Brexit Impact on US Economy

What is Brexit?  It is an abbreviation for "British Exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union. Britain has already opted out of the EU's monetary union which means that they would be using pounds instead of Euro.

Per Stephen Pounds article published in Foxbusiness.com, June 29, 2016, he said that Chuck Fulkerson, director of education at Online Trading Academy, stated that it will have a short term impact on US economy. But Alan MacEachin, Navy Federal Credit Union economist stated otherwise.

"There could be a massive capital flight to safety, which implies a significant inflow of funds into the US Treasury securities which could drive interest rates lower in the US and also boost the value of the dollar", MacEachin says.

Patrick Gillespie of CNNMoney, June 24, 2016 stated that the chief of the US central bank and top monetary policy setting official, Janet Yellen, forewarned earlier this week that Brexit "wold negatively affect financial conditions and the US economy.

Volatile markets can slow down the US economy.  American consumers make up majority of the US economic activities.  If they don't spend, the economy will not grow.  Their spending usually depends on where the economy of their country is going.

It can also triggers a strong dollar.  A strong dollar will be good for American traveler since it will be a cheaper vacation for them but bad for businesses that sell products overseas. It makes their products more expensive overseas and less attractive to consumers.

In December, Federal Reserves projected that it will raise rates four times this year which will be a strong sign that the US economy has recovered from the recession.  But by June, several of their committee members were calling only one rate hike because of weak growth and slowing job gains.  As rates fall, it will be easier and cheaper for homebuyer to finance their home purchase. Steve Rick, chief economist for CUNA Mutual group said, " This would create yet another mini refinance mortgage boom at financial institutions as homeowners rush to lock in near historic low interest rates." This will be good for real estate industry.

Rent VS Buy

A nationwide buy versus rent index is moving deeper into the “buy” territory, indicating that housing markets across the country are strong. This study by Florida Atlantic University and Florida International University also shows that home prices rose 5.4 percent in the first quarter.

“This appears to be driven by a steady but strengthening job market, rising rents relative to rising ownership costs and recent slower growth in traditional financial portfolios consisting of stocks and bonds,” says Ken Johnson, a real estate economist and one of the index’s authors.

The index looked at the relationship between buying a property and building wealth through a buildup of equity versus renting a comparable property and investing in a portfolio of stocks and bonds, and concluded that “In terms of wealth creation, the U.S. housing market, when considered as a whole, has swung marginally more in favor of home ownership over renting a comparable property and investing monthly rent savings in a portfolio of stocks and bonds."

The index also revealed that 16 of the 23 metro markets examined moved in the “buy” territory direction.

The metro areas remaining solidly in the “buy” territory include Boston, Chicago, Cincinnati, Cleveland, Detroit, Milwaukee, Minneapolis, New York, Philadelphia, and St. Louis.

“These cities should have room for price growth without much worry of overheating,” says Eli Beracha, co-author of the index and assistant professor in the T&S Hollo School of Real Estate at FIU. “This is especially true for Chicago, Cincinnati, Cleveland and Detroit.”

 On the other hand, index authors say cities like Honolulu, Kansas City, Los Angeles, Miami, Pittsburgh, Portland, San Diego, San Francisco, and Seattle are near an “indifference point” between buying versus renting. In nearly all of these metro markets, the index score for the quarter moved in the direction of ownership.

“This movement suggests that most consumers in these markets appear to have learned from the real estate crash and now understand that residential property prices can get too high,” Beracha says. “This is a good sign for future housing price stability in these markets.”

 Houston, meanwhile, is deep in the “rent” territory. Also, two other housing markets – Dallas and Denver – moved deeper into the “rent” territory, but at a slower rate than previous quarters, the authors note.

“Strong economic support within these two markets should make for a soft landing in terms of slowing property price growth, increased marketing time for properties and lower probabilities that sellers will actually transact and close during a given marketing effort of their property,” Johnson says.

Source: Florida Atlantic University

Indexed Universal Life Insurance Policy and Retirement

An indexed universal life insurance policy is a permanent insurance that offers great flexibility for premiums and adjustments for face amount. The indexed accounts are credited with interest based on the growth in one or more indexes and there is a guaranteed growth rate within the policy. Life insurance is designed to protect your loved ones if there is a premature death in your family.

What I like best about an indexed universal life insurance policy is the fact that the cash value within the policy can be utilized as a way to generate tax free income for retirement. In other words, this type of policy serves two purposes.

** The face amount provides protection for your family in the case of a premature death.
** The cash value growth over the years can generate tax-free income during retirement.

Source: Excerpt from Investopedia

President's Day

Presidents’ Day is an American holiday celebrated on the third Monday in February. Originally established in 1885 in recognition of President George Washington, it is still officially called “Washington’s Birthday” by the federal government. Traditionally celebrated on February 22—Washington’s actual day of birth—the holiday became popularly known as Presidents’ Day after it was moved as part of 1971’s Uniform Monday Holiday Act, an attempt to create more three-day weekends for the nation’s workers. While several states still have individual holidays honoring the birthdays of Washington, Abraham Lincoln and other figures, Presidents’ Day is now popularly viewed as a day to celebrate all U.S. presidents past and present. #PresidentsDay

Source: History.com