How Will the Presidential Election Affect the Housing Market?

If Democrats hold on to the White House, will that help the price of your home? Or would the housing market fare better with a Republican victory? The fact is, it won’t matter much which party wins the White House in November — at least not when it comes to housing prices.

A study of real estate in California going back to 1980, found that housing prices rose by as much as 6% in the year before an election and about 5% in the year after an election, but only 4.5% during election years. A possible explanation for the slower price growth is that presidential elections create uncertainty, making people less likely to take chances on large purchases, thus slowing down the rate of increase in home values.

The California Association of Realtors has looked at home prices in the state dating back to 1990 and found that elections historically have had little or no negative impact on the California housing market. It did find that house prices rose slightly faster in the last months of the last five presidential elections.

Continue reading “How Will the Presidential Election Affect the Housing Market?”

How the Next Fed Rate Hike Will Affect You

We expect the Federal Reserve to raise its federal funds interest rate from 0.25% to 0.5% at its meeting on December 14. This will have a domino effect, boosting some loan and deposit rates for consumers, but not all of them.

How the Fed Rate Hike Will Affect Your Loan Rates

When the Fed raises, the bank prime rate will immediately jump by the same quarter percentage point. Interest rates on home equity lines of credit will also rise by the same amount, to a minimum of 3.75%. Auto and personal loan rates should rise, too. In fact, auto lenders may nudge their rates up a tick more in the months to come as delinquencies on subprime auto loans creep up.

Continue reading “How the Next Fed Rate Hike Will Affect You”

The Impact of the AT&T-Time Warner Deal

AT&T’s plan to acquire Time Warner underscores the seismic shifts rippling through the media landscape. The $85 billion deal would pair the Dallas-based telecom giant with the fourth-largest media company in the country, giving AT&T a stable of high-quality TV channels and movies, including HBO, CNN, TNT, TBS, Cartoon Network and film company Warner Bros. AT&T’s wired broadband service and nationwide mobile network, tied with its recent acquisition of satellite television operator DirecTV, would give AT&T national distribution of all of Time Warner’s media properties. AT&T expects to finalize the deal by the end of 2017.

AT&T sees the deal as a way to jumpstart growth and fend off emerging competition. Vertical integration — owning the pipes along with the content that travels through them — is AT&T’s vision of making money in the shifting media landscape over the next decade or so. AT&T plans to incorporate advanced ad targeting of its 100 million-plus customers while gaining more subscriber dollars to video content. Advertising and media businesses spell faster growth and higher profit margins, with lower capital investment, compared to the business of building wired and wireless networks. AT&T envisions a future where it more closely resembles Facebook rather than a telephone company.

Continue reading “The Impact of the AT&T-Time Warner Deal”

Can Crude Oil Prices Keep Rallying?

A tentative deal by OPEC to reduce its oil production sparked an early autumn rally in crude oil prices. But now, with rumblings of internal dissent within OPEC, that rally has stalled. Can the oil market recover its recent momentum? Or should oil bulls prepare for yet another downturn?

OPEC to the Rescue?

Oil prices were climbing swiftly this spring after bottoming out at about $26 per barrel in the depths of winter. Benchmark West Texas Intermediate had just crested the psychologically important $50-per-barrel level in late June when British voters shocked the world by opting to depart from the European Union. The ensuing upheaval in financial markets knocked WTI back down to $40 per barrel, halting the rally in its tracks.

Then came an announcement by OPEC in September that the oil exporting cartel was joining forces with Russia, a nonmember and one of the top oil producers in the world, to jointly cut their production in a bid to reduce excessive supply and push oil prices higher. Traders seized on the news and promptly bid WTI back up to $50, erasing the post-Brexit slump in less than two weeks.

So is the rally back on track? I remain skeptical.

First, consider the factor that pushed crude oil prices down from $100 per barrel in the summer of 2014 to $26 per barrel in the winter of 2016: Excess supply. Prolific production gains in the U.S. brought new barrels of oil to market at the same time economic growth in China and other big oil consumers was downshifting. The result: A price rout. Even with this autumn’s recovery to $50 per barrel, the price of oil still reflects a world with too much supply and not enough demand.

Stockpiles of oil remain hefty. In the U.S., the world’s number one oil-consuming nation, stocks of crude and refined fuels total 1.34 billion barrels, up from about 1 billion in early 2014, back when oil traded closer to $100 per barrel. Today’s level is just a hair below the all-time record of 1.37 billion barrels set this summer. Meanwhile, the International Energy Agency reports that stocks around the economically developed world total 3.1 billion barrels. Without a cut by OPEC, the IEA reckons that those stockpiles won’t decline enough to balance the market for another year or so.

In short: OPEC needs to curb production to lift crude oil prices. But can it?

Let’s Make a Deal. Or Not.

We won’t know the answer until the group meets in Vienna at the end of November and issues a formal announcement on its production intentions. But actions can speak louder than words. And OPEC’s actions lately don’t signal a meaningful production cut is imminent. In fact, the group’s combined oil output set a record high in September, thanks to strong production by Saudi Arabia and other members in the Middle East. “The more they talk, the more oil they put out on the market,” notes Stephen Schork, editor of energy investing newsletter The Schork Report.

Cutting back from its record-high output could be even harder for OPEC because several of its members will reportedly not be required to contribute to the cuts. Libya and Nigeria are apparently exempt because both are struggling to restore production in the wake of terrorist attacks or civil war. Likewise, Iran won’t be on the hook because its exports are still recovering from economic sanctions imposed by Western countries, which were lifted earlier this year. That means remaining members will have to impose larger cuts on themselves to meet any collective goal.

And whether OPEC’s members can really agree among themselves is an open question. Iraq, the group’s second-largest producer, is already balking at how exactly its proposed output cut is going to be calculated. Saudi Arabia, the largest producer, will probably have to accept the biggest individual cut as part of any agreement. But will the Saudis tolerate that when their archrival, Iran, is being granted an exemption? Moreover, Russia, which had previously agreed to work with OPEC to reduce production, is now reportedly backing away from making any cuts.

As I see it, there are two scenarios for OPEC’s highly anticipated meeting next month. Either the talks break up with no firm commitment to reduce production, in which case crude oil prices slide back toward $40 per barrel; or (less likely) OPEC does commit to cutting, in which case oil prices get a very temporary spike. Temporary, because in case OPEC forgot, the U.S. shale oil industry hasn’t disappeared.

The market downturn that started two years ago has sent many U.S. operators into bankruptcy and put tremendous pressure on those that remain in business. But those companies are finding ways to cut costs and continue drilling. In fact, the number of drilling rigs in operation and pursuing oil has increased by more than a third from its low point (reached in May), according to data from Baker Hughes. Any OPEC-inspired pop in the oil price will only prompt more drilling and more production. Indeed, after tumbling last year and earlier this year, U.S. output has basically stopped falling. An OPEC-engineered price spike would be a godsend for every American oilman from Houston to North Dakota.

So, to believe the current talk of an OPEC cutback, you have to believe that oil ministers from Saudi Arabia, Iraq, Kuwait and other Middle Eastern countries that have been pumping crude as fast as they can are now ready to surrender some of their share of the global oil market to energy firms in Texas. That’s highly doubtful.

Should You Prepare for Post-Election Violence?

Will America experience an outbreak of post-election violence? It’s a strong possibility. 2016 has been arguably the ugliest election year in recent memory, marred by allegations of corruption and sexual misconduct and fears that talk of “rigged” elections is undermining faith in the country’s political system.

Unfortunately, it’s likely to leave even more ugliness in its wake. Domestic terrorism experts are warning of a potential uptick in violent incidents associated with the result of the presidential election, regardless of who ends up winning the White House.

Continue reading “Should You Prepare for Post-Election Violence?”

Would You Feel Safe in a Driverless Car?

I’m in Boston this week for MIT Technology Review’s EmTech conference at the Massachusetts Institute of Technology’s Media Lab. The yearly event draws technology experts from around the globe, and I’m having a blast picking their brains. Here are some thoughts on riding in driverless cars and Facebook’s plan to make internet connectivity available everywhere.

If you fret about riding in a driverless car — or are quick to say you never will — note that people who have had the opportunity have been relatively quick to overcome their anxiety. So says Karl Iagnemma, CEO and cofounder of nuTonomy, an autonomous car startup in Singapore. His stance is based on surveys NuTonomy has run as it tests cars with a popular drive-hailing app. The company plans to have 100 vehicles on the road by next year. (Uber has started similar tests in Pittsburgh.) One of the key findings: Riders seem comfortable enough to turn their attention to surfing the web on their phones.

Continue reading “Would You Feel Safe in a Driverless Car?”

Heating Bills to Tick Higher This Winter

By now, much of the U.S. has experienced at least a taste of autumn and some regions have turned downright chilly. With winter fast approaching, now seems like a good time to zero in on energy prices and heating costs. What should consumers expect and budget for this heating season?

Heating Costs in Check, for Now

As summer was winding down, we took a stab at guessing where prices for heating oil, propane and natural gas would be once cool weather arrived. Back in August, we figured that most heating oil users would see prices a “bit less” in the autumn of 2016 than they paid the year before, while residential propane costs ought to be fairly close to their level of autumn 2015. With the Department of Energy’s number crunchers currently reporting average prices for those fuels every week, we can check up on our earlier predictions.

In the first week of October, the average household paid $1.98 per gallon of propane, same as the first week of last October. At $2.30 per gallon, the average price of heating oil was about 12 cents cheaper than the year before. So, propane and heating oil prices have largely behaved as expected.

From here, users should expect both fuel prices to tick higher. Cooler weather will soon start drawing down stockpiles of fuel in storage, unless the country experiences another freakishly warm winter, similar to the most recent visit from Jack Frost.

Natural gas is more of a surprise. Back in August, benchmark gas futures contracts were trading at about $2.80 per million British thermal units (MMBtu): Pretty cheap by historical standards. We figured gas prices had room to rise by 10% to 15% during the winter, given the likelihood of a colder winter than what most of the country experienced in 2015-2016. Now, just two months later, gas is already up by almost 15%, at around $3.20 per MMBtu. Is a much bigger price increase in the works? Given that roughly half of U.S. homes heat with gas, that’s not merely an academic question. Many household budgets will be affected by the answer.

On Tap: Bigger Bills

We see natural gas prices moving still higher. But not dramatically so. The recent cooldown in the weather, plus long-term forecasts predicting a cold winter, seem to have spooked traders into bidding up gas prices at a time when actual demand is still quite low. What’s more, the latest production data show U.S. gas output declining modestly because of a slowdown in the drilling of new wells.

A severe winter could unleash a true price spike. But if the weather ends up close to normal, gas supplies should be more than adequate to keep prices from skyrocketing. A check on the current level of stockpiles shows 3.7 trillion cubic feet of gas in storage, which is 1.5% more than this time last year. The storage level went on to set an all-time record in the fall of 2015. And with stockpiles likely to keep growing for another few weeks, storage facilities could eclipse that record this year.

Note also that the recent downturn in gas production might not last much longer. Energy companies are putting more drilling rigs back to work now that both oil and gas prices have perked up from their summer doldrums. Most of that activity has been targeting oil, but even oil wells often yield hefty amounts of natural gas that producers capture and send to market as a valuable by-product. Further price increases will only spur more drilling and, eventually, more production.

Our best guess on gas prices this winter: Somewhere in the range of $3.25 to $3.50 per MMBtu most of the time, with perhaps some quick spikes during bouts of cold weather.

What does this all mean for gas users? Moderately higher heating bills. The DOE’s Energy Information Administration thinks that, between somewhat higher prices and projections showing a colder winter than last year’s, the average household will spend about $116 more on gas to keep warm than they did last season.

The news is somewhat worse for heating oil and propane users. The EIA projects households heating with oil (most of which are in the Northeast) will fork out $378 more this winter than last, mostly owing to expectations for substantially colder weather. Ditto for folks heating with propane, who can expect to spend $346 more than last winter.

Insulating Against Price Increases

Obviously, you have to live with whatever weather Mother Nature cooks up this winter. But there are ways to trim your heating bill.

For most homeowners, the key to keeping fuel costs under control is to maximize the efficiency of their furnace or boiler. The American Council for an Energy-Efficient Economy recommends that owners of oil burners have their system cleaned and tuned up by a professional once a year (unless their system uses ultra-low-sulfur fuel). Gas systems should be serviced every two years. ACEEE offers a raft of tips about taking care of various types of heating units on its website, plus advice on efficient operations and ways to improve your home’s insulation.

There are also simple steps that can help cut down on your wintertime energy needs. For instance, folks with forced-air furnaces should remember to change the air filter regularly to make sure the system’s fan isn’t working too hard and wasting electricity. You can cut back on your heating costs by closing the dampers on vents located in areas that don’t need as much heat, such as a basement. Folks with radiators can make them work a bit better by installing foil-covered cardboard reflectors between the wall and the radiator.

And obviously, you can always turn down the thermostat a bit, if you’re feeling hardy. ACEEE estimates that a one-degree decrease translates into a 2% decrease on your bill over time. So, when weighing comfort versus cost savings, at least you’ll be able to decide whether the trade-off is worth it to you.

The Race to 5G

The U.S. has a head start when it comes to 5G wireless technology. Federal telecom regulators recently passed new rules that unleashed huge swathes of untapped airwaves that will make the U.S. a leader in 5G adoption. The fifth generation of cellular technology is poised to bring mobile internet speeds that are 10 to 100 times faster than today’s average speeds, enabling full HD movie downloads in under 5 seconds. Plus, the upgrade spells lag times less than one thousandth of a second and ultra-low-powered sensors that last for years.

I recently chatted with Brian Bain, founder of Investor in the Family, about how 5G will take shape. We talked about the progression from 2G to 5G, what 5G tech will entail, what type of infrastructure will be required, the many applications for 5G and a whole lot more. While full-fledged 5G service is expected to take off by 2020 or so, testing by AT&T, Verizon and other tech companies are already underway. Look for major trials next year.

Click here for the full conversation, “How 5G Technology Will Impact Your Portfolio,” or hit play below. I hope you enjoy the podcast. If you have any questions or comments, please email me or post them in the comments section.

Can This (Political) Marriage Be Saved?

When I was a kid, a regular feature in a magazine my mom subscribed to was called “Can This Marriage Be Saved?” That headline, which I hadn’t thought about in decades, popped into my head Sunday night as I watched Donald Trump and Hillary Clinton slog through the mud of their second debate.

The marriage I was thinking about is between Trump and his supporters and the mainstream wing of the Republican Party. Clearly, his supporters are much more fired up about Trump’s presidential campaign than the party regulars are. In fact, some of the regulars have already separated from Trump, deeming the White House unwinnable and deciding to focus on trying to keep the Senate and House in Republican hands as a last line of defense against a Clinton presidency.

Continue reading “Can This (Political) Marriage Be Saved?”

The Friday Jobs Report: Setting the Stage for the Federal Reserve’s December Rate Hike

The days of job gains of 200,000 or more per month are likely in the past as the labor market continues to tighten and employers struggle to find qualified workers. Instead, expect a gain of 170,000 jobs to be reported for September. Despite the modest number, this is still likely to cause a slight drop in the unemployment rate, to 4.8%, and push up wages by 2.7% from a year earlier. That’s a bit faster than the yearly rate of 2.4% recorded in August.

A decent jobs gain of 150,000 or more, a drop in the unemployment rate and faster wage gains would signal the further improvement in the labor market that the Federal Reserve is looking for to justify its first quarter-point interest rate hike in a year. The end of the next Fed meeting is November 2, and it’s obvious that Fed Chair Janet Yellen has enough political sense not to do anything the week before the presidential election, lest she be blamed by one side or the other for trying to influence the results. Therefore, the Fed move will likely take place on December 14, safely after the election.

Continue reading “The Friday Jobs Report: Setting the Stage for the Federal Reserve’s December Rate Hike”