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The Independent Investor: Joint Business Is Jumping
By Bill Schmick On: 01:16PM / Friday February 06, 2015

Today, more than 7 million Americans are no longer limping. Instead, they are trotting around with the assistance of artificial knees, hips or both. Every year another million of us will join the crowd, and that number is expected to grow as America ages.

Arthritis is the main reason for these surgeries, followed by obesity, which adds stress to the knees and hips. Everywhere you turn, Americans are told that they must lose weight. However, in order to do that, a less than virtuous circle has evolved for many of us. We are all striving to eat healthier and eat less while exercising more. As such, wherever you look, aging amateur athletes vie with the young on the ski slopes, the treadmill, hiking trails and wherever else one finds exercise. But this cult of weekend warriorship is demanding a high price.

It is bad enough that we Baby Boomers are wearing out our joints at a stupendous rate. However, the real growth rates in joint replacement are coming from those between the ages of 45-64. Joint replacements have tripled in that age group over the last decade, with nearly half of all hip replacements now being done in people under age 65.

In the past, orthopedic surgeons were reluctant to replace a knee or hip in patients under 65 since replacement joints typically only lasted 10 to 12 years. Today, thanks to advances in medical device technologies, a typical knee or hip can last 20-25 years. As a result, more Americans than ever are opting to get the surgery now, rather than give up their mountain bike or snowboard for less active physical pursuits. I'm one of them.

Six months ago, my knee began bothering me while doing my usual cardio fitness exercises. The pain increased to the point that I visited a doctor who informed me that my right knee "was shot." Decades of running, step aerobics, snowboarding and skiing had taken its toll on my body. Although the pain was moderate at best, I opted for surgery now rather than limp along until the pain forced me into surgery. I did not want to sacrifice my athletic lifestyle.

The procedure was successful thanks to my surgeon, Dr. Mark Sprague of Berkshire Orthopedic Associates, who is a true rock star. The staff and service of Berkshire Medical Center's orthopedic unit was exemplary as well. I guess you get what you pay for.

The cost of a joint replacement varies depending on where you get it done. A study by Blue Cross Blue Shield indicates a total knee replacement procedure, on average, costs $31,124, but could be as low as $11,317 in Montgomery, Ala., to as high as $69,654 in New York City. Hip replacements, on average, go for $30,124 but can be as much as $73,987 in Boston.

But there are whole lists of other services that must be paid for. Pre-surgery appointments, diagnostic studies, lab tests, the doctor's fees, anesthesia, postoperative hospitalization plus postoperative recovery including rehabilitation and physical therapy. Since my surgery was one month ago, I have not received a final total of the all-in charges. But when I do, I'll most likely write another column, since it is my understanding that the actual manufacturing cost of an artificial hip is about $350.

Yet, by the time the hospital purchases these sterilized pieces of tooled metal, plastic or ceramics, that same hip costs them $4,500-$7,500. From there the charges escalate. By how much, I am determined to find out — so stay tuned.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



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The Independent Investor: College Savings Accounts Are Not Risk-Free
By Bill Schmick On: 08:22PM / Thursday January 29, 2015

A national debate over whether to tax "529" college savings plans has turned the spotlight on these plans and how they work. Do they really help parents save the money their kids will need for college? The answer depends on how they are invested and how they are managed.

Starting in 2001, the IRS offered tax benefits to middle-class families to cope with the escalating costs of college education. Thirty-four states (and the District of Columbia) also chipped in with tax breaks of their own. These savings plans work much like a 401 (K) or a Roth IRA. The after-tax money you invest in these plans will grow (or not) without being subject to federal income tax. Any money you withdraw from the plan will be tax-free as well, as long as it is used to pay for qualified educational expenses such as room and board, tuition and books.

Since the onset of 529 plans, tuition and fees at private, nonprofit four-year colleges have risen by an average of 2.4 percent per year. Over the same period (2002-2013) the inflation rate for these same colleges averaged 5.2 percent. Today's average cost per one year at a private, nonprofit college is $39,518. A Public University's cost for in-state tuition, fees as well as room and board, averages $17,860. Given those numbers, is it any wonder that 529 plans have accumulated over $244.5 billion by 2014, with the average account size of about $20,671. For those who can afford it, these plans look like a good deal.

However, before you jump on this educational band wagon, savers should be aware of some pitfalls in this scheme. Like 401(k) and other tax-deferred plans, the responsibility to manage those savings are on your shoulders unless you want to pay a fee for someone to manage that money. If you go through a broker the average annual fee is roughly 1.17 percent/year. Some charge higher, depending on the advice they give. If you go it alone, you still pay a fee, since most states charge an annual fee of 0.69 percent.

These fees matter because in order to just keep up with inflation and college cost increases, you need to make at least 5-6 percent on your money per year just to stay even. That is no mean feat when you realize that the average return on the stock market per year over the last century or so is 6-7 percent. Given most savers' track records in investing their other tax-deferred savings accounts, the prospects are fairly low that the performance of these plans will tie, let alone, beat the market.

In 2010, nine years into these plans, most 529 plans had a negative performance record. Since then, many have at least recouped saver's initial investment amounts. Some have done even better. The point is that not all 529 plans are made the same.

For those who don't want to actively manage these funds, many plans offer target date funds that automatically shift from aggressive (mostly stocks) to conservative (mostly bonds) investments as the child approaches college age. The problem with target funds is that they do not account for market trends. Let's say your daughter is two years from college, so her target fund investment is now fairly conservative. In a rising interest rate environment, which most investors expect to begin this year, that fund, now top heavy with bonds, will do poorly just when your child can least afford losses.

Bottom line, without the tax-saving advantages of the 529 plan, there is no reason to open one. And even with the tax-deferrals, there is no guarantee that you will have the money you need by college time. That will depend on how astute an investor you are or, if you are paying a professional, how well they do on your behalf.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



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@theMarket: More Stimuli Equal Higher Markets
By Bill Schmick On: 06:12PM / Friday January 23, 2015

We can thank Mario Draghi, the head of the European Central Bank, for snapping the stock market out of its monthlong lethargy. This week, the ECB launched a trillion-dollar program of monetary stimulus that gave investors worldwide a shot in the arm.

The program amounts to an injection of 60 billion Euros per month into the EU economies through the purchase of private and public debt. The quantitative easing will continue until September 2016. However, ECB spokesmen hinted that if more time is needed the program could be extended indefinitely.

Clearly, the ECB is benefiting from lessons learned over here. Our Fed created uneeded volatility over several years by launching and then shutting down a series of QE stimulus programs based on the short-term health of the economy. Finally, ex-Fed Chairman Ben Bernanke announced that our QE three program would be an open-ended commitment until employment and economic growth were on a sustainable uptrend.

The amount of the ECB program was about double the quantitative easing most investors were expecting. It lifted world markets by over one percent or more, as it should, since we now have three of the world's largest economics — China, Japan and Europe — actively stimulating economic growth.

Readers, however, must remember that it took years here in the U.S. before our central bank programs succeeded. Even today, our economy and employment rate is still not one I would call robust. True, the U.S. is doing better than most but it took four years to really turn the corner.

At the same time, our stock market, anticipating success, doubled over that time period despite the ups and downs of the economy. The same thing should happen to those economies that have only now embarked on stimulus programs.

Another reason for rising markets is the price of oil. It has at least stopped going down (for now). The death of King Abdullah of Saudi Arabia led traders to hope that his successor, half-brother Crown Prince Salman, would have a different view of where the price of oil should be. Saudi Arabia has refused to cut output despite the precipitous decline in oil this year. I would not hold my breath expecting the new ruler will cut production.

Saudi Prince Alwaleed Bin Talal, one of the country's most astute investors, warned that the price of oil might still not have found a bottom.  And for those who expect a sharp rebound in the price soon, Alwaleed suspected the road back to $60-$70 a barrel will neither be easy nor quick. I agree with him.

As readers may know, we are now in earnings season once again and so far the banks have been disappointing. The level of legal costs and fines that sector has had to pay out based on wrong-doing during the financial crises, coupled with poor trading results have hurt their bottom line. I am expecting companies exposed to currency risk (a rising dollar or falling Euro) will also disappoint.

There may be a counterbalance to those disappointments by companies who benefit from lower energy prices and a rising dollar but earnings overall will be somewhat checkered.

Nonetheless, I am sticking with this market on the basis of more central bank stimulus means rising stock markets. What else do you need to know?

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



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The Independent Investor: The European Central Bank Delivers
By Bill Schmick On: 04:39PM / Thursday January 22, 2015

Thursday, Mario Draghi, the head of Europe's Central Bank, announced new steps in an effort to lift the EU from economic malaise. Investors wonder if it will be enough.

That's not unusual. There were many doubting Thomases in this country when the Fed first launched its quantitative easing program back in 2009. Japan, which is in the second inning of its stimulus program, also has its share of detractors.

At first blush, the expanded program of stimulus includes an asset purchase program of both private and public securities of up to $60 billion Euros ($69 billion) a month through the end of September 2016. That amounts to well over a trillion Euros in new stimulus. The markets were expecting roughly half that much.

What makes the move even more impressive is that the ECB prevailed in the face of heavy opposition from Germany's Bundesbank. The Germans argue that bond bailouts like this only encourage spendthrift countries to postpone economic reform. Greece is just one such country.

Greece is scheduled for national elections this weekend and Syriza, a popular anti-austerity party, is expected to win. The ECB's new stimulus program appears to include Greek debt but under certain conditions, most likely linked to Greece's willingness to continue economic reforms.

Unlike our own central bank that has a dual purpose of maintaining employment and controlling inflation in this county, the ECB has only one mandate — inflation. They have failed miserably in achieving their stated goal of an inflation rate of just under 2 percent annually. Last month, consumer prices actually turned negative, falling 0.2 percent. What concerns European bankers and governments alike is that the EU is at real risk of entering a deflationary, no-growth economic period similar to what Japan experienced for well over two decades. Once deflation infects an economic system it is notoriously difficult to cure. The hope is that the central bank's monthly injections of capital at this scale will stimulate growth throughout the 18-member countries and re-inflate the economy.

As a result of these actions, we are now in a peculiar place globally. While the United States has discontinued its stimulus programs, Japan, Europe and China, the largest economies in the world, are embarking on their own stimulus agendas. This does cause some strange disparities in interest rates and currencies however. Interest rates in Europe at this time are lower than here in America. The U.S. dollar is gaining strength while the yen and the euro continue to weaken.

We can expect these trends to continue as time goes by, but there are some benefits. Many currency traders expect that the euro will trade one-to-one with the greenback in the months ahead. The Japanese yen is already dirt cheap. If there was ever a time to book that European or Japanese vacations, now is the time.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



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@theMarket: Tail That Wagged the Dog
By Bill Schmick On: 01:18PM / Sunday January 18, 2015

Rarely do we see a single financial asset, in this case oil, have the ability to sway the prices of trillions of dollars worth of investments on a daily basis over such a prolonged period of time.

Oil has been in a months-long tailspin. Its decline was supposed to be a good thing for most consumers, governments and markets worldwide. Why, therefore, has oil's plunge had the opposite effect?

The answer depends on the reader's time horizon. If you are the type of investor who trades with "high frequency," as do almost 70 percent of market participants these days, then your concern is how much you can make or lose by the close of the day. The price momentum of oil is clearly to the downside (interspersed with short, sharp relief rallies). When you ride a successful trend like that, momentum becomes a self-fulfilling prophecy. Declines begat further declines and where it stops nobody knows.

Technical analysts say the next stop on oil prices is $40 a barrel. Until then, shorting oil and anything oil-related is what is called a "no-brainer" in the trade.

But wait a moment, if cheaper energy is good for most global economies, stocks, etc., why are they falling in price as well? The simple answer is that the benefits of sustainable lower energy prices are longer-term in nature. That's why the Fed ignores the short-term price gyrations of energy or food in its inflation calculations. All too quickly what came down, goes back up.

The market knows this but chooses to ignore it. Consider December's "disappointing" retail sales data. The Street had convinced itself that Christmas sales should be terrific simply because oil prices were dropping. Consumers would (so the story goes) take every dime saved at the pump and immediately go out and buy holiday presents (ala Scrooge) for one and all. As a result, retail stocks soared in early December.

Analysts were falling over themselves hyping the sector and short-term traders made money.

Did anyone bother to ask whether consumers might have other uses for those windfall savings? Maybe paying down debt or actually bolstering savings might have taken priority over a new computer or television.

Consumers, like the Fed, have seen pump prices rise and fall many, many times in the past decade. Clearly, those energy savings, if sustainable, will translate into higher spending over time but the real world operates under a different time schedule than Wall Street.

For those who have a longer-term time horizon, however, theses short-term traders are creating a fantastic buying opportunity for the rest of us. And I don't mean by just buying a handful of cheap oil stocks either. You will have plenty of time for that. So many pundits are trying to call a bottom on oil that the only things I am sure of is that we haven't reached it yet. And what if we do?

I was around for the mid-1980s oil bust when the price of oil fell 67 percent between 1985-1986. It took two decades for oil prices to regain their pre-bust levels. Sure, energy stocks were cheap but they remained cheap while the rest of the stock market made substantial gains. Why take a chance on picking a bottom if your only reward is a dead sector for years to come?

Why not look to buy long-term beneficiaries of a lower oil price in areas such as industrials, technology, and transportation and yes, consumer discretionary? In the short-term, have patience because as I have said I believe the markets will decline in sympathy with oil until we reach at least that $40 barrel number. After that, by all means, do some buying. I know I will.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



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News Headlines
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Triad Holds Annual Picnic at Greylock Club Pavilion
Adams Inviting Residents to Get Involved in Strategic Planning Process
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Mount Greylock Officials Make Case for School District
Economist Urges Berkshires To Build Around Strong Non-Profit Economy
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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