Vorisek Financial Weekly Market Update for June 26th, 2017

Good morning!

CBO “scoring” of the GOP Senate bill that would “replace and repeal” the Affordable Care Act (ACA) is expected this week.  Even if the bill (called the “Better Care Reconciliation Act” or BCRA) gets 51 votes in the Senate, the legislation may not become law.  That’s because the BCRA differs from the May 2017 House legislation (“American Health Care Act”) and will require negotiations to iron out differences between the bills.  The key component in the BCRA: the 2021 rollback of Medicaid expansion that occurred in 31 states as a result of the ACA (source: BTN Research).         

The plan outlined by Federal Reserve Chair Janet Yellen on 6/14/17 to shrink the central bank’s $4.3 trillion balance sheet will involve both Treasury bonds and mortgage-backed securities (MBS) maturing without having the proceeds reinvested in new debt.  The strategy, scheduled to begin in the fall 2017, will initially impact $6 billion of Treasuries per month (eventually growing to $30 billion a month) and $4 billion of MBS (growing to $20 billion a month).  By reducing its role as a major bond purchaser, long-term interest rates theoretically should rise.  As of the date of Yellen’s announcement, the Fed’s $4.3 trillion balance sheet included $2.5 trillion of Treasury bills, notes and bonds and $1.8 trillion of mortgage-backed securities.  As of 9/04/08 (before “Quantitative Easing” began), the Fed’s $480 billion balance sheet included $480 billion of Treasury bills, notes and bonds and zero mortgage-backed securities (source: Federal Reserve).  

If you sold a home last month, you have reason to celebrate.  The median sales price ($345,800) and the average sales price ($406,400) of homes sold in May 2017 both set all-time records for the US real estate market (source: Census Bureau).   

 

Notable Numbers for the Week:

1.    EX - A divorced spouse is eligible for the same spousal benefit and the same survivor benefit from Social Security as a still-married spouse if the marriage lasted more than 10 years (source: Social Security). 

2.    LACK OF PLANNING - 52% of US households with people at least age 55 had no money saved in any pre-tax defined contribution account, e.g., 401(k) or IRA (source: Government Accountability Office).  

3.    LONGER AND LONGER - Since 1940, the life expectancy at birth of a US citizen has increased by 1 year every 13 years (source: Social Security).    

4.    THE PROBLEM - The “underground economy” of Puerto Rico is estimated to be 30%, i.e., the percentage of its economy that is conducted in cash and thus avoids any sales and income taxes.  The USA’s “underground economy” is just 5.4% (source: Friedrich Schneider, “The Size of the Shadow Economy”).   

 

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