Taking Your Seat at the Table

Get to know the responsibilities of joining a board.

July 12, 2018

Perhaps you’re a long-time supporter of a favored community organization and are interested in taking your involvement to the next level by joining its board of directors. Or maybe you’ve already been approached to join, but aren’t sure what will be expected of you in terms of time, money and other commitments. As with many great opportunities, serving on a board means taking on some responsibility, too.

Getting on Board

These factors and expectations are worth considering before you make a decision. How much of each are you willing and able to give?

Your Time

Most boards hold seven meetings a year, at about two to four hours each, according to BoardSource. On average, members serve two terms of three years each, and in general the position is unpaid – only 2% of the nonprofits surveyed offer an honorarium or salary for service.

Your Reputation

Conflicts of interest can get in the way of becoming a board member. For example, if you have a direct financial relationship to the nonprofit (such as being its landlord or legal counsel), serving can pose a risk. Each board member must put the interests of the organization before their own when acting on behalf of the board.

Your Financial Support

In a 2017 BoardSource survey, nearly 59% of nonprofits required a personal contribution. In addition, many board members were asked to provide names of potential donors and to meet with prospective donors face to face.

Your Expertise

Responsibilities can include fundraising, advocacy, community-building and outreach. Can your skillset help the institution raise funds or operate more efficiently? For example, if you run a successful marketing firm, the group might look to you to help lead marketing and public relations efforts.

Worth Considering

Is It a Fit?

Serving on a board should be a positive experience – so make sure your values align with those of the organization, as well as those of existing board members.

Above Board

You will officially be a steward of the organization’s resources and assets. If a nonprofit doesn’t pay enough in payroll taxes for its employees, for example, the IRS can hold the board negligent. To guard against this risk, ask about the group’s liability insurance and possibly secure your own as well.

Potential Perks

Serving on a board comes with its benefits, too:

• Gain greater leverage to support a mission you care about
• Network with professionals and like-minded individuals
• Establish yourself as a leader in your community or field

Many Ways to Give

Whether board membership is the right choice for you, there are many ways to give back and get involved. As you weigh the benefits and considerations, your financial advisor is available to act as a sounding board – particularly for evaluating any financial implications that joining a board could have.

Post-Disaster Relief Resources

In the wake of a natural disaster, online resources are available to help you seek federal assistance and answer your questions along the way.

July 17, 2018

Unfortunately, even those who have properly prepared for a natural disaster may find themselves in need of emergency assistance after the storm passes. While the amount and nature of any relief aid you receive depends on the scale of the disaster and your personal circumstances, there are online resources available to help guide you through the request process and answer any questions you have along the way.

Applying for Emergency Assistance

In the wake of a natural disaster, the Federal Emergency Management Agency (FEMA) provides emergency relief to qualifying individuals in the form of housing assistance, home repair, home replacement, permanent housing construction, and other assistance. In addition to FEMA, there are many other organizations and programs that focus on providing relief to business owners, students, older adults, people with disabilities, low income households, and more.

Learn which of these organizations may be able to help your recovery process by taking the Find Assistance questionnaire on disasterassistance.gov, and then apply for federal assistance using the Disaster Assistance Center. The information you’ll need to supply to complete the application includes:

• Your Social Security number
• Your family’s total gross household income at the time of the disaster
• Contact information, both for the damaged dwelling and your current location
• Information about your insurance coverage
• Electronic funds transfer/direct deposit information, should you prefer any funds be transferred directly to your account

Within 10 days of submitting your application, you’ll receive a call from FEMA to schedule an appointment for a home inspector to visit you. If you qualify for a grant, FEMA will provide you with a check by mail or a direct deposit into your account, as well as a letter describing how you are to use the money.

Post-Disaster Tax Relief

Special tax law provisions may also be available to help you recover financially from a natural disaster, especially if the federal government has deemed your location to be a major disaster area. Depending on the situation, the IRS may grant affected individuals and businesses additional time to pay taxes and file returns. Talk to your tax professional about your situation, and review the IRS website for specific information about recent disasters and ways to prepare for future events.

Job Market: From Strength to Strength

Brian S. Wesbury – Chief Economist

Robert Stein, CFA – Dep. Chief Economist

Strider Elass – Senior Economist

The US labor market is going from strength to strength. Like with corporate earnings, June jobs data beat consensus estimates - up 213,000 - pushing the average monthly gain for the past year to 198,000 per month.
Meanwhile the unemployment rate jumped from 3.8% to 4.0%. Why? Because the civilian labor force grew by 601,000. We hate blowing one month’s data point out of proportion, but there is enough concurrent evidence out there to conclude that this gain in the labor force is a bullish sign for the economy. It signals that fewer people are counting on the government for support.

There are two ways to shrink the welfare state. One way is to directly cut welfare benefits. That’s a structural change that encourages work no matter where the economy is in the business cycle. The other method is indirect: adopt policies that help the economy grow faster and let private sector opportunity pull people out of the government’s welfare system and back into the labor market. Right now, that second method is taking hold.

The number of people getting Food Stamps (SNAP benefits, which stands for the Supplemental Nutrition Assistance Program) fell to 39.6 million in April, down 4.7% from a year ago and the lowest level since about 2010. This isn’t because it’s harder to get food stamps, it’s because the rewards for work are rising.

In the second quarter of 2018, applications for Social Security disability benefits (SSDI) were down 2.3% from the same period a year ago. That’s on top of a 6% decline for full-year 2017 from 2016. And last year also saw 1.3% fewer workers collecting disability benefits than in 2016, the biggest annual decline since 1983. This year, that number has continued to decline. In other words, the job market is plenty strong enough to pull workers back into the private sector.

Although average hourly earnings are up a respectable, but not stellar, 2.7% from a year ago, hundreds of companies are paying “one-time” bonuses to their workers, either based on tax reform or as a way for companies to attract workers without raising their long-term costs, particularly in the trucking sector. These bonuses are helping push down both the median duration of unemployment, and already low unemployment rates across education levels, sexes and races.

While unemployment rates by racial/ethnic categories are volatile from month-to-month (and why we prefer to focus on the trend), the black unemployment rate increased from a near record low in June, but the Hispanic jobless rate fell to 4.6%, the lowest for any month since the government started tracking the data in the early 1970s. And for the past 12 months, the average unemployment rate for both blacks and Hispanics fell to the lowest levels ever recorded, dating back to the early 1970s.

None of this means the labor market is perfect. It never is. Back in the late 1990s, the participation rate among prime-age workers (age 25-54) reached a peak of 84.6%. Right now, their participation rate is 82%. But this is a double-edged sword…where some see imperfection, others see room for further growth. Where some see a labor market that can’t get any better, others see opportunity.

We fall in the second camp. Extremely low unemployment rates and rising earnings mean that private sector employment is becoming increasingly more attractive than static government programs. And with more workers moving into the private sector, it’s not hard to see better times for workers ahead. The tax cut happened just over six months ago. Deregulation is encouraging more business investment. Corporate earnings continue to exceed expectations. The job market looks set for even more strength.

Morning Tack: "12:01"

Jeffrey D. Saut, Chief Investment Strategist

With the first tranche of U.S. trade tariffs now in effect we were intrigued by this most interesting white paper from Andy Rothman, investment strategist for Matthews Asia (read it here: Trade).  One of the paragraphs read: 

The Chinese economy is no longer export-driven.  Net exports (the value of a country's exports minus the value of its imports) account for only 2% of China's GDP, down from a peak of 9% in 2007.  In contrast, domestic consumption now accounts for the majority of China's economic growth and more than half of its GDP.  2017 was the sixth consecutive year in which the consumption and services share of China's GDP was larger than the manufacturing and construction share.  Because Trump would be fighting a trade war without the support of America's allies, the impact on China's exports would be relatively small. Last year, Chinese exports to the U.S. accounted for only 19% of total Chinese exports.

"Please click HERE to read more"

No More Kid Gloves

     What do the internet and China have in common?  For better or for worse, policymakers are no longer treating them with kid gloves.  This past week, the Supreme Court reversed a decision made before the dawn of the internet that prevented states from taxing sales to their residents unless the business had a “physical presence” in the state.  Now, each state gets to decide whether those sales get taxed.

      Some internet retailers took advantage of the old limits on sales taxes to grow huge.  In a way, perhaps the limits on sales taxes were one way of helping an “infant industry” get off the ground.  But that industry is no longer an infant.  Right or wrong, the new rules will re-shuffle the deck on retail sales models.  Small “brick-and mortar” businesses that sell goods in their own state will benefit, while those that sell much of their product out-of-state will suffer from the costs of keeping track of tax rates across the country.

     In a similar way, we are also seeing the end of “kid glove” treatment with China.  As China developed, the US looked the other way as it pirated intellectual property, subsidized its own export-focused industries, and maintained higher tariffs than the US.  America even led the charge for China to get into the World Trade Organization.

      Until recently, Chinese tariffs on global imports averaged about 9.9%, according to the WTO, while the US average is 3.5%.  US tariffs affected only about two-fifths of US imports from China, and those averaged about 6.5%, while China imposed higher tariffs on items imported from the US. In the past year, the US has imported about $540 billion in goods and services from China while China imported just $192 billion in goods and services from the US.

     The Trump Administration is signaling an end to the “infant industry” treatment and has proposed tariffs of 25% on $50 billion in imports from China, in addition to recent tariffs on steel and aluminum.  The Chinese have retaliated in kind.  Now, the Administration is considering an expansion of the tariffs and stricter limits on China’s ability to invest in US companies.  One key (and justifiable) concern is that China has used various methods to steal hundreds of billions worth of trade secrets and intellectual property, via espionage, counterfeiting, forced disclosures for market entry, and reverse engineering of products, to name just a few.

     One gets the sense the Administration is thinking that, at some point, China can’t retaliate because it’ll run out of items to tariff well before the US does.  That’s the downside of China’s massive trade surplus. 

     One thing to keep in mind is that an extra 25% tariff on all imports from China would cost consumers $135 billion, assuming no change in behavior.  That’s 0.7% of GDP.  Not a trivial sum – and not good for the US economy - but unlikely, on its own, to cause a recession.  Of greater concern is that a true trade war could harm the global supply chain and disrupt the efficient allocation of corporate capital around the world.  This could put some companies that depend on Chinese affiliation in financial danger, possibly enough to strain the financial institutions that support them.

      Some worry that fewer Chinese exports to America would reduce dollar flows to China, reducing their ability to buy bonds, or force a large reduction in China’s $1.2 trillion of Treasury holdings.  But China has increased its stock of Treasuries by about $90 billion in the past year, and bond yields have fallen recently as trade tensions have grown.  The bond market doesn’t seem worried.

      We’d much rather live in a world where China already had lower tariffs on the US, similar to our historical tariffs on China (before the current spat).  And please know we are against higher tariffs on principle. Unfortunately, other strategies haven’t worked, and now the kid gloves are off.  Let’s give it a little while and see if it works. 

"Click HERE to read more"

Five Summer Money Lessons For Kids

Easy ways to teach your kids and grandkids about basic financial management.

June 21, 2018

It’s never too early to teach your children or grandchildren the value of a dollar. Children and young adults with a solid understanding of the role money plays in their lives can develop the skills they need to manage their finances responsibly.

You can teach children as young as 5 or 6 the difference between wants and needs. If your child or grandchild receives an allowance or earns money by completing small chores around the house, you can use it to help demonstrate the concept of living within one’s means. Start with something as simple as showing them the grocery bill. The point is to get them thinking about money as something that needs attention and care.

With teens and young adults, you might introduce more complex concepts, such as investing, interest and using credit responsibly. You might even introduce them to your advisor for an objective point of view.

Five Financial Literacy Lessons for Summer

• Earning. Nothing says summer like chores. From cleaning rooms to cutting grass to washing cars, daily and weekly duties help fill piggy banks. More importantly, they help kids make the connection between work and pay – and appreciate the value of a dollar.
   
• Saving. Open a savings account in your child’s or grandchild’s name and encourage them to make regular deposits. Set a series of small, achievable savings goals to help build confidence and maintain interest in saving over time. You might commit to matching a portion of their savings to help preview the value of a 401(k) match that might come with their first job.
   
• Growing. Talk about how money earns interest. This teaches children to set more aside and avoid impulse spending, and shows how money can grow and compound over time.
   
• Spending. Helping children manage their spending is very important. Do they prefer buying things at the store every week or saving for something bigger? Planning like this helps children carefully consider their purchases – a skill that can pay dividends in adulthood when managing their own budgets.
   
• Giving. Teach children the importance of philanthropy by encouraging them to donate old toys and clothes, and maybe even small amounts of money, to a cause that’s important to them.

The Fed Dials Up Interest Rates by 0.25%

The quarter-point hike sets the target rate between 1.75 percent and 2 percent. Chief Economist Scott Brown discusses implications.

June 13, 2018

As expected, the Federal Open Market Committee (FOMC) raised short-term interest rates following its June policy meeting. This is the second increase this year and the seventh in the current tightening cycle. As with every other FOMC meeting, the Fed released revised economic projections, including a new dot plot (senior Fed officials’ forecasts of the appropriate year-end federal funds rate) and Chair Powell conducted a post-meeting press conference. Heading into the meeting, the key question for investors was whether there will be one or two more rate increases by the end of the year. For insight, market participants look to the revised dot plot.

The Fed began publishing the dot plot in early 2012 with the intent of providing the public with the range of policy expectations. The Fed stresses that the dots “should not be viewed as unconditional pledges” and “are subject to future revisions in light of evolving economic and financial conditions.” The dots’ range should be the primary focus, and currently, the majority of dots are split between three and four rate total increases this year (which would mean one or two more raises in 2018); the median has now edged up from three to four.

The underlying rate of consumer price inflation has remained moderate. So why is the Fed raising rates? In the last couple of years, the Fed’s rate increases were about getting monetary policy back to a neutral position following an extended period of exceptionally low rates – taking the foot off the gas pedal. Now, it’s about tapping the brakes in an attempt to get the economy to slow to a more sustainable pace. Soft landings are difficult to achieve, and the risks of a policy error (moving too rapidly or too slowly) naturally rise in a late-cycle economy. Fed officials generally believe that the federal funds rate will be raised above a neutral rate in 2019 and 2020.

A number of emerging economies may face difficulties as the Fed raises short-term rates, but the Fed’s focus is on the domestic economy. Tighter monetary policy ought not to have a significant impact on the U.S. economy in the short-term, but higher intermediate and long-term interest rates (a consequence of rising short-term interest rates) should dampen economic growth over time. There are no signs of a recession on the horizon, but the risks of a possible downturn are likely to rise as we head into 2019.

"The Big Chill Stall"

Jeffrey D. Saut, Chief Investment Strategist, (727) 567-2644, Jeffrey.Saut@RaymondJames.com June 12, 2018 Investment Strategy

It was last week when we wrote that the equity markets were likely to “stall” into the first part of this week due to the short-term lack of internal energy.  So it was written and so it has happened, as stocks have “stalled” since last Thursday.  However, the “stall” should end shortly, leading to new all-time highs in the weeks ahead.  Quite frankly, we did not think there would be anyone more bullish than Leon Tuey and me, but I was wrong, for one Geneva-based portfolio manager emailed us this yesterday, from a strategist at Zacks:

"Click HERE to read more"

Tech Trends for At-Home Seniors

Tech Trends for At-Home Seniors

Advances in digital home technologies can help retirees maintain healthier, happier lives as they grow older.

June 5, 2018

As more seniors opt to age in place, staying true to the life they’ve built, advances in digital home technologies can help them maintain healthier, happier lives as they grow older. Here are just a few of the in-home trends that could help make those years golden.

Home monitoring systems use sensors to track a person’s movements, which can indicate potential safety or health-related problems while being less invasive than a camera. Caregivers can be notified if something appears amiss.

Technology similar to hospital monitoring devices gathers critical information about users’ vital signs during normal sleep cycles, allowing them to note trends that may indicate health issues.

The grandPad – a closed-system (meaning it can’t be updated and users can’t surf the internet) tablet – allows tech-challenged users to connect with loved ones through video chatting, voice emails and photo sharing. Limited additional features, such as games and weather info, are included.

Automatic pill devices dispense the correct dosages, then signal it’s time to take the medication with an alarm and/or flashing lights. Optional services include the ability to alert caregivers when loved ones take their pills (or when they don’t). Several offerings are available.

Alarm clocks with myopia-friendly readouts remind users of important tasks and appointments (up to 25 per day), alleviating some of the stress of keeping tabs on loved ones.

More innovations are on the horizon. One potentially life-saving one? The Inirv React (in Beta development) monitors levels of smoke and flammable gas in the home, and lets users remotely control the temperature of their stoves using their smartphones.

Sources: mytrusense.com; alarm.com/wellness; earlysense.com; grandpad.net; reminder-rose.com; inirv.com/home

10 Common Scams and How to Avoid Them

Familiarize yourself with these common swindles, often targeting retirees.

June 4, 2018

As we age, we may become more susceptible to fraudsters who make a living preying on retirees. This can be especially true for widows and widowers who are making decisions alone and may be particularly trusting of friendly strangers. In order to protect ourselves and those we love, it’s important to be aware of the most common scams older Americans fall for.

1. Lottery Scam

You get an unsolicited phone call or email saying you’ve won a large prize. All you need to do is send money to pay for shipping, taxes or some ancillary fee. You send the money, but the fictional prize never arrives.

2. Grandchild Scam

Your grandchild calls to confess her troubles. Or so you think. It’s not uncommon for someone posing as your grandchild to call and, preying on your compassion, claim to be in a crisis situation and need money urgently. She may also beg you not to call her parents (which would give the scam away).

3. Charity Scam

You donate to one charity and end up being on every charity list. That’s because they sell your name, phone number and email to other nonprofit and commercial organizations. These could include companies with similar names to charities you support – but they exist solely to scam donations.

4. Computer Scam

Someone calls pretending to be from a major company, such as Microsoft, and says he can see that your computer has a virus. He offers to help you get rid of it by asking you to log into a website that lets him control your computer – then steals your ID information.

5. Timeshare Scam

If you own a timeshare, you may get a call from someone claiming they’re authorized to sell it for you, for a fee. After paying, however, you never hear from them again.

6. Homeowner Scams

A man comes to your door and offers to clean your gutters or trim your trees, which sounds like a good idea. Until he asks for prepayment and never completes the job.

7. Medical Scam

You get an unsolicited call about a discounted price for some kind of medical equipment (i.e., heart monitor, wheelchair or bathtub bench). He asks for a deposit and your personal information or Medicaid number to send the equipment, which never arrives.

8. Foreclosure Scam

You’re approached by a “professional” who claims your home is under threat of foreclosure and offers to pay off your mortgage or taxes if you sign over the deed to the property. With your deed, the fraudster can then refinance the mortgage for the full value of your home and take the money. Keep in mind, even if you sign over a deed to someone, you are still liable for your mortgage obligations.

9. Caregiver and Sweetheart Scams

These predators claim to care deeply for you or your well-being, but after winning your trust, they gain access to your accounts to steal money or identity information.

10. Title Company Scam

Before purchasing or closing on a new property, a scammer intercepts an email from your realtor or title company. You’re then sent fraudulent payment instructions to complete the transaction. Red flags include last minute changes to instructions, a change in tone or word choice from prior emails, a new sender address and multiple payment requests.

These scams are common and widespread. But speaking with trusted loved ones or your financial professional before making decisions can help you avoid these traps. Additionally, keep in mind these tips for staying safe:

• Don’t pay for things you don’t remember ordering.
• Don’t give your personal information to unknown third parties.
• Work with financial institutions that use fraud protection to safeguard your credit card and banking information.
• Don’t click links in the body of suspicious emails, especially if they claim to come from your bank, credit card company, realtor or title company. Instead, log in to the company’s official website or call them directly to verify.
• Don’t let strangers into your house. Instead, ask for a business card and say your spouse, kids or lawyer will be in touch.
• Be wary of caregivers and suitors, especially if you notice signs of substance abuse or other red flags.
• Limit the purchases and donations you make by check, which may list your home address or other key data.

Again, the World Looks to Italy

European Strategist Chris Bailey discusses Italian politics and the euro's recent drop.

May 30, 2018

“Failure is simply the opportunity to begin again, this time more intelligently.” – Henry Ford

Italy. Just when you thought it was all over, a dramatic final twist threw everything back up in the air, and a surprise leader emerged. But enough about this year's Giro d'Italia cycle race and back to the well-trodden area of Italian politics.

Thinking back a couple of weeks, my broad conclusion was that if a populist Italian coalition emerged, then so be it. The recent historic travails of Greece's populist ruling party, the reality pressures of the fixed income markets and – hopefully – some combination of anti-corruption efforts and lower taxes from the populist coalition, together with a positive and engaging reform summit in late June led by Angela Merkel and Emmanuel Macron, would provide some kind of European investment opportunity.

However, last weekend's annulling of the populist dream by the Italian President, irked by the anti-euro personnel choice for finance minister, was, in my opinion, a poor move. This is certainly within the constitutional remit of the President, but there is a deeper backlash risk now from an electorate already suffering from an inability to believe. A technocrat sticking plaster for the next government – headed by a former International Monetary Fund official nicknamed “Mr. Scissors” for his budget cutting preference – is certainly more palatable for the markets, although politically unsustainable. I would have stuck to the plan outlined in the paragraph above: look to inspire through positive action, working with whomever can put together even a potentially unstable coalition. Net result: bond spreads pushed out to levels not seen for a few years, market contagion, and – surely – an early autumn election.

So whilst Rome fiddles, regional financial markets relatively burn, with the euro down to levels last seen late last year against the U.S. dollar, the last weekly regional outflow data the worst since a couple of weeks after the Brexit referendum result, and Italy's stock market now down in year-to-date terms. Even famous financial speculator and philanthropist George Soros was moved to say “the EU is in an existential crisis. Everything that could go wrong has gone wrong … it needs to reinvent itself.”

I certainly agree with the latter point, which naturally brings up the summit in a month's time, a subject on which both Macron and Merkel have uttered the “reform” word in recent weeks. Of course words are cheap, but the instinct is correct, and the need to inspire leadership is key. The start of the fightback should begin with the positioning and rhetoric around the newly unveiled 2021-2027 European Union budget. The aforementioned George Soros may have been unhappy about the revisions to fund allocation for his native country of Hungary – among other central and eastern European lands – but the instinct to allocate more funds to countries like Greece, Italy and Spain makes economic and political sense. To build confidence, both reality and money talks, and the European Union is in dire need of a bigger regional redistribution policy, just as other single-currency zones (such as the United States) have. Stage two is the summit. Time to channel some of the underlying emotions captured in the Henry Ford quote above. Macron is certainly intelligent enough to see the challenges – and you would have thought a “legacy mode” Merkel would be having similar thoughts.

Chris Bailey is with Raymond James Euro Equities, an affiliate of Raymond James & Associates, and Raymond James Financial Services. All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

Trade War on Hold – At Least for Now

Washington policy analyst Ed Mills discusses the latest trade negotiations between the U.S. and China.

May 21, 2018

In summary: Negotiations between U.S. and Chinese officials in Washington last week wrapped up with a commitment to “substantially reduce” the U.S. trade imbalance with China, specifically by boosting U.S. energy and agricultural exports with a focus on strengthened cooperation on intellectual property protections. The agreement calls for a delay in tariff implementation and could delay the release of the Treasury’s report on restriction on Chinese investments in certain industries and technology. This could be viewed as a double positive in the near term.

Plenty of work remains, and working out specific details will remain a significant challenge. We do continue to believe the final outcome will be a negotiated deal. The turning point to-date in these negotiations appears to have been the Trump administration’s willingness to take actions to block Chinese companies from key U.S. technologies, which could easily be ramped up if trade talks break down.

While this weekend’s headlines were positive, we continue to monitor congressional action on changes to U.S. regulatory approval for foreign investments (generally seen as anti-China), as this could complicate any final deal.

Additional detail provided below.

Agreement in Principle

The joint statement released by the two sides following this week’s negotiations highlights agreement to “substantially reduce” the U.S. trade deficit with China. The administration is targeting a reduction in the annual trade deficit of $200 billion (currently at $335 billion), but the final target has not yet been agreed to by China.

Efforts to boost exports will specifically focus on agricultural and energy resources, with the U.S. possibly moving to secure additional purchases and investment into oil and liquefied natural gas. A commitment from China to boost energy purchases could drive additional energy infrastructure investment, increase China’s longer-term economic dependence on the U.S., and allow the Trump administration to claim a victory in U.S. job creation. Treasury Secretary Steven Mnuchin set an expectation of an increase between 35% and 40% in agricultural exports in 2018 and doubling of energy purchases over the next three to five years.

U.S. officials are expected to travel to Beijing to continue talks and solidify the final details of an agreement.

Intellectual Property

A key focus of the negotiations remains the protection of U.S. intellectual property and the scaling back of forced intellectual property transfers. The official statement moves the two sides closer to agreement on intellectual property protections with China working to modify laws and regulations, although specifics have not yet been put forward.

May 21 marks the deadline for the Treasury’s report on recommendations to limit Chinese investment in critical U.S. technology pursuant to the administration’s Section 301 investigation into China’s harmful intellectual property practices. We are watching to see whether the report is released on condition that the recommendations will not be implemented if a satisfactory deal is reached or if the report is delayed altogether as a goodwill gesture in negotiations.

Congressional Action

Congress is actively working to change the regulatory approval process for foreign investments in U.S. companies, and there has been increased pushback against Trump’s actions related to removing restrictions against Chinese telecommunications company ZTE. Last week, a congressional subcommittee approved an amendment that would prohibit the Commerce Department from removing the restrictions against ZTE. There is almost no chance this provision will become law anytime soon, but we would argue it demonstrates some of the need for both the U.S. and China to conclude these talks sooner rather than later.

The changes being sought to the Committee on Foreign Investments in the United States are clearly targeted at China and are concerned about transfers of critical technology and intellectual property. There have been some tweaks to these efforts lately to placate some business concerns, but Congress is extremely likely to pass this bill by the end of the year. This uncertainty could complicate trade negotiations.

An Open Letter to Arthur Brooks

5/31/2018

Arthur, I heard you’re retiring from AEI after a spectacular run.  Congratulations and best wishes in your future endeavors.  However, in reading an “exit interview” with you, by Tim Alberta of Politico, I stumbled across what I believe to be a very important and dangerous blind spot in your thinking.

With some trepidation, because the interview with Mr. Alberta was relatively short, I would like to summarize your arguments.  The title of the piece was “Americans are Being Held Hostage and Terrorized by the Fringes.”

• You call competition a “moral good” and bemoan a “culture that’s not trying to win [political] competition vigorously and civilly and respectfully, but rather trying to shut down competition…”.  I happen to agree with you on this.  Discourse has become uncivil. 

• You call this “stupid.”  I agree, again, and you add, “It leads to a flaccid set of political parties…you don’t solve problems…you simply build up power structures.  So all politics becomes a rent-seeking mechanism: my tribe, your tribe.” 

• You blame this on the financial crisis of 2008 and cite Reinhart and Rogoff’s book, This Time Is Different, and three German economists who, in early 2017, published a piece in The European Economic Review.  Reinhart and Rogoff argue that economic recoveries in the decade after financial crises are slow.  The German economists argue that these slow or lumpy recoveries have knock-on political effects. 

• You say, “…in the decade after a financial crisis, the knock-on effect over 10 years is not low growth, it’s uneven growth.  The big thing that happens for 10 years is that you have asymmetric economic growth where 80 percent of the income distribution gets none of the rewards of the growth after the recession.”    This creates populism – where people blame “immigrants,” “trading partners,” or “bankers.”   

• You then blame the rise of Trump, on an “unwillingness or inability of mainstream Republicanism to deal with a lot of misery that was going on.  To talk openly about the despair…there’s been a 323 percent increase in drug overdose deaths for men my age…” 

• You say Congress isn’t detached, but, “they don’t know what to do, so they didn’t do anything.”  You then say, “nobody has ever figured out this first decade problem.  Ever… Politicians say, ‘We can solve this; vote for me and I’ll solve it.’  [But] They can’t solve it…they get blamed.” “Nobody knows what to do except wait it out.”  You claim even Milton Friedman in the White House couldn’t have made a V-shaped recovery. 

• You complain of a deficit of happiness, “When people feel like ‘Sh*t, I can’t get ahead,’ that’s when people feel a lot less happy.” “The best single way to get rid of all this unpleasantness right now is economic growth that’s evenly spread throughout the population.”

That’s a pretty straight forward argument.  If you believe financial crises cause lumpy and uneven distribution of growth, if you think Reinhart and Rogoff understand how economies respond to financial crises more fully than Milton Friedman, no wonder you despair.  But this is where you make your fundamental mistake – buying into the Conventional Wisdom narrative about the Panic of 2008.

Like Paul Gigot, Editor of The Wall Street Journal, and Speaker Paul Ryan, I think you have a fatally flawed understanding of the financial crisis of 2008 – what actually caused it, why TARP was such a huge mistake, and how big government growth after the crisis is the real cause of slow growth, despair and political turmoil.  I know you did not specifically mention TARP, but by citing Reinhart and Rogoff you seem to agree that capitalism itself is flawed and government must fix it.

I vigorously disagree with this logic.  I agree with your co-worker at AEI, Peter Wallison, whose book, Hidden In Plain Sight, proves that the government itself created the subprime crisis.  I also believe that the government’s reaction to the crisis, specifically a $3.5 trillion program of quantitative easing by the Federal Reserve and a $700 billion taxpayer funded bailout, not only did not work, but undermined America’s faith in free markets and capitalism.

President Bush said after passing TARP, “I’ve abandoned free market principles to save the free market system.”  This statement obviously makes no sense.  If you believe in free markets, just like if you believe in the Ten Commandments, violating them in order to save them is nonsense.  You either believe in free markets, or you don’t; you either believe in the Ten Commandments, or you don’t.  This is not me becoming an “armchair general” after the war, with perfect 20/20 hindsight.  A crisis is when a belief system is tested.  The Republican leadership in 2008 failed that test.

Compare this to the 1980s.  The financial crisis of the early 1980s was bigger, in dollar terms, than the financial crisis of 2008.  In 1980, the entire Saving & Loan Industry had negative net capital.  On a mark-to-market basis, almost every money center bank was bankrupt due the default of Latin and South American debt.  Oil prices collapsed, taking Penn Square, Continental, and other banks down.  Over-leveraged, agricultural banks failed as farmland and crop prices plummeted.  Yet, the U.S. experienced robust economic growth in the 1980s.  There was no decade of lumpy growth.

The reason is simple, Ronald Reagan cut tax rates and regulation, while holding back non-defense government spending.  The Fed tightened monetary policy.  In other words, the U.S. followed the prescriptions of Milton Friedman and we did get a V-shaped recovery.  Yet, Reinhart and Rogoff ignore the 1980s financial crisis, and Kenneth Rogoff said they did so because economic growth didn’t suffer in the 1980s.  He ignored that financial crisis because it provided evidence counter to his theory.  Not very intellectually honest if you ask me.

Slow growth in the past decade is because government ignored the Reagan-Friedman-Hayek lessons – in fact they did the exact opposite.  During the Panic of 2008, government did TARP, QE, tax hikes, massive new regulation, more spending and new entitlement programs.  That’s why the economy is hurting and there is despair in the land.

I believe TARP was the greatest violation of Republican economic principles since Herbert Hoover put tax hikes, SmootHawley tariffs and new spending and regulation in place during the 1930s.  Those policies did nothing but deepen the Great Depression.  In 2008 and early 2009, the S&P 500 fell an additional 40% after TARP was passed.  TARP did not work.  In addition, it was a direct bail out of banks, not mortgage holders.  With Republicans in charge (Bush, Paulson, Bernanke), the GOP violated free market principles and bailed out the rich bankers on Wall Street.

In other words, even the GOP didn’t have faith in capitalism.  By passing TARP they professed faith in government.  Once faith in capitalism is undermined, especially by Republicans who have been the historical defenders of capitalism and free markets, it creates the very thing you complain about.  If Republican leaders lose faith in free markets, no wonder the public does, too.  There is no more competition of ideas.  Both sides believe in government.

Then people work overtime to build up “power structures,” and “politics becomes a rent-seeking mechanism.”  When you compete on these grounds, it becomes a battle of “fringe politics.”  If one union in Greece gets a 31-hour workweek, all unions want one.  If banks get bailed out, why not homeowners, or students with loans?  If we can’t trust banks, how can we trust insurance companies, so why not socialize healthcare?  The commanding heights of power moves from markets to government – no wonder the DC area is booming, while despair spreads in the hinterlands.

Not only did Republicans sell out free markets, they paved the way for massive government growth.  I understand the difficulties in comparing the two, but isn’t opioid addiction (which you use as evidence of economic despair) similar to the excessive drinking of vodka in Russia?  Despair is caused by big government, which undermines the vibrancy of free markets and destroys the more even distribution of economic opportunity that you yearn for.

The way to fix the U.S. economy, the best way to create “evenly spread” economic growth and end despair is for government to get out of the way.  It takes faith in markets and people, not government. 

There are always problems, but when central authorities try to fix those problems, they often make them worse.  You are enough of a historian to understand that.  Allowing Reinhart and Rogoff to lead you this far down the wrong path creates despair in my heart.

I’d be happy to sit down with you and discuss these issues in greater detail.  If you don’t have time, or an inclination to do that, please read my 2009 book (which I wrote at the depths of the crisis), It’s Not as Bad as You Think.

630.517.7756  •  http://www.ftportfolios.comThis report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors.  It is based upon sources and data believed to be accurate and reliable.  Opinions and forward looking statements expressed are subject to change without notice.  This information does not constitute a solicitation or an offer to buy or sell any security.

"A Licking?!"

Jeffrey D. Saut, Chief Investment Strategist, (727) 567-2644, Jeffrey.Saut@RaymondJames.com May 31, 2018 Investment Strategy

In my misbegotten youth (1950s) there was a Timex wristwatch commercial featuring pitchman John Cameron Swayze, which went, “It takes a licking and keeps on ticking!” According to Pop History Dig: 

The Timex “torture test” advertising was also used in TV ads, a series made popular by celebrity newscaster John Cameron Swayze who hosted the spots.  A number of these ads also featured sports celebrities who doled out the tough treatment to the watches and/or supplied an endorsing statement.  Swayze also hosted non-celebrity Timex ads in which the watch would be subject to other trials — whether placed in a washing machine or attached to the bow of a speed boat (Timex).

Since the February 9, 2018’s “undercut low” the same can be said of the stock market, “It takes a licking and keeps on ticking.”  For sure, we identified that 2/9/18 “undercut low” and recommended recommitting some of the cash raise in January in anticipation of a February Flop.  Ever since then most of the oneday “wonder declines” have been followed by decent rallies; this week was no exception as Tuesday’s Tumble was followed by Wednesday’s Win!

The cause proxima for this week’s two-day two-step was mainly Italy, with a dose of Spain’s political troubles mixed into the equation.  As Tom Essaye writes in his daily must have “Sevens Report:”

First, for a bit of background, in March, during the last Italian general election, two “anti-establishment” parties, 5-Star Movement and the League, received the highest numbers of votes.  That caused some concern that if the two parties were able to form a functioning government, they might ultimately introduce a Brexit-style referendum to leave the EU.  Over the past few weeks, the League and 5-Star Movement (along with other smaller parties) have come close to reaching an agreement on forming a functioning government, and that raised “Italexit” fears last week.

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Nurturing Moneywise Children

Teach your children to treasure their financial legacy.

May 15, 2018

Most parents appreciate the importance of traditional education in their child’s development considering the obvious intellectual and social benefits. Yet all too many forget that a financial education is also crucial for ensuring their offspring’s long-term well-being. 

The good news is it’s never too early or too late to begin sharing your financial wisdom and experiences with your family. By taking the time to teach your children the value of money, you’ll have the comfort of knowing they’ll understand how to care for their own financial legacy when the time comes.

An Essential Skill

Like reading, financial literacy is an essential skill, but unfortunately, it’s not typically taught in school. Rather, it’s up to parents to pass on their financial knowledge to ensure the next generation is capable of taking care of the wealth they’ve built.

Pre-kindergarten age is a great time to introduce the basics, including the idea that you must work to earn money in order to pay for items and services, as well as the value of different coins and bills. As they get a little older, your child can start doing chores and earning an allowance. Help them go through the motions of saving up for something they’d like to buy and deciding whether or not it’s a worthwhile purchase.

With pre-teens and teenagers, there are several other steps you can take, such as helping them open a savings account with their earnings from chores, babysitting or other jobs. Share your own tips on managing a budget and introduce them to the concept of investing and saving for retirement. Simply being transparent with your children about the realities and costs of living can go a long way in preparing them for the future.

Sharing Your Financial Legacy

While products such as trusts and wills can help ensure your wishes are carried out, they can’t give your heirs the true understanding of how to save, grow and spend money wisely. In fact, if your children are going to receive a sizable inheritance, they may get overwhelmed by sudden wealth without a solid foundation to rely on. It’s also a good idea to introduce your children, when they’re ready, to your financial advisor and other professional partners, so they’ll know where to find expert guidance when dealing with money issues.

Next Steps

• Write out a sample budget with your children, explaining the expenses you have each month, such as utilities and groceries
• Help them open a savings or checking account
• Schedule a time for them to join you for a meeting with your financial advisor

Student debt just hit $1.5 trillion

America’s student loan problem just surpassed a depressing milestone.

Outstanding student debt reached $1.521 trillion in the first quarter of 2018, according to the Federal Reserve, hitting $1.5 trillion for the first time. Though the marker is somewhat arbitrary, it offers a reminder of how quickly student debt has grown—jumping from about $600 billion 10 years ago to more than $1.5 trillion today—and that the factors fueling the increase aren’t likely to disappear any time soon.

“People pay attention to milestones,” said Mark Kantrowitz, a financial aid expert. When student debt surpassed $1 trillion in 2012, “it definitely caused a shift in coverage of student loans in the news media,” he said. In theory, that helps raise awareness of the issue for student advocates, lawmakers and, in particular, borrowers when considering what college to attend. But Kantrowitz added, “What’s more important is the impact on individual borrowers.”

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Morning Tack: "Breakouts Everywhere"

Jeffrey D. Saut, Chief Investment Strategist, (727) 567-2644, Jeffrey.Saut@RaymondJames.com

May 10, 2018

Investment Strategy

“Breakouts Everywhere” You’ve probably seen the cartoon where a woman comes home and finds her husband in with another woman?  The man looks up and says “No, I’m not cheating!” and follows that up with his favorite Groucho Marx line, “Who are you going to believe?  Me or your own eyes? (Groucho).”  We could say the same thing about investors over the past two weeks, “Who are you going to believe?  Me or your own eyes?” because there are upside breakouts everywhere in the stock charts.  We have been talking/writing about this for a few weeks and our pal Bob Pisani did a particularly good job of showing some breakouts right before our appearance on CNBC.  Shortly thereafter Bob wrote this:

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Trust in Your Business's Future

As you plan for the future of your business, tools and strategies exist to help ease the impact of taxes.

May 8, 2018

An estimated $30 billion to $40 billion in wealth is set to transfer from baby boomers to their heirs or favorite charities. This includes wealth tied up in a family business. As you plan for the future of your business, you may earmark the proceeds from the sale of the business to support your lifestyle, your family or a preferred charity for years to come. But it’s also important to consider the potentially significant toll taxes could take. Fortunately, tools and strategies exist to help ease the impact.

One such tool is a trust – a fiduciary relationship in which you as the grantor give a trustee the right to hold title to assets for the benefit of your beneficiary. While there are many types of trusts, here are four that are commonly used in business planning.

Grantor Retained Annuity Trust (GRAT)

This irrevocable trust enables you to enjoy the proceeds from the sale of your business, then potentially pass significant wealth to beneficiaries with little or no gift tax. To create a GRAT, the grantor transfers assets into the trust and receives annuity payments over a fixed number of years. These annuity payments are calculated so that the grantor is treated as having made little or no taxable gift to the GRAT beneficiaries because, relative to present value, the grantor will receive back everything put in. Appreciation in the trust assets in excess of the IRS assumed rate of return eventually passes to the benefi­ciaries gift-tax free.

For a GRAT to be effective, two conditions must be met: First, the assets in the GRAT must grow faster than the IRS’s assumed rate of return so there is something to pass along. Second, you must outlive the term of the GRAT. If not, assets will revert back to your estate. However, creating a series of short-term GRATs can mitigate some of the mortality risk.

In some cases, the IRS has held that trusts established after signing letters of intent violated the Anticipatory Assignment of Income Doctrine that was adjudicated by the Supreme Court in 1930 to limit tax evasion. Consult your tax, legal and financial professionals regarding the date you intend to sell your business and any estate planning or wealth transfer you wish to do around the sale.

Intentionally Defective Grantor Trust (IDGT)

An IDGT creates a complete transfer of assets to a trust for transfer-tax purposes, but an incomplete (defective) transfer for income tax purposes. Assets, such as a business, are transferred by a completed gift or a fair market value sale (or installment sale), in which both are disregarded for income tax purposes in regard to the estate.

As a result, you will no longer retain any powers that would cause estate tax inclusion, and the future value of the transferred assets is removed from your estate. Although the trust is irrevocable, it is treated as a grantor trust for income tax purposes because the grantor retains other powers. This means the grantor, though not a beneficiary, is taxed on all the trust’s income, even though you would not be entitled to any trust distributions.

Incomplete-Gift Non-Grantor Trust (ING Trust)

Some states’ income taxes can reach significant percentage levels. This is where the establishment of an ING trust may help. To date, ING trusts have been used for nearly 20 years and have received more than 70 private letter rulings from the IRS that the trust structure is valid.

The trust is effective due to its designation as a taxpayer for income tax purposes. Therefore, the trust and trustee must be domiciled in a no-income-tax state. When business ownership is transferred to the ING trust, the transfer is not a taxable event. When the trust later sells the company, the income will be attributed to the trust, a resident of a no-income-tax state. While the proceeds and earned investment income remain in the trust, they will receive the benefits of tax savings. When the trust is requested to distribute funds, income tax is then paid to the home state.

Charitable Remainder Trust (CRT)

If you would like the proceeds of selling a business to benefit a favorite charity, yet also desire to receive income from the pro­ceeds, a CRT is an option. It is, however, an irrevocable trust so once established, terms cannot be changed nor assets moved.

To establish a CRT, you would transfer business shares or proceeds from a sale to the trust. You would name yourself or another beneficiary as recipient of the income from the trust. When the terms of the trust end, the chosen nonprofit group receives the remainder. You also will receive an income tax deduction equal to the estimated present value of the remainder interest. The charity selected must be approved tax exempt by the Internal Revenue Service. The trustee is also required to maintain tax records.

A trust in the future of your business may invigorate your trust in the future, too. Just be sure to consult with professionals to determine what works best for your personal and professional situation.

This article is general in nature and provided for informational purposes only. Raymond James and your Raymond James financial advisor do not provide tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Caregiver Connections

Caregiver Connections

Whether in-person or online, connections fostered among caregivers provide long-range benefits.

May 9, 2018

As the population of our country ages, the face of caregiving is changing along with it. Today, 80% of those providing long-term care in the United States are not healthcare professionals – instead, they are family members and even friends. There are 40.4 million unpaid caregivers of adults ages 65 and older in the United States. Most help one aging loved one, but 22% help two, and an impressive, but likely overwhelmed, 7% help three or more.*

There are 40.4 million unpaid  caregivers of adults ages 65  and older in the United States.

With this shift from the clinical to the familial comes another change: A majority of those same individuals do not self-identify as “caregivers,” despite providing assistance to loved ones on a regular basis. This may not seem like a problem, until you consider that caregivers who don’t truly understand their role are less likely to connect with those around them for support and encouragement.

A Caring Community

Fostering connections with those who understand what you’re going through can make the road you’re traveling easier to navigate. By standing together, caregivers create a community through shared experience that’s widespread and accessible anywhere, both in their local area and through online platforms.

Many caregivers enjoy participating in community events, attending support groups or gathering over brimming cups of coffee. Group text messages are easy to create and maintain, and provide a safe space to exchange well wishes, best practices, uplifting messages and more. Scheduling regular get-togethers with nearby caregivers is another way to connect, providing an outlet as well as a wealth of resources.

Tap Into Your Virtual Network

An internet connection can also play an important role in your caregiving experience, cluing you in to new advances in medicine and technology. Not only that, but a majority of caregivers who have accessed online information say that it has helped them cope with stress.

When venturing into online spaces, search out message boards with discussions that reflect your own experiences, pencil in video chat dates with faraway friends, and read up on all the internet has to offer – from in-depth research to lighthearted blog posts. There’s no limit to what you can find.

Connect and Reflect

As a caregiver, you’re part of a community of empowered individuals who give of themselves to better the lives of those they love. And since we’re on the topic of connections, it’s important not to forget the greatest connection that can be strengthened during your time as a caregiver: the one you share and are fostering each day with your loved one.

Next Steps

• Connect with someone who can relate to your caregiving experience.
• Explore a message board for added caregiving insight.
• Have a conversation with your advisor about the financial implications of caregiving.

 Sources: bls.gov, pewinternet.org; *Pew Research Center