G20 Summit in Hamburg

While many Americans were busy celebrating the long weekend of our nations birth and independence, our nations newly elected leaders took to Hamburg for the highly anticipated G20 Summit.   G20 Riots and Protests. Pictures 3 days of peaceful protests turned into riots that ended with cars being lit ablaze, water cannons being fired and tear gas dispersed. Most protestors were not residents of the Hamburg area, 15,000 officers with more called in as back up.       G20 wants to connect all citizen across the world by 2025. “We need to bridge digital divides along multiple dimensions, including income, age, geography and gender. We will strive to ensure that all our citizens are digitally connected by 2025 and especially welcome infrastructure development in low-income countries in that regard. We will promote digital literacy and digital skills in all forms of education and life-long learning. We recognize that information and communication technology (ICT) plays a crucial role in modernizing and increasing efficiency in public administration.”   US threat of Steel Tariffs could spark trade war. President Trump signed a memorandum in late April asking Commerce Secretary to prioritize the probe, which would result in higher tariffs for Chinese and other foreign steel firms. This was in party to help create an equal playing field for the U.S. steel Industry.   -Foreign firms are selling large quantities of steel in the US at prices that are far below the market price.   -Experts believe duties on foreign steel are more likely to hurt Europe, Canada and Japan, than of China.   -Canada has already been hit with tariffs on certain kinds of lumber, and the White House is also looking at new duties on aluminum and solar panels.   Ivanka sits in for Donald. In what was seen as a controversial move, the president’s daughter, Ivanka, took her father’s place in a meeting with the Chinese, Russian and Turkish presidents, the German Chancellor and the British Prime Minister.   -Bloomberg news agency says she had taken her father’s place on at least two occasions during Saturdays meeting, on both occurrences, she did not speak.   -The meeting was addressing the African migration and health issues, coordinating efforts to a fund that Trump and the World Bank had just announced.   Britain’s Next Trade Partners: Post Brexit -Britain has currently made free trade agreements with more than 50 countries, however; most of these countries are small and will not affect trade in the slightest.   -The big three that Britain hopes to secure deals with are the US, China, and India.   -Post-Brexit they will be able to open big farm products such as meat (beef and lamb) and fruits and vegetables (potatoes), to producers from outside European Union.   -UK beef exports are viewed as a global premium and currently, send large amounts of pork to China.   -For Britain, free trade with the rest of the world will be a very big issue, as this was one of the major points to them being prosperous outside of the EU.
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The Cryptocurrency World

What is a Cryptocurrency?   In the past, currency has been issued by governments and managed by financial institutions (banks), which are in turn regulated by the financial arm of the government (e.g., in the United States, the Federal Reserve System regulates banks). In other words, money has been inseparable from nation states and banks. We have historically placed our trust in these third parties to manage our money.  Now the rise of cryptocurrency is promising to separate currency from both nation states and banks.   By definition, cryptocurrency is a digital currency that relies on cryptography (the process of writing or reading secret codes) for security rather than established third parties (e.g., governments and banks). Because cryptocurrency takes the form of code rather than currency (e.g., coins and bills), the currency is impossible to counterfeit. Most importantly, because the currency theoretically belongs to no single person, business or government, it is also immune to outside interference.   Blockchain Technology   To understand how cryptocurrency works, it is important to understand blockchain technology. Simply put, if bitcoin is the train, blockchain is the rails on which it runs. While bitcoin is actual currency, blockchain is ledger technology that speeds up network transactions. As already noted, historically we’ve trusted governments and banks to manage our money. Now these trusted third parties are essentially being replaced by blockchain technologies.   Blockchain-based currency exchanges are managed by a distributed database (one with many connected computers based in many different locations). In theory, anyone trading blockchain currencies can see every transaction that has ever taken place in the blockchain, since all data is stored in the cloud. As such, all the accounting is autonomous (run by a network of computers and not by a centralized group of people).   Types of Cryptocurrencies   Bitcoin was the first digital currency to reach the market, and it has the highest market cap at close to $39.4 billion. Bitcoin is a popular currency for consumers and merchants who want to be free of banks and traditional finance. Other cryptocurrencies have made up ground in popularity and application use by speeding up the transaction period.   Ether is the currency of the decentralized network idea known as Ethereum. Smart contracts application has raised a lot of investment dollars from Fortune 500 companies: JP Morgan, Cisco, Thomson Reuters and UBS. Their investments backs the idea that Ethereum is currently the most versatile and sophisticated form of cryptocurrency. However, its pricing and market capitalization has been quite volatile as the price has moved from under $10 to $400 and back to $200, with a current market cap of $25 billion.   A slightly different technology to bitcoin in that it does not rely on mining protocol is a cryptocurrency named Ripple, with a market capitalization of around $7.4 billion. Ripple is both a transport protocol and a currency (XRP). Its main appeal has been its lighting-fast transaction, causing Ripple to gain popularity and establish partnerships with major Chinese Banks.     Government Regulations May Not Disappear   Although demand for cryptocurrencies is rising at a rapid rate, what digital currencies really need is government regulation. The word of the government, and acceptance of a currency for taxes, gives that currency value and, more importantly, instills investor confidence.   Even more desired by cryptocurrency investors is an exchange-traded fund (ETF). This would allow institutional investors to trade in bitcoin. So far, regulators are not accepting bitcoin ETFs; the SEC has rejected two applications for bitcoin-backed exchange-traded funds, the Winklevoss Bitcoin ETF and the SolidX Bitcoin Trust. The futures market may end up being another explorable option for cryptocurrency  investments. The Commodity Futures Trading Commission considers bitcoin a commodity. What’s more, according to Coindesk, an increasing number of governments are issuing guidance on bitcoin, for example, Japan, Jersey, Malta, Sweden, and Switzerland.   With no centralized authority and the ability of buyers and sellers to operate entirely under the radar, there are legitimate fears that in the future, cryptocurrencies will increasingly be used to support criminal activities, such as tax-evasion, money-laundering, and even the financing of terrorist activities. In some jurisdiction, such as New York State, legislators have already started to crack down on cryptocurrencies. The state’s Bitlicense requires virtual currencies to comply with most of the regulations already imposed on banks and other financial operators, including payday lenders. Other government bodies, including the European Union, are also currently working to place restrictions on cryptocurrencies, which they consider a threat to both financial and personal security.
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Where Do We Go From Here? U.S. Economy

I previously mentioned that the best way to analyze the U.S. economy was to look specifically at each category that comprises our gross domestic product (GDP.)   Consumer spending: Consumer spending growth requires two things: the ability to spend, which comes from jobs and wages, and the willingness to do so, which depends on confidence.   The number of jobs has continued to grow, albeit at a slowing rate. Although the decay in the job growth rate raises concerns about the future, based on historical trends, growth should continue through 2017. A growing number of employed people will enable spending to grow faster.   Beyond the number of people employed, wage growth also contributes to the ability to spend more. As the labor market tightens, wage growth should remain at current levels of between 2.5 percent and 3 percent, or it could increase. Overall, labor income growth, which includes both job growth and wage growth, has remained around 4 percent on a nominal basis, indicating that the ability to grow spending is there.   The second part of the equation—the willingness to spend—depends on consumer confidence, which is doing even better than income growth. Confidence has risen to levels last seen in 2001, and although it has pulled back a bit from the peak, it remains at levels that historically have led to faster spending growth.   Business Investment: Business investment had been a weak spot, but that started to change in early 2017. After languishing in negative territory in 2016, private investment growth has bounced back, in some cases, to levels not seen since before the financial crisis.   Government spending: What business gives, however, government is likely to take away. After supporting the economy in 2016, all levels of government have actually decreased spending in 2017. Although the decreases are small, the transformation of government from an economic tailwind to a headwind will hurt growth in 2017 as a whole. In fact, this was a major reason for the first-quarter slowdown. The decline is particularly damaging given expectations at the beginning of the year for fiscal stimulus, which has not happened.   Exports and imports: Exports and imports continue to expand. Over the past several years, imports have grown faster than exports, subtracting from economic growth. The most recent data, however, shows changes in trade in rough balance, taking this sector back to net zero from a negative in the second half of 2016. This should also help maintain economic growth.   Interest rate policy driven by stability The Fed is now saying—more clearly than in years past—that the risks of not raising rates are greater than those of raising them. So, expect continued slow increases, to 1.50–1.75 percent by the end of the year. Also, expect the Fed to start rolling off its asset base, not by selling but by lowering the reinvestment rate. Markets now largely expect continued policy tightening, so absent any surprises, the impact should be minimal, as it has been so far.   Financial markets supported by revenue and earnings growth A growing economy and a normalization of monetary policy mean global stock markets are likely to continue to trade on fundamentals, such as revenue and earnings growth. Here in the U.S., both revenue and earnings growth were greater than expected at the start of the year, a trend that should continue through 2017. Revenue growth, in particular, has been strong, at levels last seen in the immediate recovery from the financial crisis.  Strong revenue growth should also support growth in earnings, with the rest of 2017 expected to be quite strong.   All of these areas are still not without their risks. Whether it is data-driven, political or geo-political there are a number of items that I believe should be observed with a watchful eye and will be discussing soon.
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Technology Meets Finance: Budgeting in 2017

Before the marriage of technology and finance, many families in Indiana knew that maintaining a budget on paper was not always an easy task. Over-sized ledger books, somewhat legible writing and stacks of statements were all part of this unwieldly process.   Thankfully technology has helped create hundreds of budgeting and personal finance apps for adults. Most users today find the trouble is filtering through the app store and finding the best budget tool for their personal needs.  There are even a library of apps that can help parents talk and teach their children about money. Starting with the grownups, here are a few favorites:  
  1. Mint.com: Allows in-depth personal budget management and expense logging and lets you sync your bank and card details for an up-to-date and secure look at your financial state.
  1. Expensify: If you are a business traveler, you’ll love this handy app that allows you to manually track expenses, photolog receipts and import purchase info from your credit card for eReceipts.
  1. IOU Debt Manager: Now you can keep track of who owes you what or what you owe other people.
  1. PocketGuard: This all-in-one bank account tracking and budget management app shows you how much is in your account and what you can afford to spend for the day.
  1. Home Budget with Sync: Includes a neat Family Sharing feature that allows users to easily set a budget, and then sync income and expenses between multiple devices. Also contains charts and infographics.
  To get your kids used to the idea of handling money, there are apps that help them learn money skills. Money Apps For Kids You find seven different apps that use a smartphone to teach your children savings and budgeting lessons developed for different ages, from 5 and 6-up to 13+. For more information and financial tips, visit Midwest Wealth Management at www.midwest-wealth.com, or call us at 317-288-4989.
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Where do we go from here?

As we move into the second half of 2017, we find ourselves in a familiar place. Once again, as in 2016, we saw a weak first quarter and rising concerns that the economy was rolling over. And once again, we have seen stronger data in the second quarter, which should lead to another solid year for the economy and markets. Employment continues to grow, both consumers and businesses remain confident, and markets have responded by moving up around the world, even hitting new highs here in the U.S. The fundamentals remain sound from both an economic and a market standpoint, and at this point, it seems likely the rest of the year will show continued growth and market appreciation.   There are risks, of course, but they are more political than economic. Even the real political risks, however, have not been as damaging as feared. Both the French and British elections, for example, failed to derail markets, and the political turbulence here in the U.S. has not prevented markets from reaching new highs. Strong economic fundamentals have allowed us to sail through the political storms, and this should continue to be the case.   The big picture, then, is one of continued improvement through the rest of 2017. The economy should continue to grow, perhaps a bit faster than it did in 2016. Corporate revenue and earnings have increased by more than most analysts expected, and that trend is likely to continue as well. Add in high levels of consumer and business confidence, and financial markets are also likely to continue to rise.   The U.S. economy is still growing, but more slowly   The best way to analyze the U.S. economy is to go back to basics. Gross domestic product comprises consumer spending, business investment, government spending, and the net result of trade. We need to consider each separately and I look forward to elaborating on each in the weeks to follow.
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