Weekly Reflection for October 27, 2023

The Week - An Update in Charts

It was a rough week for stocks on Wall Street. The Nasdaq entered "correction" levels on Wednesday, meaning the index has fallen 10% from its recent high mark. The S&P 500, as of today, has also declined 10%. The Dow is less than 1% away from falling into a correction.

Technology stock prices, best represented by the Nasdaq, are in a funk. The rally that was so remarkable earlier this year, and had been punctuated by really just a handful of companies, is fading fast. It comes on the heels of earnings announcements from CEOs and CFOs unable to paint a picture of optimism for the near future. The strongest sectors lately have been energy and utilities.

Bond prices continued to drop, pushing the yield on the 10-year term U.S. Treasury bond to over 5% this week. There are a myriad of excuses for why investors are not (yet) interested in buying at such low prices - such as an oversupply of bonds and investors still prefer to keep investing in equities. Also, there is a chance that the Fed just might raise interest rates one more time.

And to that point, the Federal Reserve is meeting early next week and the committee is now at the point in the interest rate cycle where it must walk a fine line between doing too much and doing too little. The Fed particularly likes to watch the short-term changes, particularly in the Personal Consumption Expenditure (PCE) index. Core PCE, which excludes food and

energy, is up 3.67% since last September. If we consider just the last three months of data, inflation is up 2.54%, much closer to the Fed's 2% target.

Most economists surveyed believe, at this moment, rates will stay the same until July 2024 when the Federal Reserve will make its first cut. See the probability charts here.

The price of a barrel of oil is a fickle number. War, like the Russian invasion of Ukraine in early 2022, can make it jump wildly. The price rose 70% to a high of $115 in May 2022 before retreating. OPEC+ has been working hard to restrict production to prop up the price, which has brought it some stability.

Since August, the price has been largely in a range between $80 and $85. However the daily swings have been huge since early October when the war between Hamas and Israel began. Traders have been particularly antsy on Fridays before markets close for the weekend on concerns about what might happen next in the Middle East.

The swing states ahead of the 2024 Presidential election are Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin. A recent poll by Bloomberg asked these voters to list their biggest concerns and the economy came out on top. High income earners, those above $100,000 annually, were the most concerned with taxes, housing and interest rates. Most said that former President Donald Trump was more trustworthy than President Biden to handle the situation. See the rest of the charts here.

Have you noticed more pumpkin farms around you lately? It may just be because they are great for business! Per this 2021 research, a farmer can net $1,500 to $6,000 per acre with pumpkins. Compare that to corn, which yielded an average of $500 an acre in 2021.

Dreaming of an Exotic Retirement

Retiring abroad is becoming more appealing, especially given the last two years of high inflation, the expense of housing and the strength of the dollar. Experts do not expect the dollar to decline much as rates in the U.S. stay high, which makes the exchange rate so favorable compared to many global currencies. Per the Social Security Administration, 450,000 people received their benefits outside the U.S. at the end of 2021 as compared to 307,000 in 2008. But before you swap out your house for a casa, there are lots of pros

and cons to consider.

For most the idea of living somewhere exotic, becoming an expatriate or expat, is exciting. Picking a good location means further travel to places you have always wanted to see may be easier. The challenge to learn a new language and culture is a great way to keep your mind agile when you no longer have the demands of a career to keep you on your toes. And many attractive locations have a much lower cost of living than in the United States.

It may be one of the biggest reasons that any retiree would undertake such a big move. The cost of living elsewhere is hugely appealing. Brazil is half the cost of the U.S. Costa Rica is about 60% of the cost and the very popular Greece and Portugal near 70%.

There is the quality of life abroad that is important too. On an annually-compiled survey that looks at factors like health, lifestyle and finances, many Western European countries scored far better than the U.S., which ranked #18 out of the top 25. Income equality and healthcare scores were low for the U.S. in comparison to the other top countries.

The one thing that an American expat will not ever fully escape is taxes. In fact, you now have two countries to consider when leveling up on taxes. The U.S. requires you to file a tax return even if you do not think you ownanything. And the IRS does not have a sense of humor about this - failure to comply with these requirements has severe financial consequences.

Then of course you must comply with the tax requirements of the country in which you live. You may own taxes on any income earned in your new home but also may be subject to sales and property taxes.

Probably the biggest question asked by those looking to move abroad is “do I still get to collect social security?” If you earned it, yes you do!

The Millionaire Next Door

There really is a millionaire living next door. They might not be “multi-millionaires” but in 2022, the mean net worth of an American household was $1.06 million, up 37% from the end of 2019. Despite the pandemic, outbreak of war in Ukraine, massive federal debt and high inflation, Americans are more well-off than in the previous decade. The every-three-year survey by the Federal Reserve looked at the period of 2020-2023 to compare to 2017-2019, which certainly no one ever would have guessed could be so radically different over such a short period.

Owning a home was helpful as was owning stocks. Paying off debt, which many did with their Covid-relief checks, was a big boost. Household income also rose, hitting a median (which is the exact middle point of the data, not an average) of $142,000 in 2021.

What has not changed is the gap between the haves and have less, or have much, much less households. The top 10% of household earners have a net worth averaging $6.6 million; the bottom 10% have net worth of $5,800.