MOODY'S REVIEW

JANUARY 2000

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

HUNGRY: Though hunger is falling nationwide, as many as one in six households is hungry or surviving at near-hunger levels in a band of states that sweeps from Florida through New Mexico and Arizona to California and the Pacific Northwest. The District of Columbia also had high rates of hunger and near-hunger. Nationally, 3.5% of households were found to be hungry, and another 6.2% were at near-hunger levels.

REGULAR OR EXPERIMENTAL: (Mayo Clinic) Experimental treatments cost, on average, only $247 per month more than standard cancer care, even though most health plans refuse to cover clinical trials in the belief that they are significantly more expensive.

POVERTY: The federal poverty level is $8,480 a year for individuals and $16,530 a year for a family of four. According to HIAA data, 57 percent of uninsured Americans have incomes that are less than twice the federal poverty level.

SENIORS: The average income for seniors is $16,000 annually.

INDEX OR MANAGED: "Some industry analysts say that the time has long passed when investors could simply choose between an index fund and one that sought to beat the market through smart stock-picking. Now, if they pick the actively managed route, they must choose between funds that hang close to the index or those that theoretically could significantly outperform it -- or, of course, lag behind it by a wide margin."

The Reasonable Principle of Ethical Integrity: Other things being even nearly equal, if it's all right for you to impose losses on others with the result that there's a significant lessening in the serious losses suffered by others overall, then, if you're to avoid doing what's seriously wrong, you can't fail to impose equal or smaller losses on yourself, nor can you fail to accept such losses, when the result's an equal or greater significant lessening of such serious losses overall.

Peter Unger

EXERCISE, EXERCISE, EXERCISE!: (AP) Harvard School of Public HealthY study of more than 70,000 women found that exercise- even brisk walking - can reduce the risk of developing adult-onset diabetes. The study of women participating in the Nurses Health Study found that moderate to vigorous exercise was associated with a 46% lower risk.

NURSING HOME PATIENTS: About 2/3rd's of people in nursing homes have no living relatives. And about 70% of all nursing home patients are women.

WILLS AND TRUSTS: An experienced journalist had these comments about my initial article on wills and trust - "This is wonderful material--making several points a lot more clearly and better than I've seen elsewhere." The question was What type of boomer can truly benefit from a living trust versus a will? Here is my most recent answer.

"What people have been sold in regards to living trusts is the inherent ability to save estate taxes. Well, they do that- but then so does a will if it is properly structured. The main point with a trust is that it is a great management tool that attempts to define who will do what, when , where and how should the trustees become incapacitated or die. Wills are usually not that detailed and tend to leave major facets unaddressed. For example, literally all trusts will incorporate living wills and other documentation on what medical procedures should be undertaken if one is in a coma or becomes terminally ill. These are issues that must be confronted prior to the problem since beneficiaries- even well meaning- can potentially force a court to negate life terminating request that are made close to death.

And, very important to people with assets, are the issues associated with probate. With small estates, probate is not necessarily an onerous exercise. Some small estates will not be charged any fees by the state. Many states try to make this as simplistic as possible. But we are not talking about small estates with baby boomers- we have at least $1,350,000 at death. While a will can set up the trusts used in basic estate planning, the assets normally have to go through probate. So what is necessarily wrong with that? Nothing- if it works well. But think about this- would you really want a bunch of people you never met now reviewing the disposition of your assets through the court system? Not me. If anything can go wrong, it's apt to happen in a paper ridden system with too many people that takes too long and (potentially) costs too much. When addressing time, remember the emotional toil of a surviving spouse (or child or other loved one) being constantly "bombarded" by mail notice after mail notice (via court or probate documents) that your loved one has died. How much in tears is that worth? And in California, for example, probate can take 9 months MINIMUM. Additionally the costs for the attorneys and administrators can be prohibitive. Again in California, the total fees that could be charged on a $675,000 GROSS asset is $28,800. (Here is a tricky point that readers need identify. Estate tax is based on a NET estate. But California probate is based on a GROSS estate. As an example, assume you had a house or other assets worth $800,000 with $500,000 in mortgages. The net estate ($300,000) is UNDER the $675,000 lifetime exemption and hence no estate tax. But the probate fees would be based on $800,000- huge difference. Check your individual state.) The point being that while a will can get an asset into a trust for the survivor, the costs can many times greater than what a trust would cost initially (most states- look for costs between $750 and $1,500). That is not to say the utilization of a trust is without cost once someone dies since an attorney and accountant will need to be hired anyway. But I can assure you the costs will be/should be minimal compared to the costs of probate.

There are several other widely promoted issues for trusts. It is PRIVATE. Probate with a will effectively allows anyone to see what you have done. A trust prohibits the nosey and uninvited from knowing what was done and why. Another issue for many baby boomers is that they may own assets in different states. With a will, probate will be required in each state. A trust avoids that cost and the associated time and mess since the trust really owns the asset- not you. Lastly, a trust is easier to defend against a beneficiary (or other) wants to contest the distributions. Admittedly it is not prefect since anyone can sue anyone else. But you simply decide initially how contentious the problem might be and detail the trust document appropriately. In essence, don't expect a sloppily drawn trust to escape lots of litigation.

In summary, look at a trust simply not for the cost savings- which can be substantial- but in terms of defining what you- or you and your wife- would want to have done given "certain" circumstances. Certainly it costs some money up-front, but the peace of mind can be extensive. Add in the other unique benefits and they are certainly worth consideration. But don't get drawn into the trust mills that (almost exclusively) promote the tax benefits. They simply use a computer program that spits out a document that is rarely specific for your situation. By the same token, almost any attorney in any state can do the same. I would therefore definitely suggest State Certified Estate Planning Attorneys (if available in your state) and for more detailed work, those associated with the American College of Trust and Estate Counsel."

RESOLUTION TRUST AGAIN: Remember the mess when bank's extended credit on any piece of real estate that existed? Well, you think they would have learned. But bank failures are increasing and Greenspan has warned banks to rein in excess loans. "The FDIC says that 1999 bank failures are expected to generate the biggest losses (an estimated $760 million in insured losses) since the banking crisis of the early 1990s. Regulators are warning banks to tighten their lending standards, particularly in relation to "high loan-to-value residential loans" that allow consumers to borrow as much as 125% of their home's value."

BE AFRAID, BE VERY AFRAID (Association of Banks for Insurance) Banks increased their sales of traditional insurance products (excluding annuities and credit life) by 35% in 1998. Bank sales of all types of insurance products achieved a 12% increase, to $31.1 billion last year. Of the banks surveyed, 20% will begin to offer long-term care insurance and 22% will add P&C to their portfolios within the next two years.

EXERCISE: Researchers have found that physical exercise has positive effects on the quality-of-life for cancer patients, which leads to improvements in both physical and psychological health.

HIGH YIELD BONDS AND TREASURY INSTRUMENTS: (NY Times) In June, 10-year Treasuries were yielding 5.35 percent, while an index of high-yield bonds averaged 9.11 percent -- a spread of 3.76 percentage points. On October 8, 1999, the spread had widened by nearly a full percentage point, to 4.67, with the high-yield index averaging 10.7 percent, compared with 6.03 percent on 10-year Treasuries. Why? Because even though the FED has not raised rates that much- or even at all at the last meeting- funds have nonetheless dried up for all but the best of companies. The higher potential risk transfers into higher yields. In fact, the "default rate on junk bonds is climbing and is now running ahead of last year's rate." So, is the stock market taking note? Not really- the euphoria continues. But I would bet the house that Greenspan and the FED will raise rates not only at their next February meeting but at other times during this year.

SOCIAL SECURITY AND THE STOCK MARKET: There have been innumerable comments about why social security monies should be invested in the higher returns of the market. After all, they will forestall the bankruptcy of the system by many years. Oh, really? Per the NY  Times- "economists from Goldman Sachs, Invesco, Morgan Stanley Dean Witter and J.P. Morgan did the research for the Committee on Investment of Employee Benefit Assets, an association of corporate pension plans based in Washington considered three environments in which 50 % to 75% of the current surplus in Social Security taxes would be invested in stocks. They concluded that if the market performed in historical patterns, the year in which Social Security, without any other changes, would technically be out of money would be delayed from 2034, the current official projection, to between 2038 and 2046. But if the stock market dropped 20 percent to 30 percent during the next five years, Social Security could run into a deficit as early as 2032".

Do you know what happened to the stock market in 1973 and 1974? If not, don't get into the argument about stocks and social security. You don't know what you are talking about because you are not grounded in the statistical history of the market.

MORE RISK: (WSJ) For the first time in 22 years, foreigners have been net sellers of Treasury bills for the past year. Interestingly, they simply converted a lot of this money to riskier bonds- Ginnie Maes for example. Much is due to the falling dollar which makes the total return after conversion unacceptable.

MORE VARIABLE LIFE SALES: Tillinghast reports that the second quarter saw a 17% increase in variable life sales. Let's look at numbers. Assume you bought a $1,000,000 variable life policy and you died shortly thereafter. how much do you get? $1,000,000? Wrong!

$874,700. Now assume you let the policy grow internally to $1,500,000. You die, how much do your beneficiaries get? $1,500,000? Wrong!  $1,164,750. So you take out the $500,000 in fund growth and spend it. Then you try to take the $1,000,000 remaining in the policy and try to get it into an irrevocable trust. Wrong! There remains an incident of interest. No transfer. So your estate (actually your insurance) still  loses at least $135,300 in taxes. Don't understand all that? Not the point. Not one of the purchasers of a variable life policy has the foggiest idea what I am talking about. But they ended up paying a nice commission to someone for a product they universally should not have purchased. I know many agents don't understand the above either.

LONG TERM CARE: A journalist asked this question- Q. Very few Boomers have bought into long-term care as a legitimate expenditure in their financial planning. To what extent are they missing the boat, vs. being (perhaps) appropriately leery of an insurance industry that has sold them a lot of unnecessary permanent life insurance and annuities? Also, please elaborate on the point you made on your website concerning the long-term care burden on women for "their" men.

My answer- "In order to put the answer into proper perspective, recognize that California (the only state that I am aware of) requires 8 hours of continuing education in long term care every two years for every agent involved with such policies. And I have taught the course for almost 4 years and have written extensively on the subject. That said, the amount of solid information available to consumers nationally is abysmal. Even when available, the public doesn't bother to read it anyway. For example, as recently as two years ago, 48% of the elderly believed that Medicare would cover for long term care. (A John Hancock survey just a couple years ago had 73% believing that Medicare would cover for LTC.) While it does cover for approximately 6% of long term care costs nationally, it is ONLY for those under skilled care services- and that approximates only about 0.5% of all the elderly needing long term care. In essence therefore, Medicare covers nothing. What about Medicaid? Yes- but once again the elderly either believe both they have a right to it and that it provides adequate care. In the first place, Medicaid is primarily for those who become financially indigent. It is not designed nor has ever been intended for use by people who have assets (roughly $100,000+) nor certainly for the middle income consumer. Secondly, Medicaid has extremely limited resources (both Medicare and Medicaid are going bankrupt sometime in the near future) and provide payments to nursing homes at far less than private pay. You are "at risk" for substandard care irrespective of what laws may be applied. Think of it this way. You could pay privately for help in a facility of your own choosing where the staff gets $13 an hour. Or you can opt for a Medicaid facility where they can only afford $8 an hour. And, invariably, there will be less staff anyway.

So what does the insurance industry do? In the more professional sense(?), it promotes products that can properly help an individual with that need- assuming the product is sold correctly. In the second issue, other companies provide and promote other products that "help" consumers escape the financial limits of Medicaid so that one can get (the inadequate) state care.

As regards the companies and policies per se, the consumer is thwarted from purchasing the best product for acceptable care because- even irrespective of California's intent- agents are woefully undertrained in the area. It is not simply a review of statistics as to why long term care is needed- education must also identify the companies that can effectively offer the product AS WELL AS a review of the contractual elements. For example, there are about 120+ companies offering products. About 10 control about 80%+ of the market. In one sense- "as well they should." The companies that have underwritten policies for 25 years+ are the odds on favorite for a sale since the experience in this new area is absolutely valid. But agents- sometimes captive- see a bunch of commissions forthcoming and are simply apt to sell anything for whatever reason- be it on price, perceived coverage, etc. The result- stuff like American Travelers. It was recently identified as a company that repeatedly raised rates (guaranteed renewable) in some states to the point that many purchasers had to drop coverage. The reason- the product had been priced "competitively" (far too low) to induce business. Another contractual provision actually limited coverage by the company to about 50% of the home health care aspects that purchasers thought they had purchased. Other companies have standards accepting only the most healthy- others have more flexible standards. Which one do you purchase and when? Add in the new tax qualified policies and the requirements for due care become all the more necessary. Yet, who reviews such policies independently and provides objective advice to consumers- or even to agents. Nobody. Certainly not the brokerage companies that go after agents with inducements of extra commissions, free trips, cars, etc. As a result, consumers end up being sold something that may or may not work. Even when good policies are sold, the wrong coverage may still be utilized. For example, home health care is a sought after rider (though expensive). But unless you happen to have a large support group in the community, you will (probably) end up in a nursing home in a short period since home health care is only provided on an intermittent basis. It is not intended to be a substitute for 24 hour care and unless there are other people to help, it won't work. So consumers really won't get to use effectively what was purchased and paid for for perhaps 20+ years. Is it therefore being sold in many cases to the wrong people. Yes. But is the criteria being mentioned anyplace? Certainly not in education training. In other words, as in life insurance, there is a need.. A definite need. But the bulk of the effort is to induce sales that may only be 50% to 70% correct- and even that might be by luck, not skill.

In the alternative to LTC products is the highly publicized and quite effective use of annuities to bypass the financial restrictions to Medicaid. Thousands of national seminars tout the ability of an annuity to get around Medicaid regulations. But they never tell attendees of the large commissions that are being generated, how the annuity restricts almost all access to money when it is most needed (retirement and poor health) and the fact that care in a Medicaid facility is clearly suspect. Even Elder Care attorneys have heavily promoted the use of special trusts and court filings in order to utilize Medicaid. This is not to say some intervention may not be needed in certain circumstances. But a unilateral focus to transfer assets so that one gets care under Medicaid borders of a breach of a fiduciary obligation to a client. What's the breach? Taking Mom or Dad to a Medicaid facility and tell them this is how and where they are going to die. Once Mom or Dad saw that, they'd almost universally opt for paying for private care.

Per your request is my continued focus on the emotional and physical state of caregivers- universally women. Women simply are the people who provide the care for others- first their children and lastly for their husbands and their own parents. Most do not plan for such later contingencies and may become martyrs. Their own health becomes secondary to their life. Once their husband/parents die, they may be in need of care themselves. In the alternative, a good long term care policy for a spouse, parents and themselves can provide not only physical care when needed, but an emotional well being that is immeasurable.

And I'll add commentary to statistics. You don't take a LTC budget and break it up equally between men and women. That's because women will live in a long term care facility whereas men usually get better or die. Therefore one picks 4 years+ for the woman and "just" a 2.5 year coverage for a man (unless there are other health or longevity issues). I think that one of the reason men die so "quickly" in a facility is that the wife has taken care of the husband far into an illness and will send them to a home only when the problem is almost terminal. (About 75% of all people who need care are cared for at home.) Women, on the other hand, don't have anyone left to care for them and have to enter a facility sooner. But then they "live" in the facility for a long time."

REAL ESTATE AGENTS: (National Association of Realtors)  The typical firm has one office specializing in residential brokerage, has been around 13 years and its four sales agents are not associated with a franchise. And technology and the Internet are playing increasingly significant roles in their businesses.

VARIABLE LIFE: A planner who sells a lot of variable life HATED my comments about Variable life. I stand by my comments- the use of variable life is limited at best and certainly for the average middle income purchaser. This was my reply:

"As to the statement on variable life, variable annuities, mutual fund investing and cheap life insurance, the elements are expounded on significantly in other lengthy articles at my site. I have never had a viable presentation yet that could not be offset by a more realistic proposal with cheap permanent insurance and separate investing. And if you are suggesting a transfer for value on a variable life with a loan without an incident of ownership, I'd like to know how that is done.

As regards "agent", I meant what I said. A life insurance agent is literally out to lunch on the basics of insurance, investing or otherwise. A CLU, MSFP, etc. is a different matter- they are not agents per se but more highly qualified entities. That is clearly identified in my article, Who Can You Trust.

SIGN UP TODAY!!!! Got this recently in an Email- "Would you be interested in representing an investment opportunity to your clients that currently offers a principal secured, 67% annual yield, each year, for a total of 3 years?" A 67% annual yield is, obviously, very easy to get and I put everyone in it.

CAREGIVERS: (WSJ) The pool of potential caregivers will shrink compared to the growth of the elderly. By 2025, there will only be 3 younger people for each person 65+ compared with 4.6 now.. By 2050. the ratio will be even lower at 2.6 to 1. A financial gerontologist noted that between 1990 and 2010 there will be a projected growth of 88% of needy elders that will outstrip the 62% growth of caregivers.

AND THE POOR GET POORER: "The Census Bureau, in revising its definition of U.S. poverty, is reportedly experimenting with a formula that would send millions more families below the poverty line. Under the new formula, for a family of four to be considered above the poverty line, their annual income would have to be $19,500 a year, instead of the current $16,600 per year. The change would make 46 million Americans, 17% of the population, poor. Last month, only 12.7% were considered poor, the lowest level in almost a decade. The current poverty formula was created during President Lyndon B. Johnson's administration and has not changed since 1965 except for inflation adjustments."

ACADEMICS: (AP) "Black and Hispanic students lag behind white and Asian students academically - even when they come from similarly privileged backgrounds. the report noted that some experts cited racism and peer pressure that disparages intellectual achievement."

MORE VOLATILITY (NY Times) "Only a decade ago, the NASDAQ composite averaged about one big day -- defined as a close at least 1 percent above or below the previous day -- each month. So far this year, it is averaging three such days every week. New ways of trading, brought on by technology and financial engineering, can roil the markets until other traders become used to the effects generated by such trading. That was true of institutional block trading in the 1970s and computerized index arbitrage in the 1980s. And it may be true now of Internet-based day trading, which has made it possible for individual speculators to trade much more rapidly, and with lower trading costs, than ever before." True- but perhaps once the market tumbles somewhat, investors may begin to realize that their trading actually produced loses as compared to a buy and hold scenario and hold back on excessive trading. (Actually, who am I kidding. Such investors don't read research papers anyway. Further, they universally think they are smarter than literally any analyst and can therefore make higher returns than almost anyone.)

The article noted that energy had been bid up to astronomical highs in the 80's- primarily on the precept that oil was a "limited" commodity that would have to increase in price. (Do you realize there is now more oil available for capture than at any time in history? May seem incongruous but it is the ability  of new technologies in getting to large amounts of oil that were previously unobtainable.) Anyway, the article went on to say that "technology stocks may be the oil shares of this era. They now make up a quarter of the S&P 500, far more than their share of gross domestic product or corporate profits. The proportion is even more extreme in the NASDAQ, where the five largest computer-technology companies -- Microsoft, Intel, Cisco, Dell and Sun Microsystems -- together account for a third of the value of the more than 4,000 stocks in the index." True again, but look to Greenspan's comment that technology may have fundamentally changed our entire economics, manufacturing, lifestyle and just about everything else. At least that is how I see it. New technology will increase every single day. Admittedly not all of us will be able to follow all the innovations. But corporations will make such effort and continue to provide productivity increases, safety advances and more.

The article noted that "volatility in the NASDAQ market set a record in 1987, with a standard deviation of 1.57 percent, easily exceeding the 1974 peak of 1.12 percent. That was a record that stood until 1998, when the figure hit 1.66 percent. Through October it was 1.79 percent. With the S&P 500, the volatility explosion is not nearly as great. On average, there are about two days a week with a percentage change of at least 1 percent, compared with three for the NASDAQ. But that figure is higher than for any full year since 1974, slightly exceeding the 1987 figure. The standard deviation of daily returns, however, is down to 1.18 percent through October from 1.28 percent in 1998. Those are the two highest figures since 1987, but they are far below that year's figure of 2.02 percent."

What the article did not note was that the early 90's had three years in a row of the least volatility of the stock market's history. Then it was real easy to earn a yield and make it also look like it had no risk. Maybe this is a little payback.  

OBESE: If you're overweight, most of it's probably your fault. (AP & Division of Nutrition and Physical Activity at the federal Centers for Disease Control and Prevention.) "America's problems with extra weight are not so much in our genes as they are in our discipline. Only a little less eating or more activity is all it would take to turn around weight problems that kill many Americans early. Just the same, we don't do it."

OVERSPENDING (Investment News & FSO) "It wouldn't be so bad if (investors) "financed their spending by selling winners, locking in the gains." But that's not what's happening. Instead, most are using credit cards to finance their spending, counting on a continuing bull market to bail them out eventually. When the market corrects, as it ultimately will, many of these people will learn the hard way not to rely on market gains to pay off large amounts of debt down the road."

HEARING AIDS: (AP) "Experts say hearing aids could help many of the 19 million Americans over age 45 who have hearing loss - but an estimated three out of five patients over 65 and six of seven middle-aged patients don't use them. Why? A major new survey of 2,300 hearing-impaired people found denial, embarrassment and cost all play a role."

BUSINESSES AND ESTATE PLANNING: (WSJ) Of 100 family owned businesses, only 30 will make it to the next generation and only 9 to the following.

ELDERLY: Nearly 40% of the elderly are cared for by their working age children.

HEALTH: (Consumer Reports) A study of 2,000 men over 16 years found that those in mediocre shape had 41% fewer deaths from coronary disease and stroke than those in poor shape. Those in good shape had a further 14% reduction, and those in excellent shape, an additional 4% reduction.

A study of deaths from all causes found that men who improved fitness from poor to moderate reduced their death rate by 44%, and those who further improved to good condition reduced their death rate a further 22%.

PESTICIDES: (IWYV) Every day, 1 million American children age 5 and under consume unsafe levels of organophosphate pesticides that can harm the developing brain and nervous system

GET UP, GET OUT: Since hundreds of years B.C., it has been widely held that bed rest was mandatory to getting better from surgery and other illness. WRONG! The University of Queensland Medical School did a study and found that , "overall, there was no evidence that best rest had any significant beneficial effect when used as a treatment or when used after surgery." Most interestingly,  bed rest should no longer be used for acute lower back pain, for recovery after a heart attack or for acute infectious hepatitis.

DEPRESSION Here is quiz on depression symptoms. Yes responses = 1, No = 0

Losing interest in things you usually enjoy    Yes    No

Thoughts of death or suicide

Feeling Blue

Feeling worthless or guilty

Loss of energy or feeling tired all the time

Trouble sleeping or sleeping too much

Problems concentrating and thinking

Decrease or increase in appetite

Feeling slowed down or restless, unable to sit still

If you answered yes to number 2, see a physician immediately

If the score is five or more, see a health practitioner. Even a score of 3 or 4 may indicate problems and they probably need to be talked through. Depression is NOT just having a bad day. It can be an endless and mind numbing process of hopelessness.

And if you're over 50 and suffer from depression, you may have experienced a minor stroke without even realizing it. An AP release noted that researchers say they have found a connection between depression and "silent strokes." They're called silent because they lack classic stroke symptoms such as slurred speech, blindness and lack of motor skills."A psychiatrist noted that as we get older, the risk for stroke goes up. The same risk factors for stroke may be the risk factors for late-life depression." 

CREMATION: Low-cost cremations now account for one in four American funerals.

ALZHEIMERS DEATH: How do people with Alzheimers die? (SF Alzheimers Association) The most common cause is an opportunistic infection. Pneumonia and septicemia are the most common. The other major causes are eating and swallowing. Typically, the person gradually stops eating. This is normal as the body functions start to shut down.

In that regard, you might ask yourself, "What end of life choices might I face?" Decisions usually regard whether or not to resuscitate, administer antibiotic treatments for infections or use feeding tubes, respirators and/or trachea.

DIVIDENDS- Used to be that the value of the stock market was, in large part, measured by the dividends being paid by corporations. Historically, if the dividends fell, so did the market. And if you had solely listened to that, you would have missed some huge gains since the early/mid 90's. But a lot of the previous valuation methods were no longer valid. Per the NY  Times, "Standard & Poor's Corp. reports that 117 companies announced dividend increases in September, 10 fewer than had raised their payouts a year earlier. It was the 15th consecutive month that the number of dividend increases was down year-over-year. What is unusual is that the economy is doing so well even while companies are growing more reluctant to raise their dividends. This is the seventh such streak of at least 15 months since S&P began counting dividend increases back in 1955. In all but one of the six previous runs, there was a recession in the period. Recessions, of course, usually mean sharp falloffs in corporate profits. So a dearth of dividend increases in such periods should be expected."

Dividends can go so low because investors do not care much about them. It is appreciation/capital gains that have made them rich, and it is the pursuit of capital gains that drives stock investments now.

401(k) increases (NY Times) The proposed Portman-Cardin Pension Reform Plan would raise the $10,000 limit on annual tax-deductible savings in 401(k) plans to $15,000 and, for those age 50 and older, to $20,000.

"Only 4 to 11 percent of 401(k) plan participants save the maximum now, according to the Employee Benefit Research Institute. Workers save an average of $3,000 each in 401(k) plans, the institute estimated. The additional $10,000 that older workers could save each year would add $360,000 to a retirement nest egg of someone who is 50 years old, retires at 65 and earns historic stock market returns.

Current law generally limits the total amount that a worker and an employer together can set aside in a retirement plan to 25 percent of pay up to a maximum of up to a maximum of $30,000 of savings. Portman-Cardin would increase that to $45,000.

Raising benefits at the top means that 62 percent of the new tax breaks would flow to people in the top 10 percent income group. The middle fifth of households would get just 3.2 percent of the tax breaks."

Comments from the FED Board of Philadelphia's recent Business Review on Corporate Profits: "The value of the stock market may have risen over the past few years partly because of forecasts of high corporate profits. The results concerning forecasts of corporate profits from the Survey of Professional Forecasters suggest that such forecasts have been fairly accurate, though certainly not perfect, over the last 30 years. "

MEDICAID PLANNING: I attended a seminar for MediCaid nursing home planning that was advertised in my local newspaper. About 80% of the commentary was valid (rules, regulations) but the remaining consisted of scare tactics and false statements intended to sway the 130+ elderly to buy an annuity so they could escape the required spend downs by Medicaid. I admit that people don't want to give money to the government. But to NOT tell them that they could very well get inadequate care due to the limited budgets for Medicaid and Medicare (they are both gong bankrupt no matter what the government tells you) is a breach of fiduciary obligation.

These people had money. Most appeared young enough and healthy enough to purchase long term care. Yes, they may never use it- but most people forget you never want to use any insurance anyway. It is intended to provide emotional and financial security for the people that require assistance. Further, you will almost always get better care where there are more people paying privately.

You Do NOT Want to Die in a Medicaid Ward with a Bunch of Other Screaming Alzheimers Patients. Buy long term care if you can afford it.

MSA: There are now about 42,477 Medical Savings Accounts in use nationally

WHAT SENIORS FEAR (SCAN Health Plan)

1. Loss of ability to drive

2. Health of a spouse

3. Health of children

4. finances, loss of health insurance, Medicare

5. finances of children  

6. Cancer

7. Loss of vision

8. Stroke, loss of mobility

9. robbery, assault,

10. Loss of memory

GOING UP- (College Board) "The cost of going to college increased less than 5% in 1999 year, the smallest hike in the last four years." But don't be too complacent- college inflation has been higher than health-care costs and consumer prices and still are. "The board says tuition at public and private institutions increased between 3% and 5% in 1999. Those increases had averaged 5% for each of the past several years."

HEALTH INSURANCE: The Census Bureau's annual survey of health insurance coverage found that about 44.3 million people had no health insurance in 1998, about a million more than the year before. Because of overall population growth, the percentage of uninsured remained nearly steady: 16.3% in 1998, compared with 16.1% in 1997. In 1996, 15.6% lacked coverage.

ON LINE TRADING: I have been astounded by the number of people trading on line- as if they know what they are doing. Actually, that has been researched by Barber and O'Dean and you have read their comments previously. Basically, the vast majority of people don't have a clue to investing and most of the gains have simply been attributable to the bull market. Anyway, per the NY Times "Over the next year, the top 10 online brokers have budgeted about $1.5 billion to fill airwaves, newspapers and magazines, billboards, other Web sites and e-mail in-boxes with advertising, all preaching some version of the mantra that you can get rich faster if you take charge of your own investments. ETrade now spends about half of its revenue on marketing."

SMALL BUSINESS OWNERS: "According to a 1999 survey of 900 business owners and solo entrepreneurs, 83% of the owners of America's smallest businesses said they worked exclusively at home. That's not surprising considering that 84% are solo entrepreneurs without other employees."

TV American children watch an average of 21 hours per week. But that doesn't include movies, videos or video games.

By the age of 70, the average person will have spent 10 years of life watching TV.

12B-1 FEES: In 1999, mutual funds will "earn" $12 billion for "servicing" accounts with 12b-1 fees.  

PIECE OF THE ROCK OR A PIECE OF CRAP:- Prudential has set aside $2.6 billion for payments to claimants for the sale of life insurance products designed for "retirement". The company has paid about $70 million in penalties to the states. This is on top of the $1 billion+ they paid out for the limited partnerships of the 1980's. And they still have enough money to do the NBA halftime.

LTC POLICIES: If you are going to buy a Long Term Care policy, do so only from the big boys. They don't make as many mistakes- since they have been underwriting policies for a longer period of time- and if they do make a mistake, there are almost FORCED to fix it because of bad press, state lawsuits, etc. or they lose face AND sales.  On the other hand, if you buy into a lightweight, you could be part of this problem- " two lawsuits  were filed in Florida and North Dakota in 1999 over LTC premiums that have increased as much as 700%, even though the products were promoted as having level premiums. Regulators are also coming under fire for approving the sale of these plans that now appear to be underfunded."

I am not stating that all LTC companies are without problems and purchasers should look at what could happen 20 or 30 years into the future.

ADL: By 2030, the number of Americans age 85 or older- NEARLY HALF OF WHOM WILL NEED ASSISTANCE WITH DAILY ACTIVITIES- will be 8.4 million- up from the current 4 million.

Nationwide, caregiving families spend 2 billion dollars of their OWN money PER MONTH to provide care for family members. (Either there are a lot of caregivers or just one family is sending out someone in style.) 

TIME RUNNING OUT: The federal program of subsidised housing started in the 1970s with 20-year guaranteed contracts. But Section-8 residents are finding many of the contracts are finally running out, and landlords are evicting them to put apartments on the open market where they can charge more than what the government pays. 

YE GODS! (Forum for Investor Advice) In a recent poll, only 10% were concerned about outliving their assets, a sharp decline in the market, a major increase in inflation or trouble affording the cost of a good nursing home.

ASSISTED LIVING: Pay attention to this- Assisted living facilities seldom accept Medicaid patients.

CAPTIVE AGENTS: Undocumented but considered reliable- over 80% of IAFP members are captive agents.

DEATH BONDS: Something new- Death bonds have a unique caveat to normal maturity in that if the owner dies, the beneficiaries are able to call the bonds callable at par.

VIATICAL SETTLEMENTS- these can work but are also fraught with problems, unregulation, fraud, etc. Florida is cracking down on one where insurance policies backing the investment may not exist. And that commissions to the company and agents were as high as 18.5%. (I have been solicited to do this. But I am also on a National Board to warn people about how they work and the number of scams that are being played out on the elderly.)

LIFE AGENTS: LIMRA states that 30% of life insurance agents have a series 6 securities license- and they expect an increase to 60% within 10 years. But unless the NASD and SEC change their testing requirements, 100 %of them will never have been taught the fundamentals of investing through the licensing education. 99 44/100% can't use a financial calculator. Caveat Emptor.

FUND FEES (ICI). A study indicates that loaded mutual fund fees for stocks have reduced to 1.5% from 2.3% in 1980 while no load funds increased to 0.89% from 0.78%; bond funds dropped to 1.16% from 1.54% and money market funds reduced to 0.46% from 0.54%.

LOADED VERSUS NO LOAD FUNDS (Ticker) "The percentage of mutual fund sales coming directly through the mail or toll free numbers has dropped to 19% of total sales from 32% in 1990. Financial Research Corp- who did the study- says that is probably due to the fact that only about 1/3 of the population is self motivated to do some homework. (Though being self motivated and knowledgeable may be, nonetheless, mutually exclusive.) But no loads hold a solid 40% of the business. They note that the biggest increase is the fee based business where it is estimated that up to 20% of all investment professionals conduct all or part of their business on a fee only basis- up from 5% to 7% just a year ago. (Most still don't know what they are doing. The investments mostly went up not because of them, but the economy, Greenspan et al. Further, you need to remember that there really is NO such thing as fee only financial planning. Don't believe me? Read Who Can You Trust.)

BINGING: Not encouraging- There are as many as 450,000 college students with guns in the USA, and ownership is more likely among those who binge drink.