Does Plunging Oil Portend Recession?

Crude oil has tumbled 15 percent in the past ten trading session, approaching the summertime low of nearly $40 a barrel. That means it’s time for one of the favorite economic themes of 2015: “Plunging demand for oil is the harbinger of a recession”. As recounted many times in this space, there has indeed been a drop off in activity in China and those emerging markets, which rely on trade with the world’s second largest economy. But surprisingly, as demand for oil has drifted down, supply has increased. That’s not supposed to happen, at least in the econ textbooks. You know how it works: demand weakens, prompting suppliers to cut back and then prices start to climb back up. But around the globe, production levels have remained robust. US, Russia, Saudi Arabia and other Persian Gulf states are keeping the spigots open, creating a glut of oil.

The good news is that gas prices have resumed a downward slide. AAA says that the average price for a gallon of regular gas is $2.18, down from $2.91 a year ago, with prices below $2 in many areas. AAA spokesman Avery Ash said “It looks increasingly likely that drivers will find the cheapest gas prices for both Thanksgiving and Christmas in seven years.”

Lest you think that Americans will use those savings at the pumps and beef up their holiday purchases, don’t bet on it. As gas prices have careened lower this year, there has been little evidence that consumers are spending it freely in the economy. Instead, they have been beefing up their cash reserves or saving for large purchases, like cars.

That parsimonious trend has been bad news for US economists, who have been hoping that our retail instincts would kick in and boost growth in the fourth quarter. It also may worrisome for the nation’s retailer’s, some of whom (Macy’s, Nordstrom) have been struggling, as the all-important holiday season is about to kick off.

But, wait…where’s that holiday optimism? OK, here it is: the last jobs report was really good, the service sector continues to advance and according to the Federal Reserve, “household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further.” That sounds pretty decent and not at all like a recession is imminent.

MARKETS: Investors broke a six-week winning streak in stocks, producing the largest percentage losses since the week ended August 21^st.

• DJIA: 17,245 down 3.7% on week, down 3.2% YTD
• S&P 500: 2,023 down 3.6% on week, down 1.7% YTD
• NASDAQ: 4,927 down 4.3% on week, up 4% YTD
• Russell 2000: 1146, down 4.4% on week, down 4.8% YTD
• 10-Year Treasury yield: 2.28% (from 2.32% a week ago)
• Dec Crude: $40.76, down 7.9% on week (biggest weekly loss in 7 months)
• Dec Gold: $1,080.90, down 0.6% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.18 (from $2.22 wk ago, $2.91 a year ago)

THE WEEK AHEAD:

Mon 11/16:

8:30 Empire State Manufacturing

Tues 11/17:

8:30 CPI

9:15 Industrial Production

10:00 Housing Market Index

Weds 11/18:

8:30 Housing Starts

2:00 FOMC Minutes

Weds 11/19:

10:00 Philly Fed

Weds 11/20:

#245 The Pre-Pre Thanksgiving Show

It's the weekend before the weekend before Thanksgiving and we are answering your financial questions! Before we got going, we needed to discuss some ramifications of the recently signed budget deal. For those who were planning to execute one of the interesting Social Security strategies that we have discussed here, listen up!

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Congress has decided to close perceived “loopholes” in the Social Security rules and has killed off the “File and Suspend” strategy, which allow spousal and dependent benefits to be paid while still earning delayed retirement credits AND, it will no longer be possible to file a restricted application for just spousal benefits.

According to SS expert and JOM guest Mary Beth Franklin, "existing beneficiaries are grandfathered. So are those who are 66 with the next six months. Gone after that. Restricted claim for spousal benefits will still be available at 66 for those who are 62 or older by the end of this year. Gone for people who are younger. Oh well...

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Job Creation Surges; Rate Hike Back on Table

It’s never as good or as bad as you think. For the past few months, there has been a chorus of downbeat chants that the U.S. economy is headed for a downturn and that the job market was the leading indicator of the coming storm. The Cassandra’s cited the weak job creation numbers in August (+153,000) and September (+137,000), a sizable pullback in manufacturing and the much-feared hard landing in China. These doubters said that the Fed would have to wait at least until March 2016 to raise rates, in order to determine whether the slowdown was temporary or longer lasting. All of that changed when the government released the October employment report. The labor market bounced back in October, adding 271,000 jobs. It was the best pace of hiring this year and well ahead of the consensus estimate for 180,000. With this report, the three-month average increased by 20,000 a month to 187,000 and the 12-month average stands at 230,000.

The unemployment rate edged down to 5 percent, the lowest level since April 2008 and the broader measure of unemployment, which includes those who have stopped looking as well as those working part-time for economic reasons, edged down to 9.8 percent. While that’s still a hefty number, it is the first time that it's been below 10 percent since May 2008. And average hourly earnings increased by 2.5 percent from a year ago, the fastest year-over-year pace since 2009. If maintained, the extra money could potentially help consumers feel more economically secure and spend more freely.

Before you start the celebration, there is no doubt that the jobs market is not a-ok for everyone. Manufacturing has slowed down, due to plunging energy prices, weakness in China and the emerging markets and a strengthening U.S. dollar. One manufacturing executive based in MN, told me that the sector was in “a second recession.” Indeed, various indicators show that output, although still barely positive, is at the weakest pace since 2009. But there are signs of improvement on the horizon: there has been evidence of a near-term bottoming of Chinese (the Shanghai Composite has gained more than 20 percent since its low in late August) and other emerging economies and commodity prices have stabilized.

In fact, the firming global situation, along with the stronger than expected jobs report, now puts a December Fed rate hike back on the table. Just two weeks ago, the futures markets saw only a 30 percent chance of a December lift-off. A day before the jobs report, that number was over 50 percent and moments after the BLS release, it jumped to over 70 percent.

But as a reminder, the month-to-month numbers can change on a dime and it is really never as bad or good as you think…although the economy appears to be firming, sentiment could quickly sour again. For now, enjoy the good news.

MARKETS:

• DJIA: 17,910 up 1.4% on week, up 0.5% YTD (6th consecutive weekly gain, up nearly 10% during that period…largest six-week gain since 2012)
• S&P 500: 2,099 up 1% on week, up 2% YTD
• NASDAQ: 5,147 up 1.9% on week, up 8.7% YTD
• Russell 2000: 1200, up 3.2% on week, down 0.4% YTD
• 10-Year Treasury yield: 2.32% (from 2.09%)
• December Crude: $44.29, down 5% on week
• December Gold: $1,087.70, down 4.7% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.22 (from $2.18 wk ago, $2.95 a year ago)

THE WEEK AHEAD:

Mon 11/9:

Tues 11/10:

6:00 NFIB Small Business Optimism

Weds 11/11:

Thurs 11/12:

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Fri 11/13:

8:30 PPI

8:30 Retail Sales

10:00 Consumer Sentiment

#244 The Mets Lost, Your Financial Questions Win

Oh sure, Mark and I are bummed about the Mets, but your great questions lifted us out of our post-World Series funks!!

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Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Holiday Shopping 2015

With Halloween in the rear-view mirror, it’s time to talk HOLIDAY SHOPPING 2015 -- now that’s scary! The always-dubious National Retail Federation (NRF), the industry cheerleader, is predicting a 3.7 percent increase in holiday spending. As Barry Ritholtz has noted, “the methodology employed by the NRF survey is defective, because it relies on asking consumers how much they spent last year, and how much they plan on spending this year.” Of course, people have “no idea what they spent last year. No clue whatsoever,” which is why “the track records of these surveys are awful.” So what’s really going on for consumers, as we head into the final two months of the year? Although wage gains have been paltry, low prices overall (health care costs not withstanding) have amounted to extra money in the wallets of most Americans. They are spending some of that money on long lasting goods, like cars, as well as services; and also saving at a decent 4.8 percent rate.

The dual trends of pokey wage increases amid low inflation encouraged the Fed to maintain 0 - 0.25 percent interest rates at its meeting last week, but the central bankers also left the door open to a possible rate hike at the final policy meeting of the year. Before that confab, there will be two more employment reports: one this week and then another on the first Friday in December. What might get the Fed to act in December is a pick up in job creation and wages. The prior three months has seen an average monthly gain of just 167,000, down from the nearly 200,000 this year and annual wage gains have been stuck at 2 - 2.2 percent.

Economists expect that 175,000 – 185,000 jobs were created last month at that the unemployment rate will remain at 5.1 percent. The Fed may also keep an eye on the participation rate (the number of Americans working or actively seeking employment), which dropped to a 40-year of low of 62.4 percent in September.

According to Capital Economics, most of the 4.5 percent decline in the rate from the peak of 67.3 percent in 2000 is due to the aging of the population (1.8%), rising disability (1.2%) and an increase in post-secondary education enrolment (0.9%), there will continue to be a chorus of commentators, who will cite participation rate as a rationale for the nation’s woeful job market. It may be helpful to know that just 0.6 percent of the decrease should be attributed to the recession. “It is notable that, even with the job openings rate at a record high and the unemployment rate within touching distance of the long-run natural rate, the participation rate continues to trend relentlessly lower.”

MARKETS:

• DJIA: 17,663 up 0.1% on week, up 8.6% on month, down 0.9 YTD
• S&P 500: 2,079 up .2% on week, up 8.3% on month, up 1% YTD (best month in 4 yrs)
• NASDAQ: 5,053 up 0.4% on week, up 9.2% on month, up 6.7% YTD
• Russell 2000: 1161, down 0.4% on week, up 5.9% on month, down 3.6% YTD
• 10-Year Treasury yield: 2.09% (from 2.03%)
• December Crude: $46.59
• December Gold: $1,141.40
• AAA Nat'l avg. for gallon of reg. gas: $2.18 (from $2.21 wk ago, $3.00 a year ago)

THE WEEK AHEAD:

Mon 11/2:

9:45 PMI Manufacturing Index

10:00 New Home Sales

10:00 Construction Spending

Tues 11/3:

Motor Vehicle Sales

10:00 Factory Orders

Weds 11/4:

8:15 ADP Private Jobs Report

8:30 International Trade

10:00 ISM Non-Manufacturing Index

Thurs 11/5:

8:30 Productivity

Fri 11/5:

8:30 October Employment Report

3:00 Consumer Credit

#243 The Halloween Money Show

Don't be spooked by money issues--tune in for lots of treats!!

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Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Estate Planning 2015

National Estate Planning Awareness Week occurs just before the anniversary of my father's death, so I have made this the time of year when I openly nudge you to "do your estate planning". You are not alone if you have a tough time tackling these emotional issues. According to a 2015 Caring.com survey of adult children, only a little over half (56%) of American parents have a will or living trust document. Nearly one-third of parents (27%) do not have estate documents in place and 16 percent of adult children are unsure if their parents do. Of those that do have a will, 58 percent don’t know the contents of the documents. To tackle the issue and to encourage family conversations, here are some of the basic documents that you will need.

Prior to death:

Legal Documents

• Will
• Letter of Instruction
• Power of Attorney
• Health Care Proxy
• Trusts -- These are not necessary, but many people have either revocable (changeable) or irrevocable (not-changeable), depending on family and tax situations. For 2015, the first $5.43 million of an estate is exempt from federal estate taxes, so theoretically a husband and wife would have no federal estate tax if their estate is less than $10.86 million. If an estate is above the threshold, a revocable trust may be suitable to consider.
• "DNR" or "Do Not Resuscitate" order (this may need to be completed upon each new entry to hospital or nursing home)

Accounts

• List of all bank accounts
• List of all user names and passwords
• List of automatic pay accounts with name and contact information of each payee
• List of safe-deposit boxes
• 401 (k) accounts
• IRA's, Roth IRAs
• Pension documents
• Annuity contracts
• Brokerage account information (name, contact phone number and e-mail address)
• Detailed list of savings bonds (and copies of actual bonds)
• Life insurance policies (private and through employer)
• Long Term Care insurance policies

Other Documents

• Housing, land and cemetery deeds
• Mortgage accounts
• Proof of loans made
• Vehicle title
• Partnership and corporate operating agreements
• Previous three year's tax returns
• Marriage license
• Divorce papers
• Military discharge information
• List of contact information (contacts on accounts, names, current addresses and Social Security numbers of all people named in the legal documents, as well as the contact information for the estate attorney and CPA who will be handling the estate.)

After completing all of this hard work, you need to inform your executor/executrix as to where everything is stored.

After death, things get complicated, because you have to shift between grieving and doing. I learned not to go too fast with my mother, so that she did not feel overwhelmed. It’s helpful to remember that everyone in the family grieves in different ways, which is why patience and compassion are often your most valuable commodities during the process.

Get organized. I found solace in a spreadsheet, which helped me keep track of the estate settlement progression, but you can use any system that works for you. Just remember that there are usually many moving parts and you may not be at the top of your game for remembering everything that needs to get done. A visit to your favorite stationery store will help you keep records of everything stored neatly in one location.

Request plenty of death certificates. Some institutions want originals, not copies, and it’s easier to make the request from the funeral home, not after the fact from the city or state.

Keep track of all bills that are attributable to the estate. These include funeral and memorial arrangements, death notices and other ancillary expenses. The estate can reimburse individuals for these costs.

Contact the estate attorney. When you are ready, schedule time to meet with the estate attorney. He or she will likely tell you to gather documents and to ascertain a date of death valuation for all accounts to which the deceased held title. If there is a surviving spouse, you should itemize what is in both the living and deceased spouse’s names.

Contact the CPA. Even if there are no estate taxes due, in most cases, it will be necessary to file an estate tax return. If you prepare your own taxes, it may make sense to hire a pro to help walk you through the process.

A well-planned estate is a wonderful legacy you can leave your heirs--instead of untangling a messy estate, they can follow concrete steps, which allows them to take care of business while mourning their loved one.

Slowing growth = Fed Pause

As much anticipation as there was for the last Federal Reserve meeting, expectations are low for this week’s central bank confab. There is about a zero percent chance that the Fed is going to act at the second to last policy meeting of the year and the reason is clear: slowing growth and deflationary pressures around the world has washed up on US shores. According to most estimates, when the government releases the first estimate for third quarter growth this week, it will likely show a slowdown to a 1.5 – 1.8 percent annualized pace. And unlike the first quarter’s dismal result, we can’t blame the weather! Although consumers are trying hard to carry the load, the sagging energy sector, weakness in manufacturing and a stronger dollar are all taking a toll on the US economy and as a result, job growth downshifted in August and September. As a result, Fed fund futures contracts suggest that the odds of a rate hike this year have dropped to 30 percent. Meanwhile, the Fed’s likely delay in liftoff, combined with the Peoples Bank of China (a 6^th rate cut in the past 12 months) and the European Central Bank’s announcements of more (or potentially more, in the case of the ECB) monetary accommodation, helped push stock markets higher on the week.

MARKETS:

• DJIA: 17,646 up 2.5% on week, down 1% YTD (highest close since 07/31)
• S&P 500: 2,075 up 2.1% on week, up 0.8% YTD
• NASDAQ: 5,031 up 3% on week, up 6.2% YTD
• Russell 2000: 1166, up 0.3% on week, down 3.2% YTD
• 10-Year Treasury yield: 2.09% (from 2.03%)
• December Crude: $44.60, down 5.6% on week
• December Gold: $1,163.30, down 1.7% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.21 (from $2.27 wk ago, $3.07 a year ago)

THE WEEK AHEAD:

Mon 10/26:

10:00 New Home Sales

Tues 10/27:

Ford, Apple, DuPont, UPS

8:30 Durable Goods Orders

9:00 S&P Case-Shiller HPI

10:00 Consumer Confidence

Fed begins two-day policy meeting

Weds 10/28:

2:00 Fed Announcement (no presser)

Thurs 10/29:

Starbucks, Mastercard

8:30 Q3 GDP (1^st estimate)

10:00 Pending Home Sales

Fri 10/30:

8:30 Personal Income and Spending

8:30 Employment Cost Index

9:45 Chicago PMI

10:00 Consumer Sentiment

#242 Medicare Enrollment Tips

Investment Advisor Greg Hammer joins the show to provide advice about Medicare Open Enrollment period, which is open until December 7th. We also cover questions about REITs, consolidating investment accounts and Roth conversions!

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Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Lessons from Turkey

If you ever need a refresher in how interconnected the global economy is, then take a trip outside the U.S. and if possible, travel to one of the “hot” emerging economies. I was fortunate enough to spend two weeks traveling throughout Turkey (thankfully far from the terrible bombings in Ankara, but more on that later). I arrived in Istanbul just days after the disappointing September jobs report was released and was trying to forget about it, but one of our guides asked me, “What’s going on with the U.S. economy? We thought the Fed was going to raise interest rates and now it’s not?” I can’t be out of the country for three days, without talking about Janet Yellen and the power of the central bank! The Turkish economy, like many other emerging markets, has seen its currency plummet by 25 percent against the US dollar this year (good news for me as a traveler, bad news for me as an emerging market investor), as the Fed hinted that it would increase interest rates. Foreign citizens have been preparing for the Fed shoe to drop, hoping that this time around would not be as painful as past periods like 1981-82, 1994, and 1997-98, when emerging-market companies exploited low U.S. interest rates to borrow heavily in dollars and then when rates increased, had a tough time repaying those debts. Additionally, all of the money that previously had flowed into these countries reversed course and headed back to the U.S. as dollar denominated assets increased in value.

Meanwhile, the dollar’s ascent was rudely interrupted after the Fed decided to hold off. As I explained to the Turkish guide, the slowdown in global growth -- especially in China -- combined with tame prices, is likely to keep the central bank on the sidelines at least until December and maybe into next year. (In a country where inflation was just reported at a 7.9 percent annualized rate, the concept of deflation was a distant one.)

Traveling around Turkey also allowed me to see first-hand the dramatic economic growth, which has been taking place in various emerging markets. Sure, there could be a slowdown in China, Brazil, Russia and even in Turkey, but these are places where a breather would probably be a good for the long term prospects of the local economies.

And while being in a country during a violent event like the bombings in Ankara is not pleasant, it was also a good reminder that despite economic progress, dysfunctional and/or unstable political systems can impede economic success. As one man told me, “This is a terrible national tragedy, but it also makes it harder for the world to think of Turkey as an attractive place to do business and to travel.” And investors would be wise to recognize that geopolitical risk is one that is easy to absorb when things are peaceful, but can easily arise at any time.

One of the great benefits of international travel is the ability to immerse oneself in a culture, its people and for me, to continually learn about the local economy. Still, I am always grateful to return to the U.S., where I appreciate all that we have. Yes, the economy is slowing down a bit and the recovery has not been kind to all; and indeed, corporate earnings could be under pressure this quarter and the stock market has been wobbly; and of course, our political season will make you nuts. But compared with the rest of the world, the U.S. maintains an innovative spirit and general optimism, which should allow it to continue to thrive.

MARKETS: Finally, a two-week vacation and the stock market went UP! Week one was better than week two, but in the absence of any big economic reports this week, corporate earnings will likely dominate market action.

• DJIA: 17,216 up 0.8% on week, down 3.4% YTD
• S&P 500: 2,033 up 0.9% on week, down 1.2% YTD
• NASDAQ: 4,886 up 1.2% on week, up 3.2% YTD
• Russell 2000: 1162, down 0.3% on week, down 3.5% YTD
• 10-Year Treasury yield: 2.03%
• December Crude: $47.72, down 4.8% on week
• December Gold: $1,183.10, up 2.4% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.27 (from $2.32 wk ago, $3.14 a year ago)

THE WEEK AHEAD:

Mon 10/19:

Morgan Stanley, IBM

10:00 Housing Market Index

Tues 10/20:

8:30 Housing Starts

Weds 10/21:

American Express, General Motors, Coca-Cola, Boeing

Thurs 10/22:

AT&T, McDonald’s, Amazon, Microsoft, Caterpillar, 3M

10:00 Existing Home Sales

Fri 10/23:

Procter and Gamble