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The Independent Investor: The Culling of America
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As the death toll attributed to the coronavirus breached 100,000 in the Unites States this week, among the hardest hit Americans are those in the elderly population. The numbers simply illustrate what we all know. Eighty percent of the known fatalities were at least 65 years old. As such, the virus appears to be very good at selective slaughter.
As one of those who are most susceptible to dying from this virus, I have done a lot of soul searching over our future. Today, I will begin to share some of these thoughts. Aside from the human loss, for example, what potential impact will this pandemic have on health care costs in the future?
Today, according to the most recent statistics, firms and individuals spend between 10-15 percent of Gross Domestic Product on health care. While the elderly account for about 16 percent of the population, they represent over 35 percent of total health-care costs. Most of these people are oldsters like me. Statistically, they tend to be older and white, with 40 percent of those expenses accounted for by inpatient stays.
Part of the reason for this trend happens to be the large segment of the population that is now represented by Baby Boomers. One can assume that, as they age, their medical costs are going to escalate and grow to an increasing portion of the country's health care costs. That seems to be a no brainer.
However, one wonders how the ongoing pandemic will alter that equation. For example, if COVID-19 is here to stay (in one form or another), and continue to prey on the elderly, will the nation's health care costs go up or down? One's first thought would be up, but that may not be true. The coronavirus is an efficient killer. Victims either recover, or die fairly soon. There does not seem to be many cases where the victims linger on.
Why is this important? Because medical spending in the last year of life accounts for 16.8 percent of total costs for those over 65 years old. Just think of it — machines, specialists, MRIs, chemo, radiation, surgeries — the list goes on and on. It is even worse for those that make it over age 70. They can expect to see health care costs double from the ages of 70 to 90. Will death by virus alter that spending outcome? I think so.
I realize that's a pretty gruesome argument but one that is nonetheless realistic. I wonder if nature, in the form of this pandemic, is taking a hand in culling our human herd, and, if so, how does one avoid the slaughterhouse?
We know that those suffering from low immune systems, diabetes, cancer, and other ailments are highly susceptible to dying from this virus. In fact, the sicker you already are, the higher your risk. The silver lining in this crisis is obvious.
If we Baby Boomers ever needed a motivation to change our unhealthy ways, we have it now. How many of us fail even to do the most rudimentary exercises? We eat all the wrong things, and as a result, we number among the highest of all nations in obesity. In this country, fully 85 percent of us will die from chronic diseases, which could easily be avoided through exercise and diet. We know all of this and yet choose to ignore it.
Could this virus trigger a change in our collective psyche in regard to our health? Will exercising at home, wearing masks, eating healthier, and shunning fast food by necessity catch on? If elderly Americans start to perceive a life style change as a result of COVID-19, then just maybe there will be some good outcomes to this pandemic. What do you think?
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
The Independent Investor: Chinese Checkers
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If you are wondering why China is suddenly back in the news on various political and economic fronts, look no further than the November elections. America needs a scapegoat for all the pain and suffering we have endured during this pandemic. The world's second-largest economy is an easy target.
There is no dispute; if we want to cast blame on the country that originated the coronavirus, we know it originated in Wuhan, China. At the time, the World Health Organization, the U.S. Centers for Disease Control (CDC), the federal government, the White House, and the world at large, all applauded China's efforts to contain the virus. Back then (a few short months ago), President Trump actually applauded President Xi's efforts and said so many times publicly.
Since then, more than 5 million cases of COVID-19 and 330,000 deaths have been reported worldwide. Untold damage has been done to world economies. The United States, one of the worst-hit nations, has suffered massive unemployment and a big decline in economic growth that has led to our first recession in more than a decade. And all of this has occurred in an election year.
Whether warranted or not, President Trump and his administration have taken the lion's share of the blame for America's poor showing in combating the virus. A late and disorganized response, lack of medical equipment, and a continued paucity of testing, are some of the accusations directed at the White House. Donald Trump, however, believes that the best defense is a good offense. Who better to direct our angst and unhappiness at than China?
No never mind that Trump announced a "historic" but feeble trade agreement with that nation less than six months ago. Today, with Chinese promised purchases falling short as a result of their own virus-weakened economy, Trump is threatening to break the deal; but there is more.
Today, it's about preventing U.S. companies from doing business with Huawei Technologies, a Chinese leader in 5G technology for wireless networks. Last week, a new rule bars the Chinese company and its suppliers from using American technology and software. The escalation will hurt a number of American semiconductor companies that are already reeling from the present recession, but I am sure that somehow, someway, they will be compensated for their losses.
This week, the U.S. Senate voted (by unanimous consent) a bill that would expel Chinese companies from all U.S. stock exchanges if they continue to deny inspectors access to their accounting audits. The argument is that China has continued to ignore American demands that if they want to list their companies on an American exchange, they are required to submit to a U.S. audit and the Securities and Exchange Commission (SEC) will have access to those financials.
This bill, which will now go to the House, follows on the heels of an order by the president that the federal retirement board, called the Thrift Savings Plan, which invests retirees' stock portfolios, hold off on any new investment plans that might include buying Chinese companies, or any index funds that might include them in their offerings.
The estimated $4 billion in potential new investments, while small in comparison to the hundreds of billions in tax-deferred savings managed by the plan, is now off the table. The explanation for the move, provided by the White House, was that the national security and humanitarian risks of those investments were significant and violated U.S. sanctions rules.
I believe all of these actions appear to be an effort to refocus America's attention away from blaming those in charge for their COVID-19 response. They are doing so by escalating tensions and continuing the blame game, started three years ago, with what now appears to be America's number-one arch enemy, China.
Bill Schmick is now the 'Retired Investor.' After working in the financial services business for more than 40 years, Bill is paring back and focusing exclusively on writing about the financial markets, the needs of retired investors like himself, and how to make your last 30 years of your life your absolute best. You can reach him at billiams1948@gmail.com or leave a message at 413-347-2401.
The Independent Investor: Gold, the Bug, and You
If there was ever a time to flee to safety, the Pandemic of 2020 is a great excuse. Stocks tumbled, bounced back, tumbled again. The bond and credit markets have been in disarray. Yet, few have even mentioned the precious metals market as a place to be.
Even writing about gold in this age of Zooming, digital breakthroughs, 5G technology, and the like, seems anarchistic. The precious metal has been relegated to an obscure corner along with conspiracy theories, old warnings, and a small group of goldbugs who trot out "end of the world" warnings on down days in the stock markets.
You usually see these ads to buy gold every time stocks fall 10 percent or more. I imagine they do a good business, although by the time you get around to buying that coin or other investment, gold has already spiked so high that you are left holding the bag (or coin, as it were). I mean really, the theory that you should hold some of the metal just in case the world ends does not make any sense, unless you have it buried in your back yard.
If society did collapse, that gold you were holding in some bank vault would be inaccessible. The coins under your pillow would be stolen or worse since there would be no law and order anymore. Besides, there are better safety trades — U.S. Treasuries bonds and the U.S. dollar come to mind.
And gold is costly to hold. It pays no dividend, but there are charges to safely secure it, hold it in a vault, or whatever. These costs are based on the prevailing interest rates at the time.
The other argument is that gold works well in inflationary environments. Have you looked at the rate of inflation, lately? It has been around 2.5 percent, or lower, during the last decade or more and seems to be falling further in this recession. Plus, in this pandemic, the demand for gold jewelry by the global retail trade has also fallen off. That should be no surprise since demand for most luxury goods have been hit hard by COVID-19.
I believe I have outlined the bear case in gold fairly well. But riddle me this: gold has gained 25 percent since I last suggested that readers keep 2-5 percent of their assets in this precious metal?
That was back on Feb. 15, 2018. In the meantime, I took a look at the performance of the stock market during that same period. The S&P 500 Index, as of today, is up 1.79 percent in comparison.
Yes, despite all the naysayers and the ridicule that advocates of gold have endured throughout the past two years, gold seems to have been the place to be. Why, therefore, were all these so-smart investment advisors wrong? For one thing, they have little to no long-term investment experience. Most of them were in diapers back in the seventies and eighties when inflation was a very real and dangerous variable in the investment world.
The second, and even more important reason, is that they are having difficulty understanding the new world of practically zero interest rates, plus the impact of a tsunami of global monetary stimulus. The best they can do is watch the results of these trends play out and react accordingly.
Given the global financial environment, therefore, where does gold fit in? While inflation is dropping, and the dollar keeps climbing, the bond market vigilantes are betting that here in the United States interest rates are heading toward negative rates of return. For gold holders, that means the cost of holding an ounce of gold is expected to drop to at least zero, if not lower.
At the same time, as government deficits balloon, gross domestic product declines, and tax revenues fall, the need to keep interest rates abnormally low (just to manage the interest payments) becomes extremely important. In an environment like that, how long will it be before investors figure out that the dollar is vulnerable to weakness?
There is an inverse relationship between the U.S. dollar and the price of gold. Right now, however, because COVID-19 continues to rage throughout our country and the world, investors are buying both the greenback and gold. Once the fear subsides, and the pandemic hopefully subsides, the country could be left with a long, protracted recession, huge debt, and a weakening currency. In the past, when this happened in other countries and regions, the only answer for governments was to inflate their way out of this kind of predicament.
Whether that will happen here in the U.S., as well as around the world, is just one possibility among many. But the mere thought that this scenario could play out is enough to keep gold interesting. If I were you, I would hold on to that allocation I recommended.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
The Independent Investor: Workers face a serious dilemma
During the last week or two, the federal government has done an about face concerning the impact of the ongoing coronavirus pandemic. From the nightly exhortations to social distance, work at home, and expect more deaths, the message has now switched to go back to work, re-open the economy and, oh, about those deaths, expect even more.
The Trump White House has "officially" left it up to the governors of the states to set a timeline for reopening their economies, since it is illegal to do anything else. The guidelines advise that each state should monitor the number of new cases. Only when they see hard evidence that those cases have not only plateaued but started to descend, then it would be safe to consider a gradual re-opening of the economy.
However, that is not what is happening. Informally, the president is doing everything in his power to convince, cajole, and threaten states to reopen, regardless of the human toll. As such, the president has once again turned a national crisis into a partisan battle for supremacy.
As a result, many states (mostly with Republican governors beholden to the president) are ignoring the guidelines, even as coronavirus cases continue to increase in some of their states. And while state residents are supposed to continue to socially distance, wear masks and follow other guidelines, many are not only ignoring those restrictions but are actively protesting against them.
While large and small businesses alike lobby to open, the labor force is expected to toe the line and show up for work. If workers, afraid for their health, balk at these orders there will be hell to pay. Aside from the threat of being laid off permanently, the states and companies have other means at their disposal.
Technically, if the state governments, for example, no longer consider the pandemic as a reason to claim unemployment, two things could happen. Workers would be unable to file for unemployment. Companies could also suspend health insurance benefits at the same time. Cruel, but effective. In addition, there is an added benefit to the politicians. The unemployment rate would come down, because those workers who refused to go back to work would not be "officially" counted as unemployed and would be taken off the jobless rolls.
From the administration's point of view, with just six months left to the election, the economy needs be on the mend by then, and unemployment dropping. However, over the last several days, many areas of the country continue to experience both a rise in COVID-19 cases and a higher death count. Given those facts, the political and economic argument has necessarily had to change from "things are getting better, so re-open" to "sacrifices must be made just like in any war."
The issue for workers is that they are on the front line. Reported cases of virus-infected employees at various "essential" businesses such as Walmart, Amazon, and several meat processing plants throughout the country, make the danger all too apparent. What is worse, few of these establishments have done much, if anything, to attempt to safeguard returning workers from catching the virus.
What makes the situation even worse is the continued lack of testing throughout the country. Not only does that dilemma understate the number of cases/deaths attributed to COVID-19 but leaves workers completely at the mercy of whomever walks through their doors. This lack of testing has already led to multiple cases of the virus in some stores, plants, and other companies, especially where workers are packed together.
And yet, as the government ignores its own medical experts, and urges businesses and workers to return to work, is there any recourse? Out of work, worried about how to support their families, it appears laborers will be forced "to do," and maybe die, or at least get real sick as a result.
I suspect that if this scenario does play out, lawyers will be busy from here to eternity as individual employees and worker class action lawsuits proliferate. Of course, as a next step, the government could rule that companies in this situation would be held harmless. That sort of legislation is being discussed presently. If so, workers may have no recourse at all.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
The Independent Investor: If You Are Laid Off, Read This
As of the end of April, more than 30 million Americans have joined the ranks of the unemployed. Companies have closed, while the pandemic has forced many employees to remain at home. If you are one of the jobless victims of this pandemic, here is some advice on your next steps you might take.
First off, do not panic. If there was ever a time for this to happen, it is now. The federal government has provided you with a list of additional benefits that can help you through this unfortunate period. But the first things you want to know is will there be a severance package? If there is, the amount of money you receive will most likely be determined on your length of employment. It may also come with other benefits.
You may be owed for accrued sick time, vacations, overtime, or back pay. The most important item on your list, however, is continued health-care insurance, especially during this pandemic. COBRA (Consolidated Omnibus Budget Reconciliation Act) gives you the option to continue on your company's health care plan for a limited period of time.
Your next step is to determine the guidelines in any tax-deferred savings or pension plans you may have contributed to through the years. If, for example, you are a member of a defined benefit plan, your benefits probably begin at retirement age. In the meantime, you might be able to roll that plan over into another.
Most companies offer a 401(k) plan, profit-sharing plan or something similar. In which case you can keep it there, at least until you find a new job and then you can roll it over to your new company's plan. You can cash out, but that is something I do not recommend without discussing with an investment advisor. You can also roll your plan into another tax-deferred vehicle, like an Individual Retirement Account.
Your next step is to file for unemployment. The good news is that the government has added an additional $600 to your weekly compensation up until the end of July 2020. They also extended the number of weeks you are eligible for unemployment from 26 weeks to 39 weeks.
If your company shuts down unexpectedly, it may be that some employees will need to tap their savings plans in order to cover expenses while they seek new employment. That kind of disaster has hit home to me personally this week. Our firm is fairly close to a beautiful little town called North Adams in Massachusetts. North Adams' claim to fame is that it is the home to the Crane Stationery Company, established in 1801 by the Crane family. The Crane Family later moved into printing currency for the U.S. mint.
This week Crane Stationery announced that they will be laying off 85 percent of their workforce. The company promised to pay its employees up until June 19 and will continue to cover its share of group health care benefits through to the end of June. The news was a devastating blow to both the workers and the community. Crane was one of the top employers in the town.
We at Berkshire Money Management will be opening our doors to all and any of the company's employees who are in need of financial advice for the foreseeable future. So, if you are an employee or know of one, please contact me and our team will do all we can to help.
In the meantime, I thought it might be appropriate as the national employment rate tops 20 percent, to once again review the elements provided by the CARE Act as it relates to withdrawals from your 401(k). Normally, if you need money from a retirement account, and you are under 59 1/2 years old, you are required to pay a 10 percent penalty, plus the income tax owed on your withdrawal. There are some exceptions to the rule and the CARES Act just added a big one. The federal government just eliminated that 10 percent penalty for any distributions from IRAs, employer-sponsored retirement plans, or a combination of both.
Individuals can withdraw up to $100,000 in 2020, as long as the withdrawal is "Coronavirus-related." That definition leaves plenty of room for interpretation. If you or a spouse or dependent have been diagnosed with the virus, you qualify. If you or your family have been hurt financially by COVID-19 as a result of being laid off, quarantined, or having reduced working hours, you qualify.
There is even better news. Let's say you take out the money, which you will need to tide you over for the next nine months. After that, the economy begins to revive. You get your old job back. If so, the government is allowing you to repay or roll the money you borrowed back into your retirement account. You will have three years to do so. You can return all, or part of what you took out and repay it in a single lump sum, or in multiple repayments. You will still need to pay regular taxes on whatever you take out this year, but the entire tax bill does not have to be paid in 2020.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
