Each of the three major indices eked out small gains this week, marking the fourth week of consecutively higher finishes. While there wasn’t a lot of noteworthy news this week, the Federal Reserve will meet next week to discuss once more whether it needs to raise interest rates further. At the moment, the consensus is on the side of it taking a wait-and-see approach, but the Fed has been known to surprise investors in the past. And if I’m being honest, as both a saver and investor, I am quite happy to see interest rates back to more normal historical levels. For those of you who are borrowing to buy first homes, buy cars, or are looking to consolidate debt, I understand your frustration.
This week I received my home and auto insurance policy renewals and was shocked to find that both premiums had increased by double-digits despite not having any claims, accidents, or speeding tickets. After speaking with my agent, I was dismayed to discover that premiums, particularly auto, are rising because of an increase in accidents, thefts, and the escalating cost of repairs. With that in mind, I came across two stories this week that demonstrate this firsthand. It seems New York City is suing both Hyundai and Kia, alleging they failed to install immobilizers in their cars between 2011 and 2022, long after other carmakers adopted the technology. My agent mentioned that nine of his clients here in Cincinnati have had their Hyundai or Kia cars stolen in the past year and that the insurance company he represents will no longer insure certain years and models of these cars. In a related story, AIG and Allstate, among others, are steering clear of home-insurance sales in certain parts of the U.S. that have become increasingly vulnerable to weather-related disasters. AIG plans on pulling back on home insurance in 200 disaster-prone zip codes, including Delaware, Florida, and Colorado. State Farm and Allstate are curbing homeowner policies in California, citing rebuilding costs and wildfires. If you haven’t received your renewal yet this year, brace yourself for what you may find. If you have already received it, shoot me an email and we can commiserate.
In company news, Apple revealed what it hopes to be its next blockbuster product. Available in early 2024, the company is releasing an AR/VR headset that aims to go head-to-head against Meta’s Quest product. In some ways, these products remind me that the future could very well be a hybrid between technology and biology. I know Elon Musk’s Neuralink company recently received approval by the FDA for the first implantable brain chip in a human. While watching the Apple AR/VR demo at WWDC, I couldn’t help but feel how disconnected the users looked as they browsed the Internet, watched movies, and checked emails alone in their headset. I don’t know how I feel about a future that lacks interconnectedness, but I can say the $3,500 price tag will certainly delay my interest in such a product. In other news, Merck has gone on the offensive in suing the U.S. Government over the Inflation Reduction Act, alleging Medicare’s newfound ability to negotiate drug pricing is unconstitutional. It claims the legislation violates the First and Fifth Amendments of the U.S. Constitution. For those who might not remember, the Fifth Amendment requires the government to pay “just compensation” for property taken for public use. I guess we’ll have to wait for the courts to decide.
One last tidbit that is beginning to make the news is the end of the student loan payment suspension. Due to the pandemic, President Trump instituted a suspension that President Biden has extended multiple times. The Supreme Court will rule on President Biden’s loan forgiveness plan in the next few weeks, however, the suspension of student loan payments ends June 30th with a 60-day grace period. Without going into the politics of the case in front of the Supreme Court or President Biden’s plan, we should recognize that there could be an economic impact when payments start back up. I’ve come across several research papers in the past week suggesting “soft goods” could see the brunt of a spending slowdown. Retailers, particularly apparel related, could find sales slowing as could the fast food and restaurant industry. Other areas that could see slowing growth are streaming services like Netflix, Hulu, and Max and perhaps travel and leisure as well. Target was downgraded this week by one large investment company on just these concerns. It’s worth keeping an eye on this as it develops.
In closing, I return to the speeding ticket and everybody’s dread of the flashing lights in the rearview mirror. It seems in Helsinki a man was fined approx. $130,000 for going 20mph over the speed limit. In Finland, fines are calculated based on income and the offender is among the richest people in the country. To be clear this is not a new system, but one that dates to 1921, with other countries adopting a similar policy since, including Switzerland. Before you breathe a big sigh of relief, it could happen here. A bill introduced in New York City last month would make parking fines proportional to income. Fortunately, most of us don’t live in NYC, but keep an eye out for new legislation in your communities as it seems to be the way things are headed. Now you know.Bruce J. Mason, MBA