Guest post written by Hillary Elder, Director, Money Market Strategies for HighMark Capital Management.
HighMark Capital Management is the fund manager for National Investment Fund for Credit Unions (NIFCU$), the NAFCU Services Preferred Partner for Credit Union Investments.
After just avoiding the “fiscal cliff” as we entered 2013, the U.S. economy has so far defied the odds to grow at a faster pace than first projected. Employment now appears to be increasing steadily, housing is picking up sharply, and the broader stock market has rallied strongly since January. Even the implementation of the dreaded budget “sequestration” on March 1st has not derailed the recovery. Dire warnings of cuts to government programs proved hyperbole as, in reality, sequestration amounts to reductions in the growth rate of spending from the current base. Sensing the public’s exasperation, lawmakers quietly agreed on a spending resolution to continue funding the U.S. Government past March 27th for the six months remaining through the end of the fiscal year.
While long term budget negotiations continue, and there remains the need to increase the U.S. debt ceiling sometime over the summer, other issues such as immigration reform are now being debated.
Originally posted on CUInsight.com
Guest post by Dennis Zuehlke, Compliance Manager, Ascensus
With the photo-ops and swearing-in ceremonies over, and the presidential inauguration now a memory, the 113th Congress is hard at work facing a number of contentious, but familiar, issues, one of which is tax reform.
To avoid a U.S. default on its debt obligations, the House of Representatives approved an extension of the debt ceiling. The Senate passed the measure shortly thereafter and President Obama is expected to sign the bill into law. The legislation suspends the $16.4 trillion limit on government borrowing until May 18 to give Congress time to reach a broader deficit reduction deal.
Next on the agenda, Congress and the White House must reach an agreement on nearly $85 billion in targeted spending cuts to avoid the automatic across-the-board cuts that would kick in March 1 if a deal is not reached. Agreeing on $85 billion in spending cuts will not be easy and reaching that figure means that potentially everything—including retirement savings incentives—is on the table. As Congress looks for ways to reduce the deficit, tax incentives for retirement savings are especially susceptible because they cost the Treasury more than the deduction for home mortgage interest and are second only to the exclusion of employer healthcare contributions. The Joint Committee on Taxation estimates that the exclusion of pension contributions and earnings in defined benefit and defined contribution plans will cost the Treasury $100 billion this year alone.
Guest post written by Hillary Elder, Team Leader, Taxable Money Fund Strategies, HighMark Capital Management, Inc.
While the fiscal cliff deal approved by both the Senate and the House of Congress in the wee hours of January 1, 2013 does avert most of the previously scheduled tax increases, it does not include any provision to raise the debt ceiling, and it defers the scheduled spending cuts for two months. Given the confrontational tone of the negotiations over the last two weeks of 2012, the upcoming negotiation over these key issues could lead to a shutdown of the Federal government by late February or early March.
The bruising 2011 battle to raise the debt limit was instrumental in Standard & Poor’s decision to lower the long-term debt rating of the United States. Moody’s Investors’ Service indicated back then that they needed to see a stabilization of the ratio of federal debt to GDP, as well as a long-term plan to reduce this ratio.
The temporary 2% reduction in the payroll tax rate paid by employees was not extended, which will increase taxes by roughly $120 billion per year, for about a 1% reduction in personal incomes. This impacts all workers’ incomes. Lawmakers settled on higher tax rates (39.6%) for income in excess of $400,000 for individuals ($450,000 for couples), up from the current 35%. This impacts the top 1% of incomes.
Originally posted on CUInsight.com
I like to say that one of a visionary leader’s most important functions is seeing over the horizon and recognizing opportunities and threats before anyone else does, and then shaping the strategy and tactics of the organization accordingly.
So for our year-end blog post I asked our Preferred Partners to tell us what they see coming over the horizon, from their perspective, that credit union executives need to be focused on and/or prepared for as we head into 2013. Looking back a year, I see some common themes—revenue issues, economic uncertainty, regulatory uncertainty, and political uncertainty. From that perspective, not much has changed as we look forward to 2013. Here is what a few of them said:
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Guest post written by Hillary Elder, Director, Money Market Strategies, HighMark Capital Management
Five years after the onset of the global credit crunch, targeted U.S. short-term interest rates remain near zero and an anemic recovery poses the risk of the country slipping back into recession. Meanwhile, Euro-zone turmoil haunts the financial markets while regulatory burden increases. What’s a credit union manager to do? Here’s what you need to know about the months ahead.
For investors, the past five years have been characterized by steep declines in short-term interest rates. U.S. government bonds delivered exceptionally strong returns while the U.S. stock market has been somewhat lackluster. Given that yields are already low, our expectation is that returns on U.S. government investments will be less robust over the next two years, yet still slightly better than returns from large-company U.S. equity securities.