MOODY'S REVIEW
AUGUST 2001
COMMENTARY ON INVESTMENT AND PLANNING ISSUES
ERROLD F. MOODY JR.
MASTER OF SCIENCE IN FINANCIAL PLANNING
LIFE AND DISABILITY INSURANCE ANALYST
REGISTERED INVESTMENT ADVISER
WWW.EFMOODY.COM
TAX CHEATS: Maybe friendlier, but this hurts all taxpayers who play fairly (NY Times) The Internal Revenue Service, its staff reduced by a sixth since 1992 and its mission shifted to customer service, has virtually stopped pursuing more than one million tax delinquents and has sharply curtailed other kinds of enforcement.
More than a third of the three million Americans who are behind on paying their taxes have had their cases sent to an inactive file since the I.R.S. decided in June 1999 not to try to collect their debts. For just last year, the decision effectively wrote off $2.5 billion in taxes owed by 668,018 taxpayers. In 1998, by contrast, just 98 taxpayers had their cases sent to the inactive file.
The IRS also said that decades of efforts to catch money launderers and other tax criminals using offshore accounts had not worked. A congressman indcated that fewer than 6,000 of more than 1.1 million offshore accounts and businesses were properly disclosed and therefore legal.
The United States loses $70 billion in taxes annually from such evasion -- "a figure so huge that if even half that amount were collected it would pay for a Medicare prescription drug program without raising anyone's taxes or cutting anyone's budget."
IPO's: (Thomson Financial) Of the 1,262 companies that went public from 1998 though the end of last year, the shares of 152, or 12%, can now be bought for less than a dollar and only a small fraction of the companies Wall Street took public over the last four years have been successes.
FAMILIES: This could add stability to our nation in the future if the results continue: The proportion of the nation's children living with both biological parents jumped from 51% in 1991 to 56% of 71.5 million children in 1996, according to Living Arrangements of Children.
GUNS: Gun deaths in the United States dropped more than 25% during the mid-1990s to the lowest level since 1966
ANNUITIES: 67% of annuity sales in 2000 were 1035 exchanges.
WORTH COMMITTING A CRIME: Medicare and the Social Security Administration pay as much as $831 million annually in illegal federal pension and health benefits to felons, fugitives, and the deceased, according to a report by the U.S. Senate Finance Committee (where many members are committing crimes anyway)
I prefer the company of peasants because they have not been educated sufficiently to reason incorrectly.
Michel de Montaigne
FINANCIAL PLANNING?: From an agent regarding whether firms are acting legally in California: "I spent time as an assistant at the 3 major firms, ML, SSB, & MSDW....they all do a "comprehensive" plan for a fee (though comprehensive is not quite the word to describe their boilerplate crap of a plan). This would mean that every single plan done by these firms qualifies as a misdemeanor. Is this correct?"
My reply, "The firms are committing fraud upon the public for not being properly licensed to offer comprehensive plans for a fee. Simple as that." You have to be registered as a Registered Investment Adviser and be licensed as a California Life and Disability Insurance Analyst. None will have the latter.
401(k)'s: (Spectrem Group on behalf of the National Defined Contribution Council) Combined investment growth for the nation's 401(k) plans was nearly unchanged last year compared to 1999, with most of the $2 billion increase to $1.7 trillion due to participant contributions and employer matching funds.
For all types of retirement plans, assets decreased 3 percent to $8.2 trillion.
2.4 million plan participants were added to the 401(k) market, bringing the total number of employees holding them to 37.1 million.
The average account balance was $49,160, up from $31,700 in 1994. However, the survey found most participants have at least one other savings vehicle, primarily an IRA. The survey found the average number of investments offered to 401(k) holders increased to an average of 9.1 investment vehicles per plan, a doubling since 1994. But the number of investment options actually chosen by the participants was only 3.4, a number that has changed little over the past eight years..
The NDCC is urging changes in the 26-year-old ERISA regulations that govern retirement plans, including a rescinding of an interpretation of ERISA by the Department of Labor that investment advice is a prohibited transaction.
Investment advice is necessary. But I don't' the DOL has a soul in the entire staff that would know the true definition of diversification, so getting a ruling from a bunch of incompetents is useless.
The survey also found that 16.1 percent of participants use the Internet as a source for their investment decisions, up from 14 percent in 1999 and 1.8 percent in 1994. The number of plan participants who obtained information about savings and investments through the Internet in the last six months of last year jumped to an astounding 28.3% of those surveyed.
Among Web sites of non-financial service providers used, Morningstar led the field with 11.7 percent of participants, followed by Yahoo, 6 percent, CNN, 3.3 percent, and the Motley Fool, 3.3 percent.
"Despite the explosion of tools and information, most 401(k)-type plan participants remain fundamentally unprepared to manage their retirement portfolios."
John Hancock
VARIABLE LIFE- Longtime readers know that I do NOT like variable life. Tough to understand and a whole mess of fees. Per the WSJ- Most consumers "don't have the foggiest notion of how they work and don't understand the array of charges,"(James Hunt, a life-insurance actuary with the Consumer Federation of America). Adds Joseph M. Belth, a professor emeritus of insurance at Indiana University: "The potential for litigation is ... extensive."
"One big worry of consumer advocates is that many policyholders may have calculated their ability to afford the premiums based on healthy stock-market returns in the investment accounts. If those returns don't materialize, these people might be unable to afford the insurance charges." Literally every policy was sold during a surging market- I doubt there is a variable product that has seen a down market. "It's OK to promise people certain financial performance based on less than complete information, as long as you exceed that performance, because no one cares," says John Zavez, an attorney with Adkins, Kelston & Zavez, P.C., a Boston firm that represented plaintiffs in the vanishing-premium class-action suits. "If the products start to underperform what they were represented to do, people are going to say, 'Wait a minute, I thought I could do no worse than the example.'
RETIREE HEALTH BENEFITS: (GAO) About 37% of early retirees and 26% of those over age 65 have some kind of health benefit through their former employers. Those numbers are down from the 1980s, when about 70% of early retirees had coverage.
MUTUAL FUNDS: There are over 12,000 total mutual funds and about 2% of funds were liquidated in 2000. The previous record was set in 1998, when 222 funds went down.
OPTIONS AND BANKRUPTCY: (NY Times) I was requested to comment on the use of options and why so many employees lost money as the market tanked. I replied, in part, with part of a NY Times article and some commentary.
From the NY Times- Mike Fitzgerald, the trustee overseeing Chapter 13 bankruptcy filings by individuals in the western district of Washington, estimated recently that he had seen 25 cases filed by Microsoft workers related to options. "These stock options looked so good that people lost track of what they were intended to do," he said. "They were a second-tier excuse for Microsoft instead of paying them a real salary. It's really a world of hurt."
But this is the real key- "One midlevel Microsoft employee said that a broker at Salomon Smith Barney, the firm hired by Microsoft to administer its option program told him to buy more on margin."
His tale and those of others who say they unknowingly took on risks raise questions about whether brokers have failed to live up to regulatory requirements, including the need to determine if an investment or strategy is suitable for a client. The brokerage firms profited from the interest on margin accounts, while investors suffered."
My point (obviously) being that this strategy was so clearly unsuitable that no one should have been allowed to margin the options without a detailed plan of offsetting the strategy if and when the stock should tank.
All this makes a mockery of "suitable investments". Solomon says they are not responsible since the employees had opportunities to seek out other financial advice. True- but EVERY SALE OF AN INVESTMENT MUST BE SUITABLE.
An employee noted, "Salomon, they said, did not fully explain the risks of margin. "They should have been a lot more forthcoming with the information," the programmer said. "We did not get into the stock market voluntarily. We were paid in stock and were forced into the stock market with stock options. We trusted our broker to have our best interests at heart."
Once again is another key element missed by everyone. The identification of a risk in using margin is "A" risk. They are just words. But one must take and make the investors clearly aware of "THE" risk to them. That's what suitability truly is. And the only way a broker can do that is to know the assets of the client and to prepare a WRITTEN report stating what is going on.
And we have the continuing problem of "trust". The Employees trusted their broker since they almost assuredly trusted the trusted management of the company to protect their interests. While the company could defend its positions by saying they are no longer a "paternalistic entity", they still had a fiduciary obligation to clearly identify the issues and risks involved.
Note- "Caroline Boren, a Microsoft spokeswoman, said the company had never tried to influence personal financial decisions of its employees.
"Microsoft cares deeply about its employees and wants them to be successful financially, even in a tough economic climate," Ms. Boren said. "The company makes it easy for employees to access and complete transactions regarding their stock options, but ultimately the decisions on how and when to utilize these benefits reside with the employee." (She has no idea what she is talking about.)
Microsoft hires people who have degrees in computer science- so they know what they are doing in the area. Then they are trained to do certain work and attend innumerable seminars to increase competency in that particular field. But Microsoft says that they will offer sophisticated products (options), which it does not understand save for the tax savings Microsoft (or whoever) gets, and leavs the HUGE risk exposure to employees who don't even know what diversification is. Microsoft has to suffer some of the losses. Management cannot shelter itself by indicating it was simply ignorant itself of the risks. If, in fact, it was ignorant of the risks, it was because it CHOSE to do so. Had they hired anyone truly independent and conversant in the field of securities application, it would have been clear in a heart beat the risk exposure and lack of sophistication by its employees.
"Lewis D. Lowenfels, an authority in securities law at Tolins & Lowenfels, a law firm in New York, said that the broker in this case might have run afoul of the suitability requirements of the National Association of Securities Dealers. "It does not appear to be suitable to take people with these limited means and to leverage them so that their entire net worth is at the mercy of fluctuations in the price of Microsoft stock"
But I bet if you talked to him, he could not even remotely tell you what diversification is by the numbers. (That's like interviewing a doctor who could not tell you about blood.) Lowenfels should also include that Microsoft (whoever) also ran afoul of suitability since it provided (supposedly) no education to the employees on how to use an option.
Also noted, "While employees receiving options typically have to sign a document to signify their acceptance of the plan's terms, as the programmer did, there is little regulation of such materials to ensure that the risks are clear. This contrasts with employee pension plans, which must disclose benefits and risks in plain English to employees, according to Christine Jolls, professor of law at the Harvard Law School."
Very valid point. And with a few billion dollars, I think Microsoft had the capability of hiring someone independent to help employees.
Further, "Options are a whole new form of employee benefit that has grown up relatively recently. "It does seem to be a new development in the employee relationship that the law hasn't focused on."
Wrong! Suitability has ALWAYS been referenced. She missed the point of suitability for any sale of ANY investment.
Lastly, this was valid, "Mr. McGurn said that the prospect of employees being forced into bankruptcy is an unforeseen consequence of the option boom. "We've given options to fairly financially unsophisticated individuals and to people who don't understand the risk inherent in them," he said. "You wouldn't allow these folks to invest in a hedge fund, but we allow them to make six-figure bets on stock options without the benefit of any independent financial advice."
GOING UP?: (InvesTech Research ) After the end of 13 bear markets dating back to the 1929 crash, the Standard & Poor's 500 index has risen 46% on average 12 months later. More proof: A year after the 1987 crash, stocks were up 21%. The painful 1973-74 bear, which slashed the value of stocks in half, was followed by a 38% gain.
MARGINS: (WSJ) During the height of the bull market, there was plenty of leverage at work, as investors borrowed heavily to pile into technology stocks. Margin debt hit a record $278.53 billion in March 2000, climbing 78% in just one year. But as a result of the subsequent steep declines in tech shares, and the demands from brokerage firms that customers put up additional cash or stock to offset declining share prices, margin debt fell to $186.87 billion in February.
When share prices were climbing, a emergency-room physician in Texas, didn't think twice about using borrowed money to buy an extra 400 or 500 shares of a technology stock he thought would quickly jump. But he stopped borrowing in June, after receiving several margin calls. "I will use margin again once the market starts forming a base," whose portfolio has fallen 60% in value from its highs. "But I won't be as cavalier about it."Actually, he should stick to curing people- he sure is out of his element about investing. But to the people in the business, dealing with doctors is tough since they think they know everything.
S&P 500: S&P 500 operating profits, which exclude taxes and one-time gains and charges, have grown 11.5% on average annually. From 1951 to 1991, the growth rate was just 7.1%.
"Most corporate managers appear not to have altered to any appreciable extent their long-standing optimism about the future returns from using new technology."
Alan Greenspan
LIFE INSURANCE ONLINE: Less than 2% of insurance is being bought online. Online retail trading in the brokerage community has grown to more than 30% of all transactions. 13% of deposits in U.S. institutions are being done online. Term insurance is relatively straight forward (that's actually a lie but most people think they know what they are doing when they buy it) but any other types are literally impossible for anyone to understand and certainly to provide the proper insight on the Internet.
"You shouldn't own an investment you don't like just to get even"
John Brennan
HALF AS MUCH?: In 1998, the average death benefit on men was nearly double that for women: $143,100 versus $76,000.
LTC: The number of United States residents covered by employer-sponsored insured long-term care insurance programs increased 19% in 2000, to 929,000, according to LIMRA International. But the number of employers offering LTC programs dropped 6% in 2000, to fewer than 3,800.
Hardening of the attitudes is the most deadly disease on the face of the earth.
Zig Ziglar
INTEREST RATE DROP AND THE MARKET: Since 1913, the Fed has lowered rates four times in a row 10 times. And nine of those times, the Dow Jones industrial average was up 35% on average 18 months later.
EARNINGS DECLINES (USA Today) The stock market actually produces its best gains when year-over-year profits fall. That's because stocks rebound in anticipation of better profits. The more earnings decline, the bigger the stock gains. When year-over-year profits have fallen 10% to 25%, stocks in the S&P 500 have posted average annual gains of 29%. When profits grow at a 20% clip, annual gains are just 1%
It is better to fail in originality than to succeed in imitation.
Herman Melville
MOMENTUM TECH?: (Steven Milunovich, NY Times) He did a study of revenue growth at technology companies going back 20 years. The results show how hard it is to maintain high growth rates for extended periods and indicate that it is difficult for tech companies to produce outsized growth even in nonconsecutive years.
Here are the numbers: Of the 1,800 technology companies in the study, only half were able to generate 30 percent compound revenue growth for any three of the years in the study. Only 28 percent could manage such growth for any five years, and just 7 percent for 10 years.
COMPANIES OFFERING RETIREMENT INFO (WSJ)
1998 2000
Phased retirement
Have 10% 14%
Are considering 3% 17%
Elder-care resource and referral
Have 27% 43%
Are considering 8% 17%
Long-term-care insurance
Have 17% 29%
Are considering 20% 29%
Sources: William M. Mercer/Bright Horizons Family Solutions
It is better to have a permanent income than to be fascinating.
Oscar Wilde
PEOPLE ARE A LOT MORE LOSS ADVERSE THAN RISK ADVERSE: "Hersh Shefrin, author of "Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing" (Harvard Business School Press, 1999), found that losses bother investors about two and a half times as much as an equal amount of gains pleases them."
That's why some allocations do not work. They supposedly want to accept risk but are apt to flee at the first sign of trouble.
REALLY BAD HEALTH PROBLEMS: Only 10% of Russian children can be considered genuinely healthy by the time they graduate from school
"I am confident that U.S. financial markets, which are the most innovative and efficient in the world, can readily adapt to a paydown of Treasury debt by creating private alternatives with many of the attributes that market participants value in Treasury securities."
Greenspan on the end of Treasury debt
DOWN: 1 in 4 stocks fell 50% or more last year. Yet only 1 in 200 mutual funds fell that far
BULLIES: Here is at least one reason why people stay angry as they get older- bullies. 33% of all kids grades 6- 10 are bullied. Such people are apt to suffer depression and low self esteem as adults. Some are also apt to go off the deep end and "off" somebody. Probably a reason for some road rage.
DISABILITY INSURANCE: 40% of workers do not have long term disability and 41% of those feel that what they have is inadequate. Analysts of the study note that most people feel that a disability will "never happen to them" and don't pay much attention to the benefit. As a planner, it is a "hard sell." It is expensive for one thing and almost impossible to understand on the other.
About 7.4 million disabled account for about 17% of all Social Security beneficiaries.
HISPANICS: If this group ever finds a solid leader, it could shake up the U.S. leadership and the world- A Census Bureau analysis of the 35.3 million Hispanics living in the USA shows that they are almost a decade younger than the rest of the U.S. population. The median age for Hispanics was 25.9 years, compared with 35.3 for the entire population.
DIVERSIFICATION: (WSJ) From 1966- 1982, a U.S.-only stock portfolio might have returned just over 7% a year and a globally diversified portfolio might have earned 8% annually, while inflation was 7%.
SUITABILITY: (WSJ) Unsuitable recommendations are now the fifth most common complaint to the SEC. The issue didn't even make the SEC's top-10 list for all of 2000. Complaints about misrepresentation, which top this year's first-quarter list of gripes, are up 28%. Many of those now complaining are retirees who say they wanted conservative investments, but instead wound up in technology stocks and other speculative securities.
The SEC says it could examine brokerage firms' records to see if there is a pattern of unsuitable recommendations and if there is, it could bring enforcement actions. Big joke. The SEC doesn't know what is suitable to begin with. It begins with a definitive definition of diversification. I don't think there is ONE attorney at the SEC that could provide that statement.
"Brokers must have reasonable grounds to believe the investments they recommend fit their clients' needs, financial situation, investment objectives and tolerance for risk. Suitability issues typically arise when brokers at full-service firms recommend investments to their clients."
What is missing is it talks about a tolerance for risk. Whose tolerance? The broker or the clients? A tolerance for risk by the client that is adverse to any rational investment criteria is not suitable. It's stupid. If a broker allows a trade that belies common sense- meaning diversification- it is in violation of suitability standards.
This was not pretty: (WSJ) The stock market had two "horrid" periods- 1929-54 and 1966-82. Over both stretches, the Dow Jones Industrial Average went nowhere. It wasn't until late 1954 that the industrial average finally got back to 1929's peak. Meanwhile, in mid-1982, the industrial average was still 22% below its early 1966 high.
Why is this here? It's not because I expect this market to do the same. But you always need to be prepared. Also, these figures can be deceiving since they did NOT include dividends. If you include them over the 1929-54 stretch, the S&P 500 gained an average of 6.2% a year. Looking at the 1966- 1982 period and the dividends yields a 5.1% annual return.
8/31/1929 to 11/30/ 1954 1/31/1966 to 7/31/1982
Large companies 6.2% 5.1%
Small companies 8.7 12.7
Intermediate bonds 3.0 6.2
Treasury bills 0.7 7.0
Inflation 1.7 7.0
Source: Ibbotson Associates
YOUNG DRUGS: (University of Maryland) The use of antidepressants soared among children and teenagers between 1988 and 1994, a study says. The study, which gathered data on 900,000 youths ages 2 to 19, found three- to fivefold increases over the seven-year span, based on data from two state Medicaid systems and a health maintenance organization. The sharp rise could reflect a needed increase after years of underrecognition and undertreatment of disorders.
THE BIG BOYS PLAY US FOR SUCKERS: There is grand jury testimony that, "in exchange for allocations of I.P.O.'s, several of the biggest investment banks demanded kickbacks of trading profits and commitments to buy more shares of the new stocks after the offerings. They contention is that investment banks manipulated the trading of I.P.O.'s by lining up commitments from investors to buy more shares at specific prices above the offering prices. That practice, known as laddering, would help to ensure that the price of a new stock would rise on its first day of trading, fueling demand from other investors who wanted a piece of a hot stock."
I am returning this otherwise good typing paper to you because someone has printed gibberish all over it and put your name at the top.
An English Professor, Ohio University
HEALTH CARE: (RAND and the U.S. Department of Veterans Affairs) Older patients in general, and particularly those who are African-American or poor or living in areas with a shortage of health professionals, often receive fewer medical services than necessary even though they are covered by Medicare.
ASSET ALLOCATION: From James Martin CFA in Bloomberg recently- "While I don't dismiss asset allocation, I do dismiss a mindless black box computer model trying to optimize what today's proper portfolio mix should be. Somehow by dumb luck, or perhaps divine blessing, I learned that the financial markets are nothing more than a confluence of human emotions. And no black box model, no matter how many variables are in its multivariate time series, will replicate and anticipate the collective mind of the market.
The problem is many advisers view asset allocation as a crutch- a substitute for hard work. Or perhaps they simply don't have the confidence in their decision making.
Wall street has done a great disservice selling the concept of asset allocation to the public along with the proliferation of thousands of redundant mutual funds. Mean variance optimization is a concept applicable only to institutions with indefinite life spans, not to individual with finite goals.
I argued that modern portfolio theory was an equally specious because its entire backbone was supported by the specious assumption that historical cross correlations between asset classes would hold and repeat. Even back then, they (professors) knew that correlations and betas were not stable. Hence, trying to build an optimal portfolio using numerous asset class is a lesson in futility. It is a constantly moving target.
So, we design asset allocation strategies based on needs and liquidity constraints, tax efficiency and that ever subjective "emotional risk tolerance". (But) people never get a true understanding of risk until after they have been through it. "
These comments are in direct correlation to the comments from Bill Jahnke, "Asset allocators view their primarily job as getting a client into an asset allocation solution and advising the client not to abandon the asset allocation solution in volatile markets. But if the fixed asset allocation solution is not right for the client and is inflexible in the face of changing economic opportunities, what is the service worth?
Asset allocators claim their advice is designed to benefit the client. But it appears that the advice is really designed to benefit the advisor; the investment process is simplified, and the business risk associated with managing the client's asset allocation is minimized. The asset allocator only needs to provide a package of marketing materials, educate the client on the rewards of diversification, administer the risk tolerance questionnaire, set up a "normal" asset allocation policy, collect the quarterly fee, and advise the client to "stay the course" in volatile markets.
CORRELATION: In1992, there was a 0.55 correlation between the U.S. and foreign funds. Now it said 0.84. Why? Among the best of reasons- U.S. corporations are doing more business abroad.
The correlation for REIT's versus the S&P 500 is 0.27 according to Micropal.
HERE'S A REVEALING SNAPSHOT OF S&P 500 PERFORMANCE FOLLOWING "NEGATIVE RETURN YEARS"
1977: -11.50% The following 3 years: +39.14%
1987: -9.73% The following 3 years: +33.43%
1990: -6.56% The following 3 years: +37.83%
1994: -1.54% The following 3 years: +85.38%
AIDS: Despite all the measures to keep the epidemic from increasing, it hasn't worked in the sub Saharan Africa. It actually grew in Botswana to 38.5%. The prevalence rate grew to 24.5% overall. About 4.7 million are infected with HIV in South Africa.
I don't believe that productivity is likely to grow at the very high rates witnessed over the previous five years. But I do believe the U.S. economy is capable of growing above the levels experienced during the 1970's and 1980's because businesses understand the importance of providing their employees with the technology needed to remain competitive in the marketplace.
Jack Guynn, FED Bank of Atlanta
AND ANOTHER HEDGE FUND BITES THE DUST. (NY Times) The Bowman Technology fund had declined 22% in 2001 and is now returning more than $1 billion in cash to investors. Hedge funds charge high fees because they are expected to do well in bear markets. Such funds often sell some stocks short, a bet that they will decline in value, to provide some insurance if the market declines.
Other funds take a more conservative position- "One popular style has been arbitrage, in which managers exploit price differences of similar securities, like a stock and its options. Though arbitrage can have its own pitfalls, such managers tend to emphasize steady returns over aggressive risk taking."
NURSING HOMES: (US News) In the past decade, there has been about a 10% decline in residency as people find more options. There are about 1.5 million people in homes over age 65. Assisted living cover about 800,000 (and about 40% of these facilities are in California, Florida and Pennsylvania.). 90% of these people pay out of pocket.
625,000 live in assisted care facilities. And tens of thousands live in adult foster care facilities and group homes. About 6 million still receive intensive care at home.
That last part needs expanding. Who do you think takes care of these 6 million elderly? Mostly women. And if you want this type of care in your home, consider the expensive option of home health care.
A continuing Care Facility average cost is about $110,000 PLUS average monthly fees of $2,000.
Average costs for a home health aids is $15 per hour.
MONEY: Of the $500 billion in U.S. currency in circulation, 50% to 70% is outside the United States.
FALLING DOWN: One in three Americans over the age of 65 will suffer a fall each year. The risk of falls increases with age. The annual incidence of falls increases to 50 percent in older adults over age 80.
3 percent of Americans over age 65 will have a severe fall.
1 percent of Americans over age 65 will fall and sustain a hip fracture (200,000).
Each year 10,000 deaths in older adults are attributed to falls.
Falls play a major role in 40 percent of nursing home admissions.
BROKER ADVICE: (NY Times) I have always thought of this as an oxymoron because brokers do not have any knowledge of the fundamentals of investing unless they have other classes AFTER the are licensed. So telling you how good a stock is, based on their own insight, seems ludicrous at best. However, this article talked about using the comments form analysts. It wasn't very encouraging. "According to Investors.com, a subscription service that developed a method of measuring the value of the advice of brokerage firms, following the recommendations of the major Wall Street firms would hardly have been profitable over the last four years -- and could have been quite costly."
"Since the start of 1997, only four of the biggest firms have had a positive overall return on the ratings they published on individual stocks. The best had a net gain of 7.6%; the worst a loss of 36%+.
This is somewhat indicative of how they work- Goldman, Sachs showed it followed Priceline in April 1999, when it sold for $104.44 a share and gave it a "strong buy" rating. Then it reiterated that rating a year later, after the stock had fallen more than 20 percent, to $80.25. The firm reiterated that "strong buy" five more times over the next six months as the stock sank to $20, (how is that possible unless you are stupid??) then finally gave in and downgraded it to "perform" in November when it was at $4.56. On May 1, when the stock had risen to $6.05, Goldman raised its rating to "outperform." Since then, it has slipped about 14 percent to $5.20."
And people pay for this advice. Bite me
INCOME RICH AND POOR (NY Times) the Congressional Budget Office found that the share of pretax income going to the top 20 percent of households rose to 53.2 percent in 1997 from 45.9 percent in 1979. In that period, the share of income going to the bottom 60 percent fell to 26.9 percent from 32.2 percent. For the bottom 20 percent, the share of income fell to 4 percent in 1997 from 5.3 percent in 1979.
Average pretax income for all households rose to $62,400 in 1997 from $48,500 in 1979, an increase of 28.7 percent. For the middle 20 percent, income rose to $45,100 from $41,400, a gain of 8.9 percent.
As they have earned more, upper- income households have assumed a larger share of total federal tax liabilities. The top 20 percent of households paid 64.7 percent of taxes in 1997, up from 57.1 percent in 1979.
The top 1 percent of households -- about one million of them -- paid 23 percent of total federal taxes in 1997, up from 15.5 percent in 1979.
The top 1 percent of households, representing 15.8 percent of pretax income, paid 32.9 percent of individual federal income taxes in 1997. In 1979, the top 1 percent, representing 9.3 percent of pretax income, paid 18.7 percent of income taxes.
The poorest households benefitted from changes in tax policy that reduced their tax bills and in many cases provided larger cash payments to working families through the earned-income tax credit. The share of tax payments of the bottom 20 percent of households declined to 1 percent in 1997 from 1.9 percent in 1979.
LONG TERM CARE STUDY FROM BRITAIN: More than a year after the Royal Commission on Long Term Care submitted its report to the Parliament of the United Kingdom, the government has still to respond to the principal majority recommendation that "the costs of care for those individuals who need it should be split between living costs, housing costs, and personal care. Personal care should be available after an assessment, according to need and paid for from general taxation: the rest should be subject to a co-payment according to means." "The common diseases of frail older people, which include strokes, heart failure, arthritis, and dementia, are difficult to treat but inexorably undermine the person's ability to care for his or her own body. This predicament erodes dignity, and dignity is part of health.
The provision of intimate personal care with skill and sensitivity can restore dignity and independence; it is the most important dimension of health care for those rendered frail and debilitated by chronic illness. Yet this type of care has been devalued, taken away from nurses, and redefined as social care which can be delivered by those who are poorly trained and even more poorly paid."
HMO LOSSES (NY Times) More health maintenance organizations will soon pull out of Medicare or curtail their participation. Medicare will increase payments to H.M.O.'s 2001, but costs are rising much faster. Many health plans say they have concluded that Medicare's managed-care program, in its current form, is not viable in the long run. In the last two years, H.M.O.'s have pulled out of more than 400 counties in at least 33 states, directly affecting 734,000 Medicare beneficiaries. The turmoil touched 1 of every 9 beneficiaries enrolled in managed care. About 6.2 million of the 39 million Medicare beneficiaries, or 16 %, are now in H.M.O.'s. Under Medicare, an H.M.O. gets a fixed amount of federal money for each beneficiary. Payments, set according to a complex statutory formula, vary by county, with many anomalies. Urban areas generally get more than rural areas, but some urban areas, like New York City and Miami, get much more than others, like Minneapolis or Portland, Ore.
Medicare pays $747 a month for a person living in Philadelphia, but only $422 for a resident of York County, Pa. That disparity is far greater than the difference in medical costs and helps explain why H.M.O.'s are pulling out of York County. Moreover, Medicare generally spends less on an H.M.O. patient than on a fee-for-service patient in the same locale, and the gap is growing.
There is NO budget surplus when you review Medicare, Medicaid and Social Security.
FRAUD AND VIATICAL SETTLEMENTS: The "perps" submit false information on life insurance applications in order to obtain coverage from various insurers, and then "warehouse" the policies for two years to satisfy the contestability period. The policies are then sold to viatical settlement providers, which then market the fraudulently-obtained policies to unsuspecting investors.
While the Viatical and Life Settlement Association (VLSAA) is supportive of strong regulatory action to combat fraud, the VLSAA is also demanding that insurance companies "adopt minimum underwriting requirements in all of their policies, including guaranteed and jet issue policies to help prevent fraud and to establish greater supervisory authority over the behavior and conduct of their agents."
But most recently, the Vermont Commissioner of Banking, Insurance, Securities, and Health Care Administration, Elizabeth R. Costle, ordered Florida-based Mutual Benefits Corporation (MBC) to cease and desist selling viatical settlements in Vermont.
MBC is the largest viatical provider in the U.S.
NURSING HOMES: By last summer, 12 percent of the 1.7 million nursing home beds were operating under Chapter 11 bankruptcy protection.
EQUITY: Equity- Low-down mortgages and home-equity loans have reduced the average amount of equity American homeowners have in their houses. Despite prosperity and rising home values, average home equity fell 2% from 1989 to 1999, according to a study prepared by Freddie Mac for the Consumer Federation of America
FASTER COVERAGE: New rules will cut the time required for an answer on coverage, now 90 days or more, to as few as 15 days. About 130 million Americans who get health insurance through private employers will be covered by the rules, which go into effect Jan. 1, 2002. The rules do not apply to government employees or patients who buy their own insurance (like me).
SICK LEAVE: Dr. Heymann found that 76 percent of poor working adults, aged 25 to 75 and in the bottom quarter of family incomes, did not have paid sick leave at least some time from 1990 to 1996. That included 45 percent who lacked paid sick leave the entire time. Among working adults not defined as poor, 55 percent lacked paid sick leave at least some of the time, including 24 percent who lacked it the entire time. Children tend to demand the most attention of workers accounting for 42 percent of workers' time off to provide care, compared with 15 percent to care for parents, 12 percent for spouses, 7 percent for grandchildren and 24 percent for other family members.
Demands to provide care increasingly conflicted with work. Forty-seven percent of lower-income and 41 percent of middle- income working adults said they provided one to four hours of unpaid assistance a month to elderly parents or in-laws. For workers in the top quarter of income, the figure was 27 percent.
EXERCISE: People who were physically active prior to their first heart attack had a 79% lower risk of death compared to those who were inactive before and after the attack. For those who at least became active AFTER the attack, they had a 89% lower risk of death and a 78% lower risk of another attack.
The most overlooked advantage to owning a computer is that if they foul up there's no law against wacking them around a little.
Porterfield
ASSISTED LIVING (NY Times) You need to know this since assisted living facilities are acceptable to LTC policies since they are less expensive. But they are not without their own problems. "Unlike nursing homes, which are federally regulated and offer 24-hour nursing care, assisted living facilities are overseen by the states, and both regulations and the services offered vary sharply. Residents generally pay out of their own pockets for room, board and other care, and the centers cater to more affluent people than typical nursing homes.
Financial analysts predicted that companies like Alterra would be reaping record profits this year as elderly people eager to avoid nursing homes flocked to assisted living. Instead, the industry's expansion has far exceeded demand, leaving a number of companies with mounting debt and tumbling stock prices.
Some health care experts now say the industry's financial strains may deepen. The industry had hoped to serve a healthier population, but it now appears to be attracting older, sicker residents.
And whether assisted living, nursing home care or even separate home health care, there is an intense competition in a market for low-paid, unskilled workers and means that there is a constant changing of staff. Alterra also has found itself at the center of a debate roiling the assisted living industry: How long can ill residents stay at such centers, and who will decide when these facilities can no longer care for them?
Companies in the industry say they will care even for terminally ill residents as long as possible but that they retain the right to discharge residents. In addition, some regulators have argued that those who need skilled nursing care should not be in assisted living facilities.