The Independent Investor: Gold, the Bug, and You
If there was ever a time to flee to safety, the Pandemic of 2020 is a great excuse. Stocks tumbled, bounced back, tumbled again. The bond and credit markets have been in disarray. Yet, few have even mentioned the precious metals market as a place to be.
Even writing about gold in this age of Zooming, digital breakthroughs, 5G technology, and the like, seems anarchistic. The precious metal has been relegated to an obscure corner along with conspiracy theories, old warnings, and a small group of goldbugs who trot out "end of the world" warnings on down days in the stock markets.
You usually see these ads to buy gold every time stocks fall 10 percent or more. I imagine they do a good business, although by the time you get around to buying that coin or other investment, gold has already spiked so high that you are left holding the bag (or coin, as it were). I mean really, the theory that you should hold some of the metal just in case the world ends does not make any sense, unless you have it buried in your back yard.
If society did collapse, that gold you were holding in some bank vault would be inaccessible. The coins under your pillow would be stolen or worse since there would be no law and order anymore. Besides, there are better safety trades — U.S. Treasuries bonds and the U.S. dollar come to mind.
And gold is costly to hold. It pays no dividend, but there are charges to safely secure it, hold it in a vault, or whatever. These costs are based on the prevailing interest rates at the time.
The other argument is that gold works well in inflationary environments. Have you looked at the rate of inflation, lately? It has been around 2.5 percent, or lower, during the last decade or more and seems to be falling further in this recession. Plus, in this pandemic, the demand for gold jewelry by the global retail trade has also fallen off. That should be no surprise since demand for most luxury goods have been hit hard by COVID-19.
I believe I have outlined the bear case in gold fairly well. But riddle me this: gold has gained 25 percent since I last suggested that readers keep 2-5 percent of their assets in this precious metal?
That was back on Feb. 15, 2018. In the meantime, I took a look at the performance of the stock market during that same period. The S&P 500 Index, as of today, is up 1.79 percent in comparison.
Yes, despite all the naysayers and the ridicule that advocates of gold have endured throughout the past two years, gold seems to have been the place to be. Why, therefore, were all these so-smart investment advisors wrong? For one thing, they have little to no long-term investment experience. Most of them were in diapers back in the seventies and eighties when inflation was a very real and dangerous variable in the investment world.
The second, and even more important reason, is that they are having difficulty understanding the new world of practically zero interest rates, plus the impact of a tsunami of global monetary stimulus. The best they can do is watch the results of these trends play out and react accordingly.
Given the global financial environment, therefore, where does gold fit in? While inflation is dropping, and the dollar keeps climbing, the bond market vigilantes are betting that here in the United States interest rates are heading toward negative rates of return. For gold holders, that means the cost of holding an ounce of gold is expected to drop to at least zero, if not lower.
At the same time, as government deficits balloon, gross domestic product declines, and tax revenues fall, the need to keep interest rates abnormally low (just to manage the interest payments) becomes extremely important. In an environment like that, how long will it be before investors figure out that the dollar is vulnerable to weakness?
There is an inverse relationship between the U.S. dollar and the price of gold. Right now, however, because COVID-19 continues to rage throughout our country and the world, investors are buying both the greenback and gold. Once the fear subsides, and the pandemic hopefully subsides, the country could be left with a long, protracted recession, huge debt, and a weakening currency. In the past, when this happened in other countries and regions, the only answer for governments was to inflate their way out of this kind of predicament.
Whether that will happen here in the U.S., as well as around the world, is just one possibility among many. But the mere thought that this scenario could play out is enough to keep gold interesting. If I were you, I would hold on to that allocation I recommended.
The Independent Investor: Workers face a serious dilemma
During the last week or two, the federal government has done an about face concerning the impact of the ongoing coronavirus pandemic. From the nightly exhortations to social distance, work at home, and expect more deaths, the message has now switched to go back to work, re-open the economy and, oh, about those deaths, expect even more.
The Trump White House has "officially" left it up to the governors of the states to set a timeline for reopening their economies, since it is illegal to do anything else. The guidelines advise that each state should monitor the number of new cases. Only when they see hard evidence that those cases have not only plateaued but started to descend, then it would be safe to consider a gradual re-opening of the economy.
However, that is not what is happening. Informally, the president is doing everything in his power to convince, cajole, and threaten states to reopen, regardless of the human toll. As such, the president has once again turned a national crisis into a partisan battle for supremacy.
As a result, many states (mostly with Republican governors beholden to the president) are ignoring the guidelines, even as coronavirus cases continue to increase in some of their states. And while state residents are supposed to continue to socially distance, wear masks and follow other guidelines, many are not only ignoring those restrictions but are actively protesting against them.
While large and small businesses alike lobby to open, the labor force is expected to toe the line and show up for work. If workers, afraid for their health, balk at these orders there will be hell to pay. Aside from the threat of being laid off permanently, the states and companies have other means at their disposal.
Technically, if the state governments, for example, no longer consider the pandemic as a reason to claim unemployment, two things could happen. Workers would be unable to file for unemployment. Companies could also suspend health insurance benefits at the same time. Cruel, but effective. In addition, there is an added benefit to the politicians. The unemployment rate would come down, because those workers who refused to go back to work would not be "officially" counted as unemployed and would be taken off the jobless rolls.
From the administration's point of view, with just six months left to the election, the economy needs be on the mend by then, and unemployment dropping. However, over the last several days, many areas of the country continue to experience both a rise in COVID-19 cases and a higher death count. Given those facts, the political and economic argument has necessarily had to change from "things are getting better, so re-open" to "sacrifices must be made just like in any war."
The issue for workers is that they are on the front line. Reported cases of virus-infected employees at various "essential" businesses such as Walmart, Amazon, and several meat processing plants throughout the country, make the danger all too apparent. What is worse, few of these establishments have done much, if anything, to attempt to safeguard returning workers from catching the virus.
What makes the situation even worse is the continued lack of testing throughout the country. Not only does that dilemma understate the number of cases/deaths attributed to COVID-19 but leaves workers completely at the mercy of whomever walks through their doors. This lack of testing has already led to multiple cases of the virus in some stores, plants, and other companies, especially where workers are packed together.
And yet, as the government ignores its own medical experts, and urges businesses and workers to return to work, is there any recourse? Out of work, worried about how to support their families, it appears laborers will be forced "to do," and maybe die, or at least get real sick as a result.
I suspect that if this scenario does play out, lawyers will be busy from here to eternity as individual employees and worker class action lawsuits proliferate. Of course, as a next step, the government could rule that companies in this situation would be held harmless. That sort of legislation is being discussed presently. If so, workers may have no recourse at all.
The Independent Investor: If You Are Laid Off, Read This
As of the end of April, more than 30 million Americans have joined the ranks of the unemployed. Companies have closed, while the pandemic has forced many employees to remain at home. If you are one of the jobless victims of this pandemic, here is some advice on your next steps you might take.
First off, do not panic. If there was ever a time for this to happen, it is now. The federal government has provided you with a list of additional benefits that can help you through this unfortunate period. But the first things you want to know is will there be a severance package? If there is, the amount of money you receive will most likely be determined on your length of employment. It may also come with other benefits.
You may be owed for accrued sick time, vacations, overtime, or back pay. The most important item on your list, however, is continued health-care insurance, especially during this pandemic. COBRA (Consolidated Omnibus Budget Reconciliation Act) gives you the option to continue on your company's health care plan for a limited period of time.
Your next step is to determine the guidelines in any tax-deferred savings or pension plans you may have contributed to through the years. If, for example, you are a member of a defined benefit plan, your benefits probably begin at retirement age. In the meantime, you might be able to roll that plan over into another.
Most companies offer a 401(k) plan, profit-sharing plan or something similar. In which case you can keep it there, at least until you find a new job and then you can roll it over to your new company's plan. You can cash out, but that is something I do not recommend without discussing with an investment advisor. You can also roll your plan into another tax-deferred vehicle, like an Individual Retirement Account.
Your next step is to file for unemployment. The good news is that the government has added an additional $600 to your weekly compensation up until the end of July 2020. They also extended the number of weeks you are eligible for unemployment from 26 weeks to 39 weeks.
If your company shuts down unexpectedly, it may be that some employees will need to tap their savings plans in order to cover expenses while they seek new employment. That kind of disaster has hit home to me personally this week. Our firm is fairly close to a beautiful little town called North Adams in Massachusetts. North Adams' claim to fame is that it is the home to the Crane Stationery Company, established in 1801 by the Crane family. The Crane Family later moved into printing currency for the U.S. mint.
This week Crane Stationery announced that they will be laying off 85 percent of their workforce. The company promised to pay its employees up until June 19 and will continue to cover its share of group health care benefits through to the end of June. The news was a devastating blow to both the workers and the community. Crane was one of the top employers in the town.
We at Berkshire Money Management will be opening our doors to all and any of the company's employees who are in need of financial advice for the foreseeable future. So, if you are an employee or know of one, please contact me and our team will do all we can to help.
In the meantime, I thought it might be appropriate as the national employment rate tops 20 percent, to once again review the elements provided by the CARE Act as it relates to withdrawals from your 401(k). Normally, if you need money from a retirement account, and you are under 59 1/2 years old, you are required to pay a 10 percent penalty, plus the income tax owed on your withdrawal. There are some exceptions to the rule and the CARES Act just added a big one. The federal government just eliminated that 10 percent penalty for any distributions from IRAs, employer-sponsored retirement plans, or a combination of both.
Individuals can withdraw up to $100,000 in 2020, as long as the withdrawal is "Coronavirus-related." That definition leaves plenty of room for interpretation. If you or a spouse or dependent have been diagnosed with the virus, you qualify. If you or your family have been hurt financially by COVID-19 as a result of being laid off, quarantined, or having reduced working hours, you qualify.
There is even better news. Let's say you take out the money, which you will need to tide you over for the next nine months. After that, the economy begins to revive. You get your old job back. If so, the government is allowing you to repay or roll the money you borrowed back into your retirement account. You will have three years to do so. You can return all, or part of what you took out and repay it in a single lump sum, or in multiple repayments. You will still need to pay regular taxes on whatever you take out this year, but the entire tax bill does not have to be paid in 2020.
The Independent Investor: When Times Get Tough, Call a Woman
We have all seen the heart-rending photos and videos. They are of nurses, mostly. As a large part of America's frontline against COVID-19, the media has determined that nurses and other healthcare workers are now "newsworthy." But there is a deeper story here. It is about American women in general.
Actually, it was the "Gray Lady," the venerable New York Times, that first focused my attention on the real unsung heroes of this pandemic — women. Underpaid, taken for granted, expected to work for less pay, raise the kids, take care of the parents, and when they have time, maybe sleep for a few hours.
During this pandemic lock-down of the nation, a number of industries have been deemed "essential." That means that without these jobs, the basic needs of an economy would freeze up, causing untold hardship for everyone. Obviously, healthcare workers are an essential industry, as are law enforcement and safety personnel. Other industries that supply goods and services are essential as are financial services, food processing, transit, defense, utilities, agriculture, delivery and transportation, just to mention a few.
Of these industries, women represent 52 percent of all essential workers. The Times cross-checked the latest Census data with the federal government's essential workers guidelines and determined that one in three essential jobs are held by women.
In some industries, like health care for example, women account for nine out of 10 nurses and nursing assistants, most respiratory therapists, as well as the majority of pharmacy aides and technicians. I have firsthand knowledge of this group of women, because many health-care workers are clients of ours. They are the hardest working, bravest slice of humanity I have ever had the pleasure to meet.
There are 19 million health-care workers in this country — almost three times the number employed in farming, law enforcement, and package delivery, which are mostly male dominated. But you can also find a preponderance of women in other jobs that force them into clear and present danger. Grocery clerks, bank tellers, like my sister, and those who man fast food counters are far more likely to be women than men.
But let's not confine this discussion to just essential workers. Women workers, overall, have suddenly been presented with at least double their normal workload. Under different circumstances, working from home might be considered a perk, but not during the pandemic, especially if you are married with children. My 40-year-old daughter is an example.
Married, with two children, ages 8 and 5, Jackie is working from home. Her normal support system has disappeared. There is no child care, school, or domestic help. Even take-out food is scarce. As a full-time employee, she is still expected to produce, show up (at least digitally), and devote the usual number of hours a day to her workplace.
"The virus has effectively quadrupled my workday," she said, as she and her family hunker down in Long Island.
"I am managing two kids in 'virtual' school, while working full time. In addition, I am cleaning constantly, managing the work/play schedules for two young kids, who have had to adjust to a whole new way of life. That's not to mention cooking three meals a day, every day."
As for the fact that her job is not listed as essential, she says, "That's BS. Three out of three women in this country are essential. We are essential to our households, to our families and to our jobs. This pandemic just makes it harder to deny."
I couldn't have said it better myself.
The Independent Investor: Pandemic Reveals Weakness in U.S. Health-Care System
If it is not already apparent, our health-care system needs a lot of work. There is nothing like a global pandemic to point that out. The question is, that after decades of arguments, tinkering and promises, are Americans finally willing to do something to change it?
Now, I am not talking about how much a doctor is being paid, or what a pharmaceutical company can charge, or not charge, for a new wonder drug. Those are popular headlines that, time after time, distract us from the underlying weaknesses in the system. The main problem I have identified throughout this national disaster is the nation's inability to make centralized decisions.
It seems to me that we do not have the ability to provide Americans with a rational and efficient health-care supply and distribution system. Whether it is how to procure N95 masks and other protective gear, testing equipment, swabs, additional hospital beds, doctors, nurses and a thousand other variables, our system has been found sorely lacking when compared to other nations.
Think of it this way. You are a rancher, and pride yourself in growing the world's greatest beef products. What good does that do you if the livestock hitch you use keeps breaking down on the way to the slaughterhouse? And if the slaughterhouse is old and sloppy, and grinds up all your beef into ground beef (instead of steaks), and the packaging leaks, and the refrigerated train or truck they use to deliver your beef to the market breaks down constantly, in the end, what does it matter how good your product is?
Over the past few weeks, we have also witnessed the public rage and blame that has arisen over the bidding war between the states and the federal government over procuring the much-needed scarce supplies of life-saving medical equipment. This is insane, but understandable, given a health-care system with no central authority. No other country in the world competes against its own people in this matter.
Listening to Gov. Andrew Cuomo's daily briefing in the disaster afflicting New York City was also an eye-opener for me. There are 200 hospitals in New York state totaling 53,000 beds, of which 20,000 are in the city. These beds belong to both private, for-profit hospitals and state-run public hospitals, which are part of the New York State health-care system. Up until Cuomo took charge of this crisis, these hospitals were working independently, not only to assign beds, but to distribute and deliver medical services. It was not working, no matter how good their intentions.
The right hand had no idea what the left hand was doing until Cuomo took charge and effectively ordered them to meld their resources and form one big New York State hospital service. Cuomo effectively socialized the health-care system in a state that had more coronavirus cases than any other country in the world. His actions probably saved dozens of more lives.
As it stands, we still do not have nearly enough testing equipment, or the means to administer it. Like my rancher, when the product (a reasonable, low-cost coronavirus test) is finally developed, how long will it take, and how efficient will the supply and delivery system be to administer it to 331 million Americans?
There are so many other flaws in our present system that it would require several more columns to list them all. However, as an example, about 50 percent of Americans enjoy health-care insurance as a corporate benefit — unless they are fired, retired, or laid off. In which case, they can elect to pay Consolidated Omnibus Budget Reconciliation Act (COBRA) premiums for the next 18 months. The hole in this doughnut is that during an emergency, like this one, a laid-off worker will have to pay up for COBRA benefits at the very time they may need them most, while having no money to pay for them.
Critics of this column will argue that I am advocating for universal health care. It will evoke memories of the Bernie Sanders' primary campaign platform of health care, which was rejected by many as far too expensive to contemplate. My answer is that when all is said and done, the cost of the Sanders' program will look cost-effective compared to the money the government ultimately will spend to repair the damage to the health-care system and our economy that we have now.
Others will argue that this pandemic is a once-in-a-lifetime event. Many politicians will argue that things will go back to normal (inefficient and disorganized), in six months or so. Why, therefore, worry about it?
If recent history is any indication, the spread of global epidemics is increasing. They could remain a danger to the world's health system for years to come. SARS, the West Nile virus, Ebola, Marburg virus, and Lassa fever are just the latest plagues to bedevil us. Our present system provides no defense for the spread of such dangers, in my opinion.
Am I convinced that universal health care is the only answer? Not quite yet. When I look around the world, I see countries such as Italy and Spain, which do have universal health care. Their systems did not work well enough to stem the number of deaths and cases of the virus. But in places like Germany and Norway, their health-care system worked exceptionally well.
Maybe in the U.S. case, we might need a centralized governmental system for supply, distribution, and delivery, while maintaining private-sector incentives for research and development. As for maintaining the high quality of doctors, nurses, and other trained medical professionals, some system of free or discounted education costs could be offered in exchange for lower salaries. These are simply suggestions to jump-start a conversation. Please feel free to contribute your own ideas.
The point is that the system needs to be changed, but in a way that is uniquely American. Let's dispense with all those dated, nonsensical reasons why not, and come up with a system that we can all be proud of and that will, in the process, save lives.