Recently, none other than the Sage of Omaha, Warren Buffet, has sounded the alarm on what he sees as the number one threat to American businesses — rising health care costs. His advice is that we better do something and do it quickly.
While Congress bickers over how to repeal and replace Obamacare, there is still a large body of American politicians who believe we should simply return to the good old days. While they fiddle with adjusting insurer's premiums, or gutting Medicaid, the entire healthcare system surrounding them continues to burn. While they debate whether you should be responsible for your own medical insurance and how much Medicare should cover, health care costs rise at the rate of hyperinflation.
Our legislators and president are strangely silent on what happens to those whose employer does not provide health insurance because they can't afford it; (which is the case for many in small businesses). And by the way, small businesses happen to be the main employer of American labor.
They are also silent on what happens to those of us whose Medicare insurance premiums, plus uncovered medical expenses, become higher than their retirement income. Recent estimates put uncovered medical costs at $260,000 for these same retirees. Of course, there is always Medicaid for the impoverished among us. But even that program, if the House has its way, will be reduced by $1 trillion this year.
The politicians are focusing on the symptoms and not the cause of our health-care problems.
Buffet, a Democrat, in his recent shareholder meeting, took time to address what he called the real problem for American business, and it wasn't taxes. The cost of health care, he maintained now represents about 17 percent of this country's Gross Domestic Product (GDP). That's up from just 5 percent of GDP 50 years ago.
In comparison, corporate taxes, the supposed blain of Corporate America represents just 2 percent of GDP and that is down from 4 percent of GDP in 1960. Our country's global competitiveness has fallen, not because of corporate taxes, but because health care costs have diverted business spending from more productive uses like investing in new plant and equipment.
Why do Americans still pay far more for medical care than any other Western nation?
The U.S. ranks dead last (and has done so for 15 years) in struggling to pay for medical care when compared to other developed countries, according to the Commonwealth Fund. We, or the companies who pay for our insurance, spend roughly $9,523 per person each year on medical expenses. That comes to roughly $3 trillion/year, for a family of four, medical insurance coverage by our employers amounts to $12,591, which is up 54 percent since 2005.
But Buffet isn't the only one who is sounding the alarm. Bill Gates, the respected and visionary founder of Microsoft, in a TED Talk presentation last year, also warned of the devastation rising health care costs were having on our economy.
Wherever you look, he said, rising healthcare costs are siphoning off money that should be spent on things like education, building bridges, airports and paying down our debt.
Governmental and private organizations, combined, are forced instead to divert more and more of their spending to health care costs.
Pundits decry America's low rate of savings, but do not take into account how much of that potential savings rate is now being swallowed up by heath care costs. Economists say the typical American consumer is not spending like they used to; how can they when so much of that paycheck is now going to prescriptions, co-pays and deductibles? The truth is that whatever wage raises our workers received over the last few decades have not nearly kept pace with the hyperinflation of our medical costs.
I agree with both men. It is time for all of us—corporations, small business, Republicans, Democrats and Independents — to identify the real crisis in this country and do something about it. The health-care sector requires a complete overhaul from top to bottom. Forget this sparring over symptoms and not the cause. If, as a nation, we don't know how to turn the tide, there are plenty of examples among our foreign neighbors. What in God's name are we waiting for?
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
As the clash between brick-and-mortar retail enterprises and the mighty Amazon escalates, the internet shopping colossus is laying waste to one store or mall after another. One of the few areas that has not only staved off the internet shopping giant, but has actually turned the internet and social media to its advantage, is the cosmetics industry.
There is a combination of fortuitous developments, some peculiar to the makeup industry, and others the result of adept marketing that has allowed the beauty trade to grow unencumbered. Social media, as you might imagine, has played a big part in growing an industry that has revenues of $62 billion and climbing.
For decades, women would pay a visit to their local department store, drugstore, or shopping mall and head for the cosmetics counter. They did so because most women consider makeup a necessity of life. They received a quick lesson in cosmetics application from the clerk or salesperson. At the same time, they could also see and experience these products on their own skin. The only alternative to the beauty shop was to sign up for a cosmetology class, hire a makeup artist or rely on a girlfriend who knew her way around makeup.
Today, social media has become both the new beauty counter as well as a place to show off the results. Just check out the number of YouTube tutorials available on makeup. Now that the industry can post videos on Instagram as well, industry experts can hawk their wares easily and directly, but can also show consumers exactly how a new product is intended to be used as well.
A whole new industry has sprung up around selling cosmetics on social media. There is now what are called "beauty vloggers," enterprising women who are internet businesses in their own right. Some are models or ex-models; others come out of the makeup industry and set up shop as beauty gurus. They dispense beauty advice as well as tutorials on how to apply specific types and kinds of makeup.
Another new phenomenon is the "haul girls." These are women who take the viewers on an extreme shopping spree and explain on camera what products are "hot," while giving their opinion of the products. Today, fully 95 percent of consumers looking for beauty products will search out YouTube first. Some of these beauty mavens have millions of subscribers and can make or break a brand. In the beauty business, influencers like these vloggers and haul girls carry a great deal of weight.
And with the popularity of posting photos on Facebook, Twitter and other social media, more and more women don't want to be caught "naked" when it comes to makeup. That simply fuels more and more demand for cosmetic products.
While women use social media today for cosmetic instruction and to learn about the latest products offered, many still need to "test-and-trial" as the industry calls it. Video is fine, but how do you really know what that new blush or nude lipstick is going to look like on you? Buying many cosmetic products online is tricky. The subtlety of shades and colors abound and once it arrives in your mailbox, it is too late.
Unlike clothes or that DVD player, cosmetics, once opened, cannot be returned. This becomes problematic, especially at some of the price points these products command. Sure, some products that a woman will use over and over again can be ordered over the internet, but styles and new developments in cosmetics change rapidly.
That's why testers and samples are a large part of any brick-and-mortar beauty store's inventory. Many, if not all, of the basics undergo a revamp every so many years, so most women will check out the newest offerings on a fairly regular basis. And even your most hard-bitten internet buyer will succumb to buying a new product, especially after using the free consultation or makeup classes offered by these beauty centers. Unlike other industries, the beauty store still manages to deliver an "experience" as well as a place to buy products. Remember too, that there are no seasons in makeup, it has year-round fashion demand.
Discounts are also not high on the list of cosmetic company marketing tactics. Prices remain relatively stable, which is anathema to what usually occurs to a product once incorporated into the Amazon fold. So far, few, if any, of the luxury beauty brands have developed relationships with the internet giant. For now, the beauty business is thriving despite Amazon, and they hope that continues, at least until they can build their own e-commerce presence.
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
First-quarter earnings are coming in higher than expected while stock indexes hover just below historical highs. All that is necessary for further gains is a catalyst and that may be just around the corner.
This Sunday, French presidential elections will occur. As I wrote last week, it appears that the centrist candidate, Emmanuel Macron, has a widening lead over Marine Le Pen, the more radical right-leaning candidate. Why is that important to you?
It is all about the continued stability of the European Community and their currency, the Euro. Investors are concerned that if Le Pen should win, she might try to pull France out of the EU (think of the U.K. and Brexit). If Macron wins, the thinking is that he will assure a "business as usual" attitude among the French, which would be good for the European markets and therefore our own.
On the U.S. front, the House passage of a somewhat, garbled Repeal and Replace health care bill is also good news for the markets. The second attempt passed 217 to 213 on Thursday afternoon. It is not what is in the legislation as it currently stands. By the time the Senate gets through with their version; most of the crazy stuff will have been changed, amended or just thrown out.
House Republicans are risking their political future in ramming through this new legislation, which will potentially hurt a large block of the constituency that only recently voted them into office. In its current form, by the time mid-term elections occur in 2018, enough voters will have felt the full brunt of these changes in their pocket books. They will vote accordingly.
But to the stock market, the part of Repeal and Replace that is important is the tax savings that will occur (an estimated $1 trillion) by stripping away some of the Medicaid provisions that presently exist under Obamacare. This would free-up Congress to address tax reform, given that they will now have a nice chunk of change to start the process.
It might also breathe some life back into the Trump agenda. The new president's image (despite tweets to the contrary) has suffered from a perceived lack of accomplishments in his first 100 days. There have been several legislative set-backs from healthcare, to funding the "Great Wall," to barely passing a temporary measure to fund the government and then only to September.
President Trump needs a "win" and tax reform is something that is near and dear to Wall Street, as well as to businesses in general. Since the House failure to pass health-care legislation, the markets have been in limbo. What investors need is some visibility; some assurance that a Republican-led Senate, House and administration can accomplish more than a divided Congress could over the past eight years. So far the jury is still out.
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
Last quarter, the percent age of Americans' personal savings rate stood at 5.9 percent of their disposable income, according to the Bureau of Economic Analysis'. Given that number had fallen to as low as 1.9 percent in 2005, that's a large improvement. But who is saving and who is not is the real question to ask.
Our savings rate is clearly higher than it used to be relative to other countries. It is nowhere near the Chinese savings rate of 38 percent of 2014, for example, but it has improved to the point that we are now somewhere in the middle of the pack when looking at the 35 member countries of the Organization for Economic Cooperation and Development.
But before we break out the champagne in toasting our newly-thrifty nation, you might want to understand that it is most likely the top 10 percent of households who are responsible for the lion's share of this improvement. Given that income inequality is at historically high levels in this country (comparable to what they were during the American Revolution), an argument could be made that the "haves" in this country are so rich that they can't spend it all. And so they increase their savings rate.
We do know that as late as 2013, the bottom half of income earners saved little to no money. In 2015, a Pew Charitable Trust study indicated that 41 percent of households had less than $2,000 in savings and 25 percent of us had less than $400 on the side. After the financial crisis, there was some hopeful news for the common man on the credit card front. Debt had fallen every month from 2010 to 2015. However, it appears that is now reversing. At the end of last year, Americans had racked up $1 trillion in credit card debt, an all-time high.
The problem in America, according to many behavioral experts, is that we allow our lifestyles to dictate our savings rate, rather than the other way around. "Keeping up with the Joneses" is still alive and well throughout the country, as is the need to acquire the newest, most eye-catching devices or convenience.
To many of our citizens, our country "owes" us a living while we have an inalienable right to spend as much money as it takes to make us happy. Bottom line: 21 percent of working Americans are saving nothing and just 28 percent of us are saving more than 10 percent of our incomes, according to Princeton, Survey Research Associates.
In survey after survey, 38 percent of consumers say that the main reason they don't save is because they have too many expenses. To be fair, some of their expenses may no longer be under their control. If you already had a lot of debt, for example, whether it is a home mortgage, college tuition, medical or credit card debt, a certain amount of expenses must be earmarked for these past liabilities. There may not be anything left to save. But it doesn't give us license to keep spending more.
Procrastination is the second biggest reason for not saving. Over 16 percent of Americans admit that they simply haven't gotten around to it. And the younger they are, the higher the number of non-savers. Younger respondents also argue that they don't make enough money to save.
The good news may be that the unemployment rate is at record lows and wage growth is improving after years of stagnation. As a result, an outside observer might come to the conclusion that this should allow more people to save more, but this is America.
The question to ask: will Americans save it or spend it? If modern history is any guide, I'm betting on the latter.
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
Markets by their very nature are impatient. Every day they are open, something, somewhere has to be making traders money. Applying that behavior to either Donald Trump or the overall economy would be a mistake.
Nonetheless, it is what it is, Friday's first quarter GDP data, which measures the pace of growth in the U.S. economy, came at a dismal 0.7 percent. That was far less than expected. Most economists were expecting a number closer to 1 percent or more.
The response from Wall Street was "where's the beef," meaning that there has been little to no evidence that our new president has done anything whatsoever for the economy. But what about all the new hope corporations and investors are supposed to be feeling? Well, hope doesn't pay the bills or seemingly goose investment spending very much. Fixed investment in the nation's plants and equipment only expanded by a measly 1.6 percent.
To be fair, the first quarter in just about every year tends to be the weakest. Economists call it "residual seasonality." You can think of it as the after Christmas economic hangover when spending dampens down as the credit cards bill come due. Most traders know this, but hey, if there are suckers out there that are dumb enough to sell stock because of it then ... .
I'd rather listen to folks like Ben Bernanke, former Fed chieftain, who thinks that a combination of low inflation, low interest rates and global growth not only justifies the level of the stock market but may point to further gains ahead. Bernanke thinks very little of the market's rise is predicated on additional U.S. fiscal policies.
And now that our new president is reaching the 100-day mark, the temperature on Wall Street has cooled a bit. Many traders are beginning to temper their enthusiasm for "huge tax cuts" when the reality is that just because it's tweeted does not make it so, at least anytime soon.
If you were spelunking in Afghanistan or excavating mummies under pyramids in Egypt, you probably missed the administration's new tax proposals. The rest of us now know that Trump aims to reduce individual tax brackets from seven to three. He also wants to eliminate most of our tax deductions with the exception of charity gifts and home mortgage interest deduction. Tax-deferred contributions will also be spared the knife.
However, state and local taxes would no longer be deductible, which is a blow to those of us who live in the Northeast where taxes are high and so is income. It is also an area that was notably Trump-unfriendly during the election. But before you get your drawers in a tizzy, remember that this is only a broad proposal and the final legislation that is passed will be a lot different.
The stock market, however, seems to have taken all of this in stride.
I wrote last week that I was looking for the S&P 500 Index to breach 2,360 and remain there for a few days before I could give the market an "all clear." Thanks to the primary elections in France last Sunday night, that's exactly what happened. Since then the S&P 500 has traded above that level.
I believe the markets have been supported by a fairly good earnings season where the vast majority of companies are beating earnings expectations. What, to me, is even more important is that a growing number of countries are berating on the revenue number as well and giving improved forward guidance on sales. Since it is definitely more difficult to manipulate sales than it is earnings, I view this as an important development.
If you took my advice, you weathered a shallow pull-back of at worst 3 percent. My expectations were for a sell-off no worse than 5-6 percent. Now I expect markets to climb higher with the S&P 500 possibly tacking on another 50 point or so in this quarter.
Bill Schmick is registered as an investment adviser 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. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
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