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Fear Lower Oil (prices)

My Comments: Frankly, I enjoy paying less to fill up the car with gas. There is more cash left in my wallet for me to deal with other things I need to buy. At the macroeconomic level, it will help retailers have a stronger holiday shopping season. That will help the economy. But like most things in life, what gets added with one hand results in something being taken from the other.

The following comments are by someone who speaks a language that few of us understand. I’ve highlighted one sentence in para 4 that I think is a takeaway from this. While you may like the idea of shale producers going bankrupt, it’s not a good sign for down the road.

Additionally, the comments in the last paragraph help me better understand why it’s been so hard for investment clients to participate in the historic climb of the DOW and the S&P500 these past two years. The Fed’s activities have overridden the usual strategies to participate without being over exposed to risk. That risk is now more meaningful than ever.

By Michael A. Gayed, CFA  /  Nov. 17, 2014

Summary
• The Utilities sector, perhaps the most predictive sector of the stock market, broke down meaningfully.
• The faster Utilities underperform, the more likely on a short-term rolling basis in the coming weeks they are to outperform.
• Wall Street seems to be under the impression the year is over, forgetting that the last time QE1 and QE2 ended, stocks corrected severely a month later.

The S&P 500 (NYSEARCA:SPY) stocks held on to moderate gains as the average stock was flat to down in a week that on the surface looked uneventful, but from a sector standpoint had important movements take place. The Utilities sector (NYSEARCA:XLU), perhaps the most predictive sector of the stock market, broke down meaningfully relative to the broader stock market starting Wednesday. At first glance, one might think after reading the 2014 Dow Award paper on Utilities (click here) that this is inherently bullish for stocks given that when the Utilities sector underperforms, historically going back to 1926 stock market volatility drops and equities rally.

And while this is true, the issue is the speed of underperformance. The faster Utilities underperform, the more likely on a short-term rolling basis in the coming weeks they are to outperform as that lower relative level dictates the soon to come change in rate of change. This means that while Utilities breaking down is bullish, the speed may actually be a set up for another pulse of risk-off strength, potentially at the tail end of November for another trigger to get defensive through either an all-in rotation to defensive sectors away from cyclicals (as our equity beta rotation strategy does), or an all-in rotation out of equities into Treasuries (as our inflation rotation strategy does).

We are only a few short weeks after the end of Quantitative Easing, and Wall Street seems to be under the impression the year is over, forgetting that the last time QE1 and QE2 ended, stocks corrected severely a month later. That would imply December may actually be a high risk month. Ten-year Treasuries (NYSEARCA:IEF), which have held in a tight range just above 2.3% are still signaling concern about US growth and inflation, as yields still seem to ignore what tends to be negative seasonality for Treasuries that begins in November. Combined with Junk debt taking another relative hit, the precursors to a meaningful breakdown seem to be taking place potentially as credit spreads widen and fail to confirm overall bullish sentiment into year-end.

In Arkansas last week, I did a presentation on our award winning papers, and someone in the audience was joking sarcastically with a prior speaker that lower Oil is deflationary, making fun of the idea that saving money is bearish. When I got up, before beginning, I addressed his point quickly and said “be careful what you wish for” when it comes to lower Oil. The meme out there is that lower Oil is bullish, but that completely disregards the speed with which Oil breaks down. Historically, meaningful declines in equities have been preceded by Oil breakdowns.

Furthermore, the faster Oil (NYSEARCA:USO) breaks, the more likely highly leveraged shale producers go bust. Popular junk debt ETFs (NYSEARCA:JNK) and indicies have Oil and Gas as the heaviest sector overweight within those averages. Collapsing Oil could set off a deflationary butterfly effect whereby spreads widen and filter through to all corporates, which in turn would be a form of credit tightening forced by the market as opposed to the Fed.

For us, we believe the post QE3 environment is extremely positive for the types of aggressively defensive rotations both of our main strategies (one alternative, one equity) favor. Both are based on proven historical indicators of coming regime changes in stock market volatility. The challenge since QE3 began has been that the Fed steamrolled any kind of a “risk trigger,” causing any warning signs of volatility changes to be ignored by markets. With that distorting factor out of the way, it stands to reason volatility and correlations revert to historical cause and effect.

5 Answers Every Investor Needs to Know About Annuities

retirement_roadMy Comments: Giving answers implies there are questions that need answers. And anyone asking about personal money these days needs to know more about annuities.

Not because you should necessarily put money into them, but because they are uniquely qualified to provide solutions that can can be found no where else. It turns on whether or not your quest for financial freedom includes concerns and issues that other choices do not resolve.

The financial industry is constantly coming up with better products. And coming up with worse products whose sales language is designed to confuse and frighten you. So beware. Talk with people who work explicitly for YOU, and not for someone else. This is a long article so you may have to bookmark it and come back later.

Article added by Daniel Williams on October 20, 2014

From Oct. 15-17 many of the major players in the annuity world gathered in Scottsdale, Ariz. at the Westin Kierland Resort & Spa for the 2014 IMO Summit. Prior to the Event, NAFA sent out a paper, “Answers every investor needs to know about annuities,” that can benefit advisors as well as consumers.

On the following pages, NAFA answers five of the most important questions you’ll ever receive about annuities. These nuggets can be vital in helping producers educate clients and prospects on annuity products.

1. What kinds of returns can I expect with an annuity?

There are two types of annuities: fixed and variable. Variable annuities earn investment returns based on the performance of the investment portfolios, known as “subaccounts,” where you choose to put your money. The return earned in a variable annuity isn’t guaranteed. If the value of the subaccounts goes up, you could make money. However, if the value goes down, you could lose money. Also, income payments to you could be less than you expected.

Fixed annuities earn interest and not “returns.” This is an important distinction because investments earn returns and a rate of return calculates investment losses as well as investment gains. Life insurance and fixed annuities earn interest. Since there are no investment losses in an insurance product like fixed annuities, the use of “return” is confusing and misleading.

Unfortunately, mixing up these two distinct concepts is a common mistake made by those who don’t sell or understand fixed annuities and who, perhaps, make their living selling risk-based investments. With fixed deferred annuities, the insurance company either calculates and determines the interest to be credited based on the insurance company’s earnings (for set or declared rate annuities) or based on the positive performance of a market index (for indexed annuities).

The National Association of Insurance Commissioners (NAIC), which regulates fixed annuities, considers both products fixed annuities, regardless of how interest is calculated. All fixed annuities, including indexed rate and declared rate annuities, guarantee you will not suffer losses because the markets do.

2. Is it true that indexed annuities can limit how much interest I earn?

The main difference between fixed indexed annuities and other forms of fixed annuities is the way interest is calculated. And, just as you don’t receive all of the positive earnings from the insurance company investment portfolio in a declared rate annuity, you do not earn all of the positive index performance in an indexed annuity.

The insurance company must pay for the insurance guarantees of the annuity, as well as the usual and customary company expenses to develop, market and service the annuities sold. Insurance companies use participation rates and caps in indexed annuities to pay for these expenses and ensure profitability.

A participation rate or a cap can be raised up or down, reflecting current market and economic conditions. During strong economic times, these rates and caps will be higher; during weak or negative economic times, they will be lower. This flexibility is advantageous for the consumer: the annuity contract adapts to market conditions while also being protected with minimum guarantees and suffering no losses because the index change is negative.

Sometimes folks that “hate” annuities like to show “hypothetical” performances of an indexed annuity by cherry picking economic cycles or other market variables. But, since indexed annuities have been sold for almost 20 years, we have studies that review actual interest earnings paid into the annuity contract using a statistical sample of over 300 real-life indexed annuity contracts. NAFA encourages you to read the full academic paper called, “Real-World Index Annuity Returns.”

The authors of this study are often called upon to discuss real, historical scenarios, not hypothetical examples using select periods, explaining how fixed indexed annuities actually perform for their owners.

3. Okay, so please explain about the kinds of expenses associated with the annuity?

It is common for those who do not sell fixed annuities and engage in negative advertising about annuities to confuse concepts and features between fixed and variable annuities. Both types of annuities can play a role in financial and retirement planning, but it is important to understand the differences between the two products.

Fixed annuities have charges (called surrender charges) that are made only when you take money out of the annuity. Most fixed annuities allow you to take a certain amount of money without paying any charges, but if you take more, the amount over the maximum will be charged a penalty. Also, if you terminate your annuity contract early, before the charges have expired, you will pay a surrender charge.

All charges, and under what conditions they are imposed, must be clearly explained in the documents you receive both before and after you purchase the annuity. Fixed annuities may also offer riders that provide additional benefits and features, and you may be charged for those riders. All insurance companies are required by law to fully disclose all charges and under what circumstances they may be incurred. This information must be disclosed both before you buy the annuity and in the insurance policy you receive from the insurance company.

Also, unlike investment products, all annuity policies issued come with a money-back guarantee, called a “free-look period,” during which time you can return and cancel the policy and receive ALL of your entire premium back. This is an insurance guarantee and consumer protection that investment products do not provide.

4. Can you explain why there are surrender charges?

The insurance guarantees of complete protection from market losses, income for life, minimum interest, and additional interest above the minimum are not free and are an expense to the insurance company. As with any company, there are other costs of business, including: regulatory compliance, mandated reserving, product development, marketing, and servicing annuity customers. In order to pay for the expenses and the mandated reserves required to remain a solvent and a viable business, the insurer invests the premiums it receives.

However, like any investment, it can only cover the expenses and profit requirements if it retains the investment for a sufficient period, often several years. If an annuity contract is cancelled too early, these expenses will more than likely be greater than their investment returns, and the insurance company will suffer a loss. It is left to the insurance company to determine prevention measures to avoid a loss. All prudent buyers of financial products want their company to operate at a profit.

So, the question becomes, what do you consider the fairest loss prevention method? Some methods assign the cost of offsetting the potential loss to all buyers, whether they surrender their contracts early or not. By contrast, the surrender charge method imposes the burden of repaying unrecovered expenses only to those who caused the loss by not fulfilling the contractual obligation. There are fixed annuities with no surrender charge and some with 12-year surrender charges — and everything in between.

Surrender charges must be properly explained and understood by the consumer considering purchasing an annuity. Surrender charges are the best tools for ensuring that all consumers receive the most competitive interest rate and annuity features possible and that the insurers are adequately protected from a “run on the bank.”

5. Is it true that many income riders are beneficial only if the annuity performs poorly and that they require turning my annuity into a stream of income payments?

When you hear or read about income riders, it is extremely important to understand what information is applicable to variable annuities and what information is applicable to fixed annuities. Variable annuities have market risk, and the value of the subaccounts chosen could go up or down. If they go up, you could make money. If they go down, you could lose money. Also, income payments to you could be less than you expected. By contrast, many fixed indexed annuities have a baseline income guarantee, and you can also utilize performance of the annuity to increase the guaranteed income exponentially.

Fixed indexed annuities available today do not require annuitization on their income riders. These income riders for fixed annuities (typically called guaranteed lifetime withdrawal benefit riders) provide a guaranteed income stream, typically a percentage of the premium, but the income stream lasts your entire life, even if your annuity account value falls to zero.

Most income riders allow you to turn the income payments on and off or take out the money remaining in your annuity that has not been paid out or withdrawn by you. An income rider should not be confused with annuitization, available in all fixed deferred annuities, which guarantees the amount you will be paid and guarantees that you can receive those payments as long as you live.

The key difference between an income rider and annuitization is that with the income rider you still own and have control of the annuity account value. With annuitization, you convert all value to a promised payment stream.

Originally published on LifeHealthPro.com

The Fiendish Bond Market Needs a Radical Rethink

My Comments: In keeping with my recent posts that suggest a strong market correction is coming soon, some readers have suggested the solution is to shift away from stocks into more bonds. I remind them that interest rates have been declining since 1981 and they too will reverse course at some point. When they do, you do not want to hold ANY long term bond positions.

The dilemma is that short term bonds have such lousy returns that they are almost meaningless. By the time you’ve paid taxes on the earnings, assuming they are not municipal bonds, and dealt with inflation, you have gone broke safely.

So this is an interesting read. Not sure it will or can happen. But if you are worried, we need to talk as there is a glimmer of hope that you can take advantage of.

Stephen Foley / October 29, 2014 4:42 pm

A trader works on the floor of the New York Stock Exchange minutes after a Federal Reserve announcement on January 29, 2014 in New York City. This was another Fed announcement of another reduction in its monthly bond buying program.

Shares in Verizon rose. Or they fell. Whichever, the point is that it is easy to keep track. The US telecoms group has one kind of share, whose price zips along the bottom of business news channel screens or pops up when you hover in FT.com stories. Would that it were so simple to keep track in the bond market.

Companies issue such a dizzying number of different bonds that it is impossible to focus the same light on the fixed income market as on equities. In the past, although bond investors grumbled, the opacity did not matter to companies one jot. But the market has changed and it matters now.

There are $7.7tn of corporate bonds outstanding in the US alone, financing business investment and economic growth (as well as, more recently, share buybacks that have plumped up equity markets). Fixing the market’s flaws is vital. It is time for a radical rethink of how companies issue debt.

Verizon, which holds the record for the most money raised on a single day in the bond market, has more than 70 kinds of bond out. When it sold $49bn of debt last year it did so in eight slices, each a different kind of bond paying a different interest rate and maturing on a different date. In the market last week, it raised another $6.5bn with bonds maturing in seven, 10 and 20 years. And Verizon is one of the more restrained issuers.

General Electric, whose shares are among the most widely held in the US, has more than 900 kinds of bond outstanding. Banks have even more: Citigroup had 1,865 separate types when Barclays counted them in April.

The inevitable result is that trading in any one bond issue is very thin, especially in those sold more than a year ago. Finding another investor who wants to buy the exact type of bond you are selling is no easy task at the best of times. If the end of quantitative easing marks the start of rising interest rates, which hurt bond prices, then investors’ 30-year love affair with fixed income may cool, and the market could become dicey indeed. Regulators worry about potential systemic risks in the event that sharp price falls in illiquid bond markets lead to big investor losses.

What is required is for corporate bonds to be standardised so that there are fewer of them trading more frequently. It is the principle adopted by the biggest debt issuer in the world – the US Treasury, which auctions new bonds on a strict timetable and whose 10-year Treasury note is the de facto benchmark for the fixed income market. The derivatives market, often described as the Wild West of the financial markets, is also highly uniform in parts.

Companies ought to increase the size of each individual bond issue to boost secondary market liquidity. They ought to adopt common interest payment dates. And they ought to issue debt on a regular timetable, perhaps quarterly for the biggest issuers, so that all bonds mature on the same dates. The easier it is for investors to make like-for-like comparisons, the more willing they will be to trade.

Corporate treasurers might ask what is in it for them. Right now they dip into the market opportunistically, trying to time it to catch the lowest possible borrowing costs. The trade-off is that standardised bonds that are more readily tradable by investors are likely to attract more demand, which itself will lower companies’ borrowing costs. Reducing complexity should also cut research and administration costs for borrower and bond investor alike.

Europe Must Act Now

My Comments: By now you may be tiring of my posts that say a market crash is coming and yet here we are moving along merrily. But like a broken clock that is correct at least twice every day, I’m confident that a crash will happen before long, and it won’t be a slow decline to the bottom. It might not last long, but it will be dramatic.

The latest economic news from Europe is not encouraging. They mostly took a different tack in their response to the economic meltdown that happened in 2008-09 and the result is a profound lack of liquidity. How do you reverse course and pump money into the system to make it work again if there is no money?

A version of this article first appeared in the Financial Times. By Scott Minerd, Guggenheim Investments

In recent conversations—whether with the U.S. Federal Reserve, the European Central Bank, the U.S. Treasury, or the International Monetary Fund—one theme is playing large and loud: things in Europe are bad and policymakers appear already to have fallen behind the curve. Quantitative easing in Europe is coming, but too slowly to avert a severe slowdown and perhaps even a hard landing.

The depreciation of the euro, while welcome, will not be enough to lift the economy out of the doldrums and more must be done both in terms of monetary policy and fiscal reforms. In plain language, France must start taking significant steps to reduce social benefits and improve its fiscal balance (a bitter pill to swallow). Germany must reduce its fiscal surplus, which Chancellor Angela Merkel appears ready to do through increased military and infrastructure spending. Italy must move to reduce its fiscal structural imbalance. Others on the periphery must do their part too by staying the course on austerity and continuing with further structural reform. The European Investment Bank stands ready to support infrastructure investment, but at a scale that currently appears too small to make much of a difference.

In the meantime, the ECB will work as quickly as it can to expand its balance sheet. The problem is simply that there may not be enough assets to buy. Mario Draghi, ECB president, has made it clear that the ECB must increase its balance sheet by at least €1 trillion—a tough mandate as the balance sheet will continue to shrink in the coming year as the earlier longer-term refinancing operation assets roll off. The reality is the ECB will need to purchase at least another €1.5 trillion in assets, and even that may not be enough.

The much heralded asset-backed securities purchase program will only yield about €250 billion to €450 billion in assets over the next two years. More LTRO (or the newer targeted LTRO) will prove a challenge as sovereign bond yields in Europe are so low that a large balance sheet expansion through this means seems impractical. Perhaps there is another €500 billion to €750 billion to do over the next year or two. Outright purchases of sovereign debt would prove politically difficult, as many would interpret such purchases as violating the ECB’s mandate, and the matter would probably end up in the European courts.

Current Tools Will Not Get Job Done

The bottom line is that none of the tools currently on the table will get the job done. There are not enough assets to purchase or finance and the timetable to get anything done is too long. Policymakers do not have the luxury of a year or two to figure this out. The ECB balance sheet shrinks virtually daily and as it shrinks, the monetary base of Europe is contracting and putting downward pressure on prices. Europe is clearly in danger of falling into the liquidity trap, if it is not already there. The likelihood of a “lost decade” like that experienced in Japan is rapidly increasing. The ECB must act and act quickly.

How is this affecting the markets? The recent rally in U.S. fixed income is materially different than when rates last approached 2 percent. Previously, the Federal Reserve was actively managing the yield curve to reduce long-term borrowing costs in order to stimulate the economy. The current rally is caused by a massive deflationary wave unleashed upon the United States by beggar-thy-neighbor policies in Europe and Asia.

Rate Hike in 2016 or Later?

The precipitous decline in energy and commodity prices, and competitive pressures on prices for traded goods, will probably push inflation, as measured by the Fed’s favored personal consumption expenditures index, back down toward 1 percent. This raises the likelihood that any increase in the policy rate by the Fed will be pushed into 2016 or later.

With inflationary expectations falling and the relative attractiveness of U.S. Treasury yields over German bunds and Japanese government bonds, U.S. long-term rates are likely to continue to be well supported with limited room to rise, a dynamic that could push them lower from here.

In the real economy, the decline in energy prices should offset the effect of reduced exports, which is supportive of U.S. growth in the near term. This should help equities recover from the recent storm of volatility as we move deeper into the fourth quarter, which is a time of seasonal strength for the stock market. However, this may prove to be the rally to sell. Results from currency translations for large, multinational companies will likely weigh heavily on S&P 500 earnings in the first half of 2015.

It is too early to be making decisions for next year, but the events overseas provide ominous portents of things to come. If we do get a sign of a bear market in U.S. equities, it could be that the events in Europe presage what lies ahead for the United States. Is it too late to change these shadows of dark foreboding? It is hard to tell but time is not on our side.

The 3 Stages of Retirement

retirementMy Comments: I recently wrote about where we are now in the overall market cycle and the likely chance of a major disruption that will effect your financial future. My post was titled “Are We There Yet?

Most of us have visions of a successful retirement. Of course, “success” is dependent on your life today, your health, and countless other variables. My role is to help anyone and everyone achieve a level of financial freedom that allows you to live your life free from financial fear. (a lot of efs there!)

Not matter how successful you are or were during the accumulation of money phase of your life, you are now, or at some time will be, in the distribution of money phase. For most of us, this requires a different mind set. That in turn requires a different set of financial tools to get you where you want to go.

What you choose to do with your life in retirement falls into what I think of as three distinct phases. How long they last is completely unknown, but they are likely to follow this sequence.

The first I call the Go-Go years. This is when you are newly retired and you have a bucket list of things you want to do, can probably afford to do, but may be afraid to do. You hold back to keep from jeopardizing your future years if history repeats itself and the markets go haywire for a while. (does anyone know the origin of the expression “haywire”?)

The second phase I call the Slow-Go years. This is when the mind and body starts to slow you down, whether you want it to or not. Hopefully by then you’ll have spent some time in the Go-Go years and are OK and recognize your limitations.

The last phase is the No-Go years. This is when you find going slow is too much and you need the help of others to get from one day to the next. It’s not a pleasant prospect. But I’ve never met an active 90 year old in the Slow-Go phase who was ready to call it quits. Quite the opposite.

But bad things happen to good people from time to time. How you manage the distribution of money phase of life will have a telling effect on the quality of your life in the Go-Go phase, the Slow-Go phase and the No-Go phase.

No matter how successful you were in the accumulation of money phase, you have to focus time and energy if you want a successful distribution of money phase. Some of this involves the recognition of what I call existential risk.

Existential risk, in my world, is a phrase to describe things that might or might not happen. No one expects our house to burn down or be destroyed by a hurricane, but we buy homeowners insurance. We might have a wreck and damage or total our car, so we buy auto insurance. Some of us buy life insurance so that if we die unexpectedly, there is cash to help our family get on with their lives. All along, we determine how much of a threat such an event will have on our lives and we allocate resources to protect ourselves.

Some of the existential risks of retirement are catastrophic illness, like a stroke, or chronic illness like dementia. As life expectancy increases, a newly talked about risk is longevity risk, which is running out of money. None of hope these things will happen, but it makes sense to at least recognize the possibility and perhaps reposition our money to offset some of the risk.

How fast you withdraw funds on a monthly basis from your accumulated funds is a largely arbitrary decision. It matters less if you have already dealt with the existential risks you might face. The financial planning community is arguing constantly about what annual rate of withdrawal is appropriate.

It depends on you. If you are willing to experience the pain of dramatic declines in value, then the rate at which you withdraw money will have to be less. That’s largely because if your accounts go down hard, you have less time to recover. Meantime, you might be sweating bullets, and that’s not usually a good thing.

If you take appropriate steps to protect yourself, then a larger withdrawal rate may be appropriate. That translates to a more satisfying experience during the Go-Go years, knowing you have taken steps to allow a smoother and later transition into the Slow-Go and No-Go years.

It’s up to you what you do. But I encourage you to believe acting sooner rather than later will be in your best interest.

4 Lessons For Us From a Century Ago

My Comments: As a nation we are on the horns of a dilemma regarding our role as the sole surviving superpower from the last century. I embraced Obama’s assertion that our national focus should revert to what is in our best interest domestically. At the time we were embroiled in Iraq and other places and I was sick and tired of the cost in terms of lives and dollars.

This article, which appeared recently in The Financial Times, tells us this is not a new dilemma. That roughly 100 years ago Britain was caught in the same issues as we face today. The comment about “spending money and men to try and civilize those who don’t want to be civilized” rings a bell with me.

However, if I want to leave this planet with some assurance it will be a better and safer place for my grandchildren, I don’t want us to hide in the shadows and hope for a better outcome. Hope is NOT a global strategy for success.

America, Britain and The Perils of Empire, By Gideon Rachman / October 13, 2014 / The Financial Times / Middle East turmoil of 1919 offers important lessons for today

General Sir Philip Chetwode, deputy chief of Britain’s Imperial General Staff, warned in 1919: “The habit of interfering with other people’s business and making what is euphoniously called ‘peace’ is like buggery; once you take to it, you cannot stop.”

It is difficult to imagine any member of the Obama administration making such an eyebrow-raising comparison. But, as the US struggles to cope with turmoil across the Middle East, Sir Philip’s complaint – quoted in David Reynolds’s recent book, The Long Shadow – has a contemporary ring to it. Even more so the lament of his boss, Sir Henry Wilson, the chief of Britain’s Imperial General Staff, who complained in 1919 that -”we have between 20 and 30 wars raging in the world” and blamed the chaotic international situation on political leaders who were “totally unfit and unable to govern”.

Britain was directly or indirectly involved in the fighting in many of these wars during the years 1919-1920. Their locations sound familiar: Afghanistan, Waziristan, Iraq, Ukraine, the Baltic states. Only Britain’s involvement in a war in Ireland would ring no bells in the modern White House. The British debates, and recriminations of the time are also strongly reminiscent of the arguments that are taking place in modern America. And how events panned out holds some important lessons for today’s policy makers.

The British military effort in Iraq in 1920, like the allied effort today, was conducted largely through aerial bombing. Then, as now, there was strong scepticism about the long-term chances of achieving political stability in such an unpromising environment. AJ Balfour, the British foreign secretary complained – “We are not going to spend all our money and men in civilising a few people who do not want to be civilised.” In an echo of America’s current Middle East confusion, even British policy makers knew that they were pursuing contradictory goals. As Professor Reynolds points out – “The British had got themselves into a monumental mess in the Middle East, signing agreements that, as Balfour later admitted, were ‘not consistent with each other’.”

Then, as now, even the people making policy seemed confused about the motives for military intervention in the Middle East – was it “making peace” as Gen Chetwode suggested, was it the rich oil reserves of the area, was it the protection of another territory (India for the British, Israel for the Americans), or was it simply a vague sense that imperial prestige was at stake? The debates in London, almost a century ago, as in Washington today, suggested that all these motives were mixed together in ways that no one could completely disentangle.

Military leaders’ complaints about incompetent politicians also echo down the ages. Sir Henry’s lament about British political leaders who are “unable to govern” is matched by the increasing rumble of complaint about the leadership of Barack Obama. Even Mr Obama’s former defence secretary, Leon Panetta, has just complained that the US president “too often relies on the logic of a law professor rather than the passion of a leader”.

These comparisons between the British and American dilemmas, almost a century apart, are intriguing – but do they offer lessons? I would point to four.

First, while it is always tempting to blame political leaders, the problems often run far deeper than that. The British prime minister in 1919 was David Lloyd George, who most historians now regard as a decisive and dynamic leader. That did not prevent the imperial staff from complaining about the torpor and confusion of his administration. The real problem, however, was the intractable nature of the problems that Britain was facing, and the limits of the resources it could bring to bear.

Second, it is much harder to be a global policeman if your government’s finances are stretched and your country is war-weary. In 1919, after the collapse of the Ottoman Empire, British imperial possessions were more extensive than ever. But the UK was exhausted after the first world war and had little appetite for further conflict. The Iraq and Afghanistan wars of the past decade were small affairs, by comparison. But they left a similar reluctance in the US to get involved in further conflicts.

Third, the uncanny similarity between the trouble spots of a century ago and those of today suggests that there are some parts of the world where geography or culture create a permanent risk of political instability and war: the frontiers between Russia and the West, Afghanistan, Iraq. The idea that ‘twas ever thus’ may comfort contemporary policy makers in Washington, as they struggle to cope with multiple crises.

Yet the fourth lesson derived from Britain’s travails in 1919 is less comforting. Many of the conflicts that the Imperial General Staff were struggling with did get resolved fairly swiftly. The western allies’ involvement in the Russian civil war was over by 1920, as the Bolsheviks moved towards victory. An uneasy peace was also re-established in Iraq. But Britain’s ability to impose its will on the world was waning. The political turmoil of 1919 was, in retrospect, an early sign that the world was entering a new period of instability that – within a generation – would lead to another shattering world war. Once the dominant global power loses its grip, the world can quickly become much less orderly.

Social Security Cost-of-living Adjustments Projected to Increase Slightly in 2015

Social Security cardMy Comments: Those of us old enough to be taking SSA benefits have experienced minimal increases in the last few years. That’s because the ‘official’ numbers for inflation have been low. There is an argument they should be even lower as a way to keep the so-called SSA reserves from going to empty. In my opinion, that would be a stupid way to correct the problem.

Most of us who are interested in this issue know there are much less painful remedies available. With the SSA system now in place for over 80 years, much of the US economy has adjusted with large segments of the population relying on it as we age. To disrupt that could have dramatic consequences.

If you are near 62 or beyond and have not yet signed up for benefits, get in touch with me for a comprehensive analysis of how and when to put yourself on the receiving end of a monthly check. You’ll be surprised how big a mistake it can be if you do it wrong.

By Mary Beth Franklin / Oct 1, 2014

Social Security benefits are likely to increase by 1.7% in 2015, slightly more than this year’s 1.5% increase but still well below average increases over the past few decades, according to an unofficial projection by the Senior Citizens League.

The Social Security Administration will issue an official announcement about the 2015 cost-of-living adjustments for both benefits and taxable wages later this month.

Based on the latest consumer price index data through August, the advocacy group’s projection of a 1.7% increase in Social Security benefits for 2015 “would make the sixth consecutive year of record-low COLAs,” Ed Cates, chairman of the Senior Citizens League, said in a written statement. “That’s unprecedented since the COLA first became automatic in 1975.”

Inflation over the past five years has been growing so slowly that the annual increase has averaged only 1.4 % per year since 2010, less than half of the 3% average during the prior decade. In 2010 and 2011, benefits didn’t increase at all, following a 5.8% hike in 2009.

Although the annual adjustment is provided to protect the buying power of Social Security payments, beneficiaries report a big disparity between the benefit increases they receive and the increase in costs. The majority of Social Security recipients said that their benefits rose by less than $19 in 2014, yet their monthly expenses rose by more than $119, according to a recent national survey by the advocacy group.

Social Security beneficiaries have lost nearly one-third of their buying power since 2000, according to a study by the organization. Low COLAs affect not only people currently receiving benefits, but also those who have turned 60 and who have not yet filed a claim. The COLA is part of the formula used to determine initial benefits and can mean a somewhat lower initial retirement benefit.

A 1.7% increase would increase average Social Security benefits by about $20 next year and boost the maximum amount of wages subject to payroll taxes by nearly $2,000 above this year’s $117,000 level.

Despite the fact that Social Security benefits are not keeping up with inflation, COLA reductions remain a key proposal under consideration in Congress to reduce Social Security deficits. A leading proposal would use the “chained” consumer price index — which grows more slowly — to calculate the annual increase.

The group warned that the “chained COLA” proposal may come under debate again soon. The Social Security Trustees recently forecast that the Social Security Disability Trust Fund is facing insolvency by 2016, and that changes to the program will have to be made to avoid a reduction in disability benefits.

The organization supports legislation that would provide a different measure of inflation by using the Consumer Price Index for the Elderly, which would likely result in higher annual increases than under the current method.