Janet Yellen just launched a nuclear missile into the heart of Social Security.
You see, the Federal Reserve announced a 25 basis-point increase in the fed funds rate last Wednesday.[ad#Google Adsense 336×280-IA]At the same time, she made known the Fed’s intention to raise interest rates at least two more times in 2017.
Now, by all accounts, the Fed’s actions were correct.
The Fed is roughly 300 basis points behind the curve on interest rates.
And should the economy enter another recession, the Fed would have no ammunition with which to fight an economic downturn if rates were kept at these lows. Yellen simply had no choice.
But at the same time, this increases the unfunded liabilities of Social Security by trillions. That means Social Security’s troubles will show up much sooner than the trustees’ estimate of 2033.
Rising Interest Rates Are Bad News For Social Security
The U.S. government decided a long time ago to use non-marketable Treasury bonds to replace the cash Congress removed from Social Security. Adding insult to injury, these phony bonds pay phantom interest back to Social Security.
So when Social Security went into deficit spending in 2010, some of the interest generated by the trust fund was needed to offset Social Security’s shortfall. But the problem is that phantom interest isn’t real — it can’t buy anything.
To remedy this issue, the Treasury sold real bonds to raise cash to pay the interest on the money Congress stole. In other words, the viability of Social Security relies on the ability of the Treasury to sell future bonds.
But that’s not even the worst of it. The Treasury not only has to sell bonds to pay the interest owed to Social Security, but it must also sell bonds to repay the principal amount of the phony bonds themselves. And if interest rates spike or global buyers become wary of buying U.S. bonds, spending on Social Security will balloon well beyond the government’s ability to stay solvent.
A 5% increase in interest rates will grow the national debt from today’s nearly $20 trillion to roughly $94 trillion by 2036 — a $75 trillion increase in just 20 years. To put such a fantastic number in context, every American’s share of the national debt would rise by almost $700,000. And that’s in addition to the $160,000 each American already owes in 2017.
Will Your Kids Retire?
Because it’s too late to reform Social Security in any meaningful way, the future is bleak for our children and grandchildren. If future generations want to have any hope of enjoying their golden years, they’ll have to pay for it themselves.
But that isn’t as big a task as it sounds. All you really need is a few long-term wins on high-growth technology stocks. Take one of my favorite long-term companies, Universal Display Corporation (Nasdaq: OLED), for instance.
In the future, smartphones, tablets, and televisions will be much lighter, stronger, and more compact. In fact, you’ll be able to roll-up your television like a poster and carry it with you to school or work. Universal Display is the innovator behind these trends.
To be clear, Universal Display isn’t some new company without a track record. They’ve been around for more than three decades and have a well-established record of innovation and profitability. Best of all, the company owns or licenses more than 4,200 patents.
But their most exciting technology is in the area of flexible organic light emitting diodes (FOLEDs). Here, the company embeds small diodes onto plastic or metallic substrates (ultra-thin wafers) that are much thinner and lighter than current liquid-crystal display (LCD) screens. And because they are made of ultra-thin plastics, metals, and organic compounds, they will be flexible enough to weave into fabrics that can conform to different types of surfaces.
The possibilities of FOLED technology are endless. Flexible lighting can be used in wearable electronics, woven into clothing and even turned into three-dimensional screens. The technology also will result in low-cost mass production and allow for a greater diversity of display products.
LG Displays estimates that the fledgling FOLED industry will surpass $41 billion by 2020. Because Universal Display is the industry leader, we expect it to conservatively take at least 30% share of the FOLED market. That will translate to higher earnings, and with them a higher stock price.
If this is correct, the company will see revenues from its FOLED technology reach at least $16.4 billion by 2020. Of course, this completely ignores the company’s advances in other areas.
Now, applying a margin similar to other companies licensing their technology to others should result in more than $6 billion flowing to OLED’s bottom line which could easily drive returns of 500% to 1,000%.
Risks To Consider: The stock has been driven higher recently by better-than-expected results and outlook. While we expect the shares to go higher from here, a slight temporary pullback could occur. Given those risks, buy shares of OLED on the dips.
Action To Take: Buy shares of OLED on price dips up to $87. Set your stop-loss at 50%. Mitigate your risk by using no more than 1-2% of your portfolio to OLED. My recommended holding period is five years.
— Richard Robinson
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Source: Street Authority