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Higgins Capital Management, Inc.

The Fed and Finding you way around Social Security

By Ray

The Economy: The Fed met this week and as expected raised interest rates another 25bps (1/4%) to 2.25%. Going forward all new loans and existing loan resets will reflect these higher rates. The Fed remains in a race against time to be at or above 5% on the Fed Funds Rate before the next recession hits. Why 5%? Because the Fed has historically cut rates 5% to salvage the economy in a recession. Kentucky Windage. At the 25 bps rate we've seen, this would be 11 more hikes to reach 5%; mortgages probably around 7%; Prime probably 6-8%. This is occurring while the Fed continues to shrink its balance sheet as well. To date the 8 interest rate hikes have had little impact on the economy, stocks or real estate. With mid-term elections in sight, expect economic releases to continue showing good numbers as consumers and investors keep the pedal to the metal. After mid-terms there will be a 2-year timeframe for the economy to take a breather then be resurrected before the 2020 national elections. For planning purposes envision a post mid-terms trough before a ramp to 2020. It's the economy stupid.

Food for Thought: Boomers are retiring in droves. A tsunami of giddy, hair-dyed, botoxed, lipoed, Do Your Own Thing, 60-somethings determined that  “Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming "Wow! What a Ride!” Fine and dandy if you're dead immediately after sliding into home. Otherwise, you might want to read some thoughts on Social Security here. The selections you make when applying for Social Security and Medicare have lasting implications. Make the right ones. Furthermore, understand the 4% drawdown in retirement assets as key to the Endless Summer. Contact us if we can help.