MOODY'S REVIEW
JANUARY 1999
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
GLOBAL INVESTING: Individual Investor had an article that commented about going global. They note that some single countries have done better than the S&P 500- France and Germany both up 48% for the first six months of the year. Finland was up 72% and Greece up 91%. But I remember the same numbers spewed about when Russia was over 100%. Even before that was Japan- and "obviously" it could never go down. My point is that you can always find something someplace that has a higher return. But you MUST address the much higher (almost universally) risk- which many people do not do. That is not to say you might not consider some foreign investments, but you need to do your homework to find out country is inside a fund. Remember, the most solid economy is the U.S. and as long as Greenspan is around, it should remain valid.
INVESTMENT TWITS: (Individual Investor) The president of the National Association of Investment Professionals said that "while the long term trend has shown that buy and hold works best, during this volatile market rapid trading can work". (Where do they get these twits??) Anyway, the article goes on to note the study by Terrence O'dean and Brad Barber at UC Davis who reviewed the accounts of 60,000 traders and clearly noted that frequent traders made less money than those who did a buy and hold. From 1991 to 1996 the value weighted index returned 17.1% annually- but that the average investor did 15.3%. More notable was the fact that the most active traders earned just 10.0%. They were turning over 9.6% of their investments monthly. "It's quite clear that the people who are trading a lot are ending up worse off," said O'Dean. And of course the men did worse (1.4% less than women) since they traded 45% more than women. Single men- the most aggressive- traded 65% more than single women and returned 2.3% less.
O'Dean has previously stated that most individual traders are overconfident. He noted that the recent market major gains were in larger cap stocks while the traders tended to generally buy and sell smaller cap stocks- hence missing most of the gains. They also underestimated trading costs. And it just wasn't the commissions- you have to account for the difference between the bid and asked prices. (These can be fairly large on small cap stocks.)
Another analyst noted that such traders went in and out of stock and did not review the financial statements. (I'll make one note here- most people couldn't analyze a financial statement correctly if their life depended on it. And that includes myself! You have no idea how difficult it is.) They just think they know what they are doing since "they have had three years of 30% returns. And that they fail to diversify.
Lastly a psychologist said that "people think that if they are smart and apply themselves, they can be good stock traders. But too many amateurs investors confuse information with knowledge and knowledge with wisdom. You have to do what you are comfortable doing, but only if it works." Most don't have a clue
ASPIRIN: (Proceedings of the National Academy of Sciences) Aspirin may significantly suppress genetic mutations that lead to some severe types of colon cancer.
RECESSION?: (Center for Economics
and Business Research) Britain will come perilously close to recession in
1999 with at least one quarter of negative growth. How they EURO might impact
Britain and the rest of Europe we shall soon see.
TECHNOLOGY: (International Data Corp) Western Europe is facing a growing shortage of workers with information technology skills, a situation that could lead to exorbitant prices and deferred projects. The skills gap will leave the equivalent of around 510,000 full-time jobs unfilled at the end of 1998, a figure that could grow to 1.6 million by 2002.
That might provide more opportunities for U.S.
corporations
DYING COSTS: The National Funeral Directors Association says that the average funeral is $4,782 excluding the vault, cemetery plot, market and some miscellaneous items. According to the Cremation Association of North America, the average cremation is $1,200.
Cryogenic Suspension- $35,000 (33,000 head only)
Long term Cryogenic Storage- $100,000; $85,000 with small patient discount
EXPERT WITNESS: I was retained to provide expert witness arbitration testimony for a retired teacher who, per the advice of a trusted broker, bought limited partnerships including an airline startup and other associated illiquid investments. Lost over $100,000. But what I found most distressing is her use of the same reason and rationale why people fail so miserably in finances, retirement, long term care, insurance, etc. She noted she had been referred to this broker and he was very personable. GROW UP FOLKS! You never use a referral in the finance business. You have got to do some homework. For example, do you know that brokers are not taught any of the fundamentals of investing as part of the NASD/SEC exams? Ask any one of them how many stocks do you have to have in a portfolio in order to insulate it from unsystematic risk? If they don't know that, then you have a stupid broker. And if you should buy and sell stuff yourself without acknowledging that fundamental of investing, you are also probably stupid. Why the tirade??? This retired librarian will still be out over $50,000 regardless of the outcome of the arbitration (they rarely give all back.) Add in the emotional stress at her age and it reaches astronomical proportions and certainly at a time in her life when she can least accept it. But she would never seek someone like me because her friends, co-workers- and particularly the financial press- say that investing is easy and just read an article in Worth or Money or just call up a "trusted" friend/broker.
There are hundreds of thousands of people in the U.S. in the same situation. While they may not lose as much as the above client, I submit that their finances are truly in tatters through the use of agents with limited knowledge. Certainly some of the investments may work- but at a much higher risk level. And it usually has the same focus for any insurance they might have purchased. They probably are not covered as well as they should be and invariably bought the wrong (and more expensive) types because they trusted an agent who merely had the requirements of licensing.
No, I do not talk to clients directly this way. But I need to make a point with you so that you can make the point with your parents, grandparents or children. YOU MUST DO A LOT MORE HOMEWORK TO PROTECT YOURSELF. READ, READ, READ!!!
I'M SO LONELY: Marry me now. Business Week noted that married men on average earn from 10% to 20% more than singles.
The true Hypocrite is the one who ceases to perceive his deception, the one who lies with sincerity.
Andre Gide
INEQUITIES: Mentioned previously, not all people have shared in the bull market. The wealthiest 10% of Americans got 85% of the gains. The rest of America got the other 15%. In fact, just 29% of Americans own stock worth more than $5,000 (Ed Wolff). The middle fifth have watched their stock holdings double- but only from $4,000 in 1989 to $8,000 in 1997. Those in the bottom fifth own just $1,600. It simply reinforces my commentary that there will be a major social unrest between the haves and have nots the likes of which America has never seen by 2010.
PROSTATE CANCER: Prostate cancer is the most common nonskin cancer among men. Of cancers overall, only lung cancer kills more men. New cases expected 1998- 184,500 and expected deaths- 39,200.
LONG TERM CARE: (Health Care Financing Administration) Total expenditures for nursing home care are projected by the Health Care Financing Administration (HCFA) to grow 70% from 1998 to 2007 ($87 billion to $148 billion). However, Out-of-Pocket payments are projected to grow 87% ($25 billion to $47 billion). While Medicaid payments for nursing home care are projected to grow 55% during this period ($41 billion to $63 billion), payments from private health insurance are projected to grow the most: from $5 billion to $11 billion (127%).
Home health care will grow more in expenditures: 100% between 1998 and 2007 ($33 billion to $66 billion). Out-of-pocket payments for home health care will soar to 150% ($7 billion to $17 billion), while Medicare's costs, now the major payer, will grow only 70% ($14 billion to $23 billion). Payments from private health insurance are projected to grow 140% ($4 billion to $9 billion). Medicaid's costs for home care are projected to grow 140% also, from $5 billion to $12 billion.
Total national health care expenditures are projected to grow 86% ($1,146.8 billion to $2,133.3 billion) between 1998 and 2007.
LIFE INSURANCE: Nationwide Life of Vermont will pay about $100 million in a class-action suit involving the performance of individual whole life, universal life and variable universal life policies it issued from 1982 through 1997. So why did most of those policyholders get conned? Because they bought life insurance from a life insurance agent. You never buy life insurance from a life insurance agent. And you don't buy stocks from a stockbroker. And you don't do financial planning with a financial planner- even a CFP or ChFC- in any metropolitan area in the United States. If you don't know why, you better go to my Internet site. The absolute confirmation resides there.
AND HERE IS PART OF THE PROBLEM: A survey by Fidelity Investments noted that "Americans spend twice as much time on average evaluating major purchases, such as a car or computer, than they do researching their financial investments." Other survey results: only 29% understand the primary reason the stock market goes up, only about half understand basic asset allocation and only 20% reported feeling particularly knowledgeable about investing.
HEART DISEASE: Fewer Americans are dying each year from heart disease, but the number of people suffering first heart attacks has held steady or even increased since 1987. Apparently the prevention of heart attacks- through a healthier lifestyle- is not being addressed by citizens. Heart disease remains the #1 killer in the U.S.
GET MAD: (Psychosomatic Medicine) Middle aged women who suppress their anger are more apt to have heart problems after age 60.
ESTROGEN AND CANCER: An international team reviewed 18 different studies of women on the hormone therapy and found women currently taking estrogen had up to a 34% reduction in colorectal cancer rates compared with women the same age who had never used hormones.
WOMEN AND VITAMINS: The Annals of Internal Medicine, found that women who took multivitamins for at least 15 years cut their colon cancer risk 75%.
CRUNCHY VEGETABLES: According to the journal Cancer, 25% of the vegetables consumed by Americans are french fries. Add in a Burger King Whopper to provide the daily requirement of salt and you have a most nutritious diet.
"The nice thing about being a celebrity is that when you bore people, they think it's their fault."
Henry Kissinger
LOU GEHRIG'S DISEASE/SUICIDE: Doctors from the Oregon Health Sciences University in Portland surveyed 100 victims of Lou Gehrig's disease in Oregon and Washington state. More than half said they would consider assisted suicide. Lou Gehrig's disease -- or amyotrophic lateral sclerosis -- is a progressively fatal illness that eventually leaves victims unable to speak, swallow or move.
LONG TERM CARE POLICIES: Health Insurance Association of America Average stated that "premiums for private long-term care insurance dropped approximately 5% between 1995 and 1996. The number of long-term care policies sold between 1995 and 1996 rose by more than 600,000 - the largest number of policies ever sold in one year. Additionally, in 1996, 10 of the 12 leading sellers of private long-term care insurance waived pre-existing condition limitations, so long as pertinent medical conditions were disclosed when a consumer applied for coverage."
Almost "5 million private long-term care insurance policies were sold as of December 31, 1996. While most sales were in the individual market, employer-sponsored long-term care insurance accounted for nearly 20 percent of all sales in 1996. The average annual premium for individual policies containing a $100 a day nursing home benefit/$50 a day home health care benefit, four years of coverage, and a 20-day elimination period (deductible) was $247 at age 40. At age 50, the premium for the same policy was $364; at age 65, $980; and at age 79, $3,907. The same policy with a 5% compounded inflation feature had an average annual premium of $589 at age 40, $802 at age 50, $1,829 at age 65, and $5,592 at age 79.
Meanwhile, the average annual cost of a nursing home stay is more than $40,000.
The cumulative number of policies sold in the employer-sponsored market has grown to 650,000 - an average annual growth rate of 47% since 1987. The number of employer-sponsored plans grew to 1,532 in 1996 from 1,260 in 1995. Nearly 52 % of all employers offering coverage were small businesses with 100 or fewer employees.
The top 10 states with the largest number of sales, in descending order, are Florida, California, Pennsylvania, Illinois, Texas, Ohio, Washington, Iowa, Missouri, and Michigan.
The states with the greatest percentage of market penetration (15% of the population or more, based upon the number of policies sold and the number of state residents aged 65 and older) are Iowa, Montana, Nebraska, North Dakota, South Dakota, and Washington."
SECURITIES JOKE: The SEC is saying that it is cracking down on Internet stock fraud. Most of it has occurred with penny stock to a bunch of gullible, greedy stupid "investors". An Orange CA county firm bilked "investors" out of $4 million. A Florida company used a pyramid scheme to get 350 "investors" in 16 states to give them $15 million. And it goes on.
So why do I say joke? Because if they were truly interested in stopping fraud, they, at a very minimum, would require brokers to know the fundamentals of investing before ever allowing them to sell anything. And they would do more to get arbitrators knowledgeable in the fundamentals. And they would do more in making sure investors were at least aware of some fundamentals. But they will NOT do that- though I have tried and tried. Basically I was told that increased knowledge would slow/decrease sales (though true) and the good old boys would never allow that. So you have them trying various suits after the fact. Sorry, that's a fraud upon the public.
"The most overlooked advantage to owning a computer is that if they foul up there's no law against whacking them around a little."
Porterfield
OBRA: Federal law (OBRA '93) requires states to implement estate recovery programs to recoup Medicaid monies spent on providing long-term care. A recent case in Idaho tightens the state's ability to receive funds after a spouse's death. Mr. A transferred $40,000 of community property to Mrs. A as separate property. Mr. A died and then Mrs. A later. The state went after the $40,000 and was successful. While many states have not implemented strong policies for recovery of money, most will have to do so in the immediate future since Medicaid and Medicare costs for home health care have risen astronomically. Further, you do not want to die under Medicaid care if you can financially avoid it.
MEDICARE and MEDICAID: Benefit payments have increased by 44% in the last 5 years to $315 billion in 1998. There's all your supposed budget surplus, folks!!!) While their budget has remained relatively flat, it's manpower actually decreased from 4,272 to 3,942.
Last I checked, the average five-star fund kept its five-star rating for a grand total of five or six months.
Jason Zweig
MARKET TIMING: I receive Emails from a market timing service. I have gotten a lot lately because of the market turbulence. So does it work? Of course- but you have to recognize the limits. For example, the service says that his fund timing selections have beaten the averages- except for the U.S. Well, that's not impressive cause the U.S. is where the bulk of your money should have been. Further, to say you beat the Morgan Stanley EAFE doesn't say that much since almost all analysts would NOT have money in Japan. Lastly, there is always some timing that works for a specified period of time- 1 month, one year and so on. But on an ongoing basis, and certainly when you consider costs and taxes, it is normally a fool's game. Add in all the time you spend trying to outproduce the market and you won't have a life. Remember, the "best" minds in the business had all these hedge funds that the government bailed out. Nobody is going to bail you out.
CAR TITLE LOAN: While readers at this site would not seem to be the people caught in this problem, I thought you should be aware of a very large "scam" for people who need money and can least afford this "loan". From Debt Counselors of America: "A typical title loan company lends money in the following way. You bring your car title to the lender. There is no credit check, but you must own your car outright. The lender determines how much money you can borrow based on the value of your car-you usually can borrow less than half of the wholesale book value of your car. You sign the title to your car over to the lender, give a set of duplicate car keys, and sign a contract agreeing to pay around 22% interest PER MONTH (which equals 264% per year!) until you pay off the original amount. If you borrow $500, for instance, one month later you can owe $610 ($110 in interest). The loan can revolve each month as long as you need it to, as long as you keep paying the monthly interest. The longer you take to pay off the loan, the more the title lender makes off of the loan. For example, if you take out a loan for $1,000 and you took one year to pay it off, you would have to pay a total of $3,640.
If you miss the monthly interest payment, the lender will repossess your car and sell it. You won't see any profits made from the sale of your car-anything above amount you owe on your loan goes to the lender.
State's Laws: Unfortunately, title lenders have a lot of political power on the state level, and there are state laws legalizing title loans in a few states, including Florida, Georgia, and Tennessee. In Florida, for example, title lenders can charge a 22% monthly interest rate, which equals a 264% annual interest rate, much higher than a traditional bank loan or even high interest credit cards. The Florida laws legalizing title loans have existed since 1995 and provide no regulation over the title loan companies. Because there is no regulation, no one knows exactly how many title loan companies exist (though they estimate 400), how many loans they make, with whom to register consumer disputes, and what kind of background a title lender has. Other states may not specifically legalize title loans, but the title lenders may fit under the state's pawn shop regulation, which allows high interest rates. Other states place title loans under the state's usury laws, which requires a lower interest rate."
If you have friends or family that might attempt these, make them aware of the consequences.
"Speak the truth, but leave immediately after."
Slovenian Proverb
HOW MANY IS TOO MANY?: The conventional wisdom in stock movements is that once an analyst recommends a stock, the price immediately increases by some perceptible amount. Not quite according to new research by a study with researchers at North Carolina State and East Carolina University. While true that an undiscovered stock actually did increase by 3.1%, it jumped even higher when a least few other analysts also offered recommendations. When three to six analysts agreed, the stock increased by 6% to7%. Investors apparently liked the corroboration. But once more analysts chimed in, it didn't make any more difference.
"Television enables you to be entertained in your home by people you wouldn't have in your home."
David Frost:
HEALTH INSURANCE: According to the Census Bureau, the number of Americans without health insurance rose to an estimated 43.4 million people in 1997, a 1.7 million increase from 1996.
COLLEGE: The "typical" student graduating from college has $13,000 in student loans
COLLEGE COSTS: Unfortunately, college costs are increasing about twice that of the CPI at about 4% for public schools and 5% for at private schools. Average tuition at public schools is $3,243 and $14,508 by private schools. Room and board are increasing at between 3% and 5%. But all this is simply the trend started in the 1980's when tuition was increasing at twice the CPI. You may therefore wish to consider giving away your children now. I think there is a law that allows a tax deduction.
"People demand freedom of speech as a compensation for the freedom of thought which they seldom use."
Kierkegaard
INVESTING IS EASY: In addition to the derivative debacle with Long Term Capital , Business Week noted that in late August the Tiger Management Group lost $600 million- but then in early September tanked with another $2 billion loss. The George Soros fund lost $1 billion in late August. See how easy investing is?
SEX: Contraception is not being properly offered by HMO's: The Alan Guttmacher Institute finds American women enrolled in both private and government health plans are confused about what contraception coverage they are eligible for. "Fifteen percent of health maintenance organizations and point-of-service plans did not cover all five of the most commonly used contraceptive methods, and another 6% covered none of the methods."
"For every action there is an equal and opposite government program."
Bob Wells
EARNINGS: So do you read all the reports about earnings?? Do you believe them? Do you act on them? Well, "over nearly 20 years, we have found that earnings growth forecasts have consistently failed to anticipate earnings downturns," says Salomon Brothers analyst Eric Sorenson
AIDS: While deaths from AID's has dropped about 50% in the U.S. due to the new cocktails of drugs, third world countries are not so fortunate. Zimbabwe has one of the highest rates of HIV infection in the world. Government statistics show that a quarter of the country's 12.5 million people has the HIV virus which causes AIDS. And these people almost assuredly will die of AIDs in the near future since few will ever receive any drugs.
SMALL BUSINESS: A study by the Arthur Andersen's Center for Family Business indicated that 79% of family businesses wanted to keep the business in the family though 17% of those interviewed said the younger generation lacked the necessary commitment to the business to take over. But a lot of this does not get done because the owners do not do proper planning. And a lot of that is due to men who refuse to admit their demise. It's not an issue of WHEN they are going to die. It is an issue of IF they are going to die.
ALZHEIMERS: (Infobeat) "Alzheimer's, the "silent epidemic" that afflicts primarily elderly people, is causing increasing concern and spurring scientists to find the cause and a cure. There are now an estimated 18 million victims - some 5% of the world's elderly population - suffering from the progressive, degenerative disorder of the brain that affects memory, emotion and thought processes. Experts forecast that by 2020, Alzheimer's, which reduces victims to near vegetables before it takes their lives, will affect 30 million people, with some 75% in developing countries in Asia and Latin America"
ALZHEIMERS IS THE DEATH OF THE MIND BEFORE THE DEATH OF THE BODY
BASIS: I do continuing education professional licensees. But no matter what crowd I get, they invariably cannot answer the questions regarding basis. This means they got most of their client's investment wrong. It also means that at least 75%+ of all wills and trusts are done incorrectly. The problem is that Quicken doesn't do the numbers for you- neither does Microsoft Money. If you (or your adviser) do not know the entire element of basis, you're absolutely screwed.
Mutual Fund Sector/Market Benchmarks/Morningstar:
.....................................................3rd Q.....1 year..3 years
Specialty-Real Estate................. -12.3% -16.3% +11.6%
World Stock............................. -16.2% -10.0% +7.4%
Mid-Cap Value........................... -17.4% -11.9% +11.8%
Diversified Emerging Mkts......... -24.0% -48.0% -13.6%
Small Value............................. .....-20.6% -19.0% +9.0%
Domestic Hybrid......................... -6.4% +2.4% +12.3%
Mid-Cap Blend........................... -16.2% -10.5% +10.8%
Small Blend................................. -22.3% -21.2% +7.2%
Short-Term Bond......................... +2.5% +7.2% +6.4%
High Yield Bond............................ -8.1% -2.9% +7.8%
Interm-Term Bond........................ +3.1% +9.4% +7.6%
Large Blend................................. -11.4% +2.4% +17.4%
Dow Jones..........................7,843 -12.0% +0.4% +20.2%
S&P 500............................1,017 -9.9% +9.0% +22.6%
Nasdaq..............................1,694 -10.6% +0.5% +17.5%
Russell 2000........................ 364 -20.2% -19.0% +6.9%
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"The older I grow the more I distrust the familiar doctrine that age brings wisdom."
H. L. Mencken
BUY THIS TODAY!!: I will put all my clients in this- An offshore mutual fund sent me an Email that said, in part, "is designed to outperform the 5 Year US Treasury Note by a minimum of 300 basis points, and to do so with less risk." That's 3% more than a treasury with less risk than a treasury. And it's done with many fund managers working together. If you like this, I will introduce you to the people that ran Long Term Capital.
WORLD WAGES: In 1996, the average hourly wage of production workers in manufacturing was $31.50 in West Germany; $17.20 in the U.S.; $1.51 in Mexico and less than $0.50 in Ghana and China..
ALLERGY INFORMATION REFERRALS: American Academy of Allergy, Asthma and Immunology, 800 822-2762
INSURANCE: According to a Roper Starch study, the share of American households having such coverage has dropped from 83 % in 1976 to 74 %. At least 25 million Americans don't have it. That is, in part, due to the poor reputation that insurance agents have. Also due to the fewer number of agents in the business- or entering the business. Lastly, it is due to improper, inadequate or totally lacking proper financial planning by families who refuse to address the risks of life and living. Unfortunately, many women and children will bear the brunt of the problems because the man- traditionally the breadwinner- will die first leaving no funds for the family.
AGGRESSION: Aggressively hostile people often have high levels of cholesterol, researchers said Tuesday. People who walk around feeling quietly angry are not at risk, but the "in-your-face" aggressive type is. But there is a bright side to this- they will be the first to die.
SPAM, SPAM, SPAM, SPAM, SPAM: (Infobeat) The SEC is closing down some web sites that fraudulently pushed (mostly) microcap stocks. They indicated the sites got people by
1) Spamming: Some of the accused allegedly sent out mass emailings recommending stocks, without disclosing that companies were paying them to tout the shares.
2) Pumping and Dumping: Masquerading as independent experts, some of the accused allegedly recommended stocks on public message boards such as the top-rated (and legitimate) Silicon Investor site to generate demand, and then sold the stocks as eager investors bid up the price.
3) Touting: Some of those fingered by the SEC allegedly shilled for companies by recommending their stocks for a fee, a relationship they did not disclose to their readers.
4) Scalping: Scalpers allegedly bought a stock, then recommended it through Internet newsletters and investment sites without disclosing their ownership position, then sold the shares as the price rose.
Millions were lost by thousands of stupid people. Don't like stupid?? Sorry the word sticks. If these people had done any adequate research, they never would have lost money. That is not to say that good funds don't lose- it's obvious by the past couple months. But do be greedy and lazy at the same time is almost a preordained loss.
INTERNET: Seventy percent of senior computer owners currently have Internet access at home, compared with just 17% in November 1995
NATIONAL ALLIANCE FOR THE MENTALLY ILL: 2101 Wilson Blvd. Ste 302, Alexandria VA 22201, 703 524-7600, 800 950-6264 for brochure and can direct you to a local Planned Lifetime Assistance Network
FOREIGN RESOLUTION TRUST?: Prime office rents had fallen 59% in Jakarta and 40% in Hong Kong over the 12 month period to October 1998. Should remind you of the U.S. real estate debacle of the 80's and the Resolution Trust.
SOCIAL SECURITY: 60% of the elderly are women and 75% of them depend on Social Security for at least half of their income.
"Life does not cease to be funny when people die any more than it ceases to be serious when people laugh."
George Bernard Shaw
CPI-e: This is a special cost of living index for the elderly (over age 61) that covers extra analysis on medical care, prescription drugs, housing, etc. It has been higher than the general CPI overall.
FUNNY/SICK/FRAUDULENT: I really get tired of this crap. Arthur Levitt- head of the SEC- recently stated that if consumers were allowed to use equities in their Social Security, that such "naive investors would need to be accompanied by increased investor education and increased policing of the U.S. markets". While true, he fails to state that the SEC has never required anyone to be taught the fundamentals of investing in order to SELL securities. All these brokers who get SEC/NASD licenses are not required to understand alpha, beta, correlation, diversification, standard deviation, etc., etc. To imply that just naive investors will need help is ludicrous. Hardly any brokers and rarely any investors know the fundamental of investing and the element of the proper securities application and suitability therefore. Let's put the record straight.
MORE MONEY: Congress recently provided more money for Medicare for home health care, but in the long run, it won't make any difference. Medicare and many other social programs are simply going to run out of money. While true that the elderly are living longer an healthier, it still takes a lot of medical care to stay that way- and Americans want all they can get. A US News article note that the 65+ group of Americans will increase from 13% of the current population to about 16.5% by 2020. But the real kicker is that the share of the Gross Domestic Product devoted to health care will DOUBLE to about 10% by 2020. "Even if other medical spending stays around 10% of GDP, that implies that the countries total health care bill would rise form 14% of GDP in 1996 to about 20% in 2020.". ".... in almost all major industrial countries except the U.S., total health spending for everybody amounts to 10% or less and in most cases, the elderly represents 16% of the current population." And the elderly medical bills are increasing at 4%- significantly greater than the CPI. "...health care spending will increase form $9,200 in 1995 to almost $25,000 in 2020 (1995 dollars)." Some of you may have thought that almost nonexistent Medicare coverage in the 70's and 80's was a problem. You aint't seen nothing yet.
Why does Sea World have a seafood restaurant? I'm halfway through my fishburger and I realize, Oh my God....I could be eating a slow learner.
Lynda Montgomery
DOCTORS HANDWRITING: A study by Dr. David Bates of Brigham & Women's Hospital showed that it "cut its rate of errors on prescription medications by more than half when it made doctors type orders into a computer instead of writing them by hand. In addition to eliminating the problem of illegible handwriting, the computer also checked for inappropriate dosages, patients' drug allergies, and possible harmful interactions between drugs."
FIVE WISHES: A new user-friendly living will - valid in 33 states - is available online from Aging With Dignity. "Many living wills, designed to inform health-care providers and loved ones about end-of-life care preferences, are written in dense ''doctor-speak'' or ''lawyer-speak,'' group officials say. So as an alternative, the group conceived and edited ''Five Wishes,'' which deals with issues such as life support and adequate pain medication."
KILL THEM ALL!!!: War is caused by conflict between parties/countries. Or is it??? A most interesting article by researchers at Yorktwon University indicates that a "society bottom heavy with young unmarried and violence prone males is what triggers wars. When their numbers become too great, they form coalitions bent on seizing territory, goods or other resources they need to marry and have offspring". "...war is a form of intrasexual male competition among groups, occasionally to obtain mates but more often to acquire the resources necessary to attract and retain mates." Most of the conflicts occurred in developing nations- just read your newspaper or look at the news for corroboration. It is in some conflict with other beliefs that older men start wars and send young men into battle- though that unquestionably happens at times.
ORGAN DONORS: United Network for Organ Sharing, 1100 Boulders Parkway, Ste. 500, Richmond, VA 23225, 804 330-8500. Information, publications and referrals to state agencies.
ANNUITIES: According to the 6th annual Gallop survey of owners of nonqualified annuities, 53% are female, 47% male; 75% have total annual household incomes under $75,000, 53% under $50,000; 67% have mutual funds, 65% have stocks and 62% have cash value life insurance; 89% cited safety and tax benefits as important reasons to buy annuities; and 71% liked the life income feature of annuities.
Unfortunately, liking the life income feature is akin to being very, very stupid. Don't know why??? Better do some more reading at this site. Better also get an HP12C.
AMERICAN DEPOSITORY RECEIPTS-ADRS: (Individual Investor) these are shares of foreign companies that trade in dollars on U.S. exchanges or in the over-the-counter market. Each ADR represents a certain number of common shares in the foreign country. When you broker or buys and ADR, he calls a foreign brokerage house that purchases the company shares and then places than any U.S. Depositary bank. The bank performs a range of shareholder services such as distributing Co. financial information and collecting and converting dividends to U.S. dollars. The bank issues ADR certificates to your broker which you then can receive.
Though the ADRs trading and dollars, you must recognize that these are foreign shares that are exposed to currency fluctuations and will go up and down at the currency spot rate at any time.
There also things as level one, level two and level three ADRs. Level one ADRs do not have to comply to U.S. reporting standards and are considered more difficult to trade. Level 2 and level 3 ADRs means that they must conform to U.S. accounting standards and file a 20-F statement which is similar to a 10k American annual report.
CMO'S-MORTGAGE-BACKED BONDS: As a primer, real estate residential loans that pay principal and interest are packaged into groups by GNMA and then sold to investors. They receive principal and interest payments that pay for the life of the loan but it is a rare situation that the loans would last 30 years. That's due to the pre-payments of the principal because people moved to new homes or find it worthwhile to refinance the existing loan. Unfortunately, if tan owner does refinance a loan, it is undoubtedly do to lower interest rates in the economy. Therefore the purchaser of the loan effectively loses money since they get back the bulk of their principal and would need to invest with more risk in order to generate the same return that they had before. It is called the Risk of Reinvestment. The prepayment rate (actual maturity of a loan) is also known as FHA speed and in the past was only about 11 years on a 30 year loan. Of course if rates were dropping, this speed might only be a couple of years.
According to one manager, when the bond market is stable, only 6% to 7% of outstanding mortgages have paid off early. In December 1997, that rate was running around 15% annually. But if rates should drop, the annual refinancing might be much higher at the 40 % rate of 1993. There is an additional exposure beyond that of the normal bondholder. With regular bonds, if interest rates go down, the value of the principal rises. But as just discussed, if rates go down with mortgage-backed bonds, that tends to cause significant pre-payments of higher yielding mortgages and the value of the principal is apt to decline. By the same token, if interest rates should rise with regular bonds the value of the principal goes down. This can also happen with mortgage-backed bonds since bondholders now become stuck with lower yielding bonds that may not be paid off for long. If interest rates are stable, GNMA's are fine. But if rates are volatile, the risk of ownership can be very, very high. Let's Be Careful Out There!
INHOUSE MUTUAL FUNDS: Profit Marketing firm visited 21 full service firms. They showed that 89 % of Dean Witter brokers who utilized mutual funds recommended the firms proprietary products. Other companies were Merrill Lynch-50 %; Prudential-44 %; Smith Barney-38 %; and PaineWebber-31 %. While the brokers, and most cases, do not get extra compensation for selling inhouse funds, there managers usually do. Such brokerage firms also get the annual management fees.
"Dreaming permits each and every one of us to be quietly and safely insane every night of our lives."
William Dement
TITLING: If you live in California and the other states with Community Property, you almost always should consider titling married property that way due to the full step up in basis. If a fund or escrow company does not provide a "box" to check off, you should make one your self. (Of course, if you do not understand basis, this is all a moot exercise.) In other states, married couples should consider Tenancy by the Entirety. Why? Because if you use joint tenancy with a right of survivorship, you only own 1/2 of the assets. Tenancy by the Entirety means each party owns 100% and may preclude a creditor from taking part of an asset. Be real careful here and check with an attorney. It is possible to retain assets as community property when moving to a separate property state and you need to look at beneficiaries, basis, separate property, etc. in order to make an informed decision.
TREASURY INSTRUMENTS: The Treasury Department has offered Treasury bills and notes in increments starting at $1,000. You can go directly to their site Treasury Direct for more info. You can also call 1-800-943-6864. Accounts over $100,000 are charged a modest annual maintenance fee of just $25 and there is no fee for accounts below $100,000.
I'm desperately trying to figure out why kamikaze pilots wore helmets.
Dave Edison
STOCKS: in a study by Peter Hart associates, approximately 10 % of all adult Americans owned stocks in 1965. That had grown to 21 % in 1990 into about 43 % in 1997. The Federal Reserve Board, the estimates that 28 % of household wealth in America is now comprised of stock investments-up from 12 % in 1990.
Alternatively, real estate, which represented about 33 % of the wealth of the average American family in 1990, has fallen to a current 27 %.
ALZHEIMERS: A recent study in Rochester, Minnesota, the age specific rates of Alzheimers per 100,000 residents were: 60- 69 years of age- 51.3; 70- 79- 457.9; 80 and above, 1685.7. Late stage Alzheimers accounts for 85% of all cases.
REMOVE INTOXICATED DRIVERS: PO Box 520, Schenectady, NY 12301. Send a self addressed stamped envelope for information about alcohol overdoses and other associated information.