In The Headlines

Fed Report: Many Americans are Financially Fragile

The classical signs of a recovery seem to be in place. Wages are slowly rising, unemployment is the lowest it has been in nine years, and inflation remains low. Yet according to the Federal Reserve Bank’s latest survey on American economic well-being, 31% of American adults, or 76 million people, say they are struggling to make ends meet. Seven years after the end of the Great Recession, millions of Americans have yet to find firm financial footing. That is one reason why the economy remains a top concern in the 2016 presidential election.

“It’s important to identify the reasons why so many families face continued financial struggles and to find ways to help them overcome them,” said Federal Reserve Board Governor Lael Brainard. The Fed survey highlights many of the continuing economic concerns reported by Americans surveyed. Some 46% of adults say they cannot cover an unexpected $400 expense or would have to borrow money to do so. While lower income Americans said they would have the toughest time handling this emergency expense, some 38% of middle class Americans reported they would have trouble, too. Even 19% of those earning over $100,000 a year said they could not pay such an unforeseen bill promptly.

Variable patterns of income and expense are part of the problem. About one-third of Americans also say that their income varies month-to-month, mainly because they have an irregular work schedule. Some 45% say their expenses shift each month. Some 42% of those with these volatile income streams or expenses say they struggled to pay the bills at least once in the past year.

Many Americans want to work more or are already holding down multiple jobs. Some 35% of those who are not self-employed said they would prefer to work more hours (at their current wage). This was particularly true of lower-income respondents, non-Hispanic blacks, younger people, Hispanics, and those with less education.

Education related debt is also an issue, especially for younger Americans. Among individuals who went to college, education debt is common. More than half of adults younger than 30 who went to college took on at least some debt to do so. This debt extends beyond just student loans. Twenty-one percent of all adults with debt from their own education have education-related credit card debt, with a median balance of $3,000.

This is probably why many Americans plan to continue working when they hit retirement age. Some 42% expect to either retire at age 70 or older or to never retire. Also, 38% expect to work in retirement to give them a source of funds, and nearly 22% think their spouse or partner will work.

The report had a few bright spots, including more adults saying they were living comfortably, and the greater rate of savings among consumers. Also, just over half of Americans felt that their home value increased over the past year and 43% expect it to increase in the coming year.

Citations

1. http://cnnmon.ie/1ZFmCDh – CNN Money
2. http://1.usa.gov/1TzcH3s – Federal Reserve Board

Digital Farming Drives Bayer’s Bid for Monsanto

Digital farming is exemplified by high tech self-driving tractors, and agricultural “big data.” Nutrient information can be relayed from the field to the farmer’s computer system. With weather forecasts and data on pesticide use, soil readings, and plant tissue tests pulled by various pieces of software, today’s farmer can keep tabs on the farm, down to the square meter, in real time, without ever leaving his or her carpeted office. German chemical company Bayer cited the growth in such digitally assisted farming as a key reason for its $62 billion bid for Monsanto, which has become a leading provider of analytics used by growers.

Bayer Chief Executive Officer Werner Baumann says Monsanto is at the “forefront of digital farming.” Acquiring the company would further Bayer’s goal of identifying and providing the best-suited seeds, fertilizers, and chemicals for farms around the world. “If you get the customers’ attention by predicting what will happen on their farm, you can be closer to them to sell them the seeds and whatever other products you want to sell them,” says Bruce Erickson, a director in the Agronomy Department at Purdue University who tracks farming technology. “The promise is immense.”

Signs of the transformation abound: drones providing a bird’s-eye view of fields; mapping software locating underground water sources; sensor- laden tractors monitoring harvests in real time. It is happening outside the fields, too. Meal portions for cows are adjusted automatically based on their milk output. Infrared cameras identify chickens with fevers, protecting flocks. Adoption of digital tools comes amid concerns that food production is not keeping up with the world’s appetite. Crop yields have remained relatively flat in recent years, even as demand is increasing because of population growth and the rising middle class in developing nations such as China.

Sensing an opportunity, investment is pouring into digital farming. Food and agriculture technology startups attracted $4.6 billion last year, compared with $2.3 billion in 2014, according to AgFunder, an online investing platform. Monsanto’s investment in digital agriculture took off in 2013, when it spent almost $1 billion for San Francisco-based startup Climate Corp. Founded by former Google engineers David Friedberg and Siraj Khaliq, Climate Corp. developed an algorithm that helps predict how weather affects crop output. Monsanto added its own data from seed trials, and acquired soil analytics companies. Now its software offers farmers recommendations on what to plant and where to plant it. “Farmers are very excited about new technology if you can show them some value, that it’s not just some gimmick,” says Khaliq, who is now a venture capitalist in London. “We can take our data, walk right into the fields with an iPad or iPhone, pinpoint exactly where we are … and figure out what we should be doing with each parcel of land.”

Monsanto invested in Blue River Technology, a California company that uses computer vision technology to weed crops. It also backed HydroBio, which produces tools that monitor water usage, and VitalFields, a maker of farm management software. Meanwhile, Planet Labs, whose satellite monitoring technology tracks changes in crops and soils, raised $120 million last year, and data company Farmers Business Network raised $15 million from investors including Google parent Alphabet. Other large agriculture companies are also investing to add technology to their product lines. Tractor maker Deere offers autonomous driving and tools to track real-time usage of seeds, fertilizer, and chemicals. DuPont, which is merging with Dow Chemical, is expanding its Encirca farm management software unit. And Syngenta, which Monsanto tried to buy earlier this year and has agreed to be bought by ChemChina, has made several digital farming acquisitions.

Adoption of digital agriculture has been fastest in the central U.S., where industrial farms put a premium on efficiency. In central Illinois, Dale Hadden has been collecting data to improve the performance of the soybeans, corn, and wheat he grows on his almost 5,000 acres. He creates models to predict yields based on chemical use, soil types, and his land’s topography. “We can take our data, walk right into the fields with an iPad or iPhone, pinpoint exactly where we are in the field, and see what the planting rate is, what the amount of nitrogen is, and figure out what we should be doing with each parcel of land,” Hadden says. “If we have a performance issue in a certain area, we can do something about it.”

Still, it is early days for such technology. “Agriculture is well behind other industries that I’ve been involved with in being able to collect and synthesize data and express it as solutions to problems,” says Ron LeMay, the former president of telecommunications company Sprint, who founded FarmLink, a data company. Many farmers, particularly outside the U.S., have taken a wait-and-see approach to find out if adopting digital tools can improve their bottom line. Such software can cost several thousand dollars per year and comes with a steep learning curve. “We’re still on the cusp of being able to demonstrate at scale the financial returns,” says Ros Harvey, the founder of Yield, an Australian startup. Her company, backed by German automotive giant Robert Bosch, uses sensors that allow oyster farmers to determine when contamination makes it unsafe to harvest.

The greatest potential may be in the developing world, where tapping into global communications networks may allow farmers to better manage climate change and other risks by bringing Big Data to the world’s most information-poor regions. “We’re starting to see the emergence of a digital revolution,” says Mick Keogh, the Executive Director of the Australian Farm Institute. “It’s moving from decisions based on a farmer’s skill to decisions based on objective information driven from technologies now available.”

Citations

1. http://bloom.bg/1XcTPI3 – Bloomberg
2. http://bit.ly/1NAG0Lu – Bayer

The Good News Is . . .

• Purchase applications for home mortgages rose strongly in the latest week and were up 12% from the prior week when seasonally adjusted to account for the Memorial Day holiday, while refinancing increased by 7%. Mortgage activity continues to benefit from very low rates, with the average 30-year mortgage rate for conforming loans ($417,000 or less) down two basis points from the prior week at 3.83%.

• Cracker Barrel Old Country Store, Inc., a leading home-style food store and restaurant operator, reported earnings of $1.82 per share, an increase of 22.1% over year-earlier earnings of $1.49 per share. The firm’s earnings topped the consensus estimate of analysts by $0.02. The company reported revenues of $700 million, an increase of 2.4%. Management attributed the company’s results to strong growth in comparable store and restaurant, as well as significantly improved operating margins due to lower commodity costs.

• Jazz Pharmaceuticals has agreed to buy Celator Pharmaceuticals, which makes a treatment for a form of leukemia, for $1.5 billion in cash. The deal would continue rapid consolidation in the pharmaceutical sector, where mergers allow companies to increase scale or to gain access to treatments for rare diseases without having to fund the research and development of the therapies. Under the terms of the new agreement, Jazz, which is based in Dublin, would pay $30.25 a share for Celator, the Ewing, N.J., maker of Vyxeos, a treatment for a form of leukemia.

Citations

1. http://bloom.bg/1Dl6vPO – Bloomberg
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1WIXU71 – Cracker Barrel Old Country Store, Inc.
4. http://nyti.ms/1ZFbR3U – NY Times Dealbook

Planning Tips

Guide to the Advantages of Indexed Universal Life Insurance

An indexed universal life insurance (IUL) policy is permanent insurance that offers great flexibility for premiums and adjustments for face amount. The indexed accounts are credited with interest based on the growth in one or more indexes, and there is a guaranteed growth rate within the policy. In many ways, today’s indexed universal life insurance (IUL) policies can be viewed as an all-in-one financial device. Whereas term or whole life insurance can protect you with a death benefit, indexed universal life insurance can do that and much more. Below are some of the key features of an IUL policy. Before making any changes to your life insurance, be sure to consult with your financial advisor to better understand this type of policy and determine if it is appropriate to your situation.

Death benefit protection – First, the death benefit protection is a given—and, while going with just a straight term life insurance policy may cost less in terms of premium, an indexed universal life insurance policy will last you for the remainder of your lifetime. It will also build up cash value. In many areas of the country, IUL cash values are also exempt from lawsuits and the claims of creditors. This includes bankruptcy.
Opportunity for growth – Within the cash value component of an IUL policy, you have the opportunity to grow your funds based on a market-linked index, such as the S&P 500 or the Dow Jones Industrial Average (DJIA). This can provide you with the ability to earn a higher return than that of other types of permanent policies such as whole life, or even regular universal life insurance.

Protection of principal – While there is the opportunity for additional growth of funds, there is also protection of your principal in the event of a market downturn with IUL. This is because should the underlying index lose value in any given period, your account is simply credited with a 0%. This not only protects your funds from loss, but also alleviates the need to make up lost ground from negative years.

Cash for long-term care needs – Many of the IUL policies that are on the market today will also advance you a portion of the death benefit in order to pay for a long-term care need. In some cases, the amount could even be up to 100% of the death benefit proceeds. The cash that is in the cash value component can either be withdrawn or borrowed for any reason. This money can be used for paying off high interest credit card debt, personal loans, or even your home mortgage.

Tax free supplemental retirement income – Given its unique loan provisions, you can also use an indexed universal life insurance policy’s cash value to help in supplementing your retirement income. This can be especially beneficial if you are trying to fill an income gap and/or if you are under age 59½ and do not want to face the IRS early withdrawal penalty that can be levied on many other plans such as annuities and traditional IRAs.

Citations

1. http://bit.ly/1UIN1yu – The Motley Fool
2. http://bit.ly/25U4E3y – Zacks.com
3. http://bit.ly/22yWKKZ – Investopedia
4. http://bit.ly/24IcXgj – Wikipedia
5. http://bit.ly/1Un8Tkm – Mainstreet.com