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IN THIS ISSUE: 

Personal Money Planning's Newsletter
December 21, 2013
Gary Silverman, CFPIt's been a few weeks since we've sent a full newsletter, so I will get right to it! This time, I share the last month's worth of Times Record News Your Money articles, the monthly monitor of the economy and we finish up with the beautiful sounds of the season. 

Have a great week and a blessed holiday!  

Gary Silverman, CFP�

Soapbox
Gary's Soapbox
Let The Taper Begin
 

The Federal Reserve Board has made its long-awaited announcement that it will begin to scale back ("taper," in Wall Street speak) its QE3 stimulus program.  This is a modest pull-back from buying $85 billion in Treasuries and mortgage bonds per month to "only" $75 billion. Still, this is significant as it means that economists at the Federal Reserve Board believe the economy is finally in a self-sustaining recovery mode. 

 

The so-called "taper," and the QE3 stimulus program itself, are somewhat unique in the history of investment markets.  To understand QE3, imagine that at the auctions where investors buy government bonds and packages of home loans, a bidder the size of Godzilla pushes everybody else aside and insists on paying higher prices than any of the other bidders.  By doing this the Fed's was trying to stimulate the economy by driving interest rates lower, making it less expensive for businesses to borrow money, so they can build factories, expand their capacity and hire more people.

 

I'm not sure this had much effect on jobs as corporations were already sitting on tons of cash, and have little need to borrow if they really want to go on a building and hiring spree.  Those that don't can't find a bank that wants to take the risk with them. The Fed's mortgage purchases probably did make mortgage rates a bit cheaper for home buyers, but it's hard to tell how much. 

 

No matter the effectiveness of the stimulus, the tapering bring with it the end of uncertainty.  When investors are unsure what to expect, they tend to expect the worst, which is why you will read articles saying that the taper will cause interest rates to skyrocket out of control, leading to all sorts of bad things in the economy, up to and including an actual alien invasion.  By the (admittedly early) indications, no such thing is happening.

 

But at the same time, we can expect interest rates to go up over the next year or two at least, which is great news for older Americans who have been living on a fixed income with CD rates barely higher than what they would get if they stashed their retirement money in a cookie jar. 

 

For the economy as a whole, there is still plenty of cash to lend to any company that wants it, housing is still more affordable than it was before the 2008 meltdown, and inflation is actually (and stubbornly) lower than the government's preferred target rate.  So maybe investors are right to cheer now as the biggest, clumsiest bond buyer in history starts cautiously easing away from the auction table.

 

 
--Gary 
Articles
Gary's Latest Articles
From the Times Record News
Times Change 
Change is inevitable; the question is, how will you allow the changing times to change you? Read More...

Why the warning about closed-end funds? 
These funds work differently than your usual mutual funds. Read more to find out why that matters. Click here...
 
 Relying on the youth...
There's no shortage of new bad press for the Affordable Care Act, but the real problems begin with familiar attitudes-- young people who believe they are indestructible, so will opt out and pay the penalty rather than purchasing health care. Read more...
 
 
Money101
Money 101:
Monthly Market Monitor
bargraph-money.jpg Each month, Eaton Vance shares a concise review of the economic and asset class data in a series of charts and graphs. Click here for the December Monitor...
Final Thought
I'd like to take this opportunity to wish you all a Merry Christmas and a Happy New Year. Please enjoy this video of a surprise "flash mob" at the National Air and Space Museum.
The USAF Band Holiday Flash Mob at the National Air and Space Museum 2013
The USAF Band Holiday Flash Mob at the National Air and Space Museum 2013


--Gary

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