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The Independent Investor: What Happens If You Can't Afford Obamacare?
By Bill Schmick On: 05:13PM / Thursday May 23, 2013
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We have all been inundated with the pros and cons of Obamacare. It has become so ubiquitous in our daily lives that most of us have simply tuned it out. We can't afford to do that much longer.

As most readers know, Obamacare, formally named the Patient Protection and Affordable Care Act, will become the law of the land on Jan. 1, 2014. However, as early as October of this year, a new way of buying health insurance will be available to consumers through an online insurance marketplace. So decision time approaches.

But what about all those who have no health care and believe they can't afford to buy it? What do they do? There have been times earlier in my life when I was unemployed. I could barely afford to feed and house myself let alone worry about health insurance. Besides, I was young, healthy and felt I would live forever so what did I need to shell out a couple hundred dollars a month for unnecessary insurance?  Fortunately I had no family at the time. If I had, I would have been in a real bind.

So I can understand how many of us look at this national health care scheme with anger and even fear. After all, the law says that if we don’t join up and obtain healthcare we are going to be fined. What many lower and even middle income families fail to understand is that there is help out there. All we need do is ask.

At last count there are nearly 26 million Americans that could be eligible for a health insurance subsidy, but few know enough about the provisions of the health care act to apply. I'll keep it simple. If you are a member of a working family with annual earnings between $47,100 and $94,200, you will most likely be able to apply for a subsidy. Over a third of those eligible to apply will be between ages 18 and 34 years old. Anyone who is not a member of a government health insurance program (Medicare or Medicaid) and does not have access to an affordable plan at their work place can apply to the government to help pay their premiums. These subsidies will be paid directly to the insurance companies, so there are no out-of-pocket expense requirements.

Starting in October, we will all be able to buy insurance through one of the state-run online health coverage exchanges with health coverage beginning in January. You will be able to choose between four levels of coverage: platinum, gold, silver and bronze. Each of the four plans will offer different premiums and out-of-pocket expense charges.

So let's say you are a family of four earning $94,200 a year and buy a silver premium plan. Preliminary estimates project that such a plan would cost $12,500, but that number could be higher or lower depending upon where you live. The government would pick up $3,550 of that. The exact amount depends on your actual earned income. The idea is to make sure that all individuals pay about the same percentage of their income for health insurance.

For those of us who already have insurance, you will have to decide whether to keep your existing plans or buy insurance on the online exchange. Naturally, you will be able to choose the provider you want based on who offers the most attractive package in terms of affordability and coverage. For all of us, be prepared for mistakes, misunderstandings and some confusion but that is no reason to stick your head in the sand. We are only three months away from making some important decisions so start paying attention.

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: 1995 Redux?
By Bill Schmick On: 04:30PM / Friday May 17, 2013
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By my reckoning, this leg of the stock market rally began about a week after the presidential elections. The rally overall has been going on much longer. The question everyone is asking is how long it can go on without a major correction.

If one looks back through history, the chances of the S&P 500 Index continuing to move higher without at least a 4 percent pullback is slim at best. There has been only one year in recent history, 1995, where the market continued higher throughout the year without any kind of significant pullback.

I remember that year well, and there are both similarities and difference between 1995 and today. Back then, U.S. unemployment was below 6 percent. Today it is 7.5 percent. The economy was recovering from a mild recession at that time but it was a bumpy ride. GDP fell below 1 percent for the first two quarters of the year and some worried the economy would slip back into recession.

Corporate profits were rising, whereas today, those profits are already at record highs. China's economy, like today, was slowing. Commodity prices were dropping, Europe's economy was moribund at best and this country's deficit was at a record high (as a percentage of GDP).

Investors had little confidence in their elected officials. Congress was fighting over reducing the budget and other social issues. It was so bad that congressional Republicans actually shut down the government later in the year. It would be fair to say that the stock market was climbing a wall of worry throughout 1995.

Alan Greenspan, who was running the Federal Reserve Bank at the time, had already engineered a bond market crash by raising interest rates in 1994 in order to head off an expected rebound in inflation. In the spring of 1995, he reversed those policies and began to ease at the same time that the economy was beginning to grow again.

As I have said in the past, history tends to rhyme, if not repeat itself, and the similarities between Fed policies today and those of Alan Greenspan are striking. Like 1995, the U.S. economy is also growing, registering a 2.5 percent annualized gain in the first quarter while our Fed continues to ease.

The first half of the Nineties had been turbulent and investors were shell-shocked, distrustful of Washington, the Fed, and definitely the credit and equity markets. No one, including yours truly, was prepared for good news and when it came we were skeptical at best. Does any of this sound familiar?

Granted, 1995 was an outlier of a year and nothing says 2013 will be a repeat of that year. But I have often said that the markets will do what is most inconvenient for the most number of investors. Everyone has been warning you that the markets are due for a correction. Heck, I have been saying that off and on since January. The point is that it doesn't have to happen in May ("sell in May and go away") or June, July, August, etc. So go ahead and dream about a market that just continues to go up. It probably won't happen, but what if it did?

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: Sticker Shock in Housing Market
By Bill Schmick On: 04:43PM / Thursday May 16, 2013
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The housing market has been in the doldrums so long that most of us believe that when we are ready to buy a new home there will be plenty of deals out there. Think again, the rising costs of everything from land to labor are causing new home prices to climb.

As U.S. residential real estate begins to rebound from its worst downturn since the Great Depression, the pace of recovery is beginning to cause bottlenecks in all sorts of areas. Suppliers of various building materials, for example, after shutting down much of their operations over the last few years, suddenly are besieged with orders from homebuilders across the nation. Unfortunately, it will take time, money and a willingness to expand in order to meet this new demand.

In the meantime, prices go up. Here are just a few examples: the price of gypsum (a key ingredient in drywall) is now only 6 percent below its peak price during the housing boom of 2006. Cement is 99 percent of its 2006 peak price while lumber is 93 percent of peak pricing. Those producers and distributors who have materials for sale are benefiting from these higher prices, but don't expect them to willy-nilly start expanding capacity.

Once burned, company managements are going to make sure that this new-found demand is not simply a flash in the pan. They will wait until they are sure that future demand and higher prices are sustainable over the longer turn before reopening closed plants and hiring more workers — if they can find them.

It may be hard to believe, given the nation's unemployment rate, but skilled labor is increasingly difficult to locate in both the construction industry and the sectors that supply materials. During the great housing layoff, carpenters, bricklayers, frame builders, equipment operators, electricians, plumbers and more were forced to abandon their professions and for many their geographic location in order to feed themselves and their families. Many migrated into the energy business or wherever else they could find work.

Although we don't like to admit it, Mexican workers (illegally here or otherwise) are also scarce. Many of them went back to Mexico during the recession and never returned. Others abandoned states like Arizona after lawmakers passed stricter immigration laws aimed at undocumented workers.

Even land in the form of finished lots is a scarce commodity. During the last five years, the pipeline of approved finished lots was drawn down nationwide and few new projects were initiated. It will take longer than you think before that pipeline is refilled. Remember that developers must go through a long and onerous process to prepare land for new construction. Some state and local governments require years of deliberation before approving residential projects. In the meantime, finished lots are going up in price.

Homebuilders are between a rock and a hard place. Costs are increasing. They can do one of two things: eat the costs, thereby reducing their profits, or pass them on to consumers in the form of higher sticker prices. Obviously, they would prefer the latter, but that remains somewhat difficult because of the comparatively few potential homebuyers who can qualify for a mortgage.

If builders raise prices too much, the buyers will balk and look elsewhere, namely in the stock of existing homes for sale. That may well be a good thing because it will reduce the stock of existing inventory waiting to be sold.

In the process it will bid up existing home prices and eventually shrink the gap with newly-built housing. Either way, if you have been postponing your purchase of a home in hopes of a great deal, that time has come and gone.

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: Online Education Is Not a Panacea
By Bill Schmick On: 08:36PM / Thursday May 09, 2013
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Over the last decade, online enrollment in college classes has exploded. Many hope that it will ultimately help reduce the burgeoning future costs of a college education. The evidence, thus far, indicates that we have a long way to go.

At the outset, readers should understand that there are two initiatives that have yet to converge in online education. There are MOOCs (Massive Open Online Courses) offered for free by several universities and colleges, although in some cases the educational institution will issue a certificate or letter of completion (for a price).

These MOOC courses enroll hundreds of thousands of students in 150 or more countries worldwide. The courses are usually developed and taught by big-name educators and function as promotional tools for the teacher and their college or university. The students, in turn, benefit from the acquisition of new information, knowledge and skills, as well as making connections with fellow students from all over the world.

There are also online tuition courses offered by colleges and universities where students pay tuition comparable to what they pay for the traditional physical college class and receive college credit for successfully completing these courses. Back in 2002, only 34.5 pecent of colleges offered online courses; today that figure has grown to 62.4 percent. There are, however, some interesting dimensions to these classes and who enrolls in them, according to the online education company, Learning House.

In a July 2012 report, Learning House found that 80 percent of online students lived within 100 miles of the physical campus of their online educational institute and many lived even closer — within commuting distance and with good reason.

Studies have found that students still need the physical interaction of the classroom. Evidently, face time with the teacher remains an important element of the educational process. So students may enroll in one or two online courses because of a part-time job or other scheduling conflict, but they still take the majority of their classes on campus.

There are also some unexpected issues that have cropped up within the online classroom. Columbia University's College Research Center found that the attrition rate of students attending online courses is quite high. In some cases, especially in the highly popular MOOC courses, those students who failed to complete the courses approached 90 percent. Higher attrition rates also plague smaller classes as well.

Some studies indicate that online classes are better suited for highly motivated, highly skilled students; while those students who struggle or who have failed to master the basics like math and English, do poorly. Unfortunately, that accounts for a great number of today's students who are also having the hardest time affording college tuition.  

There is also some concern that only certain subjects, such as mathematics, computer science and engineering, can be effectively taught online. It may be more difficult to teach liberal sciences such as writing, communications or even lab work. There are also technology issues that can make the best course a nightmare to attend because of poor or inadequate video, document sharing, discussion boards, etc.

That does not mean that online education will not continue to grow. I believe it will and online learning will ultimately find its niche within the educational system. However, I see little evidence that it will alleviate climbing college tuition costs any time soon.

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: The Goldilocks Market
By Bill Schmick On: 04:55PM / Friday May 03, 2013
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The S&P 500 Index made record highs this week. It is catching up with the Dow, which has been making new highs now for over a month. Yet many investors do not believe this rally. Some are still sitting on the sidelines waiting and praying for a pullback that has not occurred.

There is an old saying that the market will do what is most inconvenient for the greatest number of people. Right now this slow grind higher seems to be causing more irritation and angst than anyone could imagine among many investors. Those who are in and experiencing double-digit gains so far this year still worry about how high the markets have come and whether or not they should bail.

"I don't get it," complained one such client, "The data is checkered at best. The unemployment rate is too high, but the market seems to ignore all of it and just keeps climbing."

"It is a Goldilocks market," I explained. "As long as the economic data is neither too hot nor too cold, the markets will continue to rise."

It really doesn't matter that much whether earnings are good or bad or that the economic date is contradictory. It is all about the Fed and it's on-going stimulus. Weak numbers mean that the Fed will continue easing. This week's Fed announcements, following their two day policy meeting, only encouraged investors further.

Investors chose to read positive implications into the Fed's statement that they might "increase or reduce" the size of its monthly $85 billion purchase of bonds. It will depend on the rate of unemployment and inflation. Since inflation has dropped below the Fed's target of 2 percent annually, there is clearly a green light to increase bond buying if they want.

As for unemployment, not only is the rate way above its target (6 percent versus today's 7.5 percent rate), but the numbers are up one week and down the next. So given the state of both inflation and unemployment, the markets are betting that the Fed is at least going to maintain their buying. And if the numbers come in weaker than expected, there is a good chance they will increase their purchases. Thus, bad news is good news.

The good news, like Friday's unemployment numbers of 165,000 new jobs (140,000 were expected) or the greater than expected rebound in national housing prices, was tempered by negative news on other fronts. March factory orders declined by 4 percent (3 percent expected) and non-manufacturing ISM data, which measures the nation's services industry, was also a disappointment. That data presents a mixed picture at best. Taken together, the numbers hold out the hope for even more easing while at the same time remove the possibility of an end to further stimulus anytime in the near future.

Like I said, the national porridge is neither too hot nor too cold. It is just the way investors and the market like it. So where are the three bears in this story?

One bear could be that the economic data becomes so bad that investors fear even the Fed can't prevent a recession. The Fed (and I) has made it clear that "fiscal policy is restraining economic growth." That's Fed speak for the wrong-headed, ill-advised policies that our Congress insists on enacting, such as the sequester cuts. There is a possibility that our elected officials could engineer our next recession.

Another bear could appear if the economic data indicated much higher growth ahead then the Fed expects. That would force the central bank to reduce its bond buying. That seems a remote possibility given Congress' penchant for doing nothing, unless it involves increased fiscal austerity.

The third bear could be a "Black Swan" type of event. North Korea, Iran, Syria or some other geopolitical event could also cause markets to swoon. We saw how fast the stock market declined in the aftermath of the Boston Marathon massacre. Something like that could trigger a rush for the doors. That third bear is always present and one reason I advise all but the most aggressive clients to keep some of their portfolio in defensive securities.

So Goldilocks is alive and well today but unlike the fair maiden, it is always smart to remain somewhat cautious when investing in markets. After all, you never know who may be lurking under those covers in your bed.

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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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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