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.
|Write a comment - 0 Comments|
@theMarket: Economy Craters as America Attempts to Reopen
As the economic and unemployment numbers reveal the devastating impact of the coronavirus, a struggle has developed between those who want to reopen the economy now, and others who fear the consequences of doing so. Is it truly a trade-off between economic life and additional deaths?
No one knows, but plenty of people and red-state politicians seem willing to take the chance. Those in blue states, which have been hit the hardest by COVID-19, along with the entire international medical community, want to take a more cautious approach.
As far as the markets are concerned, the roller-coaster ride that sent the averages up and down on a daily basis this week was simply a reflection of this on-going argument. As readers are aware, investors can and will plan for a known outcome, whether good or bad. They resist taking an action if the outcome is unknown. What we have here is one big unknown.
It struck me just how fragile this 28 percent rebound in the averages is right now. For example, Gilead, a biopharmaceutical company, that investors hope may have developed a drug (Remdesivir) for the treatment of COVID-19, erased just about the entire gains of all three averages Thursday.
The World Health Organization mistakenly revealed the findings from an incomplete clinical trial by Gilead conducted in China on its website. The study stated that the drug failed to speed the improvement of patients afflicted by the virus. WHO took the posting down quickly, but the damage was done. The markets erased gains despite the fact that an additional, much more meaningful, study should be forthcoming in the coming weeks.
As the unemployment rate skyrockets, erasing virtually all the employment gains of the last decade, and the data on the economy becomes worse and worse, Corporate America and a large segment of small businesses, are demanding that the country get back to work, despite the human costs. Of course, it is couched in terms like "reasonable," "safe" and "slowly," but open nonetheless.
Investors have been tugged in opposing directions. Statements from various governors on immediate plans to reopen are encouraging the markets, while the continued information flow from other states and the medical community about the spread of the virus have investors unwilling to push the markets higher.
A New York study measuring the spread of the COVID-19 virus found 13.9 percent of people tested had signs of the virus. If you extrapolate those results on a statewide basis, about 2.7 million New Yorkers may have the virus. That's about 10 times the official count based on the testing of mostly very sick patients. And that illustrates the crux of the matter.
Without the ability to test the population of the United States, there is absolutely no way of knowing whether going back to work on a national basis will simply lead to a "round two" and a further blow to the economy, which some believe could send us into a second depression.
Critics point to that very thing happening during the 1917 influenza pandemic. The country was loath to quarantine its citizens as World War I got under way. Infected American troops were sent into Europe, which caused the flu to spread worldwide and mutate. By 1918, a second wave hit America and in a three-month period decimated the country. Could it happen again? Doubtful, but few medical professionals want to take that chance.
Rational readers might ask the obvious question: why, after five months, and millions of people infected, has the United States government failed to develop, buy, and/or administer enough tests to reveal the true extent of the virus in America? The technology, materials and know-how exist. If China, Europe, and even some emerging markets, like South Korea, can do it, why can't we?
It is a mystery that continues with no explanation, despite daily "briefings" by the White House. The only reasonable explanation, in my opinion, is that our government is deliberately avoiding testing, but for what reasons?
In the meantime, the markets seem to me to be close to a resolution over this debate. For the last two weeks, we have been in a trading range. For the S&P 500 Index, the bottom of the range is around 2,720, while the top is just around here at 2,800. As I have explained, so much of what will dictate the next move in the markets is outside of my expertise.
If Gilead's drug, or some other breakthrough vaccine, should be developed, the markets could break out on the upside, and we could easily see another 100-plus points tacked onto the index. If, at the same time, those states that go back to work have no problems, that too could encourage the markets. If, instead, virus cases ramp up in the country, as a result of going back to work, we could break 2,702 on the downside. If so, expect another 5-10 percent pullback. I wish I could be more certain, but this pandemic remains a big unknown to all of us, present company included.
|Write a comment - 0 Comments|
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.
|Write a comment - 0 Comments|
@theMarket: Bulls Are Back in the Saddle
A spate of good news helped stocks this week battle the overriding pessimism of the last month. A possible drug to combat the COVID-19 virus coupled with a flattening of the virus curve in some regions helped the markets to gain ground. Can it continue?
It sure can, although a pause to catch our breath may be in order for next week. Gilead Sciences, the pharma/biotech company, has been working at breakneck speed to develop a drug to treat coronavirus patients. On Thursday, a report in a health-care publication indicated that its experimental drug, Remdesivir, was having some success in human trials. The indexes spiked higher on this news.
On the same day, Donald Trump and his crew basically turned the process of re-opening the economy over to the country's governors. That news was also greeted positively by investors, who have little-to-no confidence in an administration that has proven less than capable of handling the pandemic crisis.
As a result, stocks have continued their rally of last week, when the averages notched up better than 12 percent gains.
"How can this be?" inquired one client, who has a reputation for "chasing" the market up and down. We are getting the worst results in history — unemployment, earnings, COVID deaths — and the markets are going up?"
A client wanted to sell half of his portfolio on Tuesday, keeping the other half in the market. He proceeded to list for me all the reasons why that move was justified. But there was nothing I haven't heard or read over and over again for the last few weeks.
"Tell me something I don't know," I finally said. "If you and I are aware of all of this, then so is the market. Give me some new information that the market has not already discounted." He couldn't come up with anything. Fortunately, I convinced him not to act on his impulse, and as a result, he is better off today.
Investors are no longer focusing on the past nor the present, it is the future that has traders' attention. What states will get back to work first? When will there be promising results for a vaccine? When are Americans going to be able to be tested? Those are the unknowns and the direction of the stock market will depend on those outcomes.
Let's take the back-to-work dilemma. I want to go back and work in the office, but I have no way of knowing whether I will be infected if I do. None of my fellow employees have been tested, nor are there tests available to do so — unless they come down with the symptoms. By then, it would be too late for me.
That is the story playing out all over the nation. After all of this time, only one percent of the nation's population has been tested for COVID-19. All over the world, governments have focused on testing in an effort to control the spread of the virus, along with isolation. Why have we failed in achieving this objective, when so many others have succeeded? Is it because some in government are betting that what we don't know, won't hurt us?
And without widespread testing, there can be no back-to-work scenario
Opening up the country without the capability of wide-spread testing is simply playing Russian roulette with the lives of its citizens, in my opinion. It appears that for some corporations and politicians, the risks are worth it. My bet is that without this crucial element resolved, there can be no back-to-work scenario for the economy, and further gains in financial markets could be capped on the upside.
|Write a comment - 0 Comments|
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.
|Write a comment - 0 Comments|