Quote of the Week

“We can draw lessons from the past, but we cannot live in it.” – Lyndon Johnson

Technical Corner  

It is probably a good thing the government was partially shut down in December. It delayed the exposure of some dreary economic updates.

Retail sales figures for the important holiday month of December were finally updated, and they were terrible. Excluding auto and gasoline, sales were expected to rise by 0.4% but dropped 1.4% on the month. That was the sharpest drop since September of 2009 when the U.S. economy was in a recession.

Those dismal December retail sales figures will surely impact fourth quarter GDP. Just yesterday, the Atlanta Federal Reserve’s GDP Now forecast was adjusted from a fourth-quarter growth rate of 2.7%, but after retail sales were factored in it dropped to 1.5%. Hedgeye whom we use to give us a 30,000-foot view of the Macro economy has been predicting 1.75% growth for the fourth quarter since early in the quarter. Their earlier predication gives me even more faith in their process.

Remember, consumer spending drives nearly two-thirds of GDP. And retail sales make up about half of all consumer spending. So, December’s dismal retail sales will have a major impact on fourth quarter GDP.

Another factor indicating that the economy is slowing is Wholesale inflation which was updated yesterday for January. The Producer Price Index (PPI) dropped another 0.1% for the month. The expectations were that it would rise by 0.2%. Wholesale inflation updates don’t usually move the markets. But they are a leading indicator of where consumer prices will track. This is also a sign of a slowing economy.

Now, if you throw in Europe whose economy is slowing even faster than the U.S. economy and is probably in recession now, plus China which is slowing even faster than the U.S. and Europe, the world’s economies are going in the wrong direction at a faster and faster pace. One of the elements our software looks at is the pace of the change and whether it is accelerating or abating. The trend is going down faster and faster. At some point in time, the stock markets will realize this fact.

We, unfortunately, have been early in our exposure to a short stock market position and our exposure to managed futures. Our large exposure to long-term U.S. Treasuries has done quite nicely. I believe we are positioned to take advantage of the future downward economic trends.

Last week the market rallied strongly on Friday when it was determined that Mr. Trump signed the continuing resolution and did not shut the government down again.

Last week the Dow was up 3.09%, the S&P 500 was up 2.50%, the Nasdaq was up 2.39%, the MSCI EAFE was up 1.9%, and the 10-yr U.S. Treasury was flat. Year to date the Dow is up 10.95, the S&P 500 is up 10.72%, the Nasdaq is up 12.62%, and the MSCI EAFE is up 7.0%. Starting this issue, we will be giving the last 12 month’s returns for U.S. stock markets. For the last twelve months, the Dow is up 2.63%, the S&P 500 is up 1.59%, the Nasdaq is up 3.22%.

Larry’s Thoughts

Do Your Parents Need Long-Term Care Insurance?

We live in an age of medical miracles. People live longer than ever before, and life expectancies are increasing at a steady rate. This means that many of us will be fortunate enough to still have our parents with us as we ourselves reach retirement age. As our parents age, however, their health may decline, and the greater the chance becomes that they will require home care, nursing home care, or other assisted-living arrangements.

Long-term care: the odds against it aren’t long at all

Maybe you think that you’ll be the lucky one, that your parents won’t need long-term care, but the statistics indicate that we’re living longer and the need for long-term care is more likely. Also, parents living alone (especially women, who have a longer life expectancy then men), are more likely to need long-term care without a spouse or partner available to help out.

The cost of long-term care isn’t low, either

Long-term care can also be expensive. What’s more, Medicare, Medigap, managed-care programs like health maintenance organizations, and indemnity medical insurance plans don’t pay for long-term nursing home care or for assisted living. Although Medicaid, a state-administered federal welfare program, will cover the costs of long-term care, your parents must be legitimately impoverished to be eligible for it.

If they’re not prepared, your parents might find their lifetime savings and their assets quickly depleted by the cost of paying for long-term health care. As their child, you’ll want to help them protect those assets (and your own inheritance) from being eroded by long-term care costs. One solution to this dilemma might be long-term care insurance (LTCI).

Help is on the way

Generally, LTCI helps pay for the care of an individual who can no longer independently perform the basic activities of daily living, such as bathing, dressing, eating, and toileting, due to a cognitive disorder, illness, or injury. A comprehensive policy will cover skilled, intermediate, and custodial care in a variety of settings, including nursing homes, assisted-living facilities, adult day-care centers, or the insured’s own home.

The cost of LTCI policies can vary widely, depending on many factors, including the coverage selected and the age and health of your parents. The younger and healthier they are, the less expensive the insurance will be–but the longer they might pay for it before they really need it.

Who most likely needs the help?

Deciding whether to purchase LTCI will take some careful consideration. LTCI might be right for a parent if at least some of the following criteria apply:

  • He or she is between the ages of 40 and 84
  • There’s a family history of Alzheimer’s disease
  • He or she has significant assets to preserve as an inheritance or to gift to charity
  • He or she has an income from employment or investments in addition to Social Security
  • The cost of the premiums will not exceed 5 to 7 percent of your parent’s annual income (or yours, if you’re paying the premiums)
  • He or she is healthy enough to be insurable

©2019 Broadridge Investor Communications Solutions, Inc

By the Numbers

ECONOMIC DOWNTURN – 9 of the last 10 recessions in the United States began under a Republican president going back66 years to 1953. The only recession over this time span that began with a Democratic president in the White House was a 6-month recession that began in January 1980during Jimmy Carter’s last year as president (source: National Bureau of Economic Research). – Michael A. Higley, BTN 02-19-2019

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

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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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