Rose and thorn. Hank and Walt. Silver lining and cloud. When we talk about the economy, we're all like, "on one hand…" and "on the other hand…" That's the case this week with all of our guests.
In this week's podcast:
- Hugh Johnson, head of Hugh Johnson Advisors, notes that the economy is expanding, but anemically. And he predicts what's ahead for stock and bond markets in 2014.
- Bankrate's Polyana da Costa says house prices have been going up, but expect a slowdown this winter.
- Bankrate's Doug Whiteman explains why Oct. 1 is so important for people without health insurance, but notes that lack of awareness remains a problem.
- And Bankrate's Lucas Wysocki says you can make some cash by decluttering, but you've got to do some homework first.
Fed surprise: What's an investor or borrower to do?
Investors see a green light for stocks, even after the big rally. And, why is Oct. 1 an important date for Obamacare?
LISTEN TO AUDIO
Mark Hamrick: From Bankrate.com, this is Your Money This Week. On our podcast we try to connect the dots between what's happening in the world and your wallet. I'm Mark Hamrick reporting from Washington.
The financial markets appeared to have been caught by surprise by the decision by the Federal Reserve to stick with its game plan aimed at nudging the economy along. We'll talk with veteran Wall Street watcher Hugh Johnson about the outlook for your money, including whether stocks can continue marching higher in 2014. Oct. 1 is an important date for Obamacare. We go in-depth with Bankrate's Doug Whiteman on what you need to know about changes in health insurance, and he tells us about surprising findings of a Bankrate survey about what American's know and don't about Obamacare. Polyana da Costa takes a look at the recovery in the housing market and Lucas Wysocki tells us there is more than one way to clear your house of clutter and even make some money in the process. We have all that and more for you on Your Money This Week.
In our first segment, we zero in on the Federal Reserve. Stocks took off and interest rates fell after the central bank said it would continue to do what it's been doing for some time now. It will continue asset purchases aimed at encouraging economic growth and in particular, life the job market. Is this a green light for a continuing rally in the stock market? For that question and many more, we turn to Hugh Johnson with Hugh Johnson Advisors. I asked him why the market seemed so surprised about the Fed's decision given the uneven nature of the recovery, including a still-troubled job market.
Hugh Johnson: No, I don't think it does at all. I think the Federal Reserve made that fairly clear. Certainly a lot of governors of the Federal Reserve in the speeches that they've made have suggested that it's probably too soon to begin to remove some of the stimulus. I think it was pretty surprising that the consensus formed that in deed the Federal Reserve would begin to taper or remove stimulus. I thought that was a little bit of a surprise because the numbers, as you've clearly suggested, say fairly clearly "Yes, the economy is expanding, but it's expanding at a very anemic pace." That was really dramatized by the employment numbers for the month of August. The employment numbers, yeah they rose, but they rose less than forecasted and certainly not by a number that's going to make the Federal Reserve or anybody else particularly encouraged or happy.
Mark Hamrick: So, Hugh, the likes of us are left to try to explain this to individuals and how they might attenuate, let's say, their financial lives to what's actually going on in the real world. Is there anything that has happened lately that makes you want to change, perhaps except for the fact that the stock market has a rally that doesn't seem stop?
Hugh Johnson: Everything seems to be a little bit overdone on the upside. That's just my common sense saying that the stock market has gone up a lot this year, maybe a little bit more than it ordinarily goes up. So my common sense suggests it may be a little bit overvalued. It's also the case that in response to what the Federal Reserve has done, that interest rates declined very sharply and maybe a little bit overdone on a short-term basis. But I think when you take a look at the last three months or so you have a picture, which is the stock market going up and interest rates also going up. This is the kind of picture that we ordinarily see in a normal economic recovery -- stock market rising, economy expanding, interest rates rising -- although none of that that we have seen over the course of the last, let's say, two or three months has been particularly outsized. So what it really tells you is I think it paints a picture of what I think lies ahead with some blips along the way. That is, basically that the stock market is going to continue to expand. You should probably keep your exposure to the equity markets, fixed-income markets, interest rates rising. I think the returns there are going to be not-so-good. So you want to have more stocks than bonds. I think that's basically what we're looking at when we look at the remainder of 2013 and 2014.
The picture isn't going to change a whole lot in my judgment, although there is going to be lots of volatility of course introduced by Federal Reserve policy. And, let's not forget the folks in Washington because they can create a lot of volatility with discussions about things like continuing resolutions and debt ceilings.
Mark Hamrick: Yes, absolutely. Between the Congress and the administration, or what they're essentially required to produce together, it seems as if government has never been more dysfunctional at the federal level. How do you price that in the way that you try to manage portfolios, Hugh?
Hugh Johnson: It's not easy to price the volatility because most of it is so unexpected and it is day-to-day and it's unexpected. I think what you have to do is step back and try to identify the underlying trends. I mean, that's easy for me to say and it takes a lot of professionals to do that, but I think you could take a few steps back and just take a look at what's been happening, let's just say since the end of 2012. You see, for example, that the stock market has been going up. You see, for example, that investors have been migrating to a great extent to fairly economically sensitive or bull market sectors like consumer cyclicals and industrials. You see that small companies have been outperforming large companies. These are basically trends that you know, they don't get caught up in the day-to-day volatility and you see these trends. These trends are positive.
You also see the trend in interest rates. Interest rates are rising. I think that's basically the only way you can survive in an extraordinarily volatile environment. You have to step back, take a longer-term view of what's going on in the financial markets, and then ask if that makes sense, is that consistent with the underlying economic numbers? I think it is because the leading indicators for the economy continue to rise. So, I think everything is OK. Everything is all-systems-go, recognizing that volatility is going to be a big part of our lives.
Mark Hamrick: Hugh, remind people, because we're now we're five years past the financial crisis and memories are sometimes short. Remind people that stock markets can perform well in a rising interest rate environment. How does that often work?
Hugh Johnson: Well, 70 percent of the time that stocks are rising, interest rates are also rising. The way that works is usually when the stock market is rising it's rising in anticipation of an ongoing expansion in the economy. The economy continues to grow or rise. "Expand" is probably the right word. And in addition to that, not only is it that the economy is expanding, but also companies find it a little bit easier to raise prices, so you usually have a little bit of inflation associated with that. In response to the rise in inflation, you have interest rates rising. Interest rates rising, of course, are in part because the Federal Reserve becomes a little bit concerned about rising inflation and therefore they start to raise interest rates to slow things down. But anyway, your pattern in the post-war period, rising stock market, rising economy, rising interest rates. The only problem gets when you get interest rates too high that it cuts off or tends to curtail the expansion in some of the important parts of the economy like housing or like automobile sales.
If it starts to impact automobile sales and housing and consumer spending, then it might lead to a turndown in the stock market and a turndown in the economy. You hope the Federal Reserve doesn't create that. It doesn't look like they're going to raise interest rates anytime soon. So I don't think that's an imminent danger, but nonetheless, that's something you have to be worried about. But generally speaking, interest rates are rising. Hopefully they don't get to a point where it cuts everything off.
Mark Hamrick: So would you tend to think that 2014 will be another positive year for the stock market?
Hugh Johnson: Yeah, I do. And, I think the economy is going to expand. It's a little early to call, but I think the economy is going to be stronger in 2014 than 2013. Let's call it about 2.7 percent verses about 1.6 percent -- so a stronger economy. I don't think the Federal Reserve is going to get around to raising interest rates until 2015, I think in response to the expansion in the economy. Then we'll get interest rates and Federal Reserve policy that interest rates will be fairly benign. Short-term interest rates will probably be fairly flat. Longer-term interest rates might rise a little, but not much as they ordinarily do in a cycle. So, I think quite frankly 2014, looking at it now, looks like it's going to be a positive year. But you obviously always have to be braced for the unexpected because unexpected events do come along and they may come along in 2014 and change the picture. But right now it looks like it's going to be OK.
Mark Hamrick: Very well, Hugh. Well, that's an upbeat comment to leave off on. But as always, it's a real pleasure and we appreciate your time. Thanks so much Hugh.
Hugh Johnson: You're welcome.
Mark Hamrick: Hugh Johnson, chairmen and chief investment officer with Hugh Johnson Advisors. We spoke with him from Boston.
Mark Hamrick: Next up: The housing market has continued to recover, whether judging by home prices, sales or home building. Bankrate's senior mortgage reporter Polyana da Costa says some clouds appear to be forming.
Polyana da Costa: Home prices have been on the rise for several months now. The number of foreclosed homes continues to shrink, and sellers are pleased to get multiple offers on their homes. There's no question the housing market has turned around but it's too early to celebrate, housing analysts tell me. The fall and winter months, coupled with rising mortgage rates, are likely to cool off the hot housing market that we enjoyed seeing during the summer. Mortgage rates have climbed by more than a percentage point since May. For homebuyers, that means if they could afford the monthly payment of, say, a $300,000 loan in May, now they need at least $200 more per month to get the same loan.
Yes, mortgage rates remain low by historical standards and especially if you think of the 10 percent to 12 percent interest homebuyers paid on their mortgages back in the '80s. But today's buyers are used to seeing rates near record lows. If rates continue their upward march, home prices may level off for now. That's not good news for the millions of homebuyers across the country who remain underwater with homes that are worth less than their mortgages. In the second quarter of this year, price growth helped 2.5 million homes return to positive equity, according to the latest report by CoreLogic. But about 1 in every 7 homes with a mortgage is still underwater. This is a slow housing recovery and rising mortgage rates are about to make it even slower. For Your Money This Week, I'm Polyana da Costa.
Mark Hamrick: Next up: Obamacare. Just saying the name is enough to get some folks' blood pressure rising, for which they may need a doctor. But a Bankrate survey has found widespread issues when it comes to understanding the Affordable Care Act, as it's really named. Watching all this at Bankrate is associate editor and insurance analyst Doug Whiteman. I asked him why the date Oct. 1 is so important for Obamacare.
Doug Whiteman: On Oct. 1, this is when the exchanges, the online insurance marketplaces, are scheduled to open. What they will allow people to do is shop for health insurance and compare plans. Also, they'll see the subsidies that they qualify for. Subsidies in the form of tax credits will be available to people even if they earn up to 400 percent of the federal poverty level. That is about $46,000 a year for an individual and a little over $94,000 a year for a family of four. And, according to the Congressional Budget Office, the average subsidy will be worth around $5,200. That's how much of a discount the people will get off the cost of their yearly insurance policy through the Affordable Care Act, which is commonly known as Obamacare. So the exchanges will be opening in all 50 states, also in the District of Columbia. Thirty-four of the states have deferred to the government to run their exchange. They'll be run through the federal government's HealthCare.gov website. But the other 16 states and D.C. are going to operate their own health insurance exchanges, and they will have special URLs where people will be able to look for plans that will be available in their state and really in their community.
Mark Hamrick: So Doug, who will be conducting these searches? Is it primarily individuals who aren't currently covered by an employee-related health care plan?
Doug Whiteman: Well, I think those are the people who will benefit most from the Affordable Care Act -- people who currently do not have health insurance. But also, people who are currently buying their own health insurance might want check out the exchanges and see if they can do better than what they're currently paying or see if they might qualify for a subsidy. It's not only subsidies off the cost of your insurance, but there are additional subsidies that can help to bring down your out-of-pocket costs -- your deductibles, your copayments and so on. People who are currently employed and are covered through their employer might not necessarily what to check out what's available on the exchanges, but they're certainly not barred from that. If you have what would be considered an unaffordable plan through your employer, which means that it's gobbling up at least 9.5 percent of your income, then you could qualify for a subsidy on the exchange. You might also what to check out what's available through the marketplaces.
Mark Hamrick: So word is continuing to sort of dribble out about this. I know you did a survey recently that found that there is a surprising lack of awareness on the part of Americans about Obamacare.
Doug Whiteman: Well, we thought it was rather startling. We commissioned a survey that was done in the middle of August. We recently released the findings of that. One of the questions was … we wanted to know "What would you most like to know about Obamacare?" It was a multiple choice. We were really, really surprised that 15 percent said what they most want to know is, "What is Obamacare?" Another 20 percent said they wanted to know "Is it really going to happen?" There has been a lot of confusion about whether the law has been killed. But no, it is still in place despite attempts by members of Congress to eliminate it, to eliminate the funding for it, and despite all the talk that we're currently hearing about a possible government shutdown over the issue of Obamacare in the coming weeks.
Mark Hamrick: Doug, people have a period of time during which they can go ahead and take advantage of these offerings, correct?
Doug Whiteman: That's right. The exchanges open Oct. 1 and the window will be open for six months. For six months, people will be able to go into the marketplaces and check out plans and sign up for health coverage, subsidized health coverage -- subsidized with tax money. And then at the end of March next year, that's when the window closes and open enrollment will not reopen until next fall. So it will be very important for people to get on this at least fairly quickly. Another really important date is Jan. 1 because that's when Obamacare's individual mandate takes effect. This is the rule that says practically all Americans are going to have to have health insurance or face financial penalty beginning next year.
The financial penalty for the first year is $95 for an individual. This is something that would be charged against the taxes that you pay, or that you file I should say, in early 2015. A lot of the details have not yet been worked out, but we believe that employers will be giving their workers -- people who are covered by workplace plans -- some sort of certificate, some sort of proof that they will file with their taxes to show the government "Yes, indeed, I do have health insurance coverage." If a person is uninsured and has avoided the mandate or has ignored it, then of course this $95 penalty will kick in in the first year. The penalty does rise in subsequent years. This is something that will be payable on your tax return. If people ignore the penalty and decide they're not going to pay, then it would be taken out of their refund if they are going to be getting a tax refund.
Mark Hamrick: So obviously a lot of information to digest and for all of us to take in. I know you've been working hard at Bankrate to make sure that there is information available on the site. We thank you for your time to talk with us about it, Doug.
Doug Whiteman: Thanks very much, Mark.
Mark Hamrick: Associate editor Doug Whiteman. He spoke with us from our office in North Palm Beach, Fla.
Mark Hamrick: Cleaning house, whether one lives in an apartment, a dormitory or a larger home, it seems like we're always one step behind in trying to keep organized and avoiding clutter as we'd like. And, gone are the days when putting a garage sale or yard sale sign up was the best way to shed items that have only been picking up dust. Bankrate's Lucas Wysocki has some tips on cleaning up and perhaps even making some loot while doing so.
Lucas Wysocki: Whether you're getting ready to move or just looking to de-clutter your home, here's some ways to get the most bang for your buck for your unwanted household items. If you're planning a big move, garage sales are a great way to quickly get rid of old collectables and dishes. But there are plenty of other great sales options. When dealing with antique furniture, you need to find out how much that old dresser is worth. Look inside the drawers for identification markings like who the manufacture was and what year it was made. Then do some research.
EBay can bring in the best prices since it's easy for users to search for something specific, but shipping can be a potential problem. Your buyer should hire the shipper so you aren't responsible for the damage. Or just list the item as pick up only. Whether you own a priceless first edition or the complete hardback set of Harry Potter, like antique furniture, you need to know the value of your books before deciding where to sell them. Sell older books on eBay where you can reach millions of potential buyers. If you have a lot of books you're looking to get rid of, a garage sale is probably your best bet. You can also try selling your books on Amazon. For more ways to cash in on your unwanted household goods, visit Bankrate.com. For Your Money This Week, I'm Lucas Wysocki.
Mark Hamrick: Finally, our look at this week in business history, which launches us high above the earth. On Sept. 28, 2008, SpaceX -- the company founded by entrepreneur Elon Musk -- launched the Falcon 1 space craft into orbit. It was the first such private space craft to obtain orbit over Earth. And since then, Musk's company has been supplying the international space station with hopes of sending humans into space and even colonizing Mars. That of course will be a particularly interesting housing market to watch.
Mark Hamrick: You've been listening to Your Money This Week. Our thanks to this week's guest, the always informative Hugh Johnson. If you enjoyed this podcast, please check us out on iTunes and rate and subscribe to the program. We're hoping that you can help us get to word out. And also, check our other podcast Special Report with breaking news and special features. For more on this and other personal finance issues, visit Bankrate.com and please follow us on Twitter @Bankrate. Our editor in chief is Julie Bandy, managing editor Katie Doyle, assistant managing editor Holden Lewis. And thanks to producer Lucas Wysocki for his work in the studio. I'm Mark Hamrick, from all of us here at Bankrate, here's hoping you have a great week.