December 2016

Posted on December 16th, 2016 | By Timothy Fullerton, Sr. | Tags: Newsletter h

Tis the season….

 

One plus from this past election is the emphasis on freeing up religious holidays from the political correct.  So with that, we wish those who recognize the holiday, Happy Hanukkah, Happy St. Nickolas, Merry Christmas!  It is more about the time of year as much as the actual event days.  There is something in the air that says, Peace, good will to all men.

 

Meanwhile, back to the future.  As things stand, we are still subject to the jaded non productive nature of Congress.  So you can rely on nothing changing until 2017.  So you have some tax planning to do, some gifting, all based on current rules and regulations.

 

Contributions to Charity from your IRA are still good to go.  You need to be 70 years of age, the maximum you can give to the charities is $100,000, and the amount must go directly to the charities from your IRA.

 

Student expenses are still at the same level, teachers deduction of up to $250 is still applies.

 

Call us if you have more detail questions on year end issues.

 

Now for what is being predicted based on the elections.

 

Oil companies and other sectors of the traditional energy industry are rallying given Mr. Trump’s plan to repeal regulations. (Renewable energy companies would fall.) Health care and biotechnology stocks, except drug stocks, which have been driven down over concerns that Mrs. Clinton will seek greater regulation and possibly even price controls, are rallying.

Two companies that seem poised for an immediate pummeling are AT&T and Time Warner, given how much Candidate Trump has objected to their recently announced merger plan. AT&T, by the way, also happens to have a huge business in Mexico.  But the individual companies should survive the criticism.

 

The biggest test for the stock markets might be pegged to the future leadership of the Federal Reserve. “There is much more uncertainty regarding who Trump might nominate, though he has made it clear he would not renominate Chair Yellen,” Goldman Sachs wrote in a note to clients. “His criticisms of Fed policy are somewhat ambiguous; he has suggested rates have been left too low for too long, but also warns of negative consequences of rate hikes. We would expect that financial markets would view a Trump victory as having slightly hawkish implications, since it would make a change in what many view as a dovish-leaning Fed leadership much more likely.”

But Trump will have to wait until 2018 to replace Yellen.  Meanwhile, he will be busy doing those executive orders that he so criticized Obama of doing to replace Board Governors on the Federal Reserve.  That will set the stage for interest rate changes after 2018.

 

A handful of economists have suggested that despite all of the promises made by the candidates, the outcome of the election might not actually decide what direction the markets will take.

“Putting aside their personalities and policy proposals, it will likely not matter who the next president is when it comes to where markets go,” Mr. Boockvar wrote in a note to clients. “As we are in the second-longest bull market of all time, and as we approach the eighth year of this economic expansion,” he wrote, “odds are high that whoever the next president is, they will preside over a recession, a bear market and rising debts and deficits.”

That might be too bearish of a view, but given that we’ve had a financial crisis of some sort about every eight years or so for the last several decades, it is hard to believe that we will go through the next four years without a hiccup. If merger activity is a gauge of the market’s cycle, the recent spate of deals suggests we’re closer to the ninth inning than the first.  But remember, these are same analysts who have predicted rate changes for the past four or five years.

 

Lawrence G. McDonald of ACG Analytics, who has commented on the potential benefits of a Trump presidency, said, “Trump will create a colossal panic, but the relief rally will be outstanding.”

Mr. McDonald, who publishes a newsletter on global political risk called the Bear Traps Report, said he believed that “Trump’s bark found in his anti-globalization position in reality will be a lot worse than its bite in terms of actual implementation.”

And if you are a Michael Moore follower, he predicted Trump winning, 100% called the states that put him over the 270 electoral votes, and now he is predicting that Trump will quit before January 20th.  Really, Michael?

 

One thing is certain, though: While Mr. Trump’s business brand may have cooled during the contentious campaign, surely under a President Trump, lobbyists and other favor-curriers would be lining up for tee times at The Mar-A-Lago Club in Palm Beach, Fla., and inauguration week reservations at the newly opened Trump International Hotel in Washington. Some behavior is not hard to predict.  It will be interesting to see if Trump puts his money where his talk is regarding “draining the Washington swamp.”

 

If you are looking to be involved with a Non for Profit organization…

When Nonprofit Board Members Are Treated Like Cash Machines

Donors need to know what is expected in terms of their time, money and expertise

By Veronica Dagher

The pleasures of being a nonprofit board member are many. But here’s one thing many board members don’t want to be: cash machines.

As new board members, they may resent being asked to fill in a charity’s year-end budget gap or having to constantly solicit their friends and family for donations. They also may be surprised by the financial commitment the charity expects of them. To avoid such financial surprises, here are three questions donors need to ask before they join a nonprofit board:

  1. Why did you ask me?

It’s an honor to be asked to serve on a board, but it’s also a significant commitment of time and resources, says Suzanne Shier, chief wealth planning and tax strategist for wealth management at Northern Trust Corp. in Chicago.

Donors shouldn’t let a feeling of being flattered cloud their need to find out why they were approached, Ms. Shier says. “The organization should be clear about why they want you in particular,” she says.

Some donors are recruited because of their expertise. In that case, it’s crucial for donors to find out if in-kind services will count toward the amount of money they’re expected to contribute, Ms. Shier says.

A young foundation Ms. Shier worked with was seeking board members with expertise in marketing and media relations. The foundation’s founder approached the founder of a startup marketing firm to be on the board. At first, it seemed the financial commitment that came with the position would be a reach for the startup founder. But when she found out the foundation would count her marketing services toward the amount of money it expected her to give, she joined the board.

If, on the other hand, the charity recruits a donor because it wants to tap into that person’s network of family and friends, the board candidate needs to know that and decide if he or she is comfortable with that before making the commitment to serve, Ms. Shier says.

Another thing to get clear upfront: Donors who want to contribute their ideas and expertise need to be sure the charity will welcome those contributions and isn’t just interested in the money those donors can give or raise, says Melissa Berman, chief executive of Rockefeller Philanthropy Advisors in New York.

  1. How much am I expected to give and bring in?

Donors should establish at the outset very clear expectations about the dollar amount they will need to donate or help attract annually, says Paul Connolly, director of philanthropic advisory services for Bessemer Trust in San Francisco.

If the organization is vague about what it wants a potential board member to give—such as “We want you to give 1% of your income”—donors should find out exactly what that means, says Ken Berger, managing director at Algorhythm, a technology company that helps nonprofits measure their performance. For example, find out how the charity calculates that number and what financial information the donor is expected to disclose to the nonprofit, says Mr. Berger, who is based in Fairlawn, N.J.

If there is a “suggested” amount to give, potential board members should find out how strong that suggestion is. For starters, they’ll want to know if their board seat will be in jeopardy if they don’t give that amount, Mr. Berger says.

Donors also should realize there are no guarantees for how much they’ll be asked to give once they join the board, he says. He recalls an instance where board members of a small nonprofit were told they would never be asked to give because the founder would take care of funding the organization. But when the founder started having money problems, board members were asked to help out.

Donors shouldn’t assume the nonprofit is in great shape, either, says Rockefeller’s Ms. Berman. Prospective board members should find out how sound the charity’s financials are and whether the management team is strong.

As for bringing in revenue, the charity ought to be explicit about what counts toward the total a potential board member would be expected to raise. For instance, find out if introducing the charity to a large donor or securing a matching gift from a corporation count, says Mr. Connolly.

Potential board members who haven’t solicited family and friends before or feel uneasy doing so should ask the nonprofit for training, says Mr. Berger. They should be sure the organization’s development director or fundraising consultant can help, he says. “A nonprofit shouldn’t expect you to just hit up your family and friends without giving you any support,” Mr. Berger says.

Well-run organizations will have formal “give/get” policies on expected donations and fundraising for board members to refer to, says Betsy Brill, president of Strategic Philanthropy Ltd. in Chicago. “If donors are caught off guard, that’s the fault of the donor and the nonprofit alike. Transparency is key.”

  1. When will you ask me to give?

Some charities lean heavily on their board members at the end of their fiscal year to make up for any budget shortfall. They may ask board members to lead a matching-gift effort or make another significant donation.

While some board members may understand that’s what is expected at certain charities, others may resent a last-minute request or may not be able to afford another gift. To try to avoid last-minute surprises, donors should be sure they know when the charity will expect them to donate.

Potential board members shouldn’t be afraid to speak up and set boundaries with the organizations they’re helping, says Carolyn Nopar, a nonprofit consultant in Chicago. Let the nonprofit know how often and when you’re willing to be solicited, she says.

For example, Ms. Nopar knew of a board member who sent a charity a generous check each December with a letter instructing the charity not to solicit him again during the year. The charity honored his request.

“Donors are in the driver’s seat, and this is especially true for board members,” Ms. Nopar says.

Ms. Dagher is a Wall Street Journal reporter in New York. Email her at veronica.dagher@wsj.com.

Want to know what Lenders are looking for from you?

 

What Lenders Are Looking For

Kiplinger’s Personal Finance

 

To qualify you for the best rate, lenders will see if you pass muster in three main areas.  Note that you may be able to offset weakness in one category with strength in another.

 

Are you a good credit risk?  One of the first things lenders do is pull your credit score.  The most common is the FICO score, which will be based on date from one of the three major credit bureaus (Equifax, Experian and TransUnion).  Lenders use the lower of two scores, the middle of three or the average of all scores.

 

Can you handle the payments?  To measure “capacity,” lenders scrutinize your (and your spouse’s) job and income history and prospects, debt-to-income ratios, and savings and assets.  Lenders will also look at your proposed ratio of monthly housing expenses to income.  Housing expenses include loan principal and interest, real estate taxes, and hazard insurance (PITI), plus mortgage insurance and homeowners-association dues.  Housing expenses generally shouldn’t exceed 25% to 28% of your gross monthly income.

 

Lenders also figure your maximum debt-to-income ratio (total monthly debt payments divided by gross monthly income).  That number and your down payment determine the minimum required credit score; if it’s 36% or less, Fannie Mae sets a minimum credit score of 620 with a down payment of 25% or more, and 680 with less than 25% down.  To push the debt-to-income ratio to 45%, you’ll need a credit score of at least 640 with a down payment of 25% or more, and 700 with less than 25% down.  Standards get tougher as you layer on more risk—say, with an adjustable-rate mortgage or investment property.

 

Does the value of the home justify the loan you want?  “Collateral” is typically measured as loan-to-value ratio:  the amount of the loan divided by the appraised value of the home you want to finance.  If you could borrow all of the money, the LTV ratio would be 100%.  But lenders will demand a down payment of at least 3%.  That way, you have a stake that you stand to lose if you default on your loan.

 

Did you know what the Social Security increase will be for next year?

Social Security is a critical financial safety net for tens of millions of Americans and next year, there will be changes to Social Security that every American ought to know about. Because of inflation adjustments, the amount Americans receive in average benefits will climb. Changes will also impact how much money Social Security recipients can earn before it reduces the size of their Social Security check and the amount of your income that’s subject to payroll taxes. Read on to learn about these changes so you can plan for them.

No. 1: You’ll get a tiny cost-of-living increase

In 2015, the inflation measure used by the Social Security Administration to determine whether recipients get a cost-of-living adjustment didn’t budge, so the amount of money paid out to recipients in Social Security benefits didn’t increase in 2016.

This time around, a 0.3% increase in Social Security’s inflation calculation means that Social Security income will correspondingly increase by 0.3% in 2017. On average, that increase works out to a monthly benefit of $1,360 next year, up from $1,355 per month this year.

The increase is welcome; however, it may not translate into a bigger monthly Social Security check. Most Medicare Part B enrollees pay their monthly premium directly out of their Social Security income, and monthly Part B premiums are heading higher next year, too.

Part B enrollees who pay a monthly premium of $104.90 this year will pay $109 on average in 2017. The exact Part B premium you’ll pay in 2017, however, could be even higher if you’re enrolling in Part B for the first time next year or your income subjects you to Medicare premium adjustments. The standard Part B premium paid by new enrollees next year will be $134, which is up from $121.80 in 2016.

No. 2: You can earn more money

Social Security holds back some of your Social Security income if you’re younger than full retirement age and your earnings eclipse a set limit. You can earn up to $15,720 in 2016 without Social Security reducing your Social Security income.

In 2017, you’ll be able to earn up to $16,920 per year without it triggering a reduction in your Social Security benefit. If your income eclipses that amount, then $1 will be withheld for every $2 earned above that limit. Any money that’s held back is added to your future Social Security income at full retirement age, which increases from age 67 to age 67 and two months next year.

Also, if you’re reaching your full retirement age in 2017, you can earn up to $44,880 in the months leading up to that point. If you earn more than that, then $1 in benefits will be withheld for every $3 you earn.

No. 3: Uncle Sam will get more

Social Security is a pay-as-you-go system and that means that payroll taxes on worker income today are used to pay current Social Security recipients.

In 2016, Social Security is partially funded by a 12.4% payroll tax — split equally between employer and employee — on taxable income up to $118,500.

Finally, Congress is poised to attempt a change to Social Security.  The brilliant people that you elected to Congress call your monies that you paid into the shadow Social Security Trust, entitlements.  They want you keep paying into the fund, but they want license on how the funds are doled out. Aren’t you glad that you voted them back into office?

Affordable Care Act is on its last leg.  But Congress, who was so desperate to repeal the act that affects 20 million Americans over 50+ times, is now postponing their actions for two years.  Get it?  Two years.  Elections?  There is more sincerity from the mouths of babes than there is from politicians.  So watch for two things to happen.  Health care which will be the legacy of Obama will stay; just have someone else’s name on the act.  Like renaming a stadium.

See, the stadium was already built by Obama, but someone else wants to name it.  The second happening will be an attempt to lower the premiums now charged.  Last month’s newsletter showed you the numbers paid to health insurance CEOs from your premiums.  That will not change.  However, by opening the competition between insurers, which was originally designed by the ACA but never acted on, your monthly payout to the insurance companies, will drop.  A welcome change, indeed.

 

Things to think about in 2017.

Fixed Income Sizing
With rates very likely going up in December, bond holdings need a closer look. Favoring corporate paper over Treasuries makes a lot of sense, since a growing economy lessens the chance of bankruptcy.
High-yield and convertible securities have the least interest-rate sensitivity and deserve a spot in most portfolios.

Steeper Curve
Higher rates will lead to a steeper yield curve (i.e., long-term rates higher than short-term rates). That’s great for banking stocks – the KBW Bank index has risen about 14% since the election – and there will likely be an increased merger activity in the space.

Choosing an Inflation Hedge
Historically, stocks have proven to be an excellent hedge against inflation (although runaway price increases are typically not good for equities). Gold, however, has a dubious track record as a hedge.
Other solid hedges include commodities and emerging markets.

Then a brief note on Caregiving, which is becoming a common issue with Baby Boomers…

 

Coping With the High Cost of Caregiving

Jacob Davidson

Money.com

 

Spending a small fortune on a parent’s medical expenses?  You’re not alone.  According to a new report from caregiving resource site Caring.com, 47% of those who care for a friend or relative (and are not paid for doing so) say they spend $5,000 or more a year for medications, medical bills, and other health-related costs.

 

To minimize this burden, says Andy Cohen, CEO of Caring.com, spend your parents’ money before your own.  You need to save for your own retirement, and if your folks’ nest egg runs out, they’ll get help from Medicaid.  You’ll also want to look for outside assistance you can tap right now.  Try Eldercare.gov to find local programs and BenefitsCheckUp.org to see if your relative is eligible for any services you may have missed.

 

Finally, know your rights.  Need to take time off?  Under the Family and Medical Leave Act, if your firm has 50 or more employees and you’ve worked there for at least a year, you’re typically entitled to 12 weeks of unpaid leave to care for a family member.

 

Finally, the markets for November did….