Weekly Recap: the Trump Budget Overshadows the Fed – March 17, 2017

Weekly Recap 3.17.17 Camtrading

How did your investments do this week?

Talk about a busy week in the news. My weekly recaps typically just talk about the market performance, but this week was exceptional and I wanted to a highlight a few topics as part of my recap.

Trumpcare

Earlier this week, with the unveiling of the American Health Care Act (AHCA), the Congressional Budget Office (CBO) reported that 24 million fewer people would be insured by 2026 under “Trumpcare.” The Congressional Budget Office is a nonpartisan agency that tracks the financial impact of legislation.

The CBO estimated that 14 million people would immediately lose their insurance in 2018 if Trumpcare passed this year.

The silver lining, of course, is that this plan will decrease the federal deficit by $337 Billion over the next 10 years.

Source: CNN

The Fed Raised Rates – What it means to us

The Federal Reserve raised the Federal Funds rate by 0.25% on Wednesday. Raising the Federal Funds rate implies that the economy is doing better. But what does it mean to us?

Since banks will be paying more to borrow from the Fed, you can expect to pay more interest when you borrow from the bank from your credit cards, variable rate mortgages and private or unsecured loans.

The increase to you and I won’t be that much. If you’re carrying $1,000 credit card balance, a 0.25% increase will be an extra $2.50 a year. Keep in mind the increase the banks charge individual borrowers will vary. The Fed Funds rate increase doesn’t always correlate directly with what the banks will charge their borrowers.

If you have a fixed rate mortgage, this does not affect you. However, if you’re planning to buy a home or have a variable rate mortgage, expect to pay more. The lower rate mortgages from a few weeks ago are most likely gone by now. But again, the difference in actual monthly payments will only vary slightly.

The only not-so-bad news about rising rates is the hope of rising savings rates. I say hope because ultimately, the banks set their savings account yields. According to Sean McQuay of Nerdwallet, banks set savings account yields based on a number of metrics. These metrics include the health of their loan portfolio, the size of their cash reserves, and general profitability of the bank.

In 2005, when the Fed Funds rate target was at 5%, my money market account had a 5% yield. After Wednesday’s rate hike, the Fed Funds rate target only went up to 0.75% – 1.00%. We have a long way to go to a 5% yield.

Trump’s Proposed 2018 Budget

On Thursday, the Trump administration revealed its 2018 budget. Not surprisingly, there is a big increase in defense. What is surprising is where he made the cuts. Below is a graph from the Washington Post.

If you dig a little deeper at what these cuts impact, you’ll be surprised to see that it’s the rural and elderly Americans who will suffer. For example, the proposed $4.7B cut in the Agriculture Department aims to cut rural development and research grants, $95 million from the Rural Business and Cooperative service, staff reductions at the USDA, and eliminating $3 billion from the Community Development Block Grant program; which some of the nation’s Meals on Wheels rely on.

Source: Washington Post

Now, the Markets

The S&P closed up again for the week, but only fractionally. For the year, the market’s performance moved up to 6.2%. As you can see on the chart below, the last few weeks has been range bound. The comparison between the S&P and the Russell 2000 bucked the trend this week. The small cap index actually gained +1.9% this week, compared the S&P’s +0.2% week. The Russell 2000 is still underperforming the S&P year-to-date.

Camtrading 3.17.17 S&P

Camtrading Performance

This is my weekly post of my balanced, buy-and-hold investing strategy of leveraged ETFs. For the week, my account was up 2.4%, increasing my YTD total to +9.6%. Because the overall market was flat, this week’s gain in performance is attributed to my allocation in TMF.

Below is my 52-week chart on Motif Investments comparing my performance to the S&P. Check out the monthly performance page.

2017.3.17 Motif Camtrading Performance

Viral Video of the Week

Professor Kelly and his family had a great week after last week’s interview went viral. Watch them explain exactly what happened here.

This week’s viral video comes from Jono and Ben impersonating that famous video. Perhaps a mother would have handled the situation differently. Check it out. ☺

Thanks for reading. As always, if you want to know more, let me know in the comments or Facebook.

Disclosure: Performance data is as of the date of this posting. The views expressed on this site are personal opinions only and should not be construed as financial advice.

 

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