Tough stuff from leading prognosticators in response to comments on Wednesday from Federal Reserve Chairman Ben Bernanke.
Granted, most aren’t known for their sunny optimism; but even for them it went beyond the pale. Jeffrey Gundlach doesn’t like bond alternatives; Bill Gross doesn’t like the Fed; Marc Faber doesn’t like Obama and Peter Schiff doesn’t like anybody. Judging from Wednesday’s and Thursday’s stock sell-off, they might be on to something.
The Dow Jones industrial average plunged 353 points, or 2.3%, to 14,758 points. The Dow has lost 560 points in the past two days, wiping out its gains from May and June. The Standard & Poor's 500 dropped 40 points, or 2.5%, and the Nasdaq fell 78 points, or 2.3%.
The lifeblood of America’s ailing economy—the Fed's emergency monetary infusion via quantitative easing—may be “anemic, oxygen-starved, or even leukemic,” bond king Bill Gross warned in his June missive to PIMCO shareholders. Things haven’t gotten any better since.
Gross (left) told Bloomberg on Wednesday he thought Bernanke "might be driving in a fog" and said of Vice Chairman Janet Yellin, “I think she is a Siamese twin in terms of policy."
Schiff, the outspoken president of Euro Pacific Capital, was asked by the Breakout website what Bernanke could have done that would please the legendary bomb thrower.
“He could have resigned,” Schiff (right) shot back. “He’s basing his forecast of an improving economy on a housing market that was only rising because the Fed was able to blow more air back into the bubble.”
Bernanke didn’t specifically mention tapering in Wednesday’s comments because he can’t, according to Schiff.
“He knows he can’t do it. If the Fed does not start buying more than $85 billion a month of mortgages, we could have mortgage rates back above 5% by the end of this year. This whole new mini-housing boom could then be a brand new bust.”
Dr. Doom himself, Faber, editor and publisher of the aptly named "Gloom, Boom & Doom Report," recently predicted the sell-off in Japanese equities. Now he has a warning for all investors about the U.S. markets, the Fed and the rest of the world, according to Talking Numbers.
“[The Fed] will talk without giving any precise answers,” Faber (left) said. “I think the bond market has already weakened significantly from the July 2012 lows, in terms of yield. If the Fed indicated that it would begin tapering, equities would be more vulnerable than bonds.”
When asked about riots in emerging markets recently, and whether that made U.S. securities safe, Faber offered a glimpse of the positive before reverting to his usual pessimism.
“Yes, I would not be overly negative about U.S. bonds,” he conceded, “but it’s a more complicated question for equities.
“If someone says Mr. Bernanke has stayed to long, my view is that Mr. Obama has done the same,” Faber added with flourish.
As for specific investment moves, DoubleLine Capital founder Gundlach (left) had harsh words for bond investors (recognizing he has a dog in the hunt).
"The basic viewpoint is that the financial markets, and certainly bond alternatives, are all balancing, somewhat precariously, on a very narrow base, which is zero interest rate policy,” he told CNBC. “Everybody is trying to find ways of getting yield and trying to find ways of avoiding a lousy asset class. They’re wrong, bonds are not a lousy asset class.”
The flight to bond alternatives—like dividend-paying stocks, mortgage REITs and master limited partnerships—“is going from the frying pan into the fire.”
“It’s really a fundamental mistake that investors are making,” Gundlach asserted. “They say ‘hey, I don’t want to own bonds because yields are too low, and that means that they must rise soon.’ But while bond have had modestly negative returns, these bond alternatives have had horrible returns. If the low interest rate premise is incorrect, these things will fall more than bonds.”
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Getty Images Answer: If your deductible is $500 now, increasing it to $1,000 can lower your premiums by up to 20 percent. Most insurers offer much higher deductibles, too, which is a popular strategy for people who have enough money in emergency funds to cover potential costs. Raising your deductible is a good way to reduce your premiums, and it makes you less likely to file small claims that could result in a rate hike. At Chubb, about half of the wealthiest customers choose a deductible of $10,000 to $50,000. "For homes here in Malibu that are valued at $10 million to $25 million, having a $25,000 deductible isn't out of the ordinary at all," says Derek Ross, president of Kulchin Ross Insurance Services, an independent agency in Tarzana, Calif. The higher the deductible, the bigger the premium savings. Let's say, for example, you have a policy with Fireman's Fund with a $1,000 deductible and a $3,000 annual premium. You'd save about 24 percent by boosting your deductible to $2,500, 37 percent by raising it to $5,000, 47 percent by raising it to $10,000 and 53 percent by raising it to $25,000. Compare the premium savings with the extra dollar amount at risk to make sure that boosting your deductible is worthwhile. You should file a claim only if it is at least several hundred dollars more than the deductible. "If your insurer raises your rate by 10 percent for three to five years after you have a claim, that could easily exceed the amount the insurer paid beyond the deductible," says Ross. Whatever deductible you choose, keep enough money in an emergency fund to self-insure up to the deductible -- or even a few hundred dollars more. The risk of self-insuring may not be as high as you think. The average person files a homeowners insurance claim only once every eight to 10 years, says Jeanne Salvatore of the Insurance Information Institute. You could take the money you save in premiums and add it to your emergency fund each year so that you're prepared when you do have a claim, recommends Ross. You could also use the extra money to boost your dwelling, property and liability coverage levels by tens of thousands of dollars. 
Getty Images President Obama's new budget proposal includes changing a couple of key inflation calculations to something called a "chained CPI." The shift is getting a lot of attention right now because of the expected effect it will have on individuals. There are two key places where a chained CPI -- short for consumer price index -- will have a direct impact on your pocketbook: income taxes and Social Security benefits. All else being equal, over time, your income taxes will be higher and your Social Security benefits will be lower than they are under current inflation calculations. The key difference between the chained CPI and the traditional consumer price index is how the index measures consumer behavior. The chained CPI assumes that as prices rise on one product, some portion of consumers will be willing to substitute less expensive alternatives for what they used to buy. That changes the product weightings used in the inflation calculation. By incorporating information from those new product weightings, the chained CPI typically produces a lower inflation level. Here's how it works. The Impact on Income Taxes If you pay income taxes, your tax bracket is determined by the amount of taxable income you make. The cutoffs for each bracket generally rise over time with inflation. The two charts below show the IRS "Schedule X" brackets for single taxpayers; the first is for 2012, and the second is what's currently expected for 2013: 
Chart for 2012 from the U.S. Internal Revenue Service 
Chart for 2013 from the U.S. Internal Revenue Service While the 39.6 percent tax rate is new for 2013, note that the other brackets have higher cutoffs for 2013 than they did for 2012. That's thanks to the inflation adjustment made to the tax brackets. If the law is changed so that the chained CPI is used, the tops of those brackets are expected to rise more slowly, exposing more of your income to higher tax rates than under current law. The Effect on Social Security Benefits Similarly, Social Security benefits are increased based on the inflation rate. By tying the payment increases to the chained CPI -- an inflation rate that grows more slowly than the current measure -- those benefit payments will grow less quickly as well. As a result, over time your Social Security checks will be smaller than they would have been under the old inflation calculation. The annual changes aren't too extreme -- they're estimated to be somewhere in the vicinity of 0.1 percent to 0.3 percent per year, depending on what the future brings. But over time, it adds up to real money for those who pay income taxes or receive Social Security checks, with official estimates in the neighborhood of $340 billion in higher taxes and lower costs over the next 10 years. Is It Better? Is It Fair? To some extent, the chained CPI is more effective at measuring the behavior changes that we all make whenever possible to save some cash. For example, if you've switched to generic medications whenever they're available, you're doing exactly what the chained CPI expects you to do. Likewise, if you started carpooling or taking the bus in response to higher gas prices, you're changing your behavior based on higher prices, just like the chained CPI projects. On the flip side, of course, not all costs are easily switchable, especially for the seniors who rely on Social Security. For instance, health care costs have been rising faster than the overall inflation rate for decades, and older folks generally have higher health care costs than younger ones do. As a result, the change to a chained CPI will very likely make the gap between income growth and health care spending growth even more painful for seniors on Social Security. The Big Picture Still, if slowing the rate of benefit increases puts off the day of reckoning for when the Social Security Trust Fund runs out of cash and slashes benefits by around 25 percent, it may be worth it. That date is currently estimated to be a mere 20 years away -- well within the expected life span of most current workers and even some early retirees. To make it worse, if the CBO's recent release on Social Security is any indication, the next Social Security Trustees' Report may even pull that date even closer. Given a choice between a slower rate of growth or a hard slash of 25 percent at some point in the not-too-distant future, neither option seems ideal. But still, a slower rate of growth is a lot less painful than waking up one day to find your sole source of income has shrunk by a quarter of its former value. 
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