CLOSE
Finance & Law

by -
0 611
Stock photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

What is portability? The word is defined as the ability to be easily moved, but in the context of trusts and estates, it means so much more. In this regard, portability is one of the strongest tools in the planner’s toolbox to reduce or eliminate federal estate taxes after the deaths of a married couple. 

According to federal law, each person has a lifetime estate and gift tax exemption ($12.06 million per person in 2022). As long as the taxable gifts they have paid out during life and at death is under this exemption, no taxes will be owed on the estate at the time of death. While the current exemption is over $24 million, this will sunset for deaths after Dec. 31, 2025.  For any individual death after that date, the exemption will be $5 million, indexed for inflation. Unfortunately, New York State does not allow for portability so other estate tax planning remains necessary.

As an example, take a couple with $14 million total in assets, all held jointly or with the spouse named as beneficiary. The first spouse dies in 2022, the assets all pass over to the survivor and when the survivor dies, all assets will be taxable in that person’s estate. Estate taxes would be owed because the estate is larger than the survivor’s exemption, and if the second spouse dies after Jan. 1, 2026, the tax will be largely based on the reduced exemption amount.

Enter portability to save the day! The IRS allows the surviving spouse to have their own exemption plus any leftover amount of the first to die spouse’s exemption. The first to die spouse’s exemption is portable.  However, this is only available if an estate tax return was filed at the time of the first death and election was made for portability. In our example, since the first spouse passed all assets to the survivor, none of the exemption was utilized. 

If a tax return was filed for the estate and portability was elected, the estate of the survivor will have the applicable exemption amount from the year of death and the $12.06 million exemption from the first death in 2022. That will amount to over $17 million in exemption, thus eliminating all federal estate taxes.

The election to transfer the first deceased spouse’s unused applicable credit amount must be made on a timely filed estate tax return, usually within 9 months of the date of death or the last day of the period covered by an extension. If the tax return is not filed timely, the estate could utilize a simple procedure to obtain an extension to file a late tax return solely for the purpose of electing portability. The caveat is that the estate was not otherwise required to file an estate tax return. If more than 2 years had expired, the estate could ask the IRS for a Private Letter Ruling to obtain permission to file a late estate tax return.  

The good news is that, in July 2022, the IRS amended its regulations to elect “portability” of a deceased spousal unused exclusion amount up to five years after the decedent’s date of death. This is especially relevant with the prospect of the federal applicable credit amount being reduced to $5.0 million (indexed for inflation) after Dec. 31, 2025.  

As an example, the first spouse dies in 2018 and leaves everything to the surviving spouse — which would be tax free and no part of the deceased spouse’s credit was used. Now the surviving spouse has assets of $8.0 million. Since the federal credit is $12.06 million, no tax would be due if the surviving spouse died before December 31, 2025. However, if the surviving spouse dies after that date, there would be a federal tax for any estate assets in excess of $5.0 million (indexed for inflation). 

Under this new amendment, the estate of the first deceased spouse could file for an extension to file a late estate tax return to capture the unused exemption of the first spouse to die. The survivor would have his or her own exemption plus the unused exemption, escaping all federal estate taxes.  

Executors, trustees, or surviving spouses of an individual that died within the past five years should seek advice from a trusts and estates attorney regarding this important change in the regulation. It may be prudent, even in a more modest estate, to file the return and preserve the unused exemption amount as a planning tool for the surviving spouse.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

by -
0 464
Pixabay photo

By Michael E. Russell

Michael E. Russell

Sometimes it makes my head hurt trying to understand how Washington works. The Federal Reserve raises interest rates in order to curb inflation.  Immediately following these actions, Senate Democrats passes the Inflation Reduction Act with the blessing of the White House.

This bill goes counter to what Jerome Powell and the Federal Reserve are trying to accomplish. Jim Kramer on CNBC calls this bill the “Spend Our Way To Oblivion Act or SOWOA.”

If you own stocks, this could be a problem.  For many U.S. companies the bill includes a tax on stock buybacks. This will impact the way companies address their capital. A 15% book tax which hurts companies with net operating losses will force them to issue debt in order to raise capital.

Senator Chuck Schumer proudly states that this bill will allow Medicare to negotiate prices with drug companies. Really? This is not quite correct. Beginning 4 years from now, Medicare will only be negotiating on lowering prices on 10 drugs. Schumer also states that the bill will create higher paying Environmental Engineering jobs. This potentially will lead to hyper wage inflation.  Just look at last Friday’s employment figures. 

Environmental groups are euphoric over the bill, providing the potential for an additional 500,000 high paying jobs. That’s awesome, but where are the applicants to fill these positions? This is the type of wage inflation that the Federal Reserve is trying to rein in.

It appears that commodity inflation has peaked, but now we will have to contend with labor inflation by creating jobs we have no ability to fill, other than to take from the private sector. I don’t want to beat a dead horse, but every time Fed Chairman Jerome Powell tries to get a handle on inflation, the Federal government throws him a curveball.

The people of this country for the most part are hard-working and good-hearted.  The stock market has politics, of course. We all want to slow global warming or better yet, STOP IT. However, what is occurring in Washington has the potential to destroy our free enterprise system. The government is printing money and spending it like sailors on shore leave. A final thought on this, TERM LIMITS.

On a positive note: We have had a nice bounce during the month of July. The jobs number this past Friday appears to show that we may not be on the verge of a recession, but it sure puts pressure on the Fed to increase rates. 

Stock news. GE is splitting into 3 different companies. Those individual stocks could perform very well.  Think back to the split up of AT&T into 7 different entities. I am still a big fan of ExxonMobil, even though it is already up 50% this year. JPMorgan has come down from $165 in January to $114. The potential for a higher price is very possible, while being paid with a nice dividend. Last, but not least, Proctor and Gamble. Most of us use their products on a daily basis, like toothpaste and laundry detergent, don’t we?

Until next month, try to stay cool.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

by -
0 815
METRO photo

By Michael Christodoulou

Michael Christodoulou
Michael Christodoulou

As you know, the stock market has attracted a lot of attention — and for good reason, as we’ve seen considerable volatility almost from the beginning of the year. But if you own bonds, or bond-based mutual funds, you might also have some concerns. However, it’s important to understand why bonds should continue to be an important part of your portfolio.

To begin with, let’s look at what’s happened with bond prices recently. Inflation has heated up, leading the Federal Reserve to raise interest rates to help “cool off” the economy. And rising interest rates typically raise bond yields — the total annual income that investors get from their “coupon” (interest) payments. Rising yields can cause a drop in the value of your existing bonds, because investors will want to buy the newly issued bonds that offer higher yields than yours.

And yet, despite this possible drop in their value, the bonds you own can still help you make progress toward your financial goals. Consider these benefits of bond ownership:

Income — No matter what happens to the value of your bonds, they will continue to provide you with income, in the form of interest payments, until they mature, provided the issuer doesn’t default — and defaults are generally unlikely with investment-grade bonds (those rated BBB or higher). Your interest payments will remain the same throughout the life of your bond, which can help you plan for your cash flow and spending.

Diversification — As you’ve probably heard, diversification is a key to successful investing. If you only owned one type of asset, such as growth stocks, and the stock market went into a decline, as has happened this year, your portfolio likely would have taken a big hit — even bigger than the one you may have experienced. But bond prices don’t always move in the same direction as stocks, so the presence of bonds in your portfolio — along with other investments, such as government securities and certificates of deposit — can help reduce the impact of volatility on your holdings. (Keep in mind, though, that by itself, diversification can’t guarantee profits or protect against all losses in a declining market.)

Reinvestment opportunities — As mentioned above, rising interest rates and higher yields may reduce the value of your current bonds, but this same development may also offer you some favorable reinvestment opportunities. If you own bonds of varying durations — short-, intermediate- and long-term — you should regularly have some bonds maturing. And in an environment such as the current one, you can reinvest the proceeds of your expiring short-term bonds into new ones issued at potentially higher interest rates. By doing so, you can potentially provide yourself with more income. Also, by owning a mix of bonds, you’ll still have the longer-term ones working for you, and these bonds typically (but not always) pay a higher interest rate than the shorter-term ones.

It might not feel pleasant to see the current value of your bonds drop. But if you’re not selling them before they mature, and you take advantage of the opportunities afforded by higher yields, you’ll find that owning bonds can still be a valuable part of your investment strategy.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC

by -
0 746
Pixabay photo/Alex Shute

By Nancy Burner, Esq.

Nancy Burner, Esq.

When creating estate planning documents for clients, a common concern is how to protect the beneficiaries of the estate.

When it comes to providing creditor protection for oneself, there are not many estate planning options available, aside from giving assets away. This could result in undesired consequences, such as the loss of ownership of the assets or creating a taxable event. Fortunately, this is not the case for beneficiaries — there are certain planning techniques to provide beneficiaries with creditor protection, and other protections, that one would otherwise not be able to provide for themselves.

The Internal Revenue Code states that if a trust limits the distribution of principal to an ascertainable standard, the trust qualifies as a creditor protected trust. Limiting distributions to the beneficiary for their health, education, maintenance, or support (HEMS) falls within the IRS guidelines of an ascertainable standard that creates creditor protection for the beneficiary. 

While this type of trust may sound restrictive, the trust can essentially be used to maintain the beneficiary’s lifestyle. The principal of the trust can be used to pay for the beneficiary’s schooling, rent, taxes, medical expenses and more. 

Additionally, assets, such as a real property, can be bought directly in the name of the trust, thus protecting the assets immediately upon purchase. Lastly, the beneficiary can be their own trustee of the trust and have the right to withdraw the income generated from the trust, all while still maintaining creditor protected status.

If there is a concern that the beneficiary may want or need access to the trust beyond HEMS distributions, or that the trust may become too burdensome or impractical to manage, the estate planning document creating the trust can provide various ways to either completely undo the trust or to authorize a distribution of principal beyond the beneficiary’s health, education, maintenance, or support.

Aside from creditor protection, there are additional benefits that come with beneficiary trusts. If, for example, there is a concern that a beneficiary may end up with a taxable estate, any assets transferred to them in trust will not be includable in the beneficiary’s estate.

This could help reduce, if not eliminate, a large estate tax on the beneficiary’s death. Another benefit is the ability for the creator to maintain control of the distribution of trust assets should the beneficiary die before the complete distribution of their trust. 

If the beneficiary is unable to manage their personal finances for any reason, the document can name someone other than the beneficiary to be the Trustee of the trust. The document can include specific instructions on how to administer the trust, thus ensuring that the beneficiary is properly cared for and that assets of the trust will last for an extended period of time.

Beneficiary trusts can exist both within a last will and testament, also known as a testamentary trust, as well as a free-standing living trust. Either document can take advantage of this powerful tool.

Because it is not always immediately clear whether a beneficiary trust or outright inheritance is the right distribution method, it is important to meet with your estate planning attorney and provide them with as much information as possible in order for them to properly advise on the creation of your documents.

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

by -
0 2824
METRO photo

By Jennifer B. Cona, Esq.

Jennifer B. Cona, Esq.

All trusts are not created equally; there are many different types of trusts used for a variety of purposes, such as asset protection planning, financial management, probate avoidance and tax planning. Two common types of trusts in estate and asset protection planning are revocable and irrevocable trusts.

A revocable trust is a trust where you, the trust creator, reserve the right to revoke or change the trust at any time. If properly structured and funded, a revocable trust can be helpful in avoiding probate and allowing for easier management of assets in the event of incapacity. If you own homes in more than one state, it may make sense to place your out-of-state property in a revocable trust to avoid the need for probate in two states. Beware, however, that a revocable trust offers no asset protection. For Medicaid purposes, all of the assets in a revocable trust are considered available and may have to be spent down on the costs of care.

The better option for most older adults is an irrevocable trust. This type of trust cannot be revoked or changed by you alone, but can be with the consent of the trust beneficiaries. The benefit of making a trust irrevocable is that it can be structured as a Medicaid asset protection trust.

An irrevocable trust set up for asset protection purposes can hold almost any type of asset, including your home, bank accounts, and investments. You cannot have access to the principal of the trust, but you can retain the right to receive the income (dividends and interest). After five years have passed, the assets held in the trust are protected with respect to Medicaid. You would not have to spend down those assets on the cost of care; they are protected and will be inherited by your beneficiaries.

By properly planning ahead, your assets can be maintained for quality-of-life items and ultimately left to your heirs. But creating the trust is only the first step. The trust also must be funded, meaning assets must be transferred or re-titled into the name of the trust. For example, bank and brokerage accounts need to be retitled in the name of the trust. When transferring real property to a trust, you will need to sign a new deed naming the trust as the owner of the property.

For many families in the metro NY area, their most valuable asset is their home. As such, we often transfer title to the home to the irrevocable asset protection trust in order to protect its value. You can still sell your home, purchase a new property, keep your real estate tax exemptions, and no one can sell your house without your consent. Other assets can be placed in a trust for asset protection purposes as well, such as investment accounts, bank accounts, mutual funds, and life insurance. 

With the escalating cost of healthcare, it is more important than ever for older adults to protect the assets they worked their whole lives to save from a sudden healthcare crisis. An irrevocable trust is an important tool in that asset protection plan. 

Be sure your Elder Law and Estate Planning attorney understands the extent of your assets and listens carefully to your concerns and goals so that together you can create a customized trust, estate and elder law plan.

Jennifer B. Cona, Esq. is the Founder and Managing Partner of Cona Elder Law located in Melville and Port Jefferson. The law firm concentrates in asset protection, estate planning, Medicaid benefits, probate and special needs planning. For information, visit www.conaelderlaw.com.

by -
0 494
METRO photo

By Michael E. Russell

Michael E. Russell

My wife Barbara and I were lucky enough to spend the past week in Vermont. A respite like this gives one the chance to see what is occurring in the economy from a different perspective.

Sitting on the front porch in the morning I watched truckers hauling lumber and building supplies up and down the road. I decided to check out the nearby diner to hear what the local populace had to say. It sure sounded familiar: prices on the rise, shortage of employees and a real concern as to the direction the country was headed.

However, restaurants were full, many of whom were New Yorkers! Other tourists were taking in the beauty of southern Vermont.  So where are we?

The Federal Reserve is expected to raise short-term interest rates by three quarters of a percentage point later this month. This will lift the benchmark rate to approximately 2.5%. The probability of another one percentage point rate by the year’s end will hopefully cool down inflation which is approaching 9%.

The market has looked favorably on the current moves by the Federal Reserve that were done over the past two weeks. In the short-term there have been some widespread commodity-price declines and other signs of inflation slowing.

The bond market has responded in a positive way. The yield on the ten-year treasury has decreased by one quarter of a percentage point. It currently is at 3.1%, down from 3.1 in early June. This includes a 2% increase in the past week alone!

The S&P is currently projecting earnings for 2023 at under 16x earnings. The 2022 earnings is close to the same number. What this says is that the current 2022 projection on the earnings yield which equates to profits divided by the current index level is close to 6%, twice the ten-year treasury yield!

Looking at other indices is showing that that there may be opportunities in area other than the S&P 500, which most investors follow.

The S&P small cap 600 is currently priced at less than 12x estimated 2022 operating earnings. This a number that hasn’t been seen in a long time. This index and corresponding exchange traded funds may provide for portfolio growth.

As I have mentioned in past articles, the money center banks have provided dividend yields ins excess of 3%. These dividend yields have given support to their stock prices.  Bank of America, Goldman Sachs trade at near book value. Citigroup, which has improved its balance sheet by controlling expenses and increasing its net interest income, is trading at half its book value.

Even though short-term earnings are not looking robust due to a drop in mortgage origination fees and weaker investment banking opportunities, all dividends appear secure.

What is Warren Buffett up to? This week he added to holdings in Occidental Petroleum through Berkshire Hathaway. He now owns close to 20% of the company in a stake worth more than $20 billion.

By the way, Berkshire Hathaway is holding close to $100 billion in cash and cash derivates I expect Buffett to put several billion into picking up value stocks.  As an aside, the $100 billion in cash will give Buffett a profit in excess of $5 billion annually. NICE!!!

In summary, where are we? Not exactly sure. West Texas Crude Oil has dropped to $98 a barrel, some “experts” are projecting a drop to $65. We can only hope! Mortgage rates have dropped to 5.3% and the June jobs number beat expectations.

Boris Johnson is gone, Elon Musk says no to Twitter, Janet Yellen threatens China with sanctions, China threatens Taiwan, etc, etc. Now Monkey Pox!!! Can we just catch a break and enjoy the rest of the summer? Sure hope so. Until next time.

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

by -
0 695
Stock photo

By Michael Christodoulou

Michael Christodoulou
Michael Christodoulou

In just a few weeks, students will be heading off to college — and parents will be getting out their checkbooks.

Without a college-bound student in your home right now, you might not be thinking much about tuition and other higher education expenses, but if you have young children, these costs may eventually be of concern. So how should you prepare for them?

It’s never too soon to start saving and investing. Unfortunately, many people think that they have a lot of “catching up” to do. In fact, nearly half of Americans say they don’t feel like they’re saving enough to cover future education expenses, according to a 2022 survey conducted by the financial services firm Edward Jones with Morning Consult, a global research company.

Of course, it’s not always easy to set aside money for college when you’re already dealing with the high cost of living, and, at the same time, trying to save and invest for retirement. Still, even if you can only devote relatively modest amounts for your children’s education, these contributions can add up over time. But where should you put your money?

Personal savings accounts are the top vehicle Americans are using for their education funding strategies, according to the Edward Jones/Morning Consult survey. But there are other options, one of which is a 529 plan which may offer more attractive features, including the following:

Possible tax benefits

If you invest in a 529 education savings plan, your earnings can grow federally income tax-free, provided the money is used for qualified education expenses. (Withdrawals not used for these expenses will generally incur taxes and penalties on investment earnings.) If you invest in your own state’s 529 plan, you may receive state tax benefits, too, depending on the state.

Flexibility in naming the beneficiary 

As the owner of the 529 plan, you can name anyone you want as the beneficiary. You can also change the beneficiary. If your eldest child foregoes college, you can name a younger sibling or another eligible relative. 

Support for non-college programs 

Even if your children don’t want to go to college, it doesn’t mean they’re uninterested in any type of postsecondary education or training. And a 529 plan can pay for qualified expenses at trade or vocational schools, including apprenticeship programs registered with the U.S. Department of Labor.

Payment of student loans 

METRO photo

A 529 plan can help pay off federal or private student loans, within limits.

Keep in mind that state-by-state tax treatment varies for different uses of 529 plans, so you’ll want to consult with your tax professional before putting a plan in place.

Despite these and other benefits, 529 plans are greatly under-utilized. Only about 40% of Americans even recognize the 529 plan as an education savings tool, and only 13% are actually using it, again according to the survey.

But as the cost of college and other postsecondary programs continues to rise, it will become even more important for parents to find effective ways to save for their children’s future education expenses. So, consider how a 529 plan can help you and your family. And the sooner you get started, the better.

*Investors should understand the risks involved of owning investments. The value of investments fluctuates and investors can lose some or all of their principal.

Michael Christodoulou, ChFC®, AAMS®, CRPC®, CRPS® is a Financial Advisor for Edward Jones in Stony Brook. Member SIPC.

by -
0 548
METRO photo

By Nancy Burner, Esq.

Nancy Burner, Esq.

Not all estates require a probate or full administration proceeding. A small estate proceeding,  also known as a Voluntary Administration, is a simplified Surrogate’s Court procedure. 

What estates qualify?

The  Voluntary Administration is available if the decedent passed away with $50,000 or less in  personal property. Personal property includes cars, cash, stocks — anything but real estate. The Voluntary Administration proceeding is not an option when the decedent owned real  property solely in their own name. It is available if the decedent died with or without a Will.  

Voluntary Administration is not only for decedents who had minimal assets. Sometimes  only certain assets were owned by the decedent in their sole name. This happens often with  married couples with joint bank accounts or who own real estate with rights of survivorship. A decedent may have named beneficiaries on most of their accounts. In such cases only some  property needs to pass through Surrogate’s Court. Other times a decedent conveyed most, but not all, of their property to a trust. If the assets left outside the trust are less than  $50,000, a Voluntary Administration is available.  

How to file

The small estate proceeding is initiated by filing of an “Affidavit of Voluntary  Administration.” The Petitioner is either the nominated Executor in the decedent’s Will or  the closest living relative when there is no Will. The Petitioner is asking the Court for the  authority to collect the decedent’s assets, pay off any debts, and distribute the property to  those with a legal right to inherit. If there was a Will, the beneficiaries named in the Will  inherit. If there was no Will, then the estate passes under the laws of intestacy. 

The Voluntary Administration Proceeding is less complex than a probate or full  administration proceeding. Consent and Waiver is not required from the decedent’s  distributees (heirs who will inherit under the estate). The Court only provides the  distributees with notice that the proceeding was filed. This avoids the expense of costly  litigation over the appointment of a fiduciary.  

Drawbacks

The Voluntary Administration Proceeding has some drawbacks. The appointed  Administrator only has the authority to collect the specific assets listed on the Affidavit of  Voluntary Administration. Such broad authority is only available in a full probate or  administration proceeding. The Administrator does not have the broad authority to collect  and distribute any additional assets. If the Administrator finds assets not listed on the initial Affidavit, they have to go back to the court. 

Further, if the assets exceed $50,000, the Administrator must convert the proceeding to a full probate or Administration. For this reason, when there is uncertainty about the assets, it may be wise to proceed with a full  probate or administration proceeding.  

A small estate proceeding costs only $1 to file. While the Voluntary Administration  Proceeding is simple and inexpensive, mistakes can be costly. It is always a good idea to  consult with an experienced Estate attorney to ensure that a small estate proceeding is the  best way to proceed. 

Nancy Burner, Esq. is the founder and managing partner at Burner Law Group, P.C with offices located in East Setauket, Westhampton Beach, New York City and East Hampton.

by -
0 511
METRO photo

Island Federal Credit Union (Island Federal) has announced a new mortgage program to make it more affordable for first-time buyers to purchase a home on Long Island. For those who qualify, Island Federal’s Cut-the-Cost Mortgage Program reduces closing costs up to $5,000.

“Throughout our history, Island Federal has offered innovative programs to make homeownership possible for more Long Islanders. In 2018, we introduced the Dream it. Achieve it. Mortgage to allow up to 100% financing. We also offer the Heroes Mortgage that waives underwriting fees (approximately $600) for those who serve in the military, education, medical, or other service professions. The Cut-the-Cost Mortgage Program is the latest addition to the suite of products that enable first-time buyers to afford a home,” said Bret W. Sears, President/CEO, Island Federal.

“The Cut-the-Cost Mortgage Program is a terrific program for the first-time buyer as Island Federal provides up to $5,000 towards closing costs for those who qualify. While there are other mortgage programs that claim to offer ‘no closing costs,’ purchasers discover that their programs do not cover all fees. With our program, buyers will know what the costs will be, so there will be no surprises at closing,” added Tim Aaraas, Vice President/Retail Lending.

Aaraas continues, “In addition to specialized programs, Island Federal offers no-obligation seminars that review the mortgage process from application to closing. For Spanish-speaking home buyers, Island has mortgage professionals that are bilingual. To make it more convenient to apply, we have an Island-Easy Online Mortgage application that can be completed in as little as 10 minutes. Most of us dream of owning our own home. At Island, we want to make that possible.”

To learn more about Island Federal’s Mortgage options, visit www.islandfcu.com/mortgage.

by -
0 648
Gas pump. METRO photo

By Michael E. Russell

Michael E. Russell

The state of our economy reminds me of the skit performed by Bud Abbott and Lou Costello in the 1950s. Who’s on first, what’s on second, I don’t know who is on third! What a mess!

Treasury Secretary Janet Yellen admits to a series of mistakes by her department and by the Federal Reserve. President Biden is now going to Saudi Arabia to ask them to pump more oil while shutting down our own pipelines. I find it difficult to believe that inflation is only up 8.6% year over year, a statistic issued by the Fed. Gas at the pump is up 60%, meat up 62%, vegetables up 55%, air travel up 34%; I just don’t get it.

I feel like a grandparent who tries to help the kids with their math homework. It is somewhat confusing to me that 2 + 2 no longer adds up to 4, etc., etc. I guess our kids are all going to become economists and work for the Federal Reserve.

I do not want to be the bearer of bad news, but I think a reality check would be in order. I will use the Federal Reserve number even though they exclude food and housing. Really! On inflation, there can be no dispute. Friday’s report that consumer prices shot up by the highest number in 40 years cannot be considered a surprise. Reports issued by the University of Michigan’s consumer confidence survey showed the most downbeat sentiment on record, mainly due to historically low unemployment and soaring prices. 

It appears that notes from the Federal Open Market Committee (FOMC) indicate that Fed Chairman Jerome Powell intends to raise rates one-half percent this month and again in July. Futures also indicate another half percent increase in September.

The change in attitude at the FOMC since March is extremely troubling. The inflation numbers caught them completely by surprise.  Why didn’t they just ask people who were filling their gas tanks and shopping for food?  They sure knew that inflation was running rampant. Just a few more statistics, because Washington D.C. makes me crazy.

Larry Summers, who served as Treasury Secretary from 1999-2001, issued an economic research paper this past week. To quote, “In order to bring down core CPI to the 2% range would require the same extreme monetary restraint exerted by former Fed Chairman Paul Volcker which resulted in back-to-back 1980s recessions.” Once again there are plenty of smart people out there who have been stating that the Fed is way behind the eight ball. Example:  former Alliance Bernstein chief economist Joseph Carson has been screaming for more than a year, “The Federal Reserve is missing the boat.”

Let’s talk about stocks. The Standard and Poor’s P/E has dropped from 21 to 16. This number, 16, is normally considered to be a reasonable P/E to purchase stocks. However, if interest rates are still too low and earnings forecasts drop, don’t be surprised if there is more damage done to the stock market. The market is down 10 out of the last 11 weeks. I blame the Fed’s ineptitude in dealing with inflation, plus the war in the Ukraine and the lasting effects of the pandemic.

What do we buy? Drugs! Not street drugs, but great drug companies. The pandemic and the need to stay home and eat and eat and eat have caused a lot of us to get fat. So, let’s look at companies that make insulin. Why?  It manages blood sugar levels which help weight control. Eli Lilly (LLY) just received FDA approval for Tirzepatide for diabetes apparently with good results. Novo Nordick (NVO), a Danish company is the world’s top maker of insulin. Novo’s drug sales for obesity doubled year over year to $480 million. They are projecting a nine-fold increase in sales.

Some news that hit the wire this past week:

1. Twitter agreed to share data on false accounts with Elon Musk, thus putting the $44 billion takeover back on track.

2. Jet Blue airlines increased its offer to purchase Spirit Airlines.

3. Kohls is in talks to be purchased by Franchise Group for $8 billion.

As our parents told us, “if you don’t have anything good to say, stop talking.” On that note, please enjoy our wonderful weather. If any of our readers know how to keep the geese off the front lawn and the deer out the garden, please let me know. 

Michael E. Russell retired after 40 years working for various Wall Street firms. All recommendations being made here are not guaranteed and may incur a loss of principal. The opinions and investment recommendations expressed in the column are the author’s own. TBR News Media does not endorse any specific investment advice and urges investors to consult with their financial advisor. 

Prev1...234...23Next Page 3 of 23
TBR News Media is your local news and entertainment website.
We provide you with the latest breaking news and information for your community.
Contact us: [email protected]

Most Viewed

©