Day: August 6, 2020

Personal Finance Daily: Why some people are still waiting for their stimulus check — and what to do about it, and landlords must notify tenants about eviction proceedings in multi-family buildings, housing regulator says

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Personal Finance
Americans’ household debt fell for the first time since 2014 — but that doesn’t mean people are paying off their loans

The pandemic-fueled economic downturn hasn’t led to Americans going into default on their debts yet.

People are going blind and dying from drinking hand sanitizer: CDC

15 adults were hospitalized in New Mexico and Arizona for drinking methanol-laced sanitizer, and four died

When will I receive my FIRST stimulus check? ‘We, the qualifying taxpayers, should not have to suffer’

‘I was the supervisor of the department that processed and reconciled parking citations. Since mid-March, the number of parking citations drastically fell due to the coronavirus pandemic.’

Borrowers are still having their paychecks seized over defaulted student loans, even though the CARES Act was supposed to stop wage garnishment, lawsuit says

The CARES Act was supposed to halt wage garnishment for defaulted student-loan borrowers, but a lawsuit says it’s still happening.

Should I have gotten my stimulus check by now? Why some people are still waiting — and what to do about it

Next week, an IRS watchdog agency will help track down stimulus payments for taxpayers facing certain scenarios.

Smoking or vaping cannabis could cause strokes, heart attacks

American Heart Association warns against weed, calls on the government to allow more research.

Landlords must notify tenants about eviction proceedings in multi-family buildings, housing regulator says

The Federal Housing Finance Agency is also improving online tools where tenants can see whether they’re eligible for protections.

Mortgage rates fall to a record low for the eighth time this year, making buying a home more affordable for many Americans

While home buyers may have plenty of options for cheap financing, they won’t have much choice about what properties they can purchase.

Foreign buying of American real estate plunged before the pandemic — will COVID-19 push it even lower?

International buyers purchased the smallest number of existing homes in the U.S. since 2011 this past year.

$30 to watch ‘Mulan’ on Disney+ is either outrageous or an amazing deal, depending on who you ask

Many social media users are furious over Disney’s streaming plan for the live-action ‘Mulan’ remake

Elsewhere on MarketWatch
Trump administration seeks to force Chinese companies listed in U.S. to comply with accounting rules or delist

Chinese companies with shares traded on U.S. stock exchanges would be forced to give up their listings unless they comply with American accounting requirements under a plan recommended Thursday by the Trump administration.

Trump reimposes tariffs on Canadian aluminum, directs U.S. government to buy ‘essential’ drugs from American companies

President Donald Trump said he had reimposed some tariffs on Canadian aluminum and signed an executive order that requires the U.S. government purchase “essential” drugs from American companies.

Here’s why the massive explosion in Beirut will deepen Lebanon’s financial nightmare

The destruction of the port of Beirut on Tuesday will throw Lebanon deeper into the protracted financial crisis it has faced in recent months, which forced the country to default on a $1.2 billion eurobond in March.

Here’s what the Bank of England did to interest rates on Thursday — what’s next?

The Bank of England warned that the U.K. economy wouldn’t rise back to its 2019 level before the end of 2021.

This ‘dire’ economic situation ‘deserves to be called a depression — a pandemic depression’

Economists, cowed by the memory of the 1930s, are reluctant to use the word “depression” to describe the pandemic-induced economic downturn. But that’s what it is, warn economists Carmen Reinhart and Vincent Reinhart.

Americans’ household debt fell for the first time since 2014 — but that doesn’t mean people are paying off their loans

This post was originally published on this site

Total household debt fell on a quarterly basis for the first time since 2014, as Americans tightened their belts amid the coronavirus pandemic.

The Federal Reserve Bank of New York reported that total household debt fell by $34 billion, or 0.2%, in the second quarter. It was the largest decrease on record since the second quarter of 2013.

The drop in household debt doesn’t mean Americans are better off financially though. A separate survey from real-estate website Apartment List found that one in three people couldn’t pay their rent or mortgage in full this month.

Indeed, the downturn in debt is actually a reflection of people cutting their spending more than it is a sign that people are paying off loans. The main driver behind the decrease was a $76 billion decline in credit card balances, which represents the largest decline since at least 2000.

“As spending rebounds, so will outstanding debt figures,” said Greg McBride, chief financial analyst at Bankrate.

But some argued that growth in household debt may be stymied by lenders who are wary of taking on more risk amid a pandemic. “Growth in consumer credit is likely to remain subdued because lenders are tightening standards on new lending and some are cutting back on credit limits and closing accounts,” said Tendayi Kapfidze, chief economist at LendingTree TREE, +0.76%. Many mortgage lenders, for instance, are requiring applicants to have higher credit scores to qualify for loans compared with before COVID-19.

Meanwhile, the wide-scale availability of forbearance on debts, ranging from mortgages to student loans, contributed to a decline in delinquency rates. Delinquencies for mortgages, auto loans and credit cards were all down. In the student loan sector, approximately 88% of borrowers had a scheduled payment of $0, the New York Fed found.

‘Lenders are tightening standards on new lending and some are cutting back on credit limits and closing accounts.’

— Tendayi Kapfidze, chief economist at LendingTree

“With forbearances having been rolled out nearly universally, not surprisingly, the repayment rates of student loans have declined sharply,” New York Fed researchers wrote in a blog post about the quarterly debt report.

It could be a long time before the economic downturn caused by the pandemic translates into upticks in loan defaults and foreclosures, experts say. In the case of mortgages, Americans can get up to 12 months’ worth of payment relief if they have a federally-backed loan, including those backed by Fannie Mae FNMA, +2.68% and Freddie Mac FMCC, +2.45% . As a result, pandemic-related defaults on home loans may not appear in earnest until the second half of 2021.

Americans who were laid off or furloughed may not be receiving boosted unemployment payments at the moment, which could make settling debts more challenging in the interim.

“If you’ve lost your income due to the pandemic, you may have to put other financial priorities first, like keeping a roof over your head and food on the table, said Sara Rathner, credit card expert at NerdWallet. “It’s OK to focus on that now and deal with debts later.”

Rathner’s advice: First, build a rainy-day fund to cover emergencies. Then, pay off debt by meeting all minimum payments and putting any extra money toward the loans with the highest interest rates.

“This can help you stay organized and motivated while ultimately saving you on interest,” she said.

Retire Better: ExxonMobil will suspend its 401 (k) matching—as threats to its dividend mount

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Chances are you own stock in ExxonMobil Corp. XOM, -0.47% whether you know it or not.

It’s found in some 2,553 mutual funds and numerous exchange-traded funds, for example. That’s on top of the approximately 353,000 people who own it outright in their brokerage accounts.

Which is why news that the oil and gas giant is ending 401(k) matching for its 75,000 employees is a big deal. It’s a signal that XOM is worried about its dividend and is taking drastic measures to shore up the payout, currently 87 cents per quarter. The 401(k) news was first reported by Reuters.

The iconic industrial giant—whose roots stretch back to 1870, when John D. Rockefeller founded Standard Oil—has been on the financial defensive for some time. Earlier this year, ExxonMobil said it was slashing capital spending 30% to $23 billion. That’ll help maintain the dividend, which costs the company an estimated $15 billion a year.

Read: New blow to workers — some companies are cutting 401(k) contributions

The dividend has long been considered sacrosanct at ExxonMobil, a classic “widows and orphans” stock. And in a rarity in corporate America, the dividend has been hiked for 37 years in a row, making the company a rare “Dividend Aristocrat.” It’s a title that’s anointed to firms that raise their payouts each year for at least a quarter-century, and is considered a matter of great pride by the firm.

But the pandemic and resulting economic collapse which crushed energy prices has put the company in a vise.

“XOM’s balance sheet has been tested by the pandemic and the associated drop in crude oil prices, which have hurt operating cash flows,” writes CFRA analyst Stewart Glickman. “For 2020, we see the company as roughly cash flow neutral, and thus preservation of the dividend (so far) has entailed more borrowing.” He adds: “Assuming crude oil prices do not relapse, we think XOM can sustain the dividend without additional borrowing.”

This is pure guesswork, as the pandemic rolls on, including fears of so-called “second wave” that could further hurt energy demand and prices.

ExxonMobil’s move is the latest in a wave of corporate retrenchments that have occurred since the pandemic and accompanying economic crisis began six months ago.

Scores of companies have taken often drastic measures to shore up their balance sheets. Some companies laid off workers. Some furloughed them—a fancy word for a temporary layoff. Others cut or suspended 401(k) contributions to workers’ retirement plans. Others took it to shareholders, slashing, or in some cases, eliminating dividends. This is unquestionably painful for income-oriented investors who have come to rely on dividends to maintain a certain standard of living.

ExxonMobil, which just last week reported its second consecutive quarter of losses, amid “global oversupply and COVID-related demand impacts,” has said it remains committed to its dividend. But other oil majors have slashed theirs. Two examples: This spring, Royal Dutch Shell RDS, -0.16% cut its dividend for the first time in 80 years; BP BP, -2.88% —after saying it was also committed to its dividend—announced a 50% cut two days ago.

CityWatch: ‘I can’t believe this is America.’ Confronted with unprecedented need, New York food pantries try to fill in the gaps

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The line for meals on a cloudy Thursday curves around the block. 

Standing 6 feet apart, most wearing masks, guests wait for chicken stew, a green salad, fresh fruit, a sandwich, orange juice, and some iced coffee.

Stephen Fenwick, 57, has been coming to the Holy Apostles Soup Kitchen in Manhattan’s Chelsea neighborhood for about four months. He had worked delivering food for apps such as DoorDash but started having tech problems with the apps on his phone around the time that New York City began to quarantine, and couldn’t get help. He applied for unemployment, but says his case has been pending for months, and he has received no money. 

“I’m not the only one. There’s a lot of people out there with the same problem,” said Fenwick, who lives in Manhattan.

He’s renting a room right now, and is able to get some odd jobs, but not too many. Fenwick said he is still in the process of applying for the Supplemental Nutrition Assistance Program (SNAP), a government food benefit. Holy Apostles, which serves meals five days a week, helps him save money for other expenses, like rent.

Since coronavirus hit New York City in March, Holy Apostles Soup Kitchen and organizations that serve people who are food insecure have been tasked with tackling an unprecedented level of need, supplementing a government response that has also surged. Several food pantries and community organizations in New York City that MarketWatch spoke with reported astronomical increases in the amount of groceries or meals they served before the pandemic hit. Many struggled early on with an elderly volunteer workforce, and the new world wrought by coronavirus has, in some cases, significantly changed their service model.

“Early April, late March, we were just putting out fires,” said Matt Jozwiak, CEO and founder of Rethink Food NYC, a nonprofit. “Community organizations were closing left and right. But people were getting laid off and unemployment wasn’t coming through…it was just a perfect storm.” 

Before the pandemic, there were around 1.2 million people in New York City who faced food insecurity. The city estimates that number is now around 2.2 million, roughly 25% of the population, according to projections.

Also see: New York City to set up COVID checkpoints at bridges and tunnels

“Sometimes the media is implying this is a brand-new crisis,” said Joel Berg, CEO of Hunger Free America, a nonprofit based in Manhattan working to end domestic hunger. “That’s missing the real story that we had a hunger crisis when things were going great. This has only made it worse.”

In addition, more than 3.35 million people participated in SNAP in New York in April, a 26% increase year on year, according to the latest figures available from the U.S. Department of Agriculture. 

In many cases, government benefits don’t cover all the needs of a family, in which case they will supplement with food pantries. Some feel social stigma about signing up for benefits, while others may earn too much money to qualify, but still can’t meet their food needs. Benefits are also difficult to apply for, according to several hunger advocates. 

“It’s more complex to apply to SNAP than it is to file your taxes in most cases,” Berg said. “That’s why groups like ours spend a lot of time helping people actually submit that application.”

‘I can’t believe this is America’

Visitors to Holy Apostles Soup Kitchen used to sit down at tables inside the church and eat together. On March 13, for health safety reasons, the organization closed down indoor operations and moved to a grab-and-go model. 

Before the pandemic, they were giving out between 80 and 90 pantry bags a week, usually to help families over the weekend when schools and senior centers were closed. That number is now around 385 pantry bags. The number of hot meals they serve has remained relatively stable, at around 800 to 1,000 meals a day, with more served at the end of the month as people run out of government food benefits. 

Related: Older Americans are having trouble getting enough to eat — and this was before COVID-19

The staff at Holy Apostles and food pantries across the city dread what will happen with the end of enhanced unemployment insurance. The extra money stopped in July, and politicians in Congress are currently at a standoff about how they will proceed. “You take $600 away from a family or an individual, and take it away from their income. So what does that do to our food pantry system?” said Michael Ottley, the chief operating officer of Holy Apostles Soup Kitchen.

On a recent day, across the street from the soup kitchen, a line of about 15 small carts marked the spots of people who had come hours early to wait for food pantry bags that would be handed out later in the afternoon. 

“I can’t believe this is America,” Ottley said. “But here we are.”

The city’s response to the food crisis

New York City has made several moves to address surging food insecurity over the past few months.

“We’ve faced an incredible crisis in New York City, with the number of food-insecure New Yorkers swelling from 1.2 million to over 2 million,” said Kathryn Garcia, also the commissioner of the Department of Sanitation, who in April Bill de Blasio appointed to be New York’s food czar, overseeing the city’s response to coronavirus emergency food distribution. “To meet this need, we’ve stood up a huge operation, quickly putting thousands of people to work distributing more than 100 million meals to New Yorkers in need,” Garcia said in a statement . “We cannot and will not allow the crisis of this virus to become a crisis of hunger in New York City.”

The mayor’s office released a plan in April announcing that they would spend $170 million over several months in an effort to feed New Yorkers. The city has created “grab-and-go” sites for free food at 400 to 500 locations operated by the Department of Education. People can pick up three meals a day, five days a week. It has also created a home-delivery program by employing around 23,000 taxi drivers to deliver roughly one million meals a day to homebound people, mostly seniors. In addition, it has partnered with FreshDirect, a grocery delivery service, to transport grocery boxes to different locations every week.

Workers at Brooklyn Packers pack bags of fresh produce to be distributed to area food banks, community leaders and other places to serve New Yorkers in need of food.

Getty Images

As for food pantries, despite the tidal wave of food insecurity created by the coronavirus, their numbers have shrunk.

The city estimates that before the pandemic, there were around 800 food pantries in New York City, but since, about a third has shuttered, usually because of a workforce made up of elderly high-risk volunteers.

Before the coronavirus, City Harvest, a food rescue organization, worked with 317 locations that provided food for those in need. Initially during quarantine, around 130 food pantries they worked with closed down. Currently, 45 remain closed. City Harvest is now working with 307 sites because they have new partnerships for 35 emergency food relief locales. 

However, the number of people that they serve has never been higher. From March to June last year, City Harvest’s partners that distribute fresh fruits and vegetables served around 51,000 people. This year, during that same period, they served more than 100,000 people, according to Jenique Jones, senior director of program operations and policy at City Harvest. 

Read: New York metropolitan area lost nearly 1.5 million jobs in June, the most of any U.S. city

“Some of this is COVID, definitely, but I also think that there are a lot of people who probably needed support prior, who were just hanging on,” Jones said. “They had jobs that allowed them to just scrape by. And then when those jobs were gone, they couldn’t even do that.” 

How food groups adjusted to a COVID-19 world

Some food insecurity organizations have dramatically changed the way they operate because of coronavirus. 

Before the pandemic, Rethink Food NYC would collect excess food from restaurants and cafeterias, cook it, and cater free meals to community organizations. But after the coronavirus hit, corporate cafeterias closed down and the restaurant industry was severely curtailed. 

Rethink pivoted to contracting with restaurants, where existing employees make food that is delivered through food pantries or community organizations to those in need. Rethink is now working with around 26 restaurants, according to CEO and founder Jozwiak, who says their model allows money to stay in communities, as restaurants can keep staff members employed as they provide meals. Rethink has contracts with fine-dining restaurants, but Jozwiak said the majority are smaller businesses in the city.

“The approach now is, OK, let’s build a network of restaurants, of 30 to 100 restaurants that are in these neighborhoods,” Jozwiak said.

The organization originally had a $1.6 million budget for 2020. They have spent $3.2 million in 2020, and have raised more than $3 million since the coronavirus hit. So far this year, Rethink has raised more than 300% of their annual budget from last year, receiving money from the city, and engaging with some larger donors, according to Jozwiak. The Holy Apostles Soup Kitchen was able to meet the huge increase in need due to corporate and community partners, as well as a major fundraising effort. 

They have raised roughly $2.75 million so far this year from a variety of sources, including individuals, companies, nonprofits, and the government. This is around $2 million more than what they had raised this time last year. However, soup kitchen officials say, they must raise more to continue to provide through the winter. 

City Harvest did not provide specific fundraising numbers, but said that they were able to keep food donations flowing in part because of their partnership with the Feeding America network, a hunger relief organization which gives them access to food sources nationwide, as well as existing relationships with food donors. They are also part of government initiatives like the federal Coronavirus Food Assistance Program, and Nourish NY, a New York state program that connects food banks with state agriculture products. 

A long-term crisis

There is awareness among food pantries and those who work in the food insecurity space that this is not a short-term spike in need. 

“Usually in a disaster like a hurricane, there’s sort of an immediate response that gets everybody safe and sound and secure, and then you begin the long term recovery,” said Gary Bagley, the executive director of New York Cares, a volunteer organization. “But there’s this question of ‘Are we still in an immediate response, or are we in the longer-term recovery? Or did this just turn into long-term recovery the very first day?’”

For food-insecure Americans, the future is more uncertain than ever. 

Coronavirus update: Global death toll tops 700,000 with 18.5 million confirmed cases and U.S. accounts for more than a quarter

The HEROES Act, passed by the U.S. House of Representatives, would provide additional SNAP benefits, and extend the Pandemic EBT program. However, it is stalled in the Republican-held Senate. 

“This is a true crisis now, and the worst hunger crisis in modern American history,” Berg said. “What we’re all really looking at is if the Senate really balks at expanding unemployment benefits and really balks at providing another stimulus check and really balks and expanding P-EBT (Pandemic Electronic Benefit Transfer)…when that stuff runs out in August or September, you ain’t seen nothing yet in terms of societal collapse and hunger.”

The Margin: CDC warns that people are going blind and dying from drinking hand sanitizer

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Don’t drink hand sanitizer.

While using the alcohol-based gels and liquids has become an integral part of hand hygiene during the coronavirus pandemic, the Centers for Disease Control and Prevention (CDC) released a worrisome report showing some adults are suffering seizures, losing their vision and even dying from consuming hand sanitizer laced with methanol.

The warning comes on the heels of the Food and Drug Administration’s (FDA) expanding list of recalled hand sanitizer products that it says contain methanol, which is a toxic substance that could cause death if too much is absorbed into the skin or it is consumed. Alcohol-based hand sanitizer should only contain ethanol (ethyl alcohol) or isopropanol (isopropyl alcohol), which are safe to use. But some products imported into the U.S. have been found to contain methanol -— despite claiming to have ethanol. Now the FDA’s “do not touch” list of toxic hand sanitizer brands has spilled over to 75 products, including brands such as Blumen and Hello Kitty by Sanrio.

Read more:The FDA’s list of toxic sanitizers is surging—now at 75. Here’s why

The CDC was notified on June 30 about cases of methanol poisoning in Arizona and New Mexico. After reviewing 62 calls to poison centers in those states between May 1 and June 30, it found 15 cases of methanol poisoning by ingestion in adults ages 21 to 65. Thirteen of them were male, and all of them had a history of swallowing alcohol-based hand sanitizer products. Four people died.

The CDC report doesn’t reveal why these individuals drank the hand sanitizer, but it notes that children will sometimes swallow the substance accidentally, or teens and adults with a history of alcohol abuse may drink it as an alcohol substitute.

But what it does describe are the consequences. Methanol poisoning can cause serious side effects and death if left untreated. Six of the 15 people admitted to the hospital suffered seizures, and they still had visual impairments when they were discharged. The report details one case study, in particular: a 44-year-old man who was hospitalized for six days with acute methanol poisoning. His treatment was complicated by seizures, and he went home with near-total vision loss.

“Persons should never ingest alcohol-based hand sanitizer, avoid use of specific imported products found to contain methanol, and continue to monitor FDA guidance.”

— CDC

“This investigation highlights the serious adverse health events, including death, that can occur after ingesting alcohol-based hand sanitizer products containing methanol,” the CDC report states. “Safety messaging to avoid ingestion of any alcohol-based hand sanitizer product should continue. Persons should never ingest alcohol-based hand sanitizer, avoid use of specific imported products found to contain methanol, and continue to monitor FDA guidance.”

It also cautions that kids using hand sanitizer should be supervised, and that these products should be kept out of reach of children when not in use.

The CDC notes that this report just looked at two states, so cases of methanol poisoning from drinking hand sanitizer could be higher. “Health departments in all states should coordinate with poison centers to identify cases of methanol poisoning,” it writes.

This isn’t the first warning about hand sanitizer products doing more harm than good. Earlier in the pandemic, health officials and liquor brands like Everclear grain alcohol and Tito’s Handmade Vodka warned consumers not to use booze to concoct homemade hand sanitizer while such disinfectant products were hard to come by during the first wave of pandemic panic shopping.

Read more:Why you shouldn’t use Tito’s Vodka to make hand sanitizer — or attempt to make your own hand sanitizer period

The CDC has recommended using alcohol-based hand sanitizer products that contain at least 60% ethyl alcohol or 70% isopropyl alcohol in community settings during the pandemic to help prevent the spread of COVID-19. But as noted above, the FDA has also flagged 75 hand sanitizer products contaminated with toxic methanol. Check out the complete list of recalled sanitizer products here. If you have any in your home, stop using them, and dispose of them in hazardous waste containers. Do not flush them down the toilet or dump them down the drain.

Or you can avoid the risk by avoiding sanitizer altogether — Both the WHO and the CDC agree that scrubbing your hands with soap and water for 20 seconds is a much more effective way to reduce the risk of infection. The CDC clearly states in its guidelines that “soap and water are more effective than hand sanitizer at removing certain kinds of germs.”

Stay up to date with MarketWatch’s coronavirus coverage here.

Outside the Box: More cuts to 401(k) matches are coming

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To conserve cash, some employers are suspending contributions to their workers’ 401(k) accounts. And if this downturn plays out like previous recessions, more will follow.

The handful of employers announcing suspensions in recent weeks include travel companies and retailers hit first and hardest by shrinking consumer demand, including Amtrak, Marriott Vacations Worldwide MAR, +0.84%, the travel company Sabre, Macy’s M, -2.34%, Bassett Furniture Industries BSET, -1.43%, Haverty Furniture Cos HVT, +1.17%, and La-Z-Boy LZB, +0.00%.

Tenet Healthcare THC, +0.56% and a physician practice in Boston on the front lines of providing expensive coronavirus care have also suspended their matches. Employees, not surprisingly, are unhappy with these moves. An emergency room doctor told the Boston Globe that his organization’s decision comes as he is “working huge extra hours trying to scrape together [personal protective equipment] and otherwise brace for COVID-19.”

Read: Congress has doubled the amount you can borrow from your 401(k) — but there’s a hidden danger

Employers are required to give their workers a 30-day notice and cannot stop the match prior to the 30-day period.

Suspending matching contributions has become somewhat of a recession tradition. In the months following the September 2008 market crash, more than 200 major companies rushed to do so, according to the Center for Retirement Research. The firms’ primary financial motivation was easing an immediate cash-flow constraint — not a concern about profits — the researchers found.

But cutting 401(k) contributions may be a small price to pay for mitigating layoffs, said Megan Gorman, a managing partner with Chequers Financial Management in San Francisco. “It might be a stopgap to help save the business in the long run,” she said. A typical employer matches 50% of employee contributions up to 6% of their salaries.

Read: Many Americans are underprepared for retirement — and that was before the coronavirus pandemic

Amy Reynolds, a partner at Mercer Consulting, said the bigger danger for workers’ future retirement security is tapping their 401(k)s to pay their routine expenses in a tough economy. As part of the rescue package Congress passed in March, workers can withdraw up to $100,000 without paying the 10% penalty usually imposed on 401(k) withdrawals by people under 59½.

“We want them to be thoughtful and consider other sources before they get to that,” Reynolds said.

She said matching contribution suspensions are often temporary and are reinstated as things get back to normal. That’s what happened in 2010, when companies slowly restored all or part of their contributions as the economy recovered.

Employers use 401(k) matches to hire and retain talented employees, and Reynolds noted that suspending contributions isn’t something they want to do. One thing distinguishing this economic downturn from previous recessions, she said, is that some companies are sharing the pain by cutting top executives’ compensation at the same time.

Marriott Vacations announced it would cut executive salaries by 50%, and Sabre is reducing its CEO’s base pay by 25%.

“We are seeing this go-around trying to minimize the layoffs as much as possible and executives allowing themselves to be impacted more,” Reynolds said.

This column originally appeared on Squared Away, a blog covering financial behavior, psychology and the U.S. money culture. It was published with permission.

Kimberly Blanton is a veteran financial and economics reporter. She is the lead writer of Squared Away, which is supported by the Center for Retirement Research at Boston College. Follow Squared Away on Twitter @SquaredAwayBC.

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Encore: Employers start to suspend their 401(k) match

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The employer match of employee contributions is an important characteristic of 401(k) plans. The match was designed to encourage participation and contributions — particularly by lower-paid employees. However, at a growing number of companies, the employer match has become a casualty of the COVID-19 crisis and ensuing economic collapse.

Read: More cuts to 401(k) matches are coming

Although employers have adopted a variety of match rates, the typical employer match consists of a 50% match on 6% of the employee’s salary. Taken together, the typical employer match is thus 3% of employee earnings. Most employers permit their workers to continue contributing on an unmatched basis past the 6% match level.

Read: New blow to workers: Some companies are cutting their 401(k) contributions

Studies consistently find that the employer match is an important determinant of 401(k) participation and contribution decisions. On the participation side, the relationship is straightforward. The presence of an employer match produces a large initial return on the employee’s contribution that supplements the benefits of tax deferral and encourages participation.

Read: 6 ways to keep health care costs from eating up your retirement savings

On the contribution side, the relationship between the employer match and employee contributions is unclear. On the one hand, introducing a match reduces the amount that individuals need to contribute to reach some target level of saving. On the other hand, introducing a match might encourage others, who are contributing less than 6%, to increase their contributions because they receive an extra 50 cents for each dollar they contribute. Even though the theoretical outcome is ambiguous, studies that examine the relationship between the average match rate and employee contributions generally find a positive relationship.

The propensity for employers to decrease or suspend their 401(k) match in times of economic hardship became evident in the wake of the 2001 recession, when several large companies (General Motors GM, +0.36%, Ford F, -0.43%, DaimlerChrysler, Textron, Goodyear Tire & Rubber, and Charles Schwab SCHW, -1.89%, among others) announced their decision. As the economy recovered, most of these firms restored their original matches. But the phenomenon returned following the 2008 financial collapse and ensuing recession. News accounts suggest that 218 companies suspended their 401(k) match between January 2008 and November 2009, affecting about 5% of all 401(k) participants. Again, as the economy recovered, three quarters of employers reinstated the match.

Since the collapse of the economy in 2020, 16 large companies have suspended their match so far, including Tenet Health THC, +0.56% (119,660 active 401(k) participants), Marriott Vacations Worldwide MAR, +0.84% (9,715 active participants), and Amtrak (18,780 active participants). (Active participant data are for 2018 from the Labor Department’s Form 5500.)

The question is how quickly employers will resume their 401(k) match. An analysis of the 2008-09 suspensions showed the main motivator was liquidity constraints in the face of a recession and a banking crisis. The picture is quite different this time around. Yes, liquidity is a problem, since hotels, providers of travel, and retailers cannot sell their products. But this time, the collapse is of greater severity, so more employers may end up taking the more drastic step of furloughing employees (which suspends all retirement contributions by definition).

Nevertheless, if the economy rebounds quickly and employers compete for employees by resuming the 401(k) match, the impact on individuals — of at least this one provision — will be modest. Alternatively, if the recession drags on and these suspensions lead to a permanent decline of the 401(k) employer match, significantly fewer people will participate in 401(k) plans — especially among the lower paid — and many of those affected will end up with an inadequate retirement income.

Deep Dive: Gold rising to $4,000 an ounce ‘would not be an unreasonable move,’ fund manager says

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Stocks and bonds may be in an asset bubble, as record-low interest rates and a tremendous increase in the money supply have sent prices soaring this year.

Add gold, which has risen 35% to $2,049 an ounce Aug. 5, to the list.

But Michael Cuggino, CEO of the Permanent Portfolio Family of Funds, says gold can move a lot higher. It would “not be an unreasonable move” for gold to breach $4,000, he said in an interview.

Cuggino manages the Permanent Portfolio PRPFX, +1.13%, a $1.9 billion mutual fund that is conservatively run and rated four stars by Morningstar in the fund-research firm’s “U.S. Fund Allocation — 30% to 50% Equity” category.

A long wait for a big move

First, take a look at this chart showing how monthly prices for an ounce of gold GC00, +1.11% (per continuous gold contracts on the New York Mercantile Exchange) have moved over the past 30 years:

FactSet

You can see the triple bottom from the end of 2015 through November 2018.

“Ever since then, it has been gradual move up, then some down. It moves sometimes in big chunks, gives some back, sits around and does nothing, reacts to stimulus, inflation, the value of dollar and euro … but it has had an aggressive move this year,” Cuggino said.

Gold may extend gains as money is being pumped into the U.S. economy, the dollar is declining, and investors are fearful that inflation may return, he said.

Cuggino warned of sharp pullbacks even during a long-term move up, as did Nigam Arora, who wrote that gold is an appropriate hedge against stocks. Still, “gold is a very small market, and it can be easily manipulated by the governments,” Arora wrote on MarketWatch.

The case for gold being relatively cheap

When looking back at how gold and stock prices have moved over the very long term, Cuggino said gold is still trading at an inexpensive level when compared with stocks. This chart shows monthly prices of gold divided by closing levels for the S&P 500 Index SPX, +0.00% over the past 30 years:

The S&P 500 was up 3% for 2020 through Aug. 5, but it was also up 49% from its closing low March 23.

Despite that action, and this year’s 35% climb for gold, the metal was trading at 0.6 times the level of the S&P 500. It hasn’t been above 0.7 since 2014, and you can see looking further back that it was close to 1.7 times the S&P 500 in August 2011.

Different crisis, different response

Cuggino said the quick and tremendous reaction to the COVID-19 pandemic by the federal government and the Federal Reserve was completely different from the actions taken during and after the 2008 credit crisis.

“In 2008, the fiscal policies didn’t matter much for economic gain. GDP didn’t grow because of stimuli. Monetary assistance from the Fed basically stayed in the banking system,” he said.

But now, because of programs meant to help small business, the payments made to individuals and families through the CARES Act and the loan payment deferral programs, stimulus is “much more targeted to get money out to consumers,” Cuggino said.

This points to a long-term concern and bullish possibilities for gold.

“Even though we have deflation now, [eventually] with excess raw materials, in a growing economy, the velocity of all that money can produce inflation risk,” he concluded.

Permanent Portfolio

The Permanent Portfolio PRPFX, +1.13% is designed to provide good long-term performance regardless of the economic environment, and to complement (and partially hedge) a broad portfolio by bouncing back more quickly during periods of market turmoil.

Here’s the fund’s broad asset allocation as of June 30:

Gold and silver made up more than 27% of the portfolio. Equities made up about 21%, with top holdings in that bucket including Texas Pacific Land Trust TPL, -4.31%, Freeport-McMoRan Inc. FCX, +3.47%, Facebook Inc. FB, +5.80% and Twilio Inc. TWLO, -5.16%.

So the fund cannot be expected to outperform the S&P 500 over long periods. But because it bounces back more quickly, and because of the nature of the portfolio, it has outperformed the index so far this year:

FactSet

From a closing peak Feb. 21 through its trough March 20, the fund was down 21%. From its record closing high Feb. 19 through its closing low March 23, the S&P 500 was down 34%.

Here are long-term returns for the fund, compared with those of the S&P 500 — you’ll have to scroll to the right to see all the data:

Total return – 2020 through Aug. 5 Average return – 3 years Average return – 5 years Average return – 10 years Average return – 15 years Average return – 20 years
Permanent Portfolio Class I 11.7% 8.5% 7.9% 5.3% 6.6% 7.7%
S&P 500 3.0% 12.5% 11.9% 13.8% 9.1% 6.3%
Source: FactSet

So the fund didn’t capture the S&P 500’s extraordinary gains, led by the large tech companies that make up a major portion of its market capitalization. But if you go back 20 years, its average return has beaten that of the index.

Don’t miss:This $20 billion bond fund produced outsized returns by capitalizing on market turmoil, and is set to do it again

Foreign buying of American real estate plunged before the pandemic — will COVID-19 push it even lower?

This post was originally published on this site

Foreign buyers are purchasing fewer and fewer American homes. And the coronavirus pandemic could cause a serious pullback in new investment in U.S. residential real estate from international buyers.

During the 12-month period ending in March 2020, foreign buyers purchased 154,000 existing homes in the U.S., down 16% from the previous year, according to a new report from the National Association of Realtors. This was the smallest number of existing-homes that international buyers have purchased since 2011, and the third consecutive year that the number decreased.

Altogether, international buyers purchased $74 billion-worth of U.S. residential real-estate, down from $77.9 billion the year before and $121 billion two years ago. The report includes purchases by buyers who live abroad as well as foreign residents in the U.S.

China was the largest buyer of U.S. homes once again, accounting for the purchase of 18,400 homes worth roughly $11.5 billion. But among the top five international buyers — which also included Canada, Mexico, India and Colombia — China was the only country where the number and value of homes purchased between 2019 and 2020 decreased.

‘The Chinese government has become much more restrictive about how much cash they can take out of the country.’

— Lawrence Yun, chief economist at the National Association of Realtors

Don’t miss:Coronavirus slows China’s property market to a crawl — and even the most robust real-estate app is no match

A number of factors have reduced Chinese interest in U.S. real estate in recent years — including government efforts to stem these purchases.

“The Chinese government has become much more restrictive about how much cash they can take out of the country,” said Lawrence Yun, chief economist at the National Association of Realtors.

“There’s always a way to go around it, but the fact that the Chinese government is placing capital controls means there could be more monitoring of their citizens,” Yun added. “Just the sense the government may be watching them has reduced the number of Chinese buyers here in the U.S.”

Continued trade tensions between the U.S. and China has also worked to hold back some activity, as have restrictions on visa issuance to Chinese visitors.

How the pandemic will affect international purchases of U.S. homes

The National Association of Realtors (NAR) report only covers the period between April 2019 and March 2020, so it doesn’t reflect the full impact of the coronavirus pandemic.

But even before the pandemic became a crisis here in the U.S. it was having an effect on home-buying activity. Back in February, when China was still the main epicenter for the pandemic, real-estate agents told MarketWatch that uncertainty and travel restrictions had led Chinese investors to pull out of planned deals.

Much has changed since then. The U.S. now has the largest number of cases worldwide, and many countries have imposed travel restrictions. This will seriously curtail foreign buying of U.S. real-estate, Yun said.

“For the most part, people need to see the property in person,” Yun said. Buyers from abroad aren’t just purchasing properties for investment purposes.

Also see:Real-estate reckoning on ‘master bedrooms’ as a racist term took place after years of discussion — yet many home builders dropped the term years ago

Over half (51%) of non-resident foreign home buyers plan to use the property as a primary residence or vacation home, while another 10% expect to have it double as a rental property and vacation home, according to NAR data.

Over half of non-resident home buyers use the property as a primary residence or vacation home.

Moreover, the most popular real-estate markets for foreign buyers are located in states with some of the highest coronavirus case counts. Florida was the top destination for foreign buyers, followed by California, Texas, New York and New Jersey.

Given the difficulty and risks posed by traveling, many foreign buyers may decide to hold off on buying an American home until they can enjoy it.

International buyers also don’t have the same incentives to buy a home in the U.S. right now as their American peers. “International buyers are much more likely to buy with cash or use more limited financing,” said Danielle Hale, chief economist at Realtor.com. “As a result, we don’t see a surge in international demand when interest rates drop.”

A number of factors could provide a boost to international demand, though. The upcoming presidential election could result in a dramatic shift in international relations depending on the outcome. “A Biden administration could potentially be more welcoming,” Yun said.

The U.S. real-estate market’s quick rebound from its coronavirus lows could be a draw in and of itself for foreign buyers, said Daren Blomquist, vice president of market economics at Auction.com, a listing site for foreclosed properties. Plus, some economists have suggested that the flight to the suburbs could lead to softer prices for properties in major cities, which could attract foreign buyers.

Ultimately, though, a decline in international buying isn’t likely to hurt the U.S. real-estate market, because foreign buyers only account for 4% of existing-home sales. In fact, it could be the opposite.

“The fact that foreigners have stepped back is actually providing a better chance for domestic buyers to get those properties,” Yun said.

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