Bob’s Journal for 12/5
Some Notable Events That Grabbed My Attention This Week
The Best Investment of the 21st Century So Far
Most people probably will be surprised to learn what has been the best-performing investment of the last 25 years.
While stocks, especially U.S. stocks, have done very well the last 15 years or so, that’s partly because they were recovering from a rough 10 years before that. Stocks began the 2000s continuing the record highs of the first technology stock boom of the late 1990s.
But the major U.S. stock indexes declined in the first years of the millennium. The indexes had partly recovered from the tech stock bust when the financial crisis sent U.S. stocks tumbling again.
The result was the S&P 500 had negative returns for the first decade of the new century and beyond. They underperformed treasury bills until about 2013, according to Jim Reid of Deutsche Bank AG. (The study considered only major indexes and broad asset classes, not individual stocks or securities.)
The big investment winner of the 2000s is gold. It started the century poorly, continuing a long bear market.
But gold began rising in the early 2000s and continued rising until about 2012. It then declined a bit and settled into a trading range until its price began increasing again in 2018.
Gold really took off during the pandemic and surged again beginning in late 2023.
While the S&P 500 has had a great run since early 2009, it had a lot of losses to recover from in the early years of the century. The 25-year returns of the S&P 500 still lag gold, which has had a fairly steady rise during the period.
Gold’s relentless rise appears to be caused primarily by the expansion of central bank balance sheets around the world, as well as an acceleration in the issuance of U.S. government debt. In fact, global debt has increased as a percentage of gross domestic product (GDP) for most of the last 25 years.
In other words, gold has benefited from expansionary monetary and fiscal policies, and those policies seem likely to continue.
Is the SECURE Act 3.0 on the Way?
Another SECURE Act might be in the works in Congress.
Extremely large bipartisan majorities ensured passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019 and the SECURE Act 2.0 in 2022.
The retirement plan community still is digesting and processing all those changes. But Senators and Members of Congress already are working to put together SECURE Act 3.0 (though the congressional leaders behind the first two iterations no longer are in Congress).
As always, various interested parties are proposing drafts of improvements they’d like to see in the retirement system. In addition, members of Congress are proposing individual bills that would change some retirement plan rules, such as a recent proposal to require pension plans to allow participation by qualified workers as young as 18.
That is how the previous SECURE Acts started. Individual elected officials submitted retirement-related proposals, and the leadership packaged many of them into large laws.
The difference now is that in 2025 Congress will be occupied largely with deciding how much of the 2017 Tax Cuts and Jobs Act to extend before the provisions expire at the end of 2025.
Congress also must decide how much additional debt to accept and which additional taxes to impose to offset the tax cuts.
To pay for many of the tax reductions in the original SECURE Act, Congress eliminated the Stretch IRA, as I’ve discussed many times.
Extending the 2017 tax law provisions and enacting a SECURE Act 3.0 could be partially paid for by increasing or accelerating taxes on some retirees and retirement benefits.
One likelihood is some of the Stealth Taxes or creating new Stealth Taxes. Current Stealth Taxes include the taxation of Social Security benefits, the Medicare premium surtax and the 3.8% net investment income tax.
Another widely discussed idea is the “Rothification” of retirement plans. In general, this means ending the upfront tax benefits for contributing to IRAs and 401(k)s and forcing all future retirement contributions into Roth-type plans.
Some version of “Rothification” appeared likely to be enacted in 2017 until President Trump said it was “dead in its tracks.” It is unknown if President Trump will change his mind on this, as he has on some other issues.
Other past proposals that might be resurrected are to force earlier distributions from large retirement accounts, tax large retirement accounts and restrict the investment options of some IRAs.
I’ll be monitoring the developments in Congress this year and give you early notice of likely changes and any actions you should consider to protect your financial security and independence.
Medicare Proposes that Agents Caution Consumers About Advantage Plans
Medicare officials want all Medicare beneficiaries to be aware of some facts I’ve been giving my readers for years.
In a section of new proposed regulations, the Centers for Medicare and Medicaid Services (CMS) says that agents and brokers must discuss certain topics with customers before enrolling them in Medicare Advantage plans.
CMS says that, among other things, customers who are enrolling in an Advantage plan should be informed about the guaranteed-issue rights federal law provides for first-time enrollees in original Medicare.
Customers should be informed that when they enroll in original Medicare during their initial enrollment period, insurers are required to sell them the Medicare supplement (Medigap) policy of their choice at the same premium charged to others. The beneficiary can’t be declined coverage or charged a higher premium during the initial enrollment period regardless of health history.
But after the initial enrollment period, insurers can engage in medical underwriting and use the results to deny coverage or charge higher premiums. This especially affects beneficiaries who enrolled in Advantage plans but, after a year or more want to shift to original Medicare with a Medigap policy. In most cases, the ability to buy a Medigap policy no longer is guaranteed.
The proposed regulations also say that after presenting this information, the agent is to “pause to address remaining questions the beneficiary may have…”
This section on “informed choice” is only part of a 713-page proposed regulation that also says, among other things, Medicare will pay for the new obesity drugs. That likely will increase future premiums.
The Data
The Consumer Confidence Index from The Conference Board improved to 111.7 in November from 109.6 in October.
The Personal Consumption Expenditure (PCE) Price Index increased 0.2% in both October and September. The 12-month increase in the index was 2.3% through October and 2.1% through September.
The core PCE Price Index, which excludes food and energy and is the Fed’s preferred measure of inflation, rose 0.3% in both October and September.
The 12-month increase in the core PCE Price Index was 2.8% through October, up from 2.7% through September.
Personal income rose 0.6% in October, the biggest increase in seven months and above the 0.3% increase in September. The October increase primarily was due to higher compensation.
Personal consumption expenditures increased 0.4% in October, less than the 0.6% rise in September.
The ISM Manufacturing Index was 48.4 in November, up from 46.5 in October but still indicating manufacturing is contracting. November is the eighth consecutive month and 24th in the last 25 months the index was below 50.0.
The ISM Services Index fell to 52.1 in November from 56 in October.
The PMI Manufacturing Index was 49.7 in November, up from 48.5 in October. The PMI Services Index rose to 56.1 in November from 55.0 in October.
The PMI Composite Index for the economy was 54.9 in November after being 54.1 in October.
The Dallas Fed Manufacturing Index for November improved to negative 2.7 from negative 3.0 in October.
The Richmond Fed Manufacturing Index was negative 14 in November, the same as in October.
Factory orders increased 0.2% in October after falling 0.2% in September.
Excluding transportation orders, which produces a good proxy of business investment, factory orders increased 0.1% in both October and September.
New home sales plummeted 17.3% in October, the sharpest monthly decline since 2013, after rising 4.1% in September. Total new home sales in October were the lowest since October 2022.
Pending home sales rose another 2.0% in October after jumping 7.5% in September. The 12-month increase in pending home sales was 5.4% in October and 2.6% in September.
The S&P Corelogic Case-Shiller Home Price Index declined 0.3% in September, just as it did in August. The index increased 4.6% in the 12 months ending in September and 5.2% through August.
The FHFA House Price Index increased 0.7% in September and 0.4% in August. The 12-month increase in the index was 4.4% through both September and August.
Durable goods orders increased 0.2% in October after falling 0.4% in September.
After excluding defense and transportation orders to provide a good measure of business investment, durable goods orders fell 0.2% in October after rising 0.3% in September.
There were 146,000 private sector jobs created in November, the lowest number in three months, according to the ADP Employment Report. In October, there were 184,000 new private sector jobs created.
New unemployment claims were unchanged at 213,000 in the latest week.
Continuing claims, which lag a week behind new claims, decreased to 1.907 million from 1.908 million.
The Markets
The S&P 500 rose 0.54% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.22%. The Russell 2000 fell 0.25%. The All-Country World Index (excluding U.S. stocks) added 2.09%. Emerging market equities advanced 0.90%.
Long-term treasuries rose 1.10% for the week. Investment-grade bonds increased 0.79%. Treasury Inflation-Protected Securities (TIPS) added 0.59%. High-yield bonds gained 0.47%.
On the currency front, the U.S. dollar declined 0.46%.
Energy-based commodities increased 0.57%. Broader-based commodities fell 1.12%. Gold gained 0.40%.
Bob’s News & Updates
A recent review on amazon.com of my latest book said, “Carlson is a unique national asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.
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A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”
If you’re interested in my books, check my amazon.com author’s page.
I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.
