Demographic & Economic Digest

By Robert A.Hardies, CFP, MS, ATP


   Issue 2017-0904                                                                     Monday, September 25, 2017
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Swiss  Find  Cause  of  Sewer  Backup  - €100,000 Euros Flushed Down Toilets .. .
Utility workers found hundreds of cutup 500-Euro notes stuffed down the toilets of a bank and 3 nearby restaurants.

What this means >>

This gives new meaning to the phrase, "You might as well be flushing money down the toilet." Authorities found the culprits, two Spanish women. They admitted to flushing the currency, and paid for repairs to the plumbing in the restaurants.
So far, they aren't facing charges because there's no law against what they did. Even if the Swiss had a law against destroying currency, it probably wouldn't apply. The Swiss don't use the Euro, they use the Swiss Franc. The women gave no reason for their actions, so we're left to wonder what could have led them to destroy so much capital instead of simply giving it away

States Will List Retiree Healthcare  Costs  in
 Budgets, Current Deficit 
is  $645  Billion...
Accounting standards encourage states to list their retiree healthcare liabilities within their budgets instead of in the footnotes.

What this means >>

Finally. I've been shouting about this for 11 years. While the financial world focuses on pension funding from time to time, we rarely discuss healthcare costs.

Today, states have set aside just 7% of what they need to pay healthcare benefits for their retirees ... yes just 7% ... wow!! Instead, they simply pay the expense out of the operating budget. This would be fine, except those costs are shooting higher. If you ask state officials why they don't save up to pay for these costs, they'll tell you they don't have to because, unlike pensions, they can change healthcare benefits at any time. I can't imagine that gives current and future retirees any comfort. Expect government budgets to stretch even further in the years ahead as more Boomers retire.
Finnish Live Births Fall to
 Lowest Level Since 1868...
Births fell for the 6th consecutive year in 2016.

What this means >>

The numbers are worse than they appear. In the 1860s, there were roughly 1.7 Million Finns. Today, there are 5.5 Million. The low birth rate, compared to the population, is the lowest on record. The Northern European nation has a robust socialist system that provides generously for childcare and health services. Citizens are simply choosing not to have kids, which is worrisome.

Without children, there's no one to pay the taxes in the years ahead to keep the benefits flowing. As Japan, South Korea, and a host of other countries have proven over the years, there's no good way to motivate people to have kids.

Catalonian Officials Arrested
Before Secession Vote...
Leaders of the Spanish region were detained for their role in organizing the vote, to be held on October 1.

What this means >>

Catalonians have been agitating for years to separate from Spain. Constituents of the wealthy region think they got a raw deal during the financial crisis, having to foot the bill to support the rest of the country. It's entirely possible they are right.

Regional leaders scheduled a non-binding referendum on the issue, but the national government's not onboard. Spanish leaders specifically voted against the region's ability to separate, or even hold the vote. It's likely that arresting regional leaders will simply spur on the separatists.

If the Catalonians' hold the vote, and separation wins, it will cause uncertainty even though the decision is not binding. Just as with Brexit, questions about the movement of capital, goods, and people will fill the air.
Student Loans Delay Millennial
  Home Buying Up to 7 Years...
83% of respondents to a National Association of Realtors' survey cited student debt as the reason they have not purchased a home.

What this means >>

Student debt has exploded in recent years, so more people have sizeable debt early in life. But at the same time, homebuilding costs have also jumped, and median income is growing slowly at best.

Is this a debt issue, a cost issue, or an income issue? I think it's all 3, and the combination of factors won't change in the near future. Housing will most likely remain a small part of GDP for years
Miami-Dade County Officials Issued  Building  Code 
Violations in the Hours 
After Hurricane Irma...
Residents trying to secure their valuables and pick personal treasures out of rubble were met with county officials who cited them for unsafe buildings and unsecure pools.

What this means >>

It's hard not to be cynical about such a thing, as if the code enforcement officers are heartless, mindless bureaucrats with no sense of the world around them. But I wonder if it the situation is more nuanced than that.

Instead of a comment on how the county operates, it could be a comment on how our nation runs. What if the county is simply trying to head off potential litigation? I can see the headlines now - neighborhood child dies in unsecured pool, family blames the city. I can't decide which line of reasoning is more depressing, mindless bureaucrats or litigious society
Federal Reserve Holds Rates 
Steady, Outlines Path For 
Reducing Balance Sheet ...
Short-term rates remain at 1.00% to 1.25%, and next month the Fed will reinvest a little less than it receives in bond proceeds.

What this means >>

Well, that's exactly what the markets expected. Rates remain steady, and the Fed will start rolling off bonds next month. The Fed's been reinvesting all its earnings on maturing debt. But starting next month, it will reinvest $6 Billion less of U.S. Treasuries and $4 Billion less of mortgage-backed bonds than what they receive in proceeds. Those amounts will ramp up every 3 months. The goal is to move so slowly as not to create turmoil in the markets. We'll see.

The Fed might purchase fewer bonds, but the U.S. government still has to issue them, which means someone, somewhere, has to buy more. Maybe interest rates have to rise to attract more buyers. Maybe not. We've never been here before, so no one knows what will happen. But one thing's for sure, the Fed will be parsing economic data very closely in the months ahead.

If the bankers see weakness, expect them to ditch the anticipated rate hike in December, and potentially slow down or even stop shrinking their balance sheet. They remain, as they say, data driven.

One note of caution: Every time the Fed has ended quantitative easing, the markets rolled over. Think June 2010, or the summer of 2011. When investors finally digest the end of easy money, they tend to get nervous.
Existing  Home  Sales
 Dip 1.7% in August ...
Hurricane Harvey weighed on the normally active Southern region. Single-family sales fell 2.1% and multifamily homes dropped 1.7%.

What this means >>

There's no doubt Hurricane Harvey brought real estate to a standstill in the Houston area, affecting overall existing home sales. But it's not like sales were flying in the previous months. For the year, existing home sales are barely positive at 0.2%. Even with slow sales growth, prices are holding strong, up 5.6% over last year.

Considering we now have to deal with the aftermath of Hurricane Irma in Florida, I don't expect the numbers to be dramatically different for September.
Housing  Starts Slightly Off, Down   From 1.19 Million 
to 1.18 Million ...
As with existing home sales, housing starts took a hit from Hurricane Harvey.

What this means >>

Starts dipped 7.9% in the South, which make sense because Houston is the largest new home market in the country. The big question is, what comes next? Contractors who had a hard time gathering crews in mid-August will find it almost impossible now. The name of the game in the area today is renovation and rehab, not building new. But eventually we'll get back to normal.

I think we'll see a drop in housing starts & new home sales in the 4Q, but then a nice rebound in early 2018 as markets catch up

This Week's Events Reviewed

 In  Next Digest

The last week of September brings reports on durable goods, new home sales, and the latest CoreLogic S&P Case-Shiller Home Price Index update.
Our Demographic & Economic Digest provides an excellent opportunity for timely dialogue. I value your opinion and feedback and would love to hear from you. What do you think?

Robert A. Hardies, CFP, MS, ATP
Financial & Portfolio Advisors, Ltd.  

15855 Farmington Road, Livonia, MI 48154-2856
Phone:(734) 261-4011  Fax: (734) 261-4868

Data is taken from sources generally believed to be reliable but no guarantee to its accuracy.

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