Raphael Stevens

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    Which housing markets are most exposed to the coming interest-rate storm?

    STOCKS ARE sinking, a cost-of-living crisis is in full swing and the spectre of global recession looms. But you wouldn’t know it by looking at the rich world’s housing markets, many of which continue to break records. Homes in America and Britain are selling faster than ever. House prices in Canada have soared by 26% since the start of the pandemic. The average property in New Zealand could set you back more than NZ$1m ($640,000), an increase of 46% since 2019 (see table).For more than a decade homeowners benefited from ultra-low interest rates. Now, however, an interest-rate storm is gathering. On May 5th the Bank of England, having forecast that inflation in Britain could exceed 10% later this year, raised its policy rate for the fourth time, to 1%. The day before America’s Federal Reserve had increased its benchmark rate by half a percentage point, and hinted that more tightening would follow. Investors expect the federal funds rate to rise above 3% by early 2023, more than triple its current level. Most other central banks in the rich world have also started pressing the monetary brakes, or are preparing to do so.Many economists believe that a 2008-style global property crash is unlikely. Households’ finances have strengthened since the financial crisis, and lending standards are tighter. Scarce housing supply together with robust demand, high levels of net household wealth and strong labour markets should also support property prices. But the rising cost of money could make homeowners’ existing debt burdens difficult to manage by increasing their repayments, while putting off some prospective buyers. If that hit to demand is big enough, prices could start to fall.Homeowners’ vulnerability to sharp rises in mortgage payments varies by country. In Australia and New Zealand, where prices jumped by more than 20% last year, values have got so out of hand that they are sensitive to even modest rises in interest rates. In less torrid markets, such as America and Britain, interest rates may have to approach 4% for house prices to tank, reckons Capital Economics, a consultancy. Alongside price levels, however, three other factors will help determine whether the housing juggernaut simply slows, or comes crashing to a halt: the extent to which homeowners have mortgages, rather than own their properties outright; the prevalence of variable-rate mortgages, rather than fixed-rate loans; and the amount of debt taken on by households.Consider first the share of mortgage-holders in an economy. The fewer homeowners who own their properties outright, the greater the impact of a rate rise is likely to be. Denmark, Norway and Sweden have some of the world’s highest shares of mortgage-holders. A relaxation of lending standards in response to the pandemic turbocharged borrowing. In Sweden tax breaks for homeowners have further fuelled the rush to secure mortgages, while a dysfunctional rental market, characterised by overpriced (and illegal) subletting, has pushed more tenants into home ownership. All this puts Nordic banks in a tricky position. In Norway and Sweden housing loans make up more than a third of banks’ total assets. In Denmark they account for nearly 50% of lenders’ books. Sharp falls in house prices could trigger losses.By contrast with the Nordics, where home ownership has been fuelled by the growth of mortgage markets, many households in central and eastern European countries bought homes without taking on debt in the 1990s because property was so cheap. In Lithuania and Romania more than four-fifths of households are outright owners. Mortgage-free households are also more prevalent in southern Europe, notably Spain and Italy, where inheritance or family support is a common route to home ownership. Germans, for their part, are more likely to rent than own their homes. Rate rises will therefore have less direct impact on prices.The structure of mortgage debt—the second factor—also matters. Rising interest rates will be felt almost instantly by borrowers on variable rates, which fluctuate with changes in policy rates; for those on fixed rates, the pain will be delayed. In America mortgage rates tend to be fixed for two or three decades. In Canada nearly half of home loans have rates that are set for five or more years. By contrast lending in Finland is almost entirely priced at floating rates. In Australia around four-fifths of mortgages are tied to variable rates.Just looking at the proportion of borrowers on fixed versus variable rates can mislead, however. In some countries mortgage rates may often be fixed, but for a period that is too short to protect borrowers from the interest-rate storm. In New Zealand fixed-rate mortgages make up the bulk of existing loans, but nearly three-fifths are fixed for less than a year. In Britain nearly half the fixed-rate stock is for up to two years.Resilience to rising rates will also depend on the quantum of debt taken on by households—our third factor. High indebtedness came into sharp focus during the global financial crisis. As house prices declined, households with towering mortgage repayments relative to their incomes found themselves squeezed. Today households are richer—but many are saddled with more debt than ever. While Canadians added C$3.6trn ($2.8trn) to their combined pile of savings during the pandemic, buoying their net wealth to a record C$15.9trn at the end of 2021, their ravenous appetite for homes has pushed household debt to 137% of income. The share of new mortgages with extreme loan-to-income ratios (ie, exceeding 4.5) has also risen, prompting Canada’s central bank to issue a warning about high levels of indebtedness in November 2021.Watchdogs in Europe are equally worried. In February the European Systemic Risk Board warned of unsustainably high mortgage debt in Denmark, Luxembourg, the Netherlands, Norway and Sweden. In Australia, homeowners’ average debt as a share of income has swollen to 150%. In all these countries households will face jumbo monthly repayments just as soaring food and energy costs eat into incomes.Bring this together, and some housing markets seem set for more pain than others. Property in America, which bore the brunt of the fallout from the subprime-lending crisis, appears better insulated than many large economies. Borrowers and lenders there have become more cautious since 2009, and fixed rates are much more popular. Housing markets in Britain and France will fare better in the short term but look exposed if rates rise further. Property in German and southern and eastern Europe appears less vulnerable still. By contrast, prices may be most sensitive to rate rises in Australia and New Zealand, Canada and the Nordics.One floor for house prices is that, in most countries, demand still vastly outstrips supply. Strong job markets, hordes of millennials nearing homebuying years and a shift to remote working have raised the demand for more living space. New properties remain scarce, which will sustain competition for homes and keep prices high. In Britain there were 36% fewer property listings in February than at the start of 2020; in America there were 62% fewer listings in March compared with the year before. Nor is the alternative to owning a home—renting—particularly attractive. Across Britain average rents were 15% higher in April than in early 2020. In America they rose by a fifth in 2021; in Miami they jumped by almost 50%. Prospective tenants of rent-controlled properties in Stockholm face an average waiting time of nine years.As the era of ultra-cheap money comes to an end, then, demand for housing is not about to collapse. Yet one way or another, renters and homeowners will face an intensifying squeeze.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

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    Catholic University insists it's the owner of Judy Garland's 'Wizard of Oz' dress, not priest's niece

    Catholic University insisted that it — not the estate of a late priest and drama professor — is the “rightful owner” of a once long-lost dress worn by Judy Garland in the classic film “The Wizard of Oz.”
    The Washington, D.C., university said a lawsuit filed by the niece of the Rev. Gilbert Hartke, which aims to block an upcoming auction of the blue-and-white gingham dress, “has no basis in law or fact.”
    A federal lawsuit in New York by Hartke’s niece seeks to block an auction of the dress, which is expected to fetch up to $1 million or more in a sale to benefit the university’s drama school.

    A lobby card from the film ‘The Wizard Of Oz,’ shows a film still of a scene in which American actress Judy Garland (1922 – 1969) (as Dorothy) wipes tears from the eyes of actor Bert Lahr (1895 – 1967) (as the Cowardly Lion), while watched by Jack Haley (1898 – 1979) (as the Tin Man) (left), and Ray Bolger (1904 – 1987) (as the Scarecrow), 1939. The film was directed by Victor Fleming.
    Hulton Archive | Moviepix | Getty Images

    The Catholic University of America won’t surrender Dorothy’s dress — without a court fight.
    The university insisted in a new statement to CNBC that it — and not the estate of a late priest and drama professor — is the “rightful owner” of a once long-lost dress worn by Judy Garland in the classic film “The Wizard of Oz.”

    The Washington, D.C., university also said that a new lawsuit filed by the niece of the Rev. Gilbert Hartke, which aims to block an upcoming auction of the blue-and-white gingham dress, “has no basis in law or fact.”
    Gilbert Hartke had been gifted the dress in 1973.
    The school’s statement came just as a lawyer for Hartke’s 81-year-old niece asked a federal judge in New York City in a new court filing to issue a temporary injunction that would at least postpone the May 24 auction of the dress on the university’s behalf. The dress is expected to fetch as much as $1 million or more at an auction held by Bonham’s in Los Angeles.
    Hartke, as a Roman Catholic priest and member of the Dominican Order, “had taken a vow of poverty,” the school noted in the statement.
    “He vowed not to receive or accept any gifts as his own personal property, and at the time of his death did not have any tangible items in his estate,” Catholic University said.

    “In fact, an inventory of Fr. Hartke’s estate conducted in 1987 listed nothing of value in personal possessions or any tangible property of any sort, despite other documented gifts to Fr. Hartke for the benefit of Catholic University over the years. 
    “Catholic University is the rightful owner of the dress, and Fr. Hartke’s estate does not have a property interest in it,” the school said.
    In a court motion filed Friday that seeks a temporary injunction barring the auction, a lawyer for Hartke’s niece, Barbara Ann Hartke, said that the Wisconsin woman will suffer “irreparable injury” if the Bonham’s auction is allowed to proceed before the resolution of her suit claiming ownership of the dress by the estate of her uncle.
    “Because plaintiff’s asset is in Defendant’s possession and will be sold to the highest bidding party, plaintiff will effectively lose the ability to reclaim possession of hers and, or the estate’s property once the auction takes place,” Barbara Hartke’s lawyer, Anthony Scordo, also argued in his filing in U.S. District Court in Manhattan.
    Scordo also wrote, “There is a strong public interest for the court to enter an injunction here.”
    “This property is … important to the American public for reasons that are articulated in the Verified Complaint. The fact that an important part of Americana will not be in the public realm and be lost forever,” Scordo wrote.
    The dress is one of only two dresses known to still exist of the several created for Garland to wear in 1939’s “The Wizard of Oz.” The other dress was auctioned in 2015 by Bonham’s for more than $1.5 million.
    Judge Paul Gardephe has not yet ruled on the motion seeking a temporary injunction. Neither Bonham’s nor Scordo has responded to requests for comment.

    CNBC Politics

    Read more of CNBC’s politics coverage:

    CNBC revealed earlier this week that Barbara Hartke had sued the university and Bonham’s after she said she only recently learned from press reports that the dress gifted to her uncle was soon going up for auction after having been lost for decades.
    The dress was found last July in a trash bag in the university’s drama department.
    Catholic University wants to sell the dress to raise money for its drama school, which Gilbert Hartke founded.
    The priest was given the dress in 1973 by his friend, the actress Mercedes McCambridge, who credited him with helping her deal with her alcoholism.
    Around the time McCambridge gave him the dress, she was acting as the voice of the demon Pazuzu in the horror movie “The Exorcist,” which was filmed in Washington.
    She previously had won an Academy Award for Best Supporting Actress in 1949 for her performance in “All the King’s Men,” and was nominated in the same category for her role in “Giant,” which starred Elizabeth Taylor, James Dean and Rock Hudson.
    Gilbert Hartke himself was a prominent figure in Washington theater who “was very much the man about town,” comfortable at the White House and in D.C.’s power restaurants as he rubbed elbows with the capital city’s political and social elite, The Washington Post noted in his 1986 obituary when he died at age 79.
    Hartke also was one of two Catholic priests asked by the widow of President John Kennedy to stay with his body at the White House before his funeral after his 1963 assassination.
    But despite his high profile, Hartke as a priest was bound by his vow of poverty, Catholic University noted in its statement Friday stating that the school is the legal owner of the dress.
    “Catholic University understands the solemnity of these vows, as did McCambridge and Fr. Hartke at the time of the donation to Catholic University,” the statement said. “Consistent with these vows, the dress was a gift to further Fr. Hartke’s important legacy of building the School of Drama here at Catholic University. 
    “The University’s research of contemporaneous sources and the evidence fully demonstrates McCambridge’s intent to donate the dress to support the drama students at Catholic University. The complaint provides no evidence to the contrary.”
    The university said that when the dress was discovered last summer, “Catholic University did not reach out to the family of Fr. Hartke because the dress was gifted to Catholic University for the benefit of the students in the Rome School.”
    Barbara Hartke’s lawyer Scordo, in his motion seeking to block the auction, argued that delaying the planned sale of the dress until her lawsuit is resolved will not harm Catholic University or Bonham’s financially.
    “Entry of an injunction here is warranted and will place no undue burden on the defendants,” Scordo wrote.
    “Defendants cannot argue that the delay in auctioning the property will causeany harm whatsoever given the time that has elapsed since the death of decedent. There is noindication that the fair market value will experience any real change should the auction bepostponed pending resolution of this litigation.”
    But Scordo said Barbara Hartke “will be the party harmed here should this auction not be enjoined.”

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    Your cash savings may finally yield a higher return — but only at certain banks

    Emergency cash has been suffering from paltry returns and high inflation.
    Ten or so banks have raised yields on savings accounts just since mid-April, according to Bankrate.
    The highest-yielding accounts could pay more than 2% by the end of the year if the Federal Reserve continues on its path of raising its benchmark interest rate quickly.

    Guido Mieth | DigitalVision | Getty Images

    Banks are starting to pay a higher return on your cash — good news for savers who’ve seen their stockpiles languishing from a gruesome combination of low interest rates and high inflation.
    However, some banks are moving faster than others. Some, particularly traditional brick-and-mortar shops, may not budge for a while.

    At least 10 banks have raised interest rates on their high-yield savings accounts or money market deposit accounts since mid-April, according to data compiled by Bankrate.
    They include: American Express National Bank, Barclays Bank, Capital One, CIT Bank, Colorado Federal Savings Bank, Discover Bank, Luana Savings Bank, Marcus by Goldman Sachs, Sallie Mae Bank and TAB Bank, according to Bankrate. A handful of others increased yields earlier in 2022.

    The rates are still relatively low — none yet pays over 1%. Most are in the range of roughly half a percent up to 0.80%, according to Bankrate data.
    But the highest-yielding accounts pay about 10 times more than the national average, which is 0.06%, according to Greg McBride, chief financial analyst at Bankrate.
    And consumers’ returns are likely to climb steadily higher as the Federal Reserve continues to raise its benchmark interest rate to curb inflation. The central bank cut that rate to rock-bottom levels in the early days of the Covid-19 pandemic to help prop up the economy.

    “If the Fed ends up being as aggressive as they’re expected to be, the top-yielding savings accounts could clear 2% later this year,” McBride said.
    “It’s the only place in the world of finance where you get the free lunch of higher return without higher risk,” he added. “It’s pure gravy.”

    Emergency savings

    Guido Mieth | DigitalVision | Getty Images

    Financial advisors often recommend savers park their emergency funds in these types of accounts. Funds are safe (deposits are insured by the Federal Deposit Insurance Corporation) and liquid (they can be accessed at any time).
    Savers should aim to have several months of household expenses handy, in the event of job loss or another unforeseen event.
    Financial advisor Winnie Sun, co-founder of Sun Group Wealth Partners in Irvine, California, recommends saving at least six months of crucial living expenses (shelter, food and medication costs), plus an additional three months for each child in the household.
    More from Personal Finance:Here’s what the Fed’s half-point rate hike means for your moneyAs mortgage rates rise, should you buy a home or rent?Rising interest rates mean higher costs for car loans
    Consumers don’t need to move all their funds, either. They can keep managing their day-to-day finances (their checking accounts, for example) at their current bank to avoid the hassles of switching, and open an account at a new bank solely for emergency funds, McBride said.
    Not every bank is raising their payouts or doing so at the same pace.
    Largely, the ones that have increased their account rates (some have done so multiple times in 2022) are online banks or the online-banking divisions of traditional brick-and-mortar banks.
    They have lower overhead costs and may use the allure of higher rates to compete with traditional shops, which hold the lion’s share of customer deposits and are in “no hurry” to increase payouts, McBride said.

    It’s pure gravy.

    Greg McBride
    chief financial analyst at Bankrate

    When the Federal Reserve raises its benchmark interest rate — known as the fed funds rate — it increases the cost of borrowing. Loans become more expensive for consumers and businesses.
    Banks earn money on loan interest. As the Federal Reserve raises its benchmark rate, banks accrue more revenue from higher loan interest payments and may therefore find themselves better positioned to pay a larger yield on customer savings.
    The central bank hiked its benchmark rate by a half a percentage point on Wednesday, the largest increase in more than two decades.
    However, this seesaw effect won’t necessarily be true for all institutions, due to another factor. Banks use deposits to loan money to other customers. But customers flooded the U.S. banking system with cash to an unprecedented degree in the early months of the pandemic, due partly to cash-hoarding and the flow of government payments like stimulus checks.
    As a result, most banks may not see the need to pay higher savings-account rates to attract deposits and fuel their loan machine.

    Inflation

    Getty Images

    Even as a handful of banks increase payouts, consumers are still struggling to keep pace with inflation.
    The Consumer Price Index, a key inflation gauge, jumped 8.5% in March 2022 from a year earlier, the fastest 12-month increase since December 1981. As a result, money is losing its value at an elevated rate.
    “Overall, you’re still way below levels of inflation,” said Sun, a member of CNBC’s Advisor Council, of high-yield savings account rates.
    However, she added: “Sometimes we have to be comfortable receiving less of a return for less [worry].”
    Savers may opt for different approaches with emergency savings, depending on their household situation, Sun said.

    For example, individuals who don’t want to open a separate high-yield savings account at another bank can perhaps replicate those returns on emergency cash account by investing 5% to 10% (depending on one’s risk appetite) in a simple balanced fund split between stocks and bonds, she said.
    This investment is subject to market risk, though. In an emergency, savers would tap the cash (and not the invested assets) to the extent possible.
    Individuals who don’t have the financial capacity to fund both an emergency savings and retirement account can also consider a Roth individual retirement account, Sun said. In the event of an emergency, investors can tap their Roth IRA contributions as a last resort. (Doing so doesn’t carry a tax penalty, though withdrawing investment earnings might in a few cases such as withdrawing before age 59½. Roth IRAs also carry annual contribution limits.)

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    For President Biden’s approval rating to go up, it’s obvious what needs to go down

    SMALL BUSINESS PLAYBOOK 2022
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    Main Street business owners and the American public are convinced a recession will hit the U.S. economy this year and inflation is the primary reason, according to the latest CNBC|SurveyMonkey Small Business Survey for Q2 2022.
    Even among Democrats and liberal-leaning Americans in the business community and broader population, belief the economy will crash is high.
    On Friday, after the latest strong jobs report, President Biden said inflation is a top priority.

    U.S. President Joe Biden delivers remarks on economic growth, jobs, and deficit reduction in the Roosevelt Room at the White House in Washington, U.S., May 4, 2022. 
    Evelyn Hockstein | Reuters

    Fewer small business owners now than a year ago approve of the job Joe Biden is doing as president. In fact, small business owners are twice as likely to disapprove than to approve of Biden, according to the latest CNBC|SurveyMonkey Small Business Survey, which was conducted April 18-25 among 2,027 small business owners in the U.S. 
    Biden’s approval among this group hasn’t budged for the past three quarters, but few small business owners have been particularly focused on politics during that time. Instead, for the third straight quarter, inflation dominates concerns on Main Street. In this latest survey, about four in 10 small business owners (38%) report inflation to be the biggest risk to their business right now, at least twice the number who point to supply chain disruptions (19%), labor shortages (13%), or Covid-19 (13%). 

    About three in four small business owners say they are currently experiencing a rising cost in supplies, a number that has held steady since the fourth quarter of 2021. 
    Among those experiencing increasing costs, 40% say they are having to increase their prices to keep up, and another 35% are planning to raise their prices if their costs continue to escalate. 
    Still, that leaves 24% who are absorbing the rising costs without raising prices of their own. With inflation rising in every sector, small businesses may be the most reluctant to raise their own prices because they lack some of the price-setting power that helps large corporations keep their dominance. 

    Arrows pointing outwards

    One of the worries about inflation is how quickly it can spiral out of control: as prices increase at every stage of production, they push prices up further at each subsequent stage. In addition, as prices rise, companies are forced to boost wages, but those higher wages lead to consumers being able to spend more money, and the cycle continues. 
    But you won’t see much acceptance of price gouging on Main Street. Small business owners seem especially reluctant to take advantage of the current inflationary environment by passing on higher costs to their customers. Overall, twice as many small business owners say now is a bad time to raise prices than say now is a good time to raise prices. 

    Obviously small business owners can’t fight off inflation on their own; it’s squarely in the realm of the Federal Reserve and the Biden administration to determine policy changes that can curtail the widespread price increases. So far, few on Main Street are impressed with the response. 
    This quarter, just 27% of small business owners say they are confident in the Federal Reserve’s ability to control inflation, almost exactly matching last quarter’s 28%. On Wednesday, Chairman Jerome Powell announced that the Fed would increase interest rates by half a percentage point –the first such step taken since the recent inflation run began last year. 

    Arrows pointing outwards

    Not coincidentally, right as inflation began rising last fall, small business owners’ approval of the way Joe Biden is doing his job as president sank – and it has stayed there ever since. For the first three quarters of his presidency, Biden averaged a 42% approval rating among small businesses: not great, but not awful when considering that a majority of small business owners align more with the Republican Party than the Democrats.
    For the past three quarters, Biden’s approval rating has dropped to the low 30’s, and fewer small business owners approve of Biden now than ever before. Other polling suggests Biden needs to get a handle on inflation in order to help prop up his lagging job approval. 
    Much like in our quarterly survey, Biden’s approval in general public opinion polling started sinking last fall, just as inflation was beginning to rise. The FiveThirtyEight presidential approval tracker pinpoints August 29, 2021 as the inflection point when Biden’s disapproval surpassed his approval in polling averages. Even at that time, the rate at which prices were rising was breaking records. 
    In a new poll from the Washington Post and ABC News, Biden’s job approval ticked up slightly from February to April and now stands at 42% overall. That number is still well below the 52% high mark Biden had in the first Washington Post/ABC News poll of his presidency in April of last year. 
    This latest poll is particularly prescriptive for Biden because it asked about different aspects of presidential approval. Even though his overall approval rating is underwater, a majority of adults in the U.S. (51%) approve of Biden’s handling of the coronavirus pandemic. Fewer approve of his handling of the Russia/Ukraine situation, his ability to create jobs, or his handling of the economy in general. And, down at the very bottom of the list, just 28% approve of his handling of inflation. 
    Presidents get credit for a strong economy in good times and blame for a struggling economy during bad times, as Biden is experiencing now. With inflation top-of-mind across the country, including on Main Street, Biden’s job approval won’t recover unless he takes it on. More

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    Worried about a recession? Here’s how to prepare your portfolio

    FA Playbook

    Eight in 10 small business owners expect a recession this year, according to a CNBC survey.
    You can prepare by diversifying your portfolio, including bond allocations despite slumping prices, experts say.
    “People really need to make sure that they have sufficient emergency savings,” said Catherine Valega, wealth consultant at Green Bee Advisory.

    FG Trade | iStock | Getty Images

    More from FA Playbook:

    Here’s a look at other stories impacting the financial advisor business.

    “We all understand that markets go through cycles and recession is part of the cycle that we may be facing,” said certified financial planner Elliot Herman, partner at PRW Wealth Management in Quincy, Massachusetts.
    However, since no one can predict if and when a downturn will occur, he pushes for clients to be proactive with asset allocations.

    Loading chart…

    Diversify your portfolio

    Diversification is critical when preparing for a possible economic recession, said Anthony Watson, a CFP and founder and president of Thrive Retirement Specialists in Dearborn, Michigan.
    You can eliminate company-specific risk by opting for funds rather than individual stocks because you’re less likely to feel a company going bankrupt within an exchange-traded fund of 4,000 others, he said.

    Value stocks tend to outperform growth stocks going into a recession.

    Anthony Watson
    Founder and president of Thrive Retirement Specialists

    He suggests checking your mix of growth stocks, which are generally expected to provide above-average returns, and value stocks, typically trading for less than the asset is worth.     
    “Value stocks tend to outperform growth stocks going into a recession,” Watson explained.
    International exposure is also important, and many investors default to 100% domestic assets for stock allocations, he added. While the U.S. Federal Reserve is aggressively fighting inflation, strategies from other central banks may trigger other growth trajectories.

    Bond allocations

    Since market interest rates and bond prices typically move in opposite directions, the Fed’s rate hikes have sunk bond values. The benchmark 10-year Treasury, which rises when bond prices fall, reached 3.1% on Thursday, the highest yield since 2018. 
    But despite slumping prices, bonds are still a key part of your portfolio, Watson said. If stocks plummet heading into a recession, interest rates may also decrease, allowing bond prices to recover, which can offset stock losses.
    “Over time, that negative correlation tends to show itself,” he said. “It’s not necessarily day to day.”

    Loading chart…

    Advisors also consider duration, which measures a bond’s sensitivity to interest rate changes based on the coupon, time to maturity and yield paid through the term. Generally, the longer a bond’s duration, the more likely it may be affected by rising interest rates.
    “Higher-yielding bonds with shorter maturities are attractive now, and we have kept our fixed income in this area,” Herman from PRW Wealth Management added.

    Cash reserves

    Amid high inflation and low savings account yields, it’s become less attractive to hold cash. However, retirees still need a cash buffer to avoid what’s known as the “sequence of returns” risk.
    You need to pay attention to when you’re selling assets and taking withdrawals, as it may cause long-term harm to your portfolio. “That is how you fall prey to the negative sequence of returns, which will eat your retirement alive,” Watson said.
    However, retirees may avoid tapping their nest egg during periods of deep losses with a significant cash buffer and access to a home equity line of credit, he added.

    Of course, the exact amount needed may depend on monthly expenses and other sources of income, such as Social Security or a pension. 
    From 1945 to 2009, the average recession lasted 11 months, according to the National Bureau of Economic Research, the official documenter of economic cycles. But there’s no guarantee a future downturn won’t be longer.
    Cash reserves are also important for investors in the “accumulation phase,” with a longer timeline before retirement, said Catherine Valega, a CFP and wealth consultant at Green Bee Advisory in Winchester, Massachusetts.

    I do tend to be more conservative than than many because I have seen three to six months in emergency expenses, and I don’t think that’s enough.

    Catherine Valega
    Wealth consultant at Green Bee Advisory

    “People really need to make sure that they have sufficient emergency savings,” she said, suggesting 12 months to 24 months of expenses in savings to prepare for potential layoffs.
    “I do tend to be more conservative than many because I have seen three to six months in emergency expenses, and I don’t think that’s enough.”
    With extra savings, there’s more time to strategize your next career move after a job loss, rather than feeling pressure to accept your first job offer to cover the bills.
    “If you have enough in liquid emergency savings, you are providing yourself with more options,” she said. More

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    Diesel fuel is in short supply as prices surge — Here's what that means for inflation

    Diesel fuel is in short supply as demand rebounds following the pandemic, while supply remains tight.
    Prices have surged to record levels, adding to inflationary concerns across the economy.
    The problem is especially acute on the East Coast, where prices have become “unhinged,” according to one analyst.
    Higher prices are “certainly going to translate into more expensive goods,” said GasBuddy’s Patrick De Haan.

    The prices for gas and diesel fuel, over $6.00 a gallon, are displayed at a petrol station in Los Angeles, March 2, 2022.
    Frederic J. Brown | AFP | Getty Images

    Diesel prices are surging, contributing to inflationary headwinds due to the fuel’s vital role in the American and global economy. Tankers, trains, trucks and planes all run on diesel. The fuel is also used across industries including farming, manufacturing, metals and mining.
    “Diesel is the fuel that powers the economy,” said Patrick De Haan, head of petroleum analysis at GasBuddy. Higher prices are “certainly going to translate into more expensive goods,” he said, since these higher fuel costs will be passed along to consumers. “Especially at the grocery store, the hardware store, anywhere you shop.” 

    In other words, the impacts will be felt across the economy.  

    Diesel’s surge

    The jump in prices comes on the heels of growing demand as economies around the world get back to business. This, in turn, has pushed inventories to historic lows. Products like diesel, heating oil and jet fuel are known as “middle distillates,” since they are made from the middle of the boiling range when oil is turned into products.
    U.S. distillate inventory is now at the lowest level in more than decade. The move is even more extreme on the East Coast, where stockpiles are at the lowest since 1996. Diesel and jet fuel at New York harbor are now trading well above $200 per barrel, according to UBS. 
    Europe’s move away from dependency on Russian energy is hastening the rapid price appreciation. The bloc currently imports around 700,000 barrels per day of diesel from Russia, according to Stephen Brennock at brokerage PVM. 
    “[T]he tightness in global supply will be exacerbated by the EU’s proposal to ban Russian oil imports,” he said.  “The ban, if approved, will have an outsized impact on product markets and especially diesel….There is now growing anxiety that Europe might run out of diesel.”

    Arrows pointing outwards

    Energy consultancy Rystad echoed this point, saying that the loss of Russian refined products is going to make diesel shortages in Europe “more acute.”
    Refiners can’t just ramp up output to meet surging demand, and utilization rates are already above 90%. In the U.S., refining capacity has decreased in recent years. The largest refining complex on the East Coast — Philadelphia Energy Solutions — shut down following a fire in June 2019.
    Several refiners are now being reconfigured to make biofuel, which has also reduced capacity.
    Some refiners are also undergoing routine maintenance checks that were overdue following the pandemic. These facilities typically run flat out – 24 hours a day, seven days a week – and so at some point the machinery needs to be checked. 
    The East Coast relies heavily on other areas of the country for refined products, De Haan said. Now, Europe is competing for these same fuels as it turns away from Russia.

    ‘Unmoored’ prices

    A common saying in commodity markets is “the cure for high prices is high prices.” But that might not be the case this time around. According to UBS, distillate demand tends to be less elastic than gasoline prices.
    In other words, while high prices at the pump might deter consumers, if a business needs to get goods from point A to point B, it’s going to pay those higher prices. 
    Tom Kloza, head of global energy research at OPIS, said that in years past a barrel of diesel typically sold for $10 above the price of crude oil. Today, that differential – known as the crack spread – has surged to a record high above $70.
    “It’s become untethered, unmoored, a little bit unhinged. These are prices we’re not used to seeing,” he said, adding that there are large price differences across the U.S.
    Kloza said diesel at New York harbor is now trading around $5 per gallon, while jet fuel prices at the harbor, which usually mirrors diesel prices, are around $6.72. That equates to roughly $282 per barrel.
    “These are numbers that are not just off the charts. They’re off the walls, out of the building, and maybe out of the solar system,” he said.
    Retail diesel prices are also surging. On Friday the national average for a gallon hit a record of $5.51, according to AAA, after hitting a new high every single day over the last week.
    Higher diesel prices is translating to higher profit margins for refiners, who are now incentivized to make as much as they possibly can. At a certain point, this could lead to tightness in the gasoline market, pushing up the high prices consumers are already seeing at the pump. 
    In the meantime, consumers can expect prices for goods to keep on climbing.
    “It’s going to be a double whammy on consumers in the weeks and months ahead as these diesel prices trickle down to the cost of goods — another piece of inflation that’s going to hit consumers,” GasBuddy’s De Haan said, adding that the full impact of the recent surge in prices has yet to be felt.

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    CDC investigating 109 cases of severe hepatitis in kids across two dozen states, including 5 deaths

    The Centers for Disease Control and Prevention is investigating 109 cases of severe hepatitis in children, including five deaths, the public health agency said on Friday.
    More than 90% of the children were hospitalized and 14% required liver transplants, according to the CDC.
    The public health agency has not yet determined a cause, but more than half the children had adenovirus infections.

    The Centers for Disease Control and Prevention is investigating 109 cases of severe hepatitis in children, including five deaths, to determine a cause, with adenovirus infection as a primary line of inquiry, the public health agency said Friday.
    More than 90% of the children were hospitalized and 14% required liver transplants, according to the CDC. The cases under investigation occurred over the past seven months across 25 states and territories. A majority of the patients have fully recovered and have been discharged from the hospital, according to the CDC.

    Hepatitis is an inflammation of the liver that is often caused by viral infections, but environmental factors can also play a role. It is not uncommon in children but usually isn’t severe.

    The Centers for Disease Control and Prevention (CDC) headquarters in Atlanta, Georgia.
    Tami Chappell | Reuters

    More than half of the kids had a confirmed adenovirus infection. However, CDC officials said they don’t know yet if adenovirus is the actual cause. Adenovirus is a common virus that normally causes mild cold or flu-like symptoms, or stomach and intestinal problems. It is not a known cause of severe hepatitis in otherwise healthy children, though it has been linked to the illness in kids with weak immune systems.
    “We also don’t know yet what role other factors may play, such as environmental exposures, medications, or other infections that the children might have,” Dr. Jay Butler, deputy director for infectious diseases at the CDC, told reporters on a call Friday.
    Covid-19 vaccination is not the cause of the illnesses, Butler said. The children had a median age of two years, which means most of them were not eligible to receive the vaccine. The CDC is still investigating whether there’s any association with the Covid-19 virus, Butler said. However, the initial nine cases in Alabama of children with severe hepatitis did not have Covid.
    The hepatitis viruses A, B, C, D and E have not been found in the kids during initial investigations, according to the CDC.

    The U.S. has not seen an uptick in adenovirus infections based on the data available, Butler said. However, Dr. Umesh Parashar, a CDC official, said the U.S. does not have a good national system for conducting surveillance of the virus. Butler said the CDC is working to improve its surveillance.
    The CDC has also not documented a significant increase in hepatitis cases in kids or liver transplants, but that’s based on preliminary data and could change, according to Butler. However, the United Kingdom — which first alerted the world to the issue — has documented a significant increase, he said.
    “We know this update may be of concern, especially to parents and guardians of young children. It’s important to remember that severe hepatitis in children is rare,” Butler said. Parents should take the standard precautions for preventing viral infections, including hand washing, covering coughs and sneezes, not touching the eyes, nose or mouth, and avoiding people who are sick, he said.
    The symptoms of hepatitis include vomiting, dark urine, light colored stool, and yellowing of the skin. Parents should contact their health provider with any concerns, Butler said.
    The CDC issued a nationwide health alert in late April about a cluster of severe hepatitis cases among nine children in Alabama. The World Health Organization is also closely monitoring the situation and has identified cases of severe hepatitis with unknown cause among children in at least 11 countries.
    The CDC is investigating cases in Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Michigan, Minnesota, Missouri, North Carolina, North Dakota, Nebraska, New York, Ohio, Pennsylvania, Puerto Rico, Tennessee, Texas, Washington and Wisconsin.

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    Starbucks hit with sweeping labor complaint including over 200 alleged violations

    The regional director of the National Labor Relations Board in Buffalo, N.Y., issued a complaint against Starbucks for 29 unfair labor practice charges that included over 200 violations of the National Labor Relations Act.
    The complaint stems from claims made by Starbucks Workers United against the company in Buffalo, where the union organizing effort began in August.
    The NLRB says Starbucks interfered with, restrained and coerced employees seeking to unionize in various ways.

    Starbucks workers react as they speak to the media after union vote in Buffalo, New York, December 9, 2021.
    Lindsay DeDario | Reuters

    The regional director of the National Labor Relations Board in Buffalo, N.Y., issued a complaint Friday accusing Starbucks of 29 unfair labor practice charges that included over 200 violations of the National Labor Relations Act.
    The complaint stems from claims made by Starbucks Workers United against the company in Buffalo, where the union organizing effort began in August.

    In the complaint, viewed by CNBC, the NLRB accuses Starbucks of interfering with, restraining and coercing employees seeking to unionize in various ways. The regional office of the independent federal agency said the coffee giant threatened and intimidated workers by closing down stores in the area, reduced workers’ compensation, enforced policies against union supporters in a discriminatory way, engaged in surveillance and fired workers, among other alleged violations.
    The complaint also notes high-ranking Starbucks officials made “unprecedented and repeated” visits to Buffalo and held mandatory anti-union meetings, noting that leaders, including CEO Howard Schultz, had promised an increase in benefits if workers refrained from organizing. Buffalo has been at the center of the union drive. The city is home to the first store to vote yes on organizing in December and sparked a movement that spread across the country.
    “The complaint, issued by the NLRB Regional Director in Buffalo, involves important issues,” Starbucks spokesman Reggie Borges said in a statement to CNBC. “However, Starbucks does not agree that the claims have merit, and the complaint’s issuance does not constitute a finding by the NLRB. It is the beginning of a litigation process that permits both sides to be heard and to present evidence. We believe the allegations contained in the complaint are false, and we look forward to presenting our evidence when the allegations are adjudicated.”
    Since the movement started last year, more than 50 Starbucks stores have voted to organize with Workers United, and nearly 250 have petitioned to hold votes across the country. At least five have voted no on organizing. Starbucks has nearly 9,000 locations across the country.
    The NLRB regional office’s complaint encompasses months’ worth of charges the union made against the company. Starbucks will have an opportunity to respond to the accusations.

    To remedy the allegations, the NLRB’s general counsel seeks reinstatement of workers and to have either Schultz or Rossann Williams, executive vice president of Starbucks North Americas, hold a meeting with employees, union and government representatives present. At the meeting, which is to be videotaped and distributed, an official would read a notice of employee’s rights.
    “Starbucks has been saying that no union-busting ever occurred in Buffalo. Today, the NLRB sets the record straight. The complaint confirms the extent and depravity of Starbucks’ conduct in Western New York for the better part of a year,” Starbucks Workers United said in a statement. “Starbucks will be held accountable for the union-busting minefield they forced workers to walk through in fighting for their right to organize. This Complaint fully unmasks Starbucks’ facade as a ‘progressive company’ and exposes the truth of Howard Schultz’s anti-union war.”
    Starbucks did not immediately respond to a request for comment.
    Schultz, who is working in his third stint as Starbucks CEO, has been an active and vocal opponent of unionization in the past. The company recently announced pay and training investments for workers, but said those benefits could not automatically go to unionized stores without separate bargaining discussions.
    “The union contract will not even come close to what Starbucks offers,” Schultz told analysts on the company’s earnings conference call on Tuesday.
    The baristas’ union push received more exposure Thursday when the White House hosted leaders from organizing campaigns at Starbucks and other companies such as Amazon. Starbucks wrote to the White House asking for a meeting of its own, calling the event “deeply concerning,” as it says the majority of its partners oppose being in a union.
    Starbucks Workers United has filed more than 100 unfair labor practice charges against Starbucks, while the company has filed two against the union in return. Starbucks Workers United also notched a recent win as NLRB officials petitioned a federal court to force the company to bring back activist employees who say they were removed due to union campaigning.

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