billion from bonds and $50.1 billion from cash. Also, the data showed the first week of inflows to emerging-market equities in the past six weeks, at $1.3 billion; the biggest inflow to U.S. small-cap stocks since December 2021, at $6.6 billion; the largest influx to U.S. value stocks in 13 weeks, at $5.8 billion; and biggest flow toward tech in nine weeks, at $800 million.
Why stock-market investors are ‘nervous’ that an earnings recession may be looming Last Updated: June 18, 2022 at 2:44 p.m. ETFirst Published: June 18, 2022 at 7:45 a.m. ET By Christine Idzelis ‘Markets should be bracing for both weaker growth and higher inflation than the Fed is willing to acknowledge,’ say economists at Bank of America More than 60% of CEOs globally expect a recession in their region before the end of 2023, a survey found. DON EMMERT/AGENCE FRANCE-PRESSE/GETTY IMAGES
Investors are anxious the stock market may be facing an earnings recession, potentially leading to deeper losses after the S&P 500 index just suffered its worst week since March 2020. “It’s pretty clear that earning estimates are probably going to come down after rising since the first of the year,” said Bob Doll, chief investment officer at Crossmark Global Investments, in a phone interview. “That’s what the market’s nervous about,” he said, with investors questioning how “bad” earnings may become in a weakening economy as the Federal Reserve aims to rein in surging inflation. The Fed has become more aggressive in its battle to tame inflation after it surged in May to the highest level since 1981, heightening fears that the central bank could cause a recession by destroying demand with interest rate hikes aimed at cooling the economy. Equity valuations have already come down this year as stocks were too expensive relative to the high rate of inflation and interest rates that are no longer near zero, according to Doll. He said stocks remain under pressure as room for the Fed to engineer a soft landing for the U.S. economy appears to be narrowing, with increased concern over slowing economic growth and the cost of living still stubbornly high. “People are concerned about the Fed needing to hike so much that it would push the economy into a recession,” said Luke Tilley, chief economist at Wilmington Trust, in a phone interview. “They’re not trying to cause a recession,” he said, but they would induce one if needed to keep long-term inflation expectations from becoming “unanchored” and “getting out of hand.” Whatever the probabilities of “a soft landing” were before the consumer-price-index report on June 10 revealed higher-than-expected inflation in May, “they’re smaller now,” said Doll. That’s because the report moved the Fed, which is behind the curve, to become more aggressive in tightening its monetary policy, he said. The Fed announced June 15 that it was raising its benchmark interest rate by three-quarters of a percentage point — the largest increase since 1994 — to a targeted range of 1.5% to 1.75% to combat the unexpected surge in the cost of living. That’s far below the 8.6% rate of inflation seen in the 12 months through May, as measured by the consumer-price index, with last month’s increase in the cost of living driven by a rise in energy and food prices and higher rent. In recent quarters, companies in the U.S. have successfully raised prices to keep up with their own cost pressures, such as labor, materials and transportation, said Doll. But at some point the consumer takes a pass, saying, “‘I’m not paying that anymore for that thing.’” U.S. retail sales slipped in May for the first time in five months, according to a report from the U.S. Department of Commerce on June 15. That’s the same day the Fed announced its rate hike, with Fed Chair Jerome Powell subsequently holding a press conference on the central bank’s policy decision. Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch. “Markets should be bracing for both weaker growth and higher inflation than the Fed is willing to acknowledge,” economists at Bank of America said in a BofA Global Research report dated June 16. “Chair Powell described the economy as still ‘strong.’ That is certainly true for the labor market, but we are tracking very weak GDP growth.” Read: Real assets may still prosper as Fed fights inflation: it’s hard to get ‘inflationary genie’ back in the bottle, says this ETF portfolio manager The BofA economists said that they’re now expecting “only a 1.5% bounce back” in gross domestic product in the second quarter, after a 1.4% drop in GDP in the first three months of the year. “The weakness isn’t broad enough or durable enough to call a recession, but it is concerning,” they wrote. Stocks, CEO confidence sink The U.S. stock market has sunk this year, with the S&P 500 index SPX, +0.22% and technology-heavy Nasdaq Composite COMP, +1.43% sliding into a bear market. The Dow Jones Industrial Average DJIA, -0.13% is nearing bear-market territory, which it would enter with a close of at least 20% below its 2022 peak in early January. The Dow ended Friday bruised by its biggest weekly percentage drop since October 2020, according to Dow Jones Market Data. The S&P 500 had its worst week since March 2020, when stocks were reeling during the COVID-19 crisis. Selling pressure in the market has been “so extraordinarily strong” that the possibility of a sharp reversal is “ever present,” if only as “a counter-trend rally,” said James Solloway, chief market strategist at SEI Investments Co., in a phone interview. Meanwhile, confidence among chief executive officers has declined. “The Conference Board Measure of CEO Confidence has recently suffered one of the steepest sequential drops in decades,” said Lisa Shalett, chief investment officer of Morgan Stanley’s wealth-management business, in a June 13 note. It collapsed toward 40, “a reading which historically has coincided with profits recessions, or negative year-over-year change in earnings.” MORGAN STANLEY WEALTH MANAGEMENT REPORT DATED JUNE 13, 2022 The drop in confidence is “at odds” with the current trend in bottom-up analyst profit estimates, which have moved higher since January to imply 13.5% year-over-year growth in 2022, Shalett said in the note. It seems unlikely that companies will sustain “record-high operating profit margins” given slowing GDP growth, she said. A new survey released Friday by the Conference Board found that more than 60% of CEOs globally expect a recession in their region before the end of 2023, with 15% of chief executives saying their region is already in recession. According to Yardeni Research, the probability of a U.S. recession is “high,” at 45%. Read: ‘The economy is going to collapse,’ says Wall Street veteran Novogratz. ‘We are going to go into a really fast recession.’ “While industry analysts are trimming their profit margin estimates for 2022 and 2023, the forward profit margin rose to a record high last week,” Yardeni Research wrote in a note dated June 16. “A few sectors are starting to get pulled down by gravity: namely, communication services, consumer discretionary, and consumer staples, while the others are still flying high.” Crossmark’s Doll said an economic recession could drag the S&P 500 below 3,600, and that the stock market faces elevated volatility as it lacks visibility to the end of the Fed’s hiking cycle. The probability of a recession went up “a fair amount” after the inflation reading for May, he said. Next week investors will see fresh U.S. economic data on home sales and jobless claims, as well as readings on U.S. manufacturing and services activity. “The window for a soft landing is indeed narrowing,” Solloway said. “The question is how long it will take for a recession to materialize,” he said, saying his expectation is that “it’s going to take a while,” maybe at least a year to 18 months.
Oil Companies Level Biden After He Threatens The Industry By Ryan Saavedra Jun 16, 2022 DailyWire.com Two major U.S. oil companies hit back at President Joe Biden this week after he threatened to use “emergency authorities” on them to stem the political fallout from the historic gas prices that have erupted under his administration. Biden’s threat was contained in a letter that he sent to ExxonMobil, Phillips 66, Chevron, BP, Shell, Marathon Petroleum Corp, and Valero Energy Corp. “There is no question that Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing,” Biden claimed, failing to mention that gas prices were already surging before Russia invaded Ukraine. “But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain.” Biden demanded that the companies “take immediate actions to increase the supply of gasoline, diesel and other refined product you are producing,” he said in the letter. “Unfortunately, what we have seen since January 2021 are policies that send a message that the Administration aims to impose obstacles to our industry delivering energy resources the world needs.” ExxonMobil responded by saying that they have been in “regular contact with the administration” to remind them of the extraordinary efforts the company has made in investing in energy production, which they say are more “than any other company.” “In the short term, the U.S. government could enact measures often used in emergencies following hurricanes or other supply disruptions — such as waivers of Jones Act provisions and some fuel specifications to increase supplies,” the company said. “Longer term, government can promote investment through clear and consistent policy that supports U.S. resource development, such as regular and predictable lease sales, as well as streamlined regulatory approval and support for infrastructure such as pipelines.” Chevron slammed the administration in response to Biden’s letter, writing: “Unfortunately, what we have seen since January 2021 are policies that send a message that the Administration aims to impose obstacles to our industry delivering energy resources the world needs.”
Fed officials rolled out strong language Friday to describe their approach to inflation, promising a full-fledged effort to restore price stability.“The Committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional,” the Fed said in a report to Congress. Federal Reserve officials rolled out strong language Friday to describe their approach to inflation, promising a full-fledged effort to restore price stability. In its annual report on monetary policy – a precursor to Chairman Jerome Powell’s appearance before Congress next week – the central bank promised it would launch a full effort to bring down inflation pressures running at their fastest pace in more than 40 years. “The Committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional,” the Fed said in a report to Congress. That marks the Fed’s strongest statement yet, affirming its commitment to continue raising interest rates and otherwise tightening policy to solve the economy’s paramount issue. The statement did not elaborate on what “unconditional” means. Earlier this week, the Fed raised its benchmark interest rate three quarters of a percentage point in a further effort to slow demand. Market participants worry that the Fed tightening could bring on a recession, though Powell said he still thinks that can be avoided. That rate hike came after a move in May to raise rates by half a point. This week’s move was the most aggressive since 1994. Along with rate hikes, the Fed also is reducing assets from its $9 trillion balance sheet by allowing some proceeds from bonds it holds to roll off. Earlier in the day, Powell himself made a similar vow, saying he and the rest of the Fed are “acutely focused” on bringing down inflation.
A shallow recession is on the way, strategists warn. Here’s how it could play out
Elliot Smith@ELLIOTSMITHCNBC KEY POINTS The Fed on Wednesday announced a 75 basis point hike to interest rates, its largest since 1994.A shallow recession in the U.S. is a “virtual certainty” in the third quarter, according to Michael Yoshikami, founder and CEO of Destination Wealth Management.But he noted that it does not necessarily mean long-term economic pain is inevitable. A shallow recession in the U.S. is a “virtual certainty” in the third quarter, according to Destination Wealth Management’s Michael Yoshikami, as the Federal Reserve launches a historic attack on inflation. The Fed on Wednesday announced a 75 basis point hike to interest rates, its largest since 1994. Chairman Jerome Powell also signaled the Federal Open Market Committee’s intent to continue its aggressive path of monetary policy tightening in order to rein in inflation, after the U.S. consumer price index jumped by an annual 8.6% in May, the hottest inflation print since 1981. However, the closely-watched Fed GDP tracker is indicating that a recession is on the horizon, and analysts expect the Fed’s sharp hiking cycle to further depress already slowing economic growth. Speaking to CNBC’s “Squawk Box Europe” on Thursday, Yoshikami, founder and CEO of Destination Wealth Management, said the Fed’s nod ahead to another 50 to 75 basis point hike in July showed the central bank is “going to take any action necessary to stem inflation.” “Now the problem we’re going to have here is are they going to tip the economy into recession when the consumer is already starting to pull back?” he said. “The housing market in the U.S. is really locked up with mortgage rates close to 6% right now, and I think it’s a virtual certainty that we’re going to go into recession next quarter.” Although a recession is now a widely accepted likelihood, Yoshikami noted that it does not necessarily mean long-term economic pain is inevitable. “There is a belief that if we raise enough – let’s say we raise by 75 [basis points] and then we raise by another 75 – then if there is a problem in the economy, if it’s a shallower recession, which I suspect it would be in the third quarter, the Fed actually has some room now to come back off of some of those rate increases,” Yoshikami explained. His firm’s base case is for a shallow recession later this year before the Fed cuts rates next year in order to reboot the economy once inflation is under control. Yoshikami suggested this will enable the U.S. economy to come out of recession, achieve meaningful growth and avoid “stagflation” – a period of high inflation, slowing growth and high unemployment. Global recession looms? There is also the potential for a U.S. recession to spread throughout the world. Andrea Dicenso, vice president and alpha strategies portfolio manager at Loomis Sayles, now puts the chance of a global recession at around 75%. However, she added that: “The Fed’s action yesterday, as well as other coordinated central bank action, has led us to think that perhaps that global recession is likely to be shallow and potentially already priced into some assets.” Speaking to CNBC Thursday, Dicenso agreed that central banks would likely be able to limit the economic damage once the worst of inflation has passed. Not everyone is as convinced that a recession is imminent, however. Celebrity investor Kevin O’Leary argued Thursday that the U.S. economy is much stronger than people think, and there’s “no evidence” of an impending slowdown or recession yet. ″I’m not saying we won’t get one, but everybody that’s saying it’s coming around the corner next week is just wrong,” he told CNBC’s “Squawk Box Asia.” — CNBC’s Abigail Ng contributed to this report
You can use ‘buy now, pay later’ almost anywhere you make a purchase — here are the pros and cons
Trina Paul Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners. Imagine this situation: You’re itching to check out an expensive new restaurant, but you know don’t have enough money to cover the cost of your meal upfront. You could wait until you get your next paycheck or you could use a ‘buy now, pay later’ loan to pay for your dinner tonight. BNPL, also known as point-of sale loans, allow consumers to split up the cost of their purchases into installment payments (typically) due every two weeks, sometimes with no interest. While most consumers are using BNPL when shopping online at retailers like Target, Walmart and Amazon, many BNPL providers also offer a virtual card that enables consumers to use the service when shopping in-person. Popular providers like Klarna, Sezzle, Affirm, Afterpay and Zip (formerly known as Quadpay) all have their own virtual cards that allow consumers to split their in-person purchases into installment payments — and in some cases you can use the loans anywhere, including restaurants. With a virtual BNPL card, you could split the cost of a $100 dinner into four installment payments of $25 due every two weeks over the span of a six weeks. It seems easy, right? Before you rush to finance every aspect of your life with a BNPL loan, Select explains how the BNPL virtual cards work, how consumers can use them and pros and cons of paying for everything with one. Using BNPL virtual cards Many BNPL providers allow you to create a virtual card that you can add to your Apple Wallet or Google Pay. For most cards, you’ll have to download an app that you use to request a virtual card. For example, with Zip Pay, you enter the amount of money you’re going to spend in-store in the app. Zip then performs a soft credit check and will approve or deny you for the loan. Afterwards, it will generate virtual card that you can use at checkout just like you would use Apple Pay. While Zip has partnerships with thousands of brands, it also allows its users to use a loan just about anywhere. This means you can use the Zip virtual card to finance anything from paying off your dentist’s bill to buying a concert ticket, even if the service is not integrated as a payment method at the retailer you’re shopping at. Zip (previously known as Quadpay) LEARN MORE · Interest rates 0% · Loan terms 4 interest‑free installment payments over 6 weeks · Fees Zip charges a $4 transaction fee for every purchase, or $1 per payment. Zip will charge a $7 late fee for each late installment payment (this amount may vary by statute and state). If a customer is one day late with their payment, or if a customer has a delayed paycheck, Zip may be willing to move payment due dates. · Return policy Customers have to go through the merchant for their refund. Once the merchant has processed the refund, a refund is processed by Zip and the customer will get their money back. · Available merchants Zip is connected with over 51,000 merchants globally, including Target, North Face and Wrangler. Consumers are also able to use an app or Chrome extension to make a purchase with retailers that are not integrated with Zip. Customers will receive a virtual, one-time card to fund their purchase either in-store or online. · Loan amounts Typical purchase amounts range between $35 and $1,500, but maximum amounts vary by retailer. Pros Doesn’t perform a credit checkDoesn’t report to the credit bureaus so using the service won’t help or hurt your credit score0% interest Cons There’s a $4 fee for each loan you take out ($1 for each payment)There’s a $7 fee for each late installment paymentYou can only opt for a 6 week BNPL option so it’s not a good choice if you need a longer repayment period View More Loans taken out through Zip Pay have a repayment period of six weeks; there’s also a long-term financing option known as Zip Money for purchases over $1,000. Affirm’s virtual cards enable people to choose longer repayment periods of six weeks, or three, six or twelve months. Affirm’s virtual card works similarly to Zip’s and can be use for shopping online or in-store at merchants not partnered with the provider. Affirm is also working on a new debit card, the Affirm Debit+ which connects to consumers’ existing bank accounts. With Affirm Debit+, consumers will be able to use the card to either pay for their purchase in full as they would typically do with a debit card or finance them with a BNPL loan. The product is currently under beta testing. Affirm · Interest rates 0% to 30% · Loan terms 1 month to 48 months · Fees There are no late fees, but making late payments can affect your ability to get a loan in the future and possibly your credit score. · Return policy Customers are only refunded the principal amount, so if you don’t have a 0% loan, you won’t be refunded for the interest you paid before making the return. · Available merchants Affirm has 12,000 merchants including Amazon, Peloton, adidas and Target. Through affirm.com or the Affirm app, consumers are also able to use the BNPL option at any retailer, either online or in-store, that aren’t integrated with the company. Consumers will receive a single-use virtual card to pay for their purchases. · Loan amounts Up to $17,500 on a purchase. Pros Doesn’t charge any late feesThere are a lot of merchants that offer 0% APRYou can use Affirm at whatever online or in-person retailer you choose to with its app or via its websiteThe 0% 4 biweekly payment loans are not reported to the credit bureaus Cons Loans that are reported to the credit bureaus could end up hurting your credit score regardless of whether you pay them off on time and in fullYou could end up paying a high interest rate if you can’t secure a 0% loan View More Other BNPL providers, like Afterpay, have virtual cards, but you can only use the card when shopping in-person at participating stores. What are the pros and cons of using a a BNPL loan everywhere? Consumers should be careful about using these virtual cards to fund their in-person purchases. BNPL providers can sometimes carry hefty late fees. Plus, you should consider interest rates and the impact it could have on your credit score. While Zip Pay boasts 0% interest rates on its BNPL loans, each purchase has a $4 transaction fee ($1 per payment) and there’s a $7.95 monthly fee if you don’t pay your statement closing balance in full by the due date. So your $100 meal will really cost $104, and potentially more if you don’t pay on time. Affirm has no late fees, but the interest rate could be as high as 30%. Furthermore, Affirm reports some loans to Experian, so if you’re opting for a longer-term BNPL loan (or even a six-week loan) with the virtual card, you could end up hurting your credit score because BNPL loans can reduce your average account age and the length of your FICO credit history. (Note: Affirm doesn’t report its 0% and four biweekly payment loans or loans that have one option of a 0% three month payment term.) Bottom line BNPL virtual cards provide people with the convenience of being able to split up the cost of dinner or an unexpected medical bill, sometimes with no interest charges, making it a good deal for anyone look to stretch out their payment timeline. But as convenient and as simple as it may seem to use a BNPL virtual card, consumers should be wary of using them regularly to pay for their next in-person or online purchase. There’s the potential a BNPL can have a negative impact on their credit score and there may be interest charges and late fees. You also won’t have opportunity to earn rewards or cash back like you do with a credit card. It’s also important to be mindful of your spending: Using BNPL could cause you to overspend on your purchases because you might be spending money that you don’t yet have. If you regularly use BNPL to pay for things, make sure to track your spending so you can keep a close eye on the various bills you have outstanding from the different BNPL providers. And consider if you really want to be paying for that meal six weeks after you first enjoyed it.
The Best Decumulation Age To Start Spending Down Your Fortune
Updated: 06/03/2022 by Financial Samurai Decumulation is the process of spending down your net worth so you don’t die with too much money. If you die with lots of money left over, you’ve essentially wasted all the time and energy it took for you to accumulate that money. At the same time, nobody wants to run out of money before they die. Given our health and energy tend to decline as we age, we may be less capable of earning money in the last quarter of our life. Therefore, it’s best to die with at least enough money to cover all our death-related expenses. To live our best lives, we should ideally have the smoothest consumption curve possible. However, I have a feeling as personal finance enthusiasts, most of us will end up working for too long and saving too much. Therefore, let’s discuss the best age for decumulation. This topic is important to me because I’ve decided to enter the decumulation phase this summer starting at age 45. Why I’m Entering The Decumulation Phase Ever since I was in middle school I’ve frequently thought about my mortality. When I was 13, my 15-year-old friend, Mark, died in a car accident. His death sliced open the security I felt as a kid. I was looking forward to skateboarding with him after I returned from summer break. But when I called his house, his mom picked up and solemnly broke the news. Ever since that day, I’ve felt some level of survivor’s guilt. It became harder to be lazy because that would mean disrespecting Mark, who never even got the chance to try. Partially out of fear I wouldn’t even make it to age 60, I decided to “retire” at age 34. This way, I could improve my odds of living a better life with fewer regrets. Essentially, early retirement was a hedge against an early death. With about a $3 million net worth I decided to forsake more money to gain back more freedom. Luckily, due to a bull market since 2012, my net worth has grown with the markets. Even with a wife and two young children to support, based on our current and projected expenses, we have over-accumulated. Specifically, our net worth equals about 70 times our annual expenses. If we add 70 to our ages, 45 and 42, we get 115 and 112. Sadly, no matter how healthy we eat or how often we exercise, we will likely not live past 110. Therefore, decumulation is in order. Source: 2018 CIA Factbook The Best Decumulation Age To Live Your Best Life Given the median life expectancy is about age 80, the best decumulation age is somewhere between 40 and 60 years old. The younger you can decumulate, the more enjoyable your life may be because you get to do more fun things with your money when you’re healthier. However, decumulating at age 40 is riskier as it means you may have to plan for at least 40 years of spending. Whereas decumulation at 60 is less risky because you may only have to plan for at least 20 years of decumulation. Why Decumulating Between Age 40 and 60 Is Ideal Between the ages of 40 and 60, your health is usually still quite good. Further, you’re relatively wealthy after 20-40 years of saving and investing. This combination of good health and high net worth is the optimal combination to better enjoy your money. At this age range, most people can still walk five miles to play Pebble Beach golf course, walk up the 600 steps in Santorini, or hike the 26-mile Inca Trail over several days. OK, maybe you’d rather take a bus to get to the top of Machu Picchu instead. Meanwhile, if you die relatively young (<70), then you will have better maximized your wealth and time spent making money. In the old days, people retired around age 65 and then died a few years later. How sad is that? It’s especially terrible if you spent your entire career working at a job you disliked. Decumulating before age 40 may be a little too risky if you are in good health. It’s better to let as much of your investments stay invested so they can compound. Further, retiring before age 40 is also not the ideal age for retirement. Your earnings power usually goes up in your 30s and 40s. Waiting until after age 60 to decumulate is what most people do. After age 59.5, Americans can start withdrawing from their tax-advantaged accounts tax-free. Meanwhile, most Americans retire between 61-65, partially because Social Security can start being collected at 62+. Easiest Way To Calculate The Ideal Decumulation Age Although I’ve suggested the best age range to decumulate is between 40 and 60, everybody is different. Therefore, here’s an easy way to calculate your decumulation age. 1) Decide which retirement philosophy you follow. There are two general retirement philosophies. The first is dying with as close to nothing as possible, i.e. the YOLO retirement philosophy. The second is dying with money left over to help others and keep your legacy alive. Most people are somewhere in between. 2) Once you’ve decided on your philosophy, take 80 minus your current age to see how many years of expenses you need to cover. If you subscribe to the YOLO retirement philosophy, use a small number, like 70 minus your current age. Your goal is to spend more money while living. If you subscribe more to the Legacy retirement philosophy, use a larger number, like 100 minus your current age. Your goal is to have money left over after you die. For example, given I’m slightly in favor of the Legacy retirement philosophy, I’ll use the number 90. Subtracting my age, 45, from 90 equals 45. 3) Once you’ve calculated how many years left you have to live, compare that number with the number of years of expenses you have accumulated. If your expense multiple is far greater than the number of years you have left to cover, then decumulation is in order. Given my family has a net worth equal to about 70 years of expenses, we need to get cracking on decumulation since we’ve only got about 45 years left to live. Although getting old can be expensive, health insurance, long-term care insurance, and life insurance should cover most health expenses. Therefore, make sure you have these three types of insurance if you’re worried about a disaster. After we both renewed our life insurance policies recently, we felt even more at peace. Case Study For Decumulation To figure out how much you want to decumulate, you must first decide how much money you want to die with. I’ll start with myself as a case study for determining when to start decumulating. My most recent net worth goal was to accumulate the maximum estate tax threshold as a couple to leave to charities, my children, and relatives. We would then spend and give away every dollar over the estate tax threshold instead of paying a ~40% death tax. However, the estate tax threshold has gone up quickly every year, especially in 2018 when it doubled. The threshold is now at $24.12 million for a couple, which seems incredibly generous. I feel like dying with that much money is a waste, even though plenty of truly rich people set up trust funds and die with way more. Therefore, I’ve decided to decumulate well before hitting $24.12 million. I’m assuming the estate tax threshold will eventually go lower. But who knows given how high inflation is now. For now, I think dying with $5 million, or whatever the estate threshold is expected to be at the time, whichever is lower, sounds reasonable. How To Decumulate Excess Wealth Here’s an applicable way to decumulate excess wealth. It is most appropriate for those who’ve hit their financial independence number or who have retired. Remember, you are free to spend more or spend less whenever appropriate. Take the difference between your annual expense multiple and the estimated years you have left. Multiply that figure by your ideal annual expenses. Then divide that figure by the remaining years you have left to calculate how much more you have to spend a year. Let’s look at an example. A reader who recently contacted me has 55 years of annual expenses saved and roughly 38 years left to live, 55 – 38 = 17. His annual gross expenses are $135,000. So he should calculate 17 x $135,000 = $2,295,000. Then he should divide $2,295,000 by 38 (years left to live) = $60,395. In other words, under these assumptions, he would need to spend an extra $60,395 a year or $5,032 a month to ensure he doesn’t die with an excessive amount of wealth. To make sure you decumulate the right amount, run this formula at least once a year. Your expenses and your net worth are always changing. I like this method of decumulation the best because it is the most realistic solution that doesn’t feel too drastic. This formula is based on the money you already have, therefore, it is more effective. You can also simply increase your safe withdrawal rate in retirement as you see fit. But it becomes an even bigger guessing game as to which rate is best. How To Decumulate Excess Wealth Part Two Another way to decumulate your wealth is to calculate what your expected net worth will be when you die minus how much you want to leave when you die. You would then take that amount and divide it by the number of years left you plan to live and spend that much each year. This formula is riskier because it is based on money you don’t already have. A lot can change over the years, including lower investment returns. However, playing around with the numbers at least gives you a rough estimate of how much you can reasonably spend a year, pre-tax. For example, let’s say you want to die with $5 million. Your current net worth is $1 million and you plan to live for 45 more years. If you save $20,000 a year and return 5% a year on your entire net worth for 45 years, you will end up with $12,338,711. Subtract $5,000,000 from $12,338,711 to get $7,338,711. Now divide $7,338,711 by 45 (number of years left to live) to get $163,082. To properly decumulate, you would need to spend about $163,082 a year starting this year while also contributing $20,000 a year to investments that return 5% a year for 45 years. See how this is a riskier strategy? most would wait until after they have $5 million before decumulating. This formula is most relevant for those who are still working or who have not yet reached their financial independence number. Obviously, if you decide to spend less a year than what the formula spits out, then you increase your chances of dying with more money than you want and vice versa. The Problem With Decumulation There’s one big problem with decumulation. After decades, many of us are already satisfied with our spending and lifestyles. Therefore, decumulation may feel like a big waste of money! Personally, I like our 7-year-old car and forever home. I could easily drive Moose for another five years given he only has 35,000 miles. Meanwhile, we plan to live in the home until 2038, or when our youngest potentially heads off to college. We don’t need to spend more money on food because we want to maintain our body weight. In fact, we should probably spend less money on food to eat less. We’ve also budgeted our children’s educational expenses for the next 20 years. Any excess money left over in their 529 plans will be transferred to a new generation. The most reoccurring “luxury” expenditure I have is buying new tennis shoes every 8-12 months. But, even the most expensive tennis shoes will only cost $160. Then I like to buy new rackets every three years, which now cost about $300 each strung. My softball glove and bat last forever. Except for flying first-class and spending obscene amounts on family vacations, there aren’t any other possible big expenditures on our wish list. And do I really want to spend $120,000 to fly private to Honolulu from San Francisco and rent a beachfront property for $150,000+ a month? Only if I split the cost with another family or two! Further, in order to decumulate, I may have to sell down assets and pay taxes. Sure, that’s what investing in a Roth IRA all those years is for, tax-free withdrawals. But, unfortunately, I don’t have a Roth IRA. It feels bad to sell down assets to pay taxes to buy things and experiences I don’t really need or want. Therefore, if you’re already happy with your spending level, then the best thing to do would be to set up a donor advised fund (DAF) and donate your investments. Make donating money to those in need the default beneficiary of your decumulation spending. Spending More Money Won’t Make Us Happier You’ve got to find your ideal spending number that makes you happy. Based on my experience living in expensive cities like NYC and SF, spending more than $150,000 a year per adult (~$200,000 gross income) doesn’t make me happier. As a result, I tend to save most of the overage if any. There’s a study from 2012 that says earning more than $75,000 doesn’t bring more happiness. Thanks to inflation, that level is now about $100,000 today. I think $100,000 in annual spending, where there is no more additional happiness, is about right for the median household in America. I’ve tried to spend more money on my parents, but they refuse to accept anything. They are also set in their ways. So that leaves helping my cousins, who don’t keep in touch. Therefore, it’s time to reach out to my relatives on my mom’s side. I’ve lost contact with since we’ve been on other sides of the planet for decades. Decumulation for us will center more on charitable giving. I also want to spend more time volunteering at the foster youth home I volunteered at pre-COVID. Decumulation is tougher than it sounds. After a lifetime of building wealth, it feels uncomfortable to go in the other direction. However, we should try our best to consumption smooth for everybody’s own good.
Ron DeSantis offered Joe Biden one piece of advice that millions of Americans wish he would take
Bill Gates says crypto and NFTs are ’100% based on greater fool theory’
Ryan Browne@RYAN_BROWNE_ KEY POINTS Microsoft co-founder Bill Gates said he thinks cryptocurrencies and NFTs are “100% based on greater fool theory.”“Expensive digital images of monkeys” will “improve the world immensely,” Gates joked, referring to Bored Ape NFTs.The tech billionaire said he’s “not involved” in crypto, “I’m not long or short any of those things.” Bill Gates is not a fan of cryptocurrencies or non-fungible tokens. Speaking at a TechCrunch talk on climate change Tuesday, the billionaire Microsoft co-founder described the phenomenon as something that’s “100% based on greater fool theory,” referring to the idea that overvalued assets will go up in price when there are enough investors willing to pay more for them. Gates joked that “expensive digital images of monkeys” would “improve the world immensely,” referring to the much-hyped Bored Ape Yacht Club NFT collection. NFTs are tokens that can’t be exchanged for one another. They’re often touted as a way to prove ownership of digital assets like art or sports collectibles. But critics see them as overhyped and potentially harmful to the environment given the energy-intensive nature of cryptocurrencies. Many NFTs are built on the network behind ethereum, the second-biggest token. “I’m used to asset classes … like a farm where they have output, or like a company where they make products,” Gates said. As for crypto, “I’m not involved in that,” Gates added. “I’m not long or short any of those things.” Cryptocurrencies tumbled sharply this week after Celsius, a crypto lending firm, paused all account withdrawals. The debacle has fueled fears of a looming insolvency event for Celsius — and possible knock-on effects for other parts of the crypto market. For its part, Celsius says it’s “working around the clock for our community.” The battered crypto world was already licking its wounds following the collapse of UST — a so-called stablecoin that was meant to be worth $1 — and luna, its sister token. At their height, both cryptocurrencies were worth a combined $60 billion. Bitcoin was last trading at $21,107 on Wednesday, down 7% in the last 24 hours. The world’s biggest cryptocurrency has erased over half of its value since the start of 2022.
Crypto investments will be a ‘big zero’ in the end, says value investor Mohnish Pabrai
Weizhen Tan@WEIZENT Cryptocurrencies sold off massively this year, but Buffett disciple Mohnish Pabrai says the worst is not over. “I think most of the crypto stocks and investments in the end will be a big zero,” Pabrai, who is managing partner of Pabrai Investment Funds, told CNBC on Wednesday. The veteran investor said crypto “is a bubble,” and that he did not have a long or short position on the digital asset. Cryptocurrencies such as bitcoin and ether have plummeted this year. Bitcoin has lost more than half of its value from an all-time high of $68,982 reached in November, and ether has lost about 60% since a high in 2021, based on Coin Metrics data. The movements in crypto have tracked the performance of stocks, which have been highly volatile as fears of rising rates, surging inflation and recession risks rise. Other investors have also called crypto a bubble, with all-star investor Rich Bernstein warning late last year that cryptos are the “biggest financial bubble ever in history.” A bubble is characterized by a rapid spike in the price of an asset, which is eventually followed by a similarly quick crash. “Bubbles are extremely common,” Pabrai told Pro Talks, referring to the history of bubbles chronicled in a book called “TrendWatching: Don’t Be Fooled by the Next Investment Fad, Mania, or Bubble” by CNBC’s Ron Insana. “They happen all the time.” “Some are really small, and occasionally we get these very giant bubbles … like the dotcom bubble,” he said. The dotcom bubble lasted for around two years between 1998 and 2000, with the valuations of many American internet companies growing exponentially before crashing a year later as stocks entered a bear market. “When we look at businesses like Snowflake and Cloudflare and so on, they are really good businesses,” said Pabrai, referring to the cloud software companies. “But even a great business has finite value,” he told CNBC’s Tanvir Gill. “Price matters … being cognizant of how common bubbles are is important.” Today vs. the dotcom bubble The dotcom bubble was much larger than what’s happening in tech markets today, said Pabrai. “What we had today is not at the same scale that we had in 1999, 2000 … it’s much more muted,” he said. “I would say the serious bubble here today is limited to a relatively small portion of the market. It’s not ubiquitous.” Tech stocks also sold off in 2022, with the Nasdaq down more than 20% since the beginning of this year. The downturn for high-growth tech stocks – widely seen as overvalued at the market peak in late 2021 – has led some market watchers to raise concerns about a crash similar to the bursting of the dotcom bubble. But Pabrai said periods of bubbles bursting actually help clean out the market, as they “get rid of a lot of the fraud.” “The best companies survive,” he said. ”[Over] 90% of the dotcom [companies] disappeared as they should have.” Investors need to understand the business. “You have to have a strong belief in what you think that business would look like five or 10 years from now. And if you don’t have a view on that, then I think you’re better off not making those bets,” he said.
Bitcoin’s plunge spells trouble for the dot-com era entrepreneur who went all in
Ryan Browne@RYAN_BROWNE_ KEY POINTS A $4 billion bet on bitcoin by software firm MicroStrategy is in jeopardy after the cryptocurrency’s recent plunge.The dot-com bubble-era firm’s bitcoin stash is now worth $2.9 billion, translating to an unrealized loss of more than $1 billion.MicroStrategy is now faced with a possible margin call that investors fear could force the company to liquidate its bitcoin holdings. Having once lost $6 billion at the height of the dotcom bubble, software entrepreneur Michael Saylor is no stranger to volatility in the financial markets. In 1999, MicroStrategy, Saylor’s software firm, admitted to overstating its revenues and erroneously reporting a profit when it actually made a loss. The fiasco shaved over $11 billion off MicroStrategy’s stock market value in a single day. Now, more than two decades later, MicroStrategy is again facing questions over some of its accounting practices — this time in relation to a $4 billion bet on bitcoin. The world’s biggest cryptocurrency briefly tumbled below $21,000 Tuesday, a key level at which MicroStrategy would be faced with a possible margin call that investors fear could force the company to liquidate its bitcoin holdings. MicroStrategy was not immediately available for comment when contacted by CNBC. In a tweet Tuesday, Saylor said MicroStrategy “anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity.” HODL is a slang term in crypto aimed at discouraging investors from selling. https://platform.twitter.com/embed/Tweet.html?creatorScreenName=Ryan_Browne_&dnt=false&embedId=twitter-widget-0&features=eyJ0ZndfcmVmc3JjX3Nlc3Npb24iOnsiYnVja2V0Ijoib2ZmIiwidmVyc2lvbiI6bnVsbH0sInRmd190d2VldF9yZXN1bHRfbWlncmF0aW9uXzEzOTc5Ijp7ImJ1Y2tldCI6InR3ZWV0X3Jlc3VsdCIsInZlcnNpb24iOm51bGx9LCJ0ZndfcmVkdWN0aXZlX2FjdGlvbnNfMTQ0NTgiOnsiYnVja2V0Ijoibm9fcmVwbHkiLCJ2ZXJzaW9uIjo0fSwidGZ3X3NlbnNpdGl2ZV9tZWRpYV9pbnRlcnN0aXRpYWxfMTM5NjMiOnsiYnVja2V0IjoiaW50ZXJzdGl0aWFsIiwidmVyc2lvbiI6bnVsbH0sInRmd19leHBlcmltZW50c19jb29raWVfZXhwaXJhdGlvbiI6eyJidWNrZXQiOjEyMDk2MDAsInZlcnNpb24iOm51bGx9fQ%3D%3D&frame=false&hideCard=false&hideThread=false&id=1536695409648836609&lang=en&origin=https%3A%2F%2Fwww.cnbc.com%2F2022%2F06%2F14%2Fbitcoin-plunge-spells-trouble-for-michael-saylors-microstrategy.html&sessionId=521b413ccd21e8ebff50f73625d6134aa2a2c61e&siteScreenName=CNBC&theme=light&widgetsVersion=b45a03c79d4c1%3A1654150928467&width=550px $1 billion loss Saylor first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy. His belief was a common one among the crypto faithful — that bitcoin provides a store of value uncorrelated with traditional financial markets. That’s turned out to be a risky gamble, with digital currencies now moving in lockstep with stocks and other assets plunging amid fears of an aggressive interest rate hiking cycle from the Federal Reserve. Bitcoin’s price plunged 10% to $20,843 on Tuesday, extending a brutal sell-off and dragging it deeper into levels not seen since December 2020. It comes after crypto lending firm Celsius halted withdrawals on Monday, citing “extreme market conditions.” MicroStrategy has bet billions on the cryptocurrency — $3.97 billion, to be exact. As at March 31, MicroStrategy held 129,218 bitcoins, each purchased at an average price of $30,700, according to a company filing. https://art19.com/shows/bcd08fc3-8958-4c47-bf8e-524432adcd77/episodes/149a8f0a-a930-4072-93a8-0dd69247dc1a/embed With bitcoin currently trading at $22,818, MicroStrategy’s crypto stash would now be worth just over $2.9 billion. That translates to an unrealized loss of more than $1 billion. Margin call To add to MicroStrategy’s woes, the company now faces what’s known as a “margin call,” a situation where an investor has to commit more funds to avoid losses on a trade augmented with borrowed cash. The company took out a $205 million loan from Silvergate, a crypto-focused bank, to continue its bitcoin buying spree. To secure the loan, MicroStrategy posted some of the bitcoin it held on its books as collateral. Silvergate did not immediately return a request for comment. On an earnings call in May, MicroStrategy Chief Financial Officer Phong Le explained that if bitcoin were to fall below $21,000, it could be faced with a margin call where it’s forced to cough up more bitcoin — or sell some of its holdings — to meet its collateral requirements. Bitcoin briefly slipped below that level Tuesday. “Bitcoin needs to cut in half or around $21,000 before we’d have a margin call,” Le said at the time. “That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there.” It’s not yet clear if MicroStrategy has pledged more funds to secure the loan. In June, Saylor insisted the company has more than enough bitcoin to cover its collateral requirements. The cryptocurrency would need to slump to $3,500 before it had to come up with more collateral, he added. Shares of MicroStrategy, considered by some as a proxy for investing in bitcoin, tumbled more than 25% on Tuesday, taking its year-to-date losses to over 70%. That’s even worse than bitcoin’s performance — the No. 1 digital coin has roughly halved in price since the start of 2022.