Market Update
This month investors have begun hearing from public companies on how the bumpy economy has been impacting bottom lines. CFOs had been unwilling to give advance data so these announcements are the first time any real insight has been given as to how businesses have been navigating economic challenges. There have been disappointments but silver linings too. The stock markets just had their best week in a month and continue to recover, even haltingly, from June lows. It is still too early to say that the volatility is over given that high inflation, recession worries and the continued war in Ukraine persist.
Next Wednesday the Federal Reserve will announce the next interest rate increase and on Thursday we will learn if the 2nd quarter GDP grew or not. But until inflation numbers show a downward trend, central banks, including our Fed, will keep jacking up rates. In the face of near certain recession, the European Central Bank still lifted rates this week, the first time in 11 years. Citigroup economists believe the chances of a global recession are 50% and Bank of America broadly agrees.
Even though the consumer price index (CPI) rose an annualized 8% in May and 9% in June, inflation may final start trending down. Copper, considered the economy’s workhorse metal given its prolific use around the world, is down a whopping 37% since peaking in March. Energy is coming down, having fallen 19% in just the last month. The fall seems most tied to a concern about future demand during a recession, or at least an economic slowdown, rather than any hope for an relief in supply challenges.
It is very possible that oil prices will be heading up again at some point. Reasons being, nothing substantial is resolved in the Ukrainian situation or the world's supply. Non-fossil fuel solutions, like nuclear power plants or electronic vehicles, take time to come online. Pumping more oil or finding new sources takes time and gobs of money. Even Saudi Arabia said recently that they are doing what they can to help ease the pressure on supplies but it will take years to substantially increase production. In the meantime, energy consumption does not seem to be diminishing. Save for the pandemic days, "peak oil" days still seems ahead of us.
College Financial Aid Update
Heads up families if you have college-bound children that will need financial assistance. This information is for you. The federal financial aid rules are changing as of the 2023-2024 school year and will have both positive and negative impacts. The new rules will help more families apply for aid but also may reduce available monies for middle-to-upper income families, especially those sending more than one child off to post-secondary education.
Completing the Free Application for Federal Student Aid (FAFSA) is the first step for every family who wants a chance to qualify for grants or loans. And since last year $3.75 billion in Pell Grants went unclaimed, getting applications back up post-pandemic, and more money out, is inspiring some of the changes. The FAFSA is long and complex; low-income families who most need assistance are the least likely to complete it. Other would-be applicants do not complete it because they assume that they will not be eligible for any aid, even though there is no income limit in order to qualify.
The good news is that the U.S. Department of Education is eliminating 2/3rds of the FAFSA questions. The application will be easier and quicker for all families to complete. The less favorable news is that the EFC calculation will be amended.
EFC is the Expected Family Contribution and is the projected amount a family can afford to pay out-of-pocket each year towards higher education. The EFC, amended annually to take into account income and other financial changes, is a per household figure. The difference between the actual cost of college and EFC is the amount that a student could receive in grants and loans. A high EFC translates to lower aid; a low EFC means higher aid eligibility.
Going forward the EFC will be a per student amount (and the name will be changed to Student Aid Index, taking the word “family” out of the equation). For example, if your current EFC is $20,000 per year, that means that no matter how many college students are in your household, your total out of pocket is expected to be $20,000. Loans and grants would make up the difference. The new rules say that same $20,000 is the amount a household could contribute per student, hurting families with multiple children attending post-secondary school concurrently. In this new scenario, a 2-child family would be expected to pay $40,000 during the years that their children are enrolled in college at the same time.
It is expected that fewer middle income students children will choose state colleges and instead, turn to private schools that are less likely to use FAFSA guidelines. This may also be a boon for the private loan business as it may stepping in to close the affordability gaps. College has always been expensive and it is just getting more expensive with higher interest rates and inflation. Families need to keep a sharp eye on planning, saving and discussing options with their children in order to avoid sticker shock and disappointment at college commitment time.
Look Like Ernest?
On a lighter note, some fun that costs absolutely no money is the Annual Hemingway Look-Alike Contest. "Portly" and bearded is how the local news channel described entrants to the event in its 41st year in Key West, Florida.
As one who was usually read, or read about, not everyone knows what kind of a figure Ernest Hemingway cut. He spent much of the 1930s in the Florida islands. Looking a bit like an outdoorsy Santa, with his naturalist attire and unshaven jowls, he had a colorful life in the area. The contest is hosted by the same bar that Hemingway and friends spent many hours at, Sloppy Joe's. This year's 135 entrants will be culled to 12 for the final round on Saturday night.
The lucky winner will get to help give away money for local college scholarships. "Mrs Hemingway", if there is one, is expected to support and escort the winner during his annual reign and return to Key West for future events.