Bob’s Journal for 3/28

Social Security to Reduce ‘Clawback Cruelty’ for Benefit Overpayments

The Social Security Administration (SSA) finally is moderating its aggressive practices against beneficiaries who were overpaid benefits.

It’s not unusual for SSA to make errors when calculating someone’s benefits and discover the error later, sometimes years later. Then, the SSA demands repayment.

The longstanding SSA practice has been to require immediate or rapid repayment after it discovered benefits were overpaid, known as a clawback, even if the beneficiary was not at fault.

If a beneficiary didn’t respond to a notice of repayment in time, SSA would intercept or withhold 100% of upcoming benefit payments.

Beneficiaries who did respond to SSA but couldn’t repay the overpayments in lump sums right away had to establish plans that provided for repayment within 36 months.

In response to criticism of these practices, SSA recently announced four changes to its collection policies.

When a beneficiary doesn’t respond to a notice in time, SSA will withhold no more than 10% of upcoming payments.

In addition, beneficiaries no longer have the burden of proving they were not at fault for the overpayments. SSA must prove the beneficiary was at fault if it believes that was the case.

Another change is that repayment plans can stretch to 60 months instead of 36 months.

Finally, SSA made it easier for a beneficiary to obtain a waiver of the repayment of excess benefits when the beneficiary was not at fault and didn’t have the ability to repay the amount.

This is the first admission by SSA that critics of its policies had some good points. But more reforms should be made, especially in cases in which the errors were SSA’s fault and weren’t discovered until the beneficiary was overpaid tens of thousands of dollars.

Era of Negative Interest Rates is Over

Central bankers took extreme actions to stimulate their economies during and after the financial crisis. One of those actions was to slash interest rates.

In the United States, interest rates fell to near zero but weren’t negative. That wasn’t true in some other countries, especially in Europe and Japan.

On March 18, Japan became the last country to end its official policy of maintaining negative interest rates. For the first time in 12 years, the Bank of Japan raised its key policy rate above zero.

When interest rates are negative, depositors effectively pay banks to hold their money for them.

The conclusions of researchers on the effects of negative interest rates are mixed. Some concluded the policy had no effects or benefits. Others said there were modest benefits.

The positive benefits weren’t as great as advocates predicted, and the negative effects weren’t as bad as opponents feared.

Though it took a while, negative interest rates probably helped stimulate Japan’s economy by reducing the value of the yen and ending deflation.

Of course, the massive global fiscal stimulus implemented during the pandemic also had a substantial role, and it is difficult to isolate the effects of the different policies.

Despite the mixed reviews, central bankers say they won’t rule out trying them again in a future financial crisis or when other policies fail to stimulate the economy.

In the United States, the Fed never implemented zero interest rates, but U.S. central bank officials said they wouldn’t rule out using them.

Financial Advisor Misdeeds to Guard Against

The number of cases of misbehavior by financial advisors reported to financial regulators declined in the last two years, but the fines and sanctions rose, according to a report from Eversheds that analyzed data from the Financial Industry Regulatory Authority (FINRA).

Fines issued in 2023 increased to $89 million from $54.5 million in 2022, a 63% increase.

If a single large fine imposed against Bank of America (BofA) Securities is excluded, fines increased 19% to $65 million.

But the number of disciplinary actions and orders declined from 2022 to 2023.

The rules violation that resulted in the largest fines was spoofing and was the reason for the large fine against BofA Securities.

Two traders at the firm entered fake orders that made it appear the markets for certain investments were more active than they really were. That was done to induce investors to make trades.

The second largest fines were for incorrect or incomplete trade reporting, imposed in 14 cases.

Anti-money laundering violations continued as a leading violation by financial firms. The violation didn’t make the top five in 2022, but it topped the list six years in a row before that and was third in 2023.

FINRA issued its first fines for violating Regulation Best Interests (BI) in 2022, and violations of Regulation BI gathered the fourth-highest fines in 2023.

Regulation BI was new from the Securities and Exchange Commission in 2022. The regulation has comprehensive rules about the documentation financial advisors must keep, factors they must consider before making recommendations and how the advisors must be supervised.

Violations of suitability standards round out the list of violations that generated the highest amount of fines.

A financial advisor is required to conduct due diligence about a client and a financial product and recommend a financial product only when it is suitable for the client.

The classic violation of suitability standards is a financial advisor who recommends essentially the same strategy or financial product to almost all clients and learns a minimal amount about the client before making a recommendation.

Suitability violations usually are on the top five list, and they often comprise of a large number of cases but with relatively smaller fines per violation than the others on the list.

The Data

The Consumer Confidence Index from The Conference Board was 104.7 in March and 104.8 in February.

Consumers’ assessments of their present situations improved from February to March. But their expectations for the near future declined.

The Expectations Index declined to 73.8 in March from 76.3 in February. The Conference Board said an Expectations Index reading below 80 usually signals an upcoming recession.

Economic growth declined a little but remained positive in the first half of March, according to the Purchasing Managers’ Index (PMI) flash indices.

The PMI Services Flash Index declined to 51.7 from 52.3. The PMI Manufacturing Flash Index was unchanged at 52.5.

The combination brought the PMI Composite Flash Index down to 52.2 in mid-March from 52.5 at the end of February.

The Leading Economic Index from The Conference Board increased by 0.1% in February, the first rise since February 2022, after declining 0.4% in January. Over the last six months, the index decreased by 2.6%.

The Philadelphia Fed Manufacturing Index fell to 3.2 in March from 5.2 in February. Despite the overall decline, many components of the index improved, and this was the second consecutive month the index was above 0.0, indicating the sector is expanding.

The Dallas Fed Manufacturing Index fell to negative 14.4 in March from negative 11.3 in February.

The Richmond Fed Manufacturing Index fell to negative 11 in March from negative 5 in February. The index has been negative since November 2023 and has only two positive readings in the last 12 months.

Durable goods orders increased 1.4% in February after tumbling 6.9% in January.

Durable goods orders, after excluding transportation and defense, which is considered a good measure of business investment, rose 0.7% in February following a 0.4% decline in January.

Existing home sales increased 9.5% in February after a 3.1% climb in January.

February’s rise was by far the largest in the last 12 months and only the fourth month in the last 12 that existing home sales increased from the previous month.

New home sales declined 0.3% in February, ending a two-month streak of increases. Sales climbed 1.7% in January.

Home prices fell 0.1% in January, after declining 0.3% in December, according to the S&P CoreLogic Case-Shiller Home Price Index.

Over 12 months, the index is up 6.6% through January. It was up 6.2% through December.

The FHFA House Price Index declined 0.1% in January, its first dip since August 2022. It increased 0.1% in December.

Over 12 months, the FHFA index is up 6.3% through January. It rose 6.7% through December.

New unemployment claims decreased by 2,000 to 210,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.807 million from 1.803 million.

The Markets

The S&P 500 rose 0.60% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 0.50%. The Russell 2000 increased 1.78%. The All-Country World Index (excluding U.S. stocks) added 0.63%. Emerging market equities advanced 0.54%.

Long-term treasuries gained 0.91% for the week. Investment-grade bonds increased 0.31%. Treasury Inflation-Protected Securities (TIPS) added 0.63%. High-yield bonds fell 0.09%.

On the currency front, the U.S. dollar rose 0.57%.

Energy-based commodities lost 1.31%. Broader-based commodities fell 0.91%. Gold added 0.93%.

Bob’s News & Updates

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