Bob’s Journal for 10/7/21

Businesses Show Confidence in the Economy

Speculative-grade loans taken to pay dividends are setting records in 2021, according to S&P Global Market Intelligence’s LCD as reported in The Wall Street Journal.

More than $72 billion in such loans have been taken out already in 2021, with the proceeds used to pay dividends. Though almost three months are left in the year, the total already beats the previous full-year record.

Also, a record amount of junk bonds have been issued by U.S. companies in 2021. The sale of leveraged loans also are likely to set a new record in 2021.

One factor behind these transactions is the record amount of cash on corporate balance sheets. Companies have been accumulating cash for several years. Many businesses now are comfortable they have enough cash to pay the debts even if the economy turns down.

Also, over the last few years, most businesses have refinanced debt that was coming due. Companies can focus on longer-term strategies now that debts maturing soon will require reduced interest payments.

Low interest rates are another factor. Rates are so low that many business leaders believe it doesn’t make sense not to borrow. They can invest the loan proceeds in their businesses and earn a return that exceeds the costs of the loans or distribute the money to shareholders.

Businesses also seem to be confident that economic growth is sustainable for a while. They’re investing to expand their businesses. There’s also been a surge in debt used in mergers and acquisitions.

Most of the debt that was taken on to pay dividends to shareholders was borrowed by privately held companies that are compensating their private equity investors.

Investors are helping the trend. They are buying more debt with low credit ratings than in the past because the debt pays higher interest rates than alternatives. In this low interest rate world, investors are willing to take on more risk to earn slightly higher yields.

Investors need to be aware of the risks they are taking. The market value of all this debt will decline sharply at the first sign that economic growth is slowing. But for now, it’s a sign that both investors and businesses are confident economic growth will continue.

Still Time to Beat Price Increase on the Best Long-Term Care Insurance Policy

Back in August, I told you that the rates on one of the best long-term care insurance plans in the country were about to increase by about 20%. You still have time to capture the old rates if you apply very soon.

Originally, we were told that the rate increase would affect everyone whose application wasn’t in by October 4. But the insurer recently decided to extend the deadline. The latest deadline isn’t set yet. So, if you’re interested, act quickly.

The best and most popular policies these days are the hybrid or asset-linked policies. These are life insurance contracts or annuities with long-term care benefits. They also don’t have the use-it-or-lose-it facet of traditional long-term care insurance. Beneficiaries receive payments if you claim few or no long-term care benefits during your lifetime. You also can retrieve the money if you need it for other purposes.

In particular, I’ve been recommending a return-of-premium LTC life insurance policy for several years. Its long-term care benefit pool is initially three times your deposit and can grow to 10 or more times your deposit over 20 years, depending on the policy terms you select.

The policy offers the lowest premium-to-benefit ratio available, among other attractive features.

To receive the return of premium feature at the old rates, contact my recommended long-term care insurance expert and friend, David Phillips.

If you’ve been delaying the purchase of long-term care insurance and want to avoid the latest cost increase, call David at 888-892-1102 or visit www.ropltc.com for details about the policy.

Widow Allowed to Roll Over Husband’s Roth IRA Tax Free

This story has a happy ending, but you don’t want to put your spouse in this situation.

This one involves a married couple, in which the husband had a Roth IRA. The wife had established a revocable living trust of which she was the sole primary beneficiary and both spouses were trustees.

The husband named the trust as the sole beneficiary of his Roth IRA.

After the husband passed away, the widow wanted to execute a spousal rollover of the Roth IRA. She tried to roll it over into a Roth IRA in her own name. But the trust was named the sole beneficiary of the IRA instead of the widow, so the IRA custodian was hesitant to execute the transaction.

The widow asked the IRS for a ruling that she could do the spousal rollover tax free.

The IRS ruled that since the widow is the trustee and sole beneficiary of the trust, she is entitled to receive all the assets held by the trust. She is the only person for whose benefit the IRA is maintained.

This allows the widow to be treated as the sole beneficiary of the Roth IRA. She can roll it over to one or more Roth IRAs established in her name.

The rollover will be tax free. The widow will not have to take required minimum distributions from the Roth IRA during her lifetime.

If the widow takes the balance of the husband’s Roth IRA as a distribution, she can have a tax-free rollover if the balance is rolled over to another Roth IRA no more than 60 days after the distribution.

The result is a good one for the widow. But she had to spend a lot of time talking with the IRA custodian and tax advisors. Then, she had to spend time and money to submit a private ruling request to the IRS and wait for a response.

It’s better not to name a revocable living trust as beneficiary of your IRA or other qualified retirement account. If you want your spouse to inherit the account, name your spouse as the sole primary beneficiary of the IRA.

The Data

New unemployment claims for the latest week increased by 11,000 to 362,000. This is the third consecutive week of increases. The increases are believed to be temporary and due to Hurricane Ida and auto industry layoffs caused by parts shortages.

Continuing claims declined sharply to 5 million from 11.3 million the previous week. That decline was due to the end of the special pandemic programs.

Job growth remained strong in the private sector in September, according to the ADP Employment Report. The report estimated that 568,000 new jobs were created in September. The estimate for new jobs in August was revised down to 340,000 from the 374,000 initially reported.

Personal Income increased 0.2% in August, following a 1.1% uptick in July.

Personal Consumption Expenditures (PCE) increased 0.8% in August after declining 0.1% in July. Spending increased because of higher wages and higher savings accumulated in the last year or so.

The Fed’s preferred inflation measure, the PCE Price Index, rose 0.4% in August and 4.3% over 12 months. The Core PCE Price Index increased 0.3% in August and 3.6% over 12 months.

Both 12-month measures were at the highest levels since early 1991.

The ISM Services Index inched up to 61.9 in September from 61.7 in August.

The ISM Manufacturing Index increased to 61.1 in September from 59.9 in August.

The PMI Composite Index rose to 55.0 in September from 54.5 in August. The Services Index component increased to 54.9 from 54.4.

The PMI Manufacturing Index for September was 60.7, compared to 61.1 in August.

The Chicago PMI declined to 64.7 in September from 66.8 in August.

Consumer Sentiment, as measured by the University of Michigan, rose to 72.8 at the end of September from 71.0 at mid-month.

The third estimate of GDP for the second quarter didn’t change much from the previous estimates. GDP for the second quarter was estimated at an annual rate of 6.7% compared to 6.6% in the second estimate. There were no significant changes in the main components of the GDP estimate.

The Markets

The S&P 500 lost 0.14% for the week ended with Tuesday’s close. The Dow Jones Industrial Average rose 0.06%. The Russell 2000 declined 0.12%. The All-Country World Index (excluding U.S. stocks) fell 0.61%. Emerging market equities are down 1.01%.

Long-term treasuries lost 0.23% for the week. Investment-grade bonds fell 0.14%. Treasury Inflation-Protected Securities (TIPS) added 0.60%. High-yield bonds dropped 0.09%.

In the currency arena, the U.S. dollar rose 0.24%.

Energy-based commodities increased 4.40%. Broader-based commodities rose 3.80%. Gold gained 1.58%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

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