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The Independent Investor: Food Stamps & the Farm Bill

By Bill Schmick
iBerkshires Columnist

The decision by Congress to pass a version of the new farm bill that excludes the food stamp program caused a fair amount of concern throughout America last week. Unless a compromise is reached with the Senate by September, it will mean that a lot of people, especially children, are going to go hungry in the months ahead.

Food stamps, officially called the Supplemental Nutrition Assistance Program (SNAP), have been around in some form or another since the Great Depression. Its basic purpose is to help distribute food to the needy amid calamitous times such as widespread unemployment and economic dislocation. It became part of the farm bill back in the 1970s through political expediency. Every five years since then, the legislation has been renewed, usually with some new tidbits of pork for both sides. Both Democrats and Republicans grew to like this deal because urban liberals could advance their ambitions to provide nutritional help to the poor and needy while rural lawmakers could guarantee continued price supports for their farming constituencies.

Over the following decades this bi-partisan back-scratching resulted in a farm bill loaded with abuses, Soviet-style central planning and governmental outlays that expanded exponentially went hand-in-hand with hand-outs for all regardless of real need. Over the past 10 years, as an example, the farm bill has cost taxpayers close to a trillion dollars.

Today almost 80 percent of those outlays are spent on SNAP and other food stamp-type programs, which cost taxpayers $78.4 billion in 2012, compared to $20.6 billion in 2002. Last year, 46 million Americans received an average of just over $130 in benefits, which amounts to about 73 percent of their monthly grocery bill.

Households must earn less than 130 percent of federal poverty guidelines and have assets of less than $2,000. For a family of four, this would mean an annual income of less than $32,000. The number of Americans that took advantage of the SNAP program last year increased by nearly 3 percent and given the economy and unemployment, that number is predicted to increase again this year.

The Berkshire delegation spent a week living on $31.50 - the average SNAP amount for an individual

Berkshire Lawmakers Taking SNAP Challenge

Halfway Through SNAP Challenge

#SNAPchallenge tweets

Berkshire Lawmakers Complete SNAP Challenge

In addition to food stamps, the Emergency Food Assistance Program, as well as other nutrition programs aimed at children, seniors and Native Americans, were also discarded as part of this latest congressional farm bill overhaul. What, you might ask, could possibly justify this wholesale gutting of one of this country's most important social safety net?

Democrats blame the Republican Party, led by the austerity-at-any-cost tea party faction, for the fiasco. On the surface that may be true, but I have to give the GOP a point or two for at least trying to overhaul this unwieldy and unworkable bill. Separating the two issues was a good way to start.

House Speaker John Boehner (R-Oh) said that although they dropped food stamps from the farm bill, the Republican Congress would address that issue in the future. I believe that many moderate Republicans see the worth in food stamps but that does not mean that they won't try to rein in the amount the government is spending on the program.

Critics argue that these food stamp programs have become too easy to access under the Obama administration and are costing the country far too much. The Wall Street Journal in its editorial, "A Healthy Farm Rebellion," applauded the GOP's actions and labeled food stamps "the symbol of the runaway welfare state with 47 million Americans receiving taxpayer funded meals as of this March."

There are also growing complaints that the quality of the foods and drinks that recipients are buying with their food stamps ($5 billion alone was spent on soda) cannot be termed "nutritional" by today's standards. The cheap processed food choices, critics insist, are simply adding to the obesity problem and do little to provide a well-rounded supplemental diet for America's poor and low-income families.

Some of those arguments do ring true to me. I also agree that the farm bill has become an unholy alliance of bipartisan pork barreling. It needs to be re-invented but I do take issue with how the Republicans have tackled the problem. You don't throw the baby out with the bath water. This is literally true since 72 percent of SNAP participants are in families with children and fully one-quarter are in households with seniors or people with disabilities.

The time to reduce these kinds of benefits is when they are no longer needed. In the meantime, with 12 million Americans out of work, food stamps are doing the job that they were intended to do. In my next column, I will be looking at the other side of the equation, the GOP "farm only" version of the bill. 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: Higher Education Just Got More Expensive

By Bill Schmick
iBerkshires Columnist
More than 7 million students and their families depend on Stafford Loans, a federally subsidized loans program, to help them get through college. Barring an eleventh hour compromise, it looks like the interest rates on those loans will double costing new students $1,000 more to fund their educations.
The initiative to raise interest rates on these student loans from 3.4 to 6.8 percent was spawned by the GOP-controlled House and passed July 1. Those politicians, who have continued to pursue their bankrupt austerity agenda, argue that, at most, the increase will cost new students $20 extra per month. Given that the vast majority of these same officials make well over $700,000 per year, I can understand why they don't think this should be such a big deal to you and me.
Or maybe they feel that since total student debt is now over $1 trillion, another $1,000 or so won't matter. Its peanuts, they argue, for millions of American families in the grand scheme of things. Peanuts to them, but our children's education debt has now surpassed both credit card and auto loan debt, ranking it as the second-largest type of consumer debt after mortgage loans. In the last 13 years alone, the average amount of student loan debt has increased from $17,000 to $27,250 — a 58 percent increase. Tell me another outlay that has jumped that much in so short a time period?
Long-time readers of this column know how much I value education of all kinds. Ask yourself how doubling rates on student loans furthers the aspirations and future hopes we have for a better America? Those responsible for this legislation would be quick to answer that this spending cut helps balance the budget, reduce the deficit and therefore puts the country on a sounder financial footing.
I believe that is an extremely short-sighted approach to what could be the single most important investment this country can make. Our children are our future. The ability to afford a higher education is a far more important priority than spending billions more on immigration control or the drug war or the dozens of other programs that remain ideologically sacrosanct from these austerity cuts.
Unfortunately, my hope that the Democrats in the Senate would be able to overturn this piece of legislation, at least temporarily, was dashed on Wednesday when all 46 Republicans and some Democrat Senators opposed a roll-back. There is still time to come to a compromise, but time is running out. The new legislation will not affect those students already enrolled in college but new students enrolling in September of this year will be.
Personally, I liked Massachusetts Senator Elizabeth Warren's initiative the best. In the first bill she has authored since her election, Senator Warren would tie the interest rate on Stafford loans to the rate banks receive from the Federal Reserve Bank. That would lower the student loan rate from as high as 6.8 percent to 0.75 percent, saving our students thousands in interest payments.
It is a strange world indeed when the rates that are charged to our banks by the Federal government are considered appropriate, while doubling the rates on student (who are, in essence, America's future), is somehow deemed just and fair.
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: Gay Marriage Comes of Age

By Bill Schmick
iBerkshires Columnist

This week’s historic Supreme Court ruling could be a windfall for gays married and living in at least 13 states and the District of Columbia. That accounts for about two-thirds of same-sex marriages in this country. For the rest, things are not so clear.

The high court's decision to lift bans on federal same-sex benefits will have repercussions throughout this country and will send corporations scrambling to reassess everything from withholding taxes to fringe benefits.

For those living in the 13 "Free" states where gay marriage has been legalized, they will immediately gain access to more than 1,000 federal benefits, including Social Security and tax law changes. The income tax benefits for "married, filing jointly" will be beneficial, especially for couples with very different income levels. However, wealthier couples will probably pay more in taxes. That will be a small price to pay for many of the 114,100 same-sex couples living together nationally. Other economic benefits, in my opinion, will outweigh the costs.

For example, Social Security benefits for same-sex spouses will now be a reality. Until Wednesday, the Defense of Marriage Act denied them those benefits, which could cost a retired couple $14,484 a year and a surviving same-sex spouse up to $28,968 per year, according to the Center for American Progress, a human rights project.

Additional good news for gay couples is in the estate tax arena. Upon the passing of a spouse, the unlimited marital deduction now applies so all assets can pass to a same-sex spouse tax-free. Gift tax deductions will be legal as well.

Tax-deferred savings plans, such as IRAs and 401(k)s, will no longer be taxed (as they are now) before they are rolled over to a surviving spouse's accounts. Pensions can also be left to same-sex spouses. As such, gay couples will be entitled to survivor benefits under the Employee Retirement Income Security Act, a federal law that governs most retirement plans.

Companies are going to need to re-examine and overhaul many employee benefits such as health insurance coverage and taxes. Until now, the value of a gay spouse's health benefits was treated as taxable income, whereas heterosexual couples paid for spousal benefits from pretax earnings. The ruling could save gay couples thousands of dollars per year. Other benefits, such as flexible spending plans and medical leave, will need to be adjusted in favor of the same-sex couple.

Where uncertainty remains are in 37 states in which gay marriage is not recognized. Generally, federal agencies usually defer to the states in determining marital status. The devil is in the details and that’s where it gets really murky. Let’s say, for example, you were married in a same-sex ceremony in Massachusetts or New York but then moved with your spouse to New Jersey. Some federal agencies will recognize your marriage as legal, while others will defer to the laws of New Jersey where same-sex marriages have still not passed the legislature.

Divorce or establishing legal ties with children may also be dicey in states that do not recognize same-sex marriage. Unfortunately, if you are married, gay and happen to live in a non-Free State, the battles for you will go on. You will continue to face opposition, roadblocks and political obstruction. It will all be perfectly legal, protected by a patchwork of state laws, which will vary from state to state. Unless all 650,000 same-sex couples in this nation move to the Free States, I see years of litigation ahead.

Yet, I am confident that the end result will be as inevitable as that of the Civil Rights movement of the 1960s. To all of my same-sex readers out there, I offer my congratulations for a job well done.

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 Fed Speaks

By Bill Schmick
iBerkshires Columnist

You would think the world was coming to an end, given the global investment community's reaction to Fed Chairman Ben Bernanke's press conference on Wednesday. Evidently, we are so addicted to the Fed's multiyear stimulus program that even a hint that the party may be coming to an end is a major cause of concern.

As for me, the end of the central bank's quantitative stimulus program is actually good news. It means that our economy and employment would have finally turned the corner. It means that all the stimulus efforts of the Federal Reserve Bank since 2008 has finally paid off. It means that our financial markets can finally be returned to the private sector where risk and reward are the paramount determinants of returns. Why is that such a bad thing?

The markets are reacting as if the Fed is going to withdraw its entire stimulus immediately and allow interest rates to rise overnight, thereby sending the world into oblivion. Nothing could be further from the truth.

Chairman Bernanke went to great pains to assure investors that they will continue to keep a lid on rates until 2015. The Fed will continue to purchase bonds and mortgage-backed securities until they see unemployment drop to at least 7 percent. After that, they will continue to stimulate until there is enough momentum in the economy to drive unemployment to at least 6.5 percent or lower.

In addition, at any time in the future if either the economy or unemployment appears to be suffering from the withdrawal of the Fed's stimulus, the central bank reserves the right to stimulate again. Yet the market appears to want both the stimulus to continue and the economy to grow at the same time, ever hear of wanting your cake and eating it too? In my opinion, that would lead to a massive inflation problem.

Despite the Fed's continued reminders that they are concerned with a whole host of data points, the financial markets believe that there is nothing more important to the Fed than the health of the stock or bond markets. That is a myopic view. The Fed’s concerns encompass everything from foreign markets, to currencies, to the price of commodities to the actions of the U.S. Treasury, which brings up another issue.

If the current federal taxes and spending rules remain the same, the budget deficit will shrink this year to $642 billion, according to the Congressional Budget Office. That would be the smallest shortfall since 2008. The budget deficit, despite the views of just about every economist, is shrinking quickly. The budget office predicts it will shrink even further over the next two years.

The U.S. Treasury, therefore, will need to sell fewer bonds each month in order to finance the shrinking deficit. The Fed, as readers know, has been purchasing $45 billion a month at these auctions as part of their quantitative easing program. If, as seems likely, the Treasury is going to reduce its issuance of bonds, the Fed is going to be faced with a tough decision.

Either they also taper the amount of buying they are doing each month, or face the unwelcome prospect of crowding out other buyers who are seeking to purchase those same government bonds. If the Fed doesn't taper, we could actually see interest rates on our sovereign debt drop to unacceptable negative rates of interest.

It would be an ideal time to taper bond buying since, with the economy growing and the government's need to issue new debt dropping, the Fed could taper without any appreciative impact on the economy or unemployment. It may take the markets a little while to catch on to these ideas, but when they do the markets will realize they have over-reacted.

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: Say It Isn't So

By Bill Schmick
iBerkshires Columnist

So far June is playing out as expected. Stocks are see-sawing in a trading range that is driving day traders crazy. Hopefully, you are not one of them.

This week was almost a carbon copy of last week. For two weeks in a row the averages tested the 1,600 level on the S&P 500 Index and then bounced higher. That was also the level where technicians predicted the market would find support (at what is called the 50-day moving average).

Don't worry; I'm not going to get all technical on you. It is sufficient to note that buyers stepped in at the same level that they did last week. And that is understandable since there really is no reason to go much lower than that. I have been looking for a mild pullback in the 5-7 percent range and that is exactly what we are getting.

If you have been reading my columns, you know that the Fed has provided the excuse the markets needed for this decline. As such, all eyes will be focused this coming week on the central bank's FOMC meeting. Investors are hoping for some clue or hint among the meeting minutes to gauge whether the Fed's intention to taper their stimulus program has firmed or weakened.

Tell me you're not leaving
Say you changed your mind now
That I am only dreaming
That this is not goodbye
This is starting over
If you wanna know
I don't wanna let go
So say it isn't so."

— Gareth Gates

I believe the markets are misinterpreting the Fed's actions. Nonetheless, the fear that the Fed plans to decrease the level of stimulus, if only modestly, is having a damaging effect on interest rates. In addition, investors are now wondering if the Fed's commitment to keep interest rates low, at least until the unemployment rate declines to 6.5 percent, is in jeopardy as well.

All sorts of interest and dividend yielding securities from U.S. Treasury bonds to preferred stocks have seen a downdraft in prices as a result. In the housing market, mortgage refinancing has dried up as 30-year mortgage rates hit 4 percent.

This is not what the Fed expected, in my opinion. They have acknowledged that in the past their on-again, off-again quantitative easing programs caused an uneven recovery in the economy and volatility in the markets. For the Fed, the trick is to wean the markets off central bank stimulus without causing the same results. That is easier said than done.

To be fair, the Fed has already accomplished some truly stupendous results over the last few years. They have kept us out of another Depression and initiated an economic recovery, even if it is slower than we would have liked. Their stimulus efforts in the financial markets have succeeded in recouping all of our stock market losses and then some. The housing market, which triggered the financial crisis, is a much bigger problem. But even there we are seeing a rebound as a result of their efforts

What would help would be stronger economic growth. A few back-to-back quarters of plus 3 percent growth would re-focus investors away from Fed stimulus and back where it belongs on the free market economy. Unfortunately, this grand central bank experiment is like any experiment. There is a lot of guess work involved. If, for example, the Fed were to wait until after one or two strong quarters of growth to taper, there is a risk that inflation could spike. That would force the Fed to ratchet up interest rates and torpedo the economy altogether. If they act now, they risk slower growth or even a recession.

As for financial markets, it is understandable that the Fed wants to inject some uncertainty back into the markets. Uncertainty is a key ingredient in investing. If investors believe the Fed will always have their back in the form of more and more stimulus, then investing becomes a one way street. It can create a bubble in stock prices just as easily as it created a bubble in the housing markets over the last decade.

So as much as we would all like to hear the Fed say it isn't so, we need to be aware that at some point in the future they are going to take away the punch bowl.

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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