Tag: WSJ

By Design, the Fed May Be Tightening Too Much

Mary Pat Campbell

Link: https://www.wsj.com/amp/articles/by-design-the-fed-may-be-tightening-too-much-11655370001

Excerpt:

The Fed has often moved interest rates by 0.75 percentage point or more in recent decades. But until this week, it had always done so in a downward direction. Indeed, it was a hallmark of Fed policy that it always cut interest rates faster, with less prompting, than it raised them.

…..

This asymmetry reflected the Fed’s perception of risks. If it cut rates too little, the economy might spiral down and the financial system implode. If it cut them too much, inflation might, some years later, rise. Throughout this prepandemic period, inflation was low and, at times, too low, but that wasn’t a big deal. Moreover, during that low-inflation, low-interest-rate era, rates couldn’t fall very much — the Fed called this the “zero lower bound” — so best to act quickly to forestall a downward spiral. If inflation was a problem, there was no limit to how high rates could go.

This philosophy got taken too far. The Fed kept rates too low for too long last year (and the Biden administration enacted too much fiscal stimulus) out of a mistaken belief that inflation was a remote threat compared with prolonged high unemployment.

The result is that risks are now asymmetric in the other direction. Inflation is too high and a self-sustaining wage-price spiral is a real threat. Asked why, after carefully laying the groundwork for a half-point increase, the Fed raised rates by 0.75 point Wednesday, Mr. Powell pointed to an “eye-catching” report that showed long-term inflation expectations rising ominously.

Author(s): Greg Ip

Publication Date: 16 Jun 2022

Publication Site: WSJ

Flood-Prone Homes Could Lose Federal Insurance Under FEMA Plan

Mary Pat Campbell

Link: https://www.wsj.com/articles/fema-urges-congress-to-drop-flood-insurance-for-highest-risk-areas-11655384400

Excerpt:

Mr. Toomey asked Jerry Theodorou of the R Street Institute, a conservative-leaning Washington-based think tank, how seriously Congress should look at paying repetitive loss claims. “Indeed, this is a very serious problem,” Mr. Theodorou said. “The numbers speak for themselves, to have such a small percentage of policyholders accounting for close to 40% of the claims dollars paid.”

The flood insurance program — which is the main provider of flood coverage in the U.S. and has issued more than five million policies — has paid out more money to property owners and other expenses than it has collected in premiums from policyholders since Congress created it in 1968. It collects about $4.6 billion in annual revenue from policyholders in premiums, fees and other charges, according to the Congressional Research Service.

Flooding ranks as the country’s most common natural disaster. Scientists predict floods will happen more frequently in neighborhoods that face new risk from rising sea levels and extreme rainstorms due to climate change.

Author(s): Katy Stech Ferek

Publication Date: 16 June 2022

Publication Site: Wall Street Journal

Drug-Overdose Deaths Reached a Record in 2021, Fueled by Fentanyl

Mary Pat Campbell

Link: https://www.wsj.com/articles/drug-overdose-deaths-reached-a-record-in-2021-fueled-by-fentanyl-11652277600

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Excerpt:

Drug-overdose deaths in 2021 topped 100,000 for the first time in a calendar year, federal data showed, a record high fueled by the spread of illicit forms of fentanyl throughout the country.

More than 107,000 people in the U.S. died from drug overdoses last year, preliminary Centers for Disease Control and Prevention data released Wednesday showed, roughly a 15% increase from 2020. The proliferation of the potent synthetic opioid fentanyl has been compounded by the destabilizing effects of the Covid-19 pandemic on users and people in recovery, according to health authorities and treatment providers.

The U.S. has recorded more than one million overdose deaths since 2000, and more than half of those came in the past seven years.

….

The agency has counted about 103,600 overdoses for 2021 but believes the number is several thousand higher due to suspected overdoses that haven’t yet been confirmed by local death investigators, Dr. Anderson said.

Author(s): Jon Kamp

Publication Date: 11 May 2022

Publication Site: WSJ

U.S. Life Insurance Sales Rise on Covid-19 Fears

Mary Pat Campbell

Link: https://www.wsj.com/articles/u-s-life-insurance-sales-spike-on-covid-19-fears-11647347494

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Excerpt:

Americans went on a buying spree for life insurance in 2021, driven by concerns of death from the coronavirus pandemic.

Premium volume for new individual life-insurance policies surged 20% from 2020, while the number of policies issued rose 5%, the biggest year-over-year percentage gains since the 1980s, according to industry-funded research firm Limra.

“As we zero in on one million Americans who tragically lost their lives, it’s not a surprise that people are thinking about their own mortality and the impact on loved ones if anything were to happen to them,” said David Levenson, Limra’s chief executive.

The exact number of policies sold is still being calculated, but it is expected to top 10 million, Limra said. That milestone was last crossed in 2016. In 2020, an estimated 9.83 million policies were sold, up 1.7% from 2019.

Author(s): Leslie Scism

Publication Date: 15 March 2022

Publication Site: WSJ

Rise in Non-Covid-19 Deaths Hits Life Insurers

Mary Pat Campbell

Link: https://www.wsj.com/articles/rise-in-non-covid-19-deaths-hits-life-insurers-11645576252

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Excerpt:

U.S. life insurers, as expected, made a large number of Covid-19 death-benefit payouts last year. More surprisingly, many saw a jump in other death claims, too.

Industry executives and actuaries believe many of these other fatalities are tied to delays in medical care as a result of lockdowns in 2020, and then, later, people’s fears of seeking out treatment and trouble lining up appointments.

…..

Primerica executives similarly cautioned in their fourth-quarter call about outsize numbers of non-Covid-19 deaths in 2022. “Some of these will be the result of delayed medical care or the increased incidence of societal-related issues, such as the increased prevalence of substance abuse,” Chief Financial Officer Alison Rand said in an email interview.

From early stages of the pandemic, many medical professionals have raised concerns about Americans’ untreated health problems, as Covid-19 put stress on the nation’s healthcare system.

Trade group American Council of Life Insurers said the pandemic in 2020 drove the biggest annual increase in death benefits paid by U.S. carriers since the 1918 influenza epidemic, totaling billions of dollars. The hit to the industry’s bottom line has been less than initially feared, however, because many victims have been older people who typically have smaller policies, if any coverage.

Still, Covid-19 and other excess deaths have cut into many carriers’ quarterly earnings, especially as deaths linked to the Delta variant increased for people in their working years with employer-sponsored death benefits. “Earnings impacts have been material and there still appears to be some Covid-19 discount, but investors are starting to look through mortality claims costs,” said Andrew Kligerman, a stock analyst with Credit Suisse Securities.

Author(s): Leslie Scism

Publication Date: 23 Feb 2022

Publication Site: WSJ

Pensions’ Bad Year Poised to Get Worse

Mary Pat Campbell

Link: https://www.wsj.com/articles/pensions-bad-year-poised-to-get-worse-11652175002

Excerpt:

Losses across both stock and bond markets delivered a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public workers. These retirement plans returned a median minus 4.01% in the first quarter, according to data from the Wilshire Trust Universe Comparison Service. Recent losses have further eroded their holdings.

“It’s a tough period,” said Jay Bowen, manager of the Tampa Firefighters and Police Officers Pension Fund. “Nobody is immune.”

The declines in stocks and bonds are inflicting pain on household and institutional investors in 2022. The S&P 500 has returned minus 13.5% year to date through Friday, while the Bloomberg U.S. Aggregate bond index — largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities — returned minus 10.5%.

Pension funds maintain huge portfolios of stocks, bonds and other assets, wielding significant power on Wall Street, where their purchases and sales can shift prices and investment managers vie for their business. Their losses can raise costs for governments and workers, squeeze municipal budgets and drive up taxes.

Author(s): Heather Gillers

Publication Date: 10 May 2022

Publication Site: WSJ

New York City Wants to Amp Up Risk in Workers’ Pensions

Mary Pat Campbell

Link: https://www.wsj.com/articles/new-york-city-wants-to-amp-up-risk-in-workers-pensions-11650976985

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Excerpt:

New York City’s comptroller is the latest public official trying to change laws aimed at limiting risk in pension investments, as U.S. state and local pension funds try to plug shortfalls in a low-return environment.

Comptroller Brad Lander, who oversees about $260 billion in retirement money for city police, firefighters, teachers and other public workers, is asking New York lawmakers for more flexibility to invest in private markets, high-yield debt and foreign stocks. The state comptroller’s office, which supervises another $280 billion in retirement assets, views the idea favorably, with a representative saying such flexibility “is key in times of market volatility.”

Pension funds, like household investors, are facing a relatively bleak environment for stocks and bonds, the bread and butter of a traditional retirement portfolio. In the face of historic inflation and Federal Reserve efforts to contain it, these funds are finding they can no longer rely on bonds to rise when equities fall and vice versa. In the first quarter, the S&P 500 returned minus 4.6% while the Bloomberg U.S. Aggregate bond index returned minus 5.93%.

“Those two things taken together is what’s scary: the prospect of both going down at the same time,” said Steve Foresti, chief investment officer at Wilshire Associates, which advises large public pension funds. Retirement portfolio managers, he said, are asking “in that environment, do I have anything that actually goes up?”

Author(s): Heather Gillers

Publication Date: 26 April 2022

Publication Site: WSJ

How the Inflation Rate Is Measured: 477 Government Workers at Grocery Stores

Mary Pat Campbell

Link: https://www.wsj.com/articles/inflation-bls-price-checkers-who-determine-cpi-11652132333?page=1

Excerpt:

Ms. Mascitis, 50, who has been working as a BLS price checker since 2013, describes her job as “a treasure hunt.”

She set out on her route one day in April with a list of items to price. First stop: a locally owned auto-repair shop in an up-and-coming part of Philadelphia, where she is to record the total cost for a rear-brake job, wheel-bearing hull assembly replacement and full brake replacement.

The mechanic tells her about the rising costs of running the shop. He says he will have to move his office to a less-expensive part of town. He says some customers are holding off on fixing their cars and taking public transit because of high repair costs.

“It’s a mess,” she agrees.

After 10 minutes, the mechanic calls his parts supplier to find out the most up-to-date material costs.

“And is sales tax on materials and labor still 8%?” Ms. Mascitis asks. Yes, the mechanic confirms.

…..

“We have very strict data-collection rules. Someone running a store isn’t trained in CPI’s data-collection rules,” says Ms. Greene, who supervises Ms. Mascitis and 65 price checkers in a region that includes New Jersey, Pennsylvania, Delaware, Maryland, Washington, D.C., Virginia and West Virginia. She adds that it would be a burden on stores to expect them to do what CPI does. “They would say this is good enough, and good enough is not usually good enough for us.”

Author(s): Rachel Wolfe

Publication Date: 10 May 2022

Publication Site: WSJ

Big Four Accounting Firms Come Under Regulator’s Scrutiny

Mary Pat Campbell

Link: https://www.wsj.com/articles/big-four-accounting-firms-come-under-regulators-scrutiny-11647364574?st=e3o5412th5mqg7m&reflink=desktopwebshare_linkedin

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Excerpt:

Regulators are carrying out a sweeping investigation of conflicts of interest at the nation’s largest accounting firms, asking whether consulting and other nonaudit services they sell undermine their ability to conduct independent reviews of public companies’ financials, according to people familiar with the matter.

The Securities and Exchange Commission probe highlights the agency’s new focus on financial-market gatekeepers such as accountants, bankers and lawyers. These firms help companies raise capital and communicate with shareholders, but also have duties under federal investor-protection laws. Auditors are a shareholder’s first line of defense against sloppy or dodgy accounting.

….

The Big Four audit 66% of all public companies with a market capitalization over $75 million, according to Audit Analytics. All four have paid fines to the SEC since 2014 to settle prior regulatory investigations of audit independence violations.

Author(s): Dave Michaels

Publication Date: 15 Mar 2022

Publication Site: WSJ

Rise in Non-Covid-19 Deaths Hits Life Insurers

Mary Pat Campbell

Link: https://www.wsj.com/articles/rise-in-non-covid-19-deaths-hits-life-insurers-11645576252

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Excerpt:

In earnings calls for the past two quarters, Globe Life Inc.,Hartford Financial Services Group Inc., Primerica Inc. andReinsurance Group of America Inc. were among insurers noting higher non-Covid-19 deaths, compared with pre-pandemic baselines.

“The losses we are seeing continue to be elevated over 2019 levels due at least in part, we believe, to the pandemic and the existence of either delayed or unavailable healthcare,” Globe Life finance chief Frank Svoboda told analysts and investors earlier this month.

Among the non-coronavirus-specific claims are deaths from heart and circulatory issues and neurological disorders, he said. “We anticipate that they’ll start to be less impactful over the course of 2022 but we do anticipate that we’ll still at least see some elevated levels throughout the year,” he said.

Primerica executives similarly cautioned in their fourth-quarter call about outsize numbers of non-Covid-19 deaths in 2022. “Some of these will be the result of delayed medical care or the increased incidence of societal-related issues, such as the increased prevalence of substance abuse,” Chief Financial Officer Alison Rand said in an email interview.

From early stages of the pandemic, many medical professionals have raised concerns about Americans’ untreated health problems, as Covid-19 put stress on the nation’s healthcare system.

Author(s): Leslie Scism

Publication Date: 23 Feb 2022

Publication Site: WSJ

Investors Sour on Muni Funds

Mary Pat Campbell

Link:https://www.wsj.com/articles/investors-sour-on-muni-funds-11643568253

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Excerpt:

Investors pulled $1.4 billion from municipal-bond funds in the week ended last Wednesday, the biggest weekly outflow since the early days of the pandemic, according to Refinitiv Lipper.

Municipal-bond yields, which rise as prices fall, climbed last week after the Federal Reserve signaled it would begin steadily raising interest rates in mid-March, reducing the appeal of outstanding debt. Yields on the highest-rated state and local bonds jumped to 1.55% Monday from 1.34% last Tuesday, according to Refinitiv MMD.

Returns on the S&P Municipal Bond Index have fallen to minus 2.33% this year through Jan. 28, counting price changes and interest payments, the lowest year-to-date returns in at least 16 years.

Author(s): Heather Gillers

Publication Date: 31 Jan 2022

Publication Site: WSJ

Developing Countries Brace for Impact From Fed Rate Increases

Mary Pat Campbell

Link:https://www.wsj.com/articles/developing-countries-brace-for-impact-from-fed-rate-increases-11644321780

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Excerpt:

Central bankers in developing countries have been ratcheting up interest rates for months, seeking to stay ahead of a rise in U.S. rates that could destabilize their economies by pushing up their own cost of debt, weakening their currencies and driving capital out of their markets and into higher-yielding U.S. securities.

Now, the Fed is expected to raise rates anywhere from four to seven times this year. If successful in taming inflation, the Fed could help central banks everywhere, because a turbocharged U.S. economy, huge government stimulus and a splurge by Americans on everything from toys and household appliances have snarled supply chains and driven inflation higher world-wide.

Until now, overseas central banks have found it difficult to get on top of the inflation surge withthe Fed sitting on the sidelines. But with the Fed now poised to join the battle, some say the prospects of success are greater.

Author(s): Paul Hannon

Publication Date: 8 Feb 2022

Publication Site: WSJ