Quote of the Week

“Rudeness is the weak man’s imitation of strength.” – Eric Hoffer

Technical Corner

The Debt Drama

We have been here before. And, as before, the “debt ceiling” is a gold mine for some politicians, journalists, and analysts.  

It seems to happen every couple of years and, as always in the past, any dire warnings you are hearing are completely overblown.

Just to make it clear up front, it is important to recognize that a government shutdown and a debt default are not the same. Although it is theoretically possible for both to happen at the same time, they are truly different kinds of events.

A government shutdown occurs when a president and Congress fail to agree on a budget or a “continuing resolution”- which funds government agencies until a budget is passed.

However, much of government is on autopilot. Even with no budget, taxes are still paid, and debt payments are still made. Essential services such as the military still operate, as does Border Patrol and air traffic control. Key government workers still go to work and get paid. Checks still are churned out for Social Security, Medicare, Medicaid, Food Stamps, and other entitlements. The cost to the government can be high as when Ted Cruz was responsible for the last shutdown to the tune of 26 billion dollars. The cost was due primarily to the fact ‘non-essential” government workers usually receive back pay for the time they didn’t come to work.

Hitting a hard debt ceiling and missing payments to bond holders is a more serious issue. It is highly unlikely to happen because the Treasury Department would find a way to prioritize payments. Tax receipts are more than enough to cover debt payments. Treasury can delay payment to federal government vendors.

Therefore, even though there is a threat to shut down the government, it probably won’t happen. What would likely happen if the shutdown were to occur, it would be political suicide to the person making the threat, and the markets would react negatively. I believe that shutting down the government is an idle threat.

The Upward Potential Indicator is still at 38 and the “Plow Horse” US economy is doing just fine. There is no threat of a recession on the horizon.

Our allocation remains the same for most clients: 65% equities, 0% bonds, 30% alternatives, and 5% cash.

Larry’s Thoughts

Before sending adult children (18 or older) off to school, parents should secure three legal forms.

Parents should have a durable power of attorney, a medical power of attorney, and a HIPAA release for each adult child. The conversations around obtaining these from 18-year-old daughters and sons can be unsettling, but they can make certain stressful situations much easier.

Just imagine this made up experience. Assume that your 18-year-old son or daughter was to be injured in an automobile accident and is in a coma. If you do not have a HIPAA release and a medical power of attorney, the hospital is not required to talk to you because your child is an adult. You as parents would have no legal right to make any healthcare decisions for your child.

A signed Health Insurance Portability and Accountability Act (HIPAA) form permits medical professionals to share information about their patient. A medical power of attorney, also known as a healthcare proxy, allows someone else to make healthcare decisions when people are incapable of doing it themselves.

While obtaining these two documents, parents might as well get the student’s general power of attorney. That way parents would be able to sign other papers on the student’s behalf and have access to financial accounts and other information such as grades.

Once a child is 18, he or she “is legally a stranger to their parents.” Troubles most often arise when students who are away at college are taken to a hospital. Then, because they are sick, injured, or in surgery, they are unable to communicate when their parents learn the news and call the hospital. The hospital staff is not legally allowed to share with parents or take directions over the phone if the parents cannot show they have authority.

We recommend that parents keep the original documents in a safe but quickly accessible place at home or the office, and keep a PDF of the documents stored digitally for immediate access from anywhere. In most cases, hospitals will accept a copy of the documents.

By the Numbers

“DAILY STOCK MOVEMENT – The S&P 500 has had as much daily volatility in its last 12 trading days as it did in its first 152 trading days of 2017 (note there have been164 trading days YTD). Both the last 12 trading days and first 152 trading days each produced 4 trading days that closed with at least a 1% total return gain or loss. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock’s weight proportionate to its market value (source: BTN Research).” Michael A. Higley, BTN 08-28-2017 #1

If you have friends or family in need of financial life planning services,

It would be the honor of Laurence Lof Financial Advisors to assist them.

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These are the opinions of Larry Lof and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs. The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly. Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.

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