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The Best of What They Said and I Read Week Ending 5/17/2020

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice

 

 Barron’s – May 15, 2020 – The S&P 500 Was Stopped in Its Tracks Last Week.  Here’s Why Another Drop Could Be in the Offing. – Ben Levisohn

  • “…It was certainly a tough week for stocks. The Dow Jones Industrial Average dropped 645.90 points, or 2.7%, to 23,685.42, while the S&P 500 index fell 2.3%, to 2863.70, and the Nasdaq Composite declined 1.2%, to 9014.56. It was the Dow’s and the Nasdaq’s worst week since the week ended April 3, and the S&P 500’s worst since the week ended March 20.  Oh, the market had plenty of reasons to fall. Thanks to Covid-19, the economic data continue to be terrifying—nearly 3 million additional people filed for jobless claims , retail sales suffered the largest plunge on record , and industrial production cratered. Federal Reserve Chairman Jerome Powell spoke and threw the stimulus ball back into Congress’s court . Congress, for its part, doesn’t seem inclined to bridge the gap between the parties to get something done. Throw in rising tensions between the U.S. and China , and not even tech giants like Apple and Amazon.com could keep the market afloat.”

 

Barron’s – May 16, 2020 – Here Are 4 Thing Retirement Savers Should Know After the Cares Act and Secure Act – Cheryl Winokur Munk

  • RMDs - Beginning this year, the age for required minimum distributions to begin for retirement-account owners increased to 72 years, from 70½, thanks to the biggest retirement overhaul since 2006. For those who turned 70½ in 2019, however, the first RMD was required to be taken by April 1, 2020—that is, until the Cares Act waived RMDs due in 2020 .  The coronavirus-relief package temporarily waives RMDs this year, regardless of one’s impact from the virus…That’s a welcome change for retirement savers who might otherwise have had to pay hefty taxes on portfolios that are down sharply from near-record highs of Dec. 31, 2019, the date by which RMDs for 2020 are calculated…”
  • “Coronavirus-Related Distributions - The Cares Act allows certain individuals to withdraw up to $100,000 of IRA and 401(k) funds during 2020, penalty-free, if they meet certain conditions. Either they or their spouse or dependent has to have been officially diagnosed with coronavirus, or the plan owner has to have experienced “adverse financial consequences” because of the virus…Borrowing From 401(k)s:  Using the same eligibility requirements, the Cares Act doubles 401(k) loan limits for individuals eligible for a coronavirus-related distribution to the lesser of $100,000 or 100% of the participant’s vested account balance. Availability is subject to each plan’s rules on participant borrowing…”
  • “Demise of the Stretch IRA - The Secure Act eliminated the popular estate-planning tool where a traditional IRA could be drawn down over a beneficiary’s lifetime to minimize the tax burden. Now, most beneficiaries, including trusts, will have to deplete the account within 10 years, with a few exceptions. These exceptions are: the surviving spouse, minor children (but not grandchildren), disabled beneficiaries, chronically ill individuals, and beneficiaries who are up to 10 years younger than the account owner.”

 

The Kiplinger Letter – May 15, 2020 

  • “…The national debt is headed for new records. As a percentage of GDP, debt held by the public rose from 22% in 1974 to 79% last year. In another year or so, it’ll hit 117%, nearing the World War II peak. Then, as more baby boomers retire and the costs of programs like Medicare rise, it’ll hit 125% by 2030. Will anything be done to rein in the deficit? Not likely, in our judgment. Fiscal hawks are practically extinct in Washington. Both parties agree in principle on the need for massive stimulus to prevent the recession started by the coronavirus from becoming a long-lasting depression. They bicker about exactly how much to spend and how to spend it, but not on the need to spend.” 
  • “Not a partisan issue…we don’t see either party having the stomach to do it. Instead, Washington will rely on the Federal Reserve to curb interest rates so that the interest on the growing debt remains relatively manageable. The Fed has already cut its benchmark rate to zero and will buy Treasury bonds just as fast as the government issues them, to make sure rates on long-term debt stay low, too. Is this sound economics? Perhaps not. But it’s been done before. For years during and after WWII, the Fed kept rates below the rate of inflation to make it easier for the federal government to service the huge debts it racked up to fight the war.  In practical terms, what all this means is interest rates will stay very low, likely for years…Interest on bank accounts will be slim to none. Annuities…less generous. Life insurance…higher premiums going forward. That’s bound to push more folks into riskier assets, particularly stocks, sending their prices higher at times but also raising the risk of bigger market drops.” 

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