Yellen Admits 2% Target Is Phony

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rate hike without data

Janet Yellen admitted that the Fed’s two percent inflation target is largely phony. She didn’t say that in as many words of course. What she actually said was It would be imprudent to keep monetary policy on hold until inflation is back to 2 percent On the one hand, that makes sense. The levers that steer the economy do so more like those that control a supertanker, and less like the steering wheel of a Tesla. So, the Fed Chairwoman is right that you can’t simply wait for inflation to hit 2% and then start raising interest rates. That could lead to a hard landing, or worse, not work at all. Stealth Inflation But, that isn’t what she meant. What she meant was that there is no data indicating that inflation will be 2% anytime soon, but that doesn’t square with what she thinks is/maybe/will be happening in the economy. You see, she is convinced that inflation is hiding somewhere, cloaked in stealth mode, undetectable by economic statistics, like some sort of cloaked Klingon finance battleship. That seems to be a popular theory because of two factors. One, the stock market keeps going higher, and people are starting to worry …

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Fix RMD Tax Problems With QCD

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irs taxes tax form

You’ve spent a lifetime saving for retirement, and you did a really great job. So great, in fact, that you don’t need to take money out of your IRAs. But, you’ve turned 70 1/2, and now the IRS is forcing you to withdraw money from your IRA every year in the form of a Required Minimum Distribution, or RMD. Is there any way to get around having to take an RMD? Mitigating Your RMD’s Affect On Your Taxes The IRS gave you years of tax relief on the funds in your IRA. They only did that to encourage you to save for retirement. Now, that you’re retired (or at least retirement aged) they want their money now in the form of taxes on your IRA withdrawals, but if you played your cards right, you might not ever need to withdraw, and the IRS would have to wait longer for that money. The IRS hates waiting.  The RMD keeps this from being the case. Once you turn 70 1/2 years old, you have to take some money out every year, and the government is there, waiting to tax it. Unfortunately, there is no way to get out of having to take …

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Apple Watch Overreaction Buying Opportunity?

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apple watch 3 problems

I don’t like giving short-term stock trading advice, because all of the wrong people end up taking it. Let’s start from the beginning. If you don’t have $100,000 of investable assets in a trading account (not counting 401k, IRA, or other long-term savings accounts), you have no business buying individual stocks of any kind. The ability to make a profit with small stock buys is severely limited. Buy Apple Stock on Watch News Apple recently announced the Apple Watch 3. The big deal for the Apple Watch 3 is that it can connect directly to cellular networks on its own without you having to have an iPhone to connect it to. This is another step in the direction of the watch itself replacing your phone, but for now, it’s mostly a novelty that appeals to Apple technology enthusiasts. Recent reviews have indicated that there are some issues with the Apple Watch connectivity. As a result, Apple stock is down over 2% today. This is a major overreaction, and a buying opportunity if you are looking to invest in Apple shares. The problem, is that the watch connects to Wi-Fi networks that do not have internet connectivity. This is the communication …

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Is Slack a Good Investment

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Is Slack a Good Investment 1

Got some questions about the (semi) big news about Slack getting a new investment. The catchy headlines say that Slack is “now worth over $5 billion”. Of course, with snazzy numbers like that, more than a few readers are wondering if investing in a Slack IPO is a good move. How Much Is Slack Really Worth? First off, let’s back up and do a reality check. Slack is not “worth” $5 billion now. It’s latest funding gives it a valuation of $5 billion, but that isn’t the same thing. Example time! Let’s say I have a company. We’ll use my freelance writing business of ArcticLlama. Now, I don’t have any funding, but if I did, it would work something like this. An investor offers me $1 million for 10% of ArcticLlama. I say yes. So, if the 10% of the company is worth $1 million, then mathematically, the whole company is worth $10 million. That is what a valuation is. This does not mean anyone would actually give me $10 million for the company, just like there isn’t likely anyone out there willing to pay $5 billion for Slack right now either. This is kind of a game, and it’s …

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What the Equifax Hack Really Means For You

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equifax-hacked

There is a lot of misinformation out there about the Equifax security breach, or hack. I wrote up a quick blurb the night I heard about it to try and help, but now it’s been a few days and it’s clearer what is happening, and what people are thinking. What Can I Really Do About the Equifax Hack? About the only thing that might punish Equifax is if tons of Americans put a freeze on their Equifax credit reports and then refused to take them off when lenders ask. Unfortunately, the answer is really that there is nothing you can do about the Equifax security breach. Unlike your usual credit card number theft, or username and password theft, the information the hackers got from Equifax isn’t able to be cancelled and replaced. This is your life, your addresses, employers, banks, cable company, cell phone company. It’s a master key for identity theft, and it exists out there forever, now. There is nothing you can do but watch and wait. Let’s start with what won’t help you stay safe from the Equifax data breach. Changing usernames and passwords – The hackers didn’t get usernames and passwords. Assuming your usernames and passwords …

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Return of High Risk Mortgages

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There was a recent article over at CNBC about high-risk mortgages and their resurgence, sometimes at the hands of the very same players who offered them before the big banking crisis and subsequent recession of 07-08. Of course, it’s easy to wring your hands and worry, “Here we go again,” but before you do that, take a closer look. High-Risk Mortgages Are Not “Bad” There is nothing wrong with a high-risk mortgage. Just like a no credit credit card, a high-risk mortgage has a greater chance of defaulting than one given to lower risk borrowers. However, that isn’t inherently a bad thing. On a macro level, the credit markets work a lot like the insurance markets. Take life insurance, for example. Some people are going to die, and you are going to pay out on those policies. However, as long as the premiums you take in from everyone exceed the amounts you pay out, the company profits. Everybody wins. Similarly, with high-risk home mortgages, you know some people are going to default. Again, as long as your portfolio of mortgages collects more payments than you lose through defaults, you win. This is how the entire bond market works. Risk is fine, …

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How To Pay Off Your Mortgage Early The Smart Way

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dream of paying mortgage off early

There are a lot of people out there who dream of paying off their mortgage early. As a financial advisor, I would often have to talk them out of unusual schemes for paying off their house early, like raiding their 401k. It isn’t a bad thing to pay off your mortgage, but it isn’t as great, or as simple, as you might think either.   The Right Way To Pay Off Your Mortgage Early Instead of raiding your retirement fund, or cashing in Aunt Nancy’s inheritance, the best way to pay off your mortgage early is to add a little bit of extra principal each month. Just like saving each month adds up over time, so does paying off your mortgage. Each extra bit of principal you pay not only lowers the principal, but it lowers the amount of every payment after that going to interest. So, if you add an extra $20 per month starting with payment one on a thirty year mortgage, that’s going to add up to a lot of extra principal; it’s just going to take a very long time. In reality, those extra payments won’t add up to much until near the end of your …

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Zillow Can Keep Zestimating

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are zillow zestimates accurate

If you have had even an inkling of interest in real estate in the last few years, you have probably heard of Zillow, the online real estate website. It’s one of many online financial services shaking up the game like the Acorns savings app, or the Digit app. Zillow built its audience on the concept of a Zestimate, and online, computer-based algorithm that provides an estimate of the value of your home. People love seeing what their house is “worth” today, this month, and over time. The Zestimate is updated as often as the algorithm gets new data. Are Zestimates Real Estimates? Zillow has had to fight off people from the real estate industry who don’t like the company giving people ideas that makes it harder to earn that real estate commission. Sometimes, it makes people think their house is worth too much, and sometimes it makes people think the house they want to buy is overpriced. Either way, that is a headache for realtors and real estate agents. According to a recent lawsuit, it also caused problems for home builders who accused Zillow of hurting their ability to get the proper sale price for their homes by publishing Zestimates …

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Stock Market and the Eclipse

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Stock Market and the Eclipse 3

With all the scare mongering these days, I’m surprised to not have seen an article about the negative effects a solar eclipse has on the stock market. Has anyone even done the research? What if stock traders get spooked from inside their windowless room on the floor of the New York Stock Exchange? What if little old ladies and their dividend paying stocks worry eclipses erase dividends? What if everyone ruins their iPhone cameras taking pictures of the eclipse? (Actually, that might boost Apple stock when they get a big boost in iPhones sales and repair revenues.) Actually, a story like that is the worst kind of stock market prediction story, because it has a fixed event date. After today, you would have to take your lumps if you were wrong instead of just waiting to slowly, eventually become right, like all of the current, market top doomsday projectors are doing. Of course, an actual prediction with an actual date, would be infinitely more valuable. So, why doesn’t anyone do it? The same reason as always. It actually is impossible to time the markets. Trends come, and trends go, but knowing what will happen today, tomorrow, next week, next month, …

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Inflation Disappears (Again)

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no inflation

Update: Yea! It looks like I was right, and everyone has come around. It’s August now, and it looks like those low inflation numbers were neither an aberration, nor temporary. There simply is no inflation, the job market, while full, is not hot, and there is no need to raise rates the rest of 2017, so say we all 🙂 The Fed has been working to raise interest rates because of the specter of inflation. However, with the exception of energy prices, there really hasn’t been much in the way of inflation. As a result, the Fed keeps explaining that they think that all those reports of low inflation were temporary. That all took a bit of knock today as the U.S. Government reported that inflation in June was zero. That’s right, zero, as in no inflation (again). And that comes after the actual 0.1% drop in inflation in May. This is of course, a far cry from the Fed’s so-called target of 2.0% inflation, and calling two months in a row of data temporary starts to look like ignoring data, so the tone has changed. A lot hinges on the July report. Check out my Credit Sesame review. Fed …

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