The Wall of Worry, Illustrated (Bason Asset Management)
Here’s a great recounting of the various worrisome happenings over the past five years that cause investors to panic. It’s important to remember how events that seem so important in the short term can be minor blips in the long term. Doing so can help put things in perspective the next time the economy is still strong but there’s a dip in the markets.
Yellen Gets That Sinking Feeling Greenspan Once Knew (Bloomberg)
Financial markets often don’t work like the Fed hopes they will. When Greenspan raised short-term interest rates between 2004 to 2006, long term interest rates did not rise in tandem. Due to the extremely low interest rates we now have, when Yellen raises interest rates next year, it will be in a tougher environment with far less wiggle-room.
Last week Japan officially fell into recession after having two negative quarters of economic growth. Japan is expected to respond by increasing its monetary stimulus program (by buying more bonds) and delaying a planned sales tax hike. European central bankers are watching this situation closely to determine if they too should begin rounds of monetary stimulus.
Obamacare Could Be In Trouble At The Supreme Court (BusinessWeek)
The Supreme Court plans to hear a case over the legality of subsidies for low-income buyers who purchase insurance via the federal exchanges. The crux of the issues lies in the wording of the document. The argument goes that technically the law declares that only buyers who purchase through state-run exchanges are eligible to receive tax subsidies. Only 14 states have their own exchanges, the rest use federal exchanges. Therefore if the subsidies are deemed ineligible on federal exchanges, Obamacare would be almost irreparably crippled.
Stock Exchange Technology Rules Get First SEC Upgrade Since 1990 (Bloomberg)
Exchanges will have to comply with the first technology rule update in 24 years. The last rule update was in 1990, about five years before the Internet started to become more mainstream. Security exchanges will now have to show that they can recover from natural disasters and terrorist attacks, with adequate backup systems in place to ensure redundancy within the system.
IRS Pushed to Crack Down on ‘Mega IRAs’ (ThinkAdvisor)
Senator Wyden, a member of the Senate finance committee is taking issue with “mega IRAs.” IRAs and retirement plans have caps so that high income earners cannot place the entirety of their income into a tax-deferred savings vehicle. To circumvent these caps you can place private company stock that is hard to value into an retirement plan if you get someone to value it at less than the contribution limit.
So potentially, you could place $200,000 worth of private company stock that is only valued at $50,000 into a retirement plan. It’s already worth more than was expected and that money would likely grow at a fast pace, leading to huge retirement plans. Once rolled over into IRAs at retirement, these plans can become a “mega IRA” as they call them.
So the pressure is on for the IRS to prevent this and ensure that Uncle Sam gets his due. From here on out, I would expect the IRS to thoroughly scrutinize the fair value of any private company stock that is placed into an IRA or retirement plan.
Oops! Obamacare Enrollment Stats Fudged (CNN Money)
The House Oversight and Government Reform committee recently uncovered that the Obamacare numbers as of mid-October were overstated by 400,000. The Obama administration released a statement saying they mistakenly counted stand-alone dental plans in the health-care number.
Something Ventured (Instantwatcher)
I watched this excellent documentary on venture capitalism the other day on Netflix. It contains interviews from the first venture capitalists who helped start Silicon Valley and the earliest investors in companies like Apple and Cisco.
Summary of Global Markets for Friday November 21, 2014
Click the image above to zoom in and see the full Global Market Summary.