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The Best of What They Said and I Read Week Ending 6/3/2018

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  – June 2, 2018 – Dow Shows Nerves of Steel Amid Trade Tensions – by Ben Levisohn

“…It sure is noisy out there. But you wouldn’t necessarily know it from looking at the major indexes. The Dow Jones Industrial Average dropped a rather blasé 117.88 points, or 0.5%, to 24,635.21 this past week, while the S&P 500 rose a standard-issue 0.5%, to 2734.62. Only the Nasdaq Composite, with a 1.6% gain, to 7554.33, posted a return that went beyond the pedestrian.  The week, though, was filled with events that, in the moment, looked like major game changers. Last Tuesday, amid a political standoff, Italy’s bonds sold off and their yields soared as talk of that nation leaving the euro zone grew. Later in the week, the Trump administration’s decision to impose tariffs on steel and aluminum imports from Canada, Mexico, and Europe renewed fears of a global trade war.”

“There used to be a new worry every quarter or year,” says Thomas Digenan, head of U.S. intrinsic value equities at UBS Asset Management. “Now it’s every week.”  Little of the damage proved lasting. Calm returned to the Italian bond market. A surprisingly strong June payrolls report helped boost stocks on Friday…”

The Kiplinger Letter – June 1, 2018 

“Stock markets remain near record highs. But volatility is up, interest rates are rising, and many investors are wondering how much longer the bull market that started in 2009 can keep running. So where should you put your money now? Stock prices still have some room to rise. Look for a 7%-8% gain by the end of 2018...not including dividends...on top of the 2% logged so far, putting Standard & Poor’s 500-stock index at 2900 or so. The Dow Jones industrial average…26,500. “

“Several factors warrant an optimistic outlook: Strong corporate earnings. Lower taxes. The solid economy. More fiscal stimulus from Congress in the form of increased spending. But you should plan for more turbulence in financial markets, even as stocks grind higher. Growing trade rifts could spook markets. Elections in Nov. will create some jitters. Perhaps most worrisome: Signs of inflation, which has been strengthening lately. Higher prices could force the Federal Reserve to proceed faster on hiking interest rates than it currently intends…bearish for stocks and bonds alike…”


Barron’s  – June 2, 2018 – Rethinking Retirement Rules – by Reshma Kapadia

“…It’s the worst time to retire since just before the dot-com bubble burst,” says David Blanchett, head of retirement research for Morningstar. It’s the downside of a decadelong bull market in stocks and a 35-year bull market in bonds: Rising market volatility, rising inflation, rising interest rates, and an uncertain economic outlook all point to much lower expected returns—all of which is far more dangerous to a portfolio that is being drawn down rather than still accumulating. Of course, retiring just ahead of the financial crisis or dot-com bust was painful, but in both cases the near-term outlook for market returns was far better than it is today.”

“…Start with Social Security. It’s hard to find consensus around retirement income strategies, but one piece of advice gets near-unanimous support: Delay taking Social Security until you’re 70... Social Security is guaranteed income for life, and the payouts are adjusted for inflation, which will probably rise in the near future. What’s more, every year (until you turn 70) that you delay claiming your benefits, the amount you’re entitled to grows 8%. That’s a far better return than you’ll likely get on stocks, not to mention it’s guaranteed. Think about this: If your full retirement age is 66, delaying for four years could increase your benefit by 32%...”

“…For retirees doing it themselves, Vernon proposes using the required minimum distribution formula that the Internal Revenue Service lays out for people once they turn 70½. It’s not perfect, but it accounts for market volatility, by calculating the year’s spending amount off the portfolio balance, and longevity, via mortality tables. The initial rate for a 65-year-old, for example, would start at 3.5% and rise to 5.35% at 80. One drawback is that spending starts slow, and can swing along with markets…”


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