Happy Fed Day! Ed’s Daily Notes for January 29th   4 comments

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There is only one thing every investor needs to know today: The Federal Reserve’s Open Market Committee announcement will be released at 2 pm EST today. With the move up yesterday, equity markets are positioned to react to the Fed, positive or negative. So here is my own view on what to expect, depending on what the Fed does:

1. The Fed tapers QE by another $10 billion (reducing QE to $65 billion): This is what the Fed has been telegraphing for awhile, so it seems to be the most likely announcement. Economic reports haven’t been bad enough, at least on the surface, to warrant a shift in Fed policy. However, the Fed has surprised before, so I only rate this as a high probability. The market reaction could be interesting though. I honestly rate market reaction as a 50/50 possibility, because the logical reaction would be for the markets to react negatively. On the other hand, we have already had a big sell-off, so we could end up with a “sell the rumor, buy the news” response.

2. The Fed tapers a smaller amount, or not at all, or increases QE: The bulls’ dream scenario. The Fed sees economic weakness and decides to slow the taper. I would rate this as a 25% probability. If you see this, I would advise buying early and often.

3. The Fed increases the taper amount (reducing QE by more than $10 billion): The bears’ dream scenario. This could actually crash the markets, so I would rate this as a very low probability.

In other news…

Bloomberg: Obama Offering Retirement-Savings Plan for Workers

Most of President Obama’s State of the Union address last night was irrelevant until we see what he does (he has said a lot of things in previous SOTU speeches that never happened). But I found this part interesting:

President Barack Obama offered more Americans the chance to save for retirement through payroll deductions with a plan for new government-sponsored savings accounts.

The accounts, which Obama announced tonight in a State of the Union Address that concentrated on expanding economic opportunity, will be available to workers who don’t have access to a 401(k) plan, administration officials said.

The “MyRA” accounts, similar to an individual retirement account, will provide “a new way for working Americans to start their own retirement savings,” Obama said in the text of the speech released by the White House.

Under the initiative, workers would be allowed to have a portion of their pay deducted for deposit into an account invested in U.S. government bonds that would be treated for tax purposes as an individual retirement account, administration officials said.

The accounts, set up through the Treasury Department, would have a maximum balance after which money would have to be rolled over into an IRA, the officials said.

I view this as another way for the government to take advantage of the poor and stupid. I would tell anyone who is saving for retirement, but doesn’t have access to a 401k, to start with an IRA first. Once that is maxed out, if they still want to save more for retirement, then a program like this would be useful. But anyone starting their retirement savings with a “MyRA” account is leaving their retirement savings in the hands of the liars and crooks running our country. Would you leave your retirement savings in Al Capone’s hands?

Politico: GOP ready to surrender on debt ceiling

One less thing for the equity markets to worry about:

House Republicans are getting ready to surrender: There will be no serious fight over the debt limit.

The most senior figures in the House Republican Conference are privately acknowledging that they will almost certainly have to pass what’s called a clean debt ceiling increase in the next few months, abandoning the central fight that has defined their three-year majority.

While I don’t approve, I will concede the Republicans are backed into a corner. On the other hand, I am also realistic enough to know if the Republicans controlled both houses, they would still be spending like drunk sailors in a whorehouse…

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Posted January 29, 2014 by edmcgon in Federal Reserve, Market Analysis, News, Politics

4 responses to “Happy Fed Day! Ed’s Daily Notes for January 29th

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  1. Ed, I don’t think MyRA is after the poor and stupid. I think it’s whole intent is to encourage people to save for retirement. The largest % something like this could help is your blue collar workers. I know so many people that are good hard working folks who have done what they’re told put into a 401k but don’t have anything in savings. These people are not poor and stupid!

    More than half of workers said they had less than $25,000 in savings, outside of their home and pensions. And 28% of workers said they had less than $1,000 in savings. http://money.cnn.com/2014/01/28/retirement/savings-retirement-myra/

  2. It wasn’t all that many years ago when talking to my Mom about investing she said, “Tom, you are more intelligent than many investors so you may make money but many don’t make money.” It wasn’t until I had to sign up for ObamaCare and my wife for Medicare that I became aware of how complicated insurance is and I don’t know how many people make the best decision for themselves.

    I have to say anything the government does to help people save is good. Yes, the money goes into government bonds which does allow (in a convoluted way) the government to spend more — but then again when did they need another $25 to justify spending trillions.

    I do agree with the last sentence from this article out of U.S. Today:

    WASHINGTON — A new savings plan will allow Americans to buy savings bonds in a starter retirement account that “guarantees a decent return with no risk of losing what you put in,” President Obama said Tuesday evening in his State of the Union address.

    “Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s,” he said.

    Obama said he would direct the Treasury Department to create new “MyRA” accounts to allow people to more simply invest in Treasury bonds. “It’s a new savings bond that encourages folks to build a nest egg,” he said.

    FULL TEXT: Obama’s State of the Union Address

    Details:

    Safe: The new savings bonds would have its principal guaranteed by the U.S. government, much like a traditional savings bond.

    Tax benefits: The MyRA bond would be like a Roth IRA: Your contributions would not be tax-deductible, but your earnings would be free from tax when you withdraw it. As with a Roth, your contributions can be taken out tax-free at any time.

    Affordable: Minimum initial investment could be as low as $25, and subsequent investments could be as little as $5, through payroll deduction. Savers can keep the same account when they change jobs.

    Rates: Savers will earn interest at the same variable interest rate as the federal employees’ Thrift Savings Plan (TSP) Government Securities Investment Fund. The fund earned 1.74% last year.

    Availability: The MyRA would be open to households earning up to $191,000 a year through their employers. Employers won’t incur any cost to offer the MyRAs. You’ll be able to save up to $15,000 a year for up to 30 years before transferring to a private Roth IRA.

    The proposal was not the most controversial proposal the president unveiled, but it was a brand new idea he hadn’t previously announced. The White House said it would release more details Wednesday, as the president embarks on a tour to expand on themes of the speech.

    Retirement accounts aimed at small investors are often high-cost, in the case of brokerages, mutual funds and insurance companies. Bank retirement accounts often get sold up to high-cost investments when they grow large enough. But someone who uses a MyRA to save $15,000 could switch to a low-cost, broadly diversified fund, such as Vanguard Total Stock Index. Cost for one year: $7.50.

    Employers who offer the option won’t have to administer them. And if they automatically enroll employees — which they won’t be required to do — those employees will have a greater chance of accumulating retirement savings. At Fidelity Investments, pans with auto enrollment have an 84% participation rate vs. a 53% participation rate for plans without auto enrollment.

    “It remains to be seen whether the MyRA is a better mousetrap,” says Gary Schatsky, a New York financial planner. “For many, it could be first time they are participating in retirement savings in any meaningful way.”

  3. Is there a place to go (internet) to find an average or regional well head price for natural gas?

    Feb. future’s have spiked to $5.69 this afternoon. So, does this transfer to an increase in well head price (and therefore royalty checks)?

    I also understand most natural gas is sold not on the spot market but long term contracts (future’s). So, if there is a spike in future’s market pricing (like this month) does any of that “spike money” end up in a royalty check?

    Thanks in any assistance to this non-oil guy in understanding the various prices one reads on natural gas or oil.

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