ProVise Management Group
By Ray Ferrara
August 15, 2012
· There are bears out there who are extremely disappointed that the U.S. has not entered another recession over the past three plus years. Certainly, the 18 months of downturn in the markets that began in October of 2007 and culminated in March 2009 gave them a lot to cheer about. But, since then, they have looked everywhere possible to come up with bad news. We are by no means suggesting that growth is anything but tepid at best, but it is growth, as we have said before. Whenever important economic numbers come out, such as the retail sales report for the second quarter which declined by $4.685 billion, it sounds terrible and the bears try to make it sound even worse. But, you must look behind the numbers. As it turned out, a lot of it had to do with gasoline. In late March, gasoline was selling nationwide for $3.92 and by late June it was down to $3.37 per gallon. Because of this, retail sales at the gasoline pumps declined $2.51 billion, which alone represents more than half of the aggregate decline. Make no mistake, there were retail outlets that did have a decline, which should not come as a surprise to anyone, but the decline was not nearly as large as it first seemed. In fact, when you look at the household debt numbers, those numbers continue to decline and it could be that much of the savings from gasoline went toward a reduction of household debt…a good thing.
· Let’s look back to the middle of August last year and how ugly it was. The bears were ready for America to fall off a cliff then and were expecting a downward movement in the markets. They were positive that the markets would give them what they wanted this time – a new recession – but they were badly disappointed. The markets are often run by emotion in the short run, but in the long run, they are heavily influenced by corporate earnings, which are up nicely over the past 12 months. Real U.S. GDP adjusted for inflation has grown by about $300 billion since the downgrade of U.S. debt by S&P 500 last August. This is not dramatic growth by any stretch of the imagination, but growth nonetheless. 1.84 million jobs have been created during the same time period, which is great for those people who are now working and it is helping to keep the economy afloat today. By no means, however, is this job growth any better than the GDP growth, but it clearly is much better than laying off 8 million people, which occurred during the great recession.
So what are the bears betting on now? They are betting on Obama winning in November, the destruction of the euro and the so-called fiscal cliff in the U.S. Obviously, the President and Romney are in a tight battle and who knows what will happen in November. What we believe is that, while it might be better to have one person or another in the short run, in the long run, the U.S. has always been able to overcome political leadership, or lack thereof. We think the same thing will happen going forward regardless of the outcome of the election. As to Europe, you might recall that last year there was great speculation that Greece would be long gone from the euro nation, with Spain and Italy soon following. We will admit that the European political leadership has not been a whole lot better than what we have seen in the U.S., but just like in the U.S., when Europe reaches a precipice, they make decisions and move forward. We think the recent announcement by the European Central Bank (ECB), while not dramatic, is a first step toward creating their own quantitative easing. We would not be surprised to see some healing occurring by the end of the year. We didn’t say “cure”, we said “healing”. Finally, there is the fiscal cliff here in the U.S. It’s clear that brinksmanship will continue. At the end of the day, regardless of the outcome of the Presidential election, we suspect that Congress will once again put a band aid on our financial problems, and kick the can down the road into 2013 when the real battle will occur over tax and spending reform. For this battle it makes a difference who gets elected, not only to the White House, but to the Senate and House, as well.
In short, we don’t want you to think short term; we want you to pay little attention to the “talking heads”; and we want you to look at what is going on behind the curtain on a long term basis.
- Just because you are a patient in the hospital doesn’t mean you have been admitted to the hospital. WHAT???? In an effort to save money, Medicare has written guidelines to hospitals about when a patient comes into the hospital for “observation” versus “admittance”. Generally, observation is for 24 to 48 hours, but in some circumstances, it can last longer. The implications are significant. First, if the patient is not “admitted” to the hospital, then Medicare pays less of the bill, and the patient pays a higher deductible and a higher co-pay. Next, should the person be in the hospital under “observation” status and is then discharged to a rehabilitation center or nursing home, even if they have been hospitalized for three or more days, Medicare will not pick up the tab. Thus, rather than picking up the first 100 days in a long-term care facility, Medicare will pay nothing, and the patient will start paying immediately. Yes, we get it… it doesn’t make any sense, but it is what it is. Many people are blaming the hospitals, when in fact they are not to blame. Thus, it is very important when you or a loved one is in a hospital, particularly if it is expected that the patient will be discharged to a rehabilitation center or long-term care facility, to determine at the very beginning whether the patient is “admitted” or simply under “observation” status. Don’t wait until the discharge of the patient – find out the exact status of the patient at the beginning of the hospital stay. If you want to learn more, go to this link: http://money.cnn.com/2012/08/07/pf/medicare-rehab-costs.moneymag/index.htm
· So the Baby Boomers will not see the gains that their grandparents and parents saw from Social Security. For the first time ever, today’s retirees will get back less than they put into the system. For those who retired in 1960, men who lived to age 78, and women who lived to 81, got back seven times more in benefits than they paid into Social Security. Spouses who retired in 2011 and who earned an average lifetime wage paid $598,000 in Social Security taxes throughout their careers. Assuming that the husband lives to age 82, and the wife to age 85, they will collect only $556,000 in benefits. (Source: Urban Institute)
· So you want to retire to a place with a nice, sunny, warm climate with low tax rates? In that case, you are likely to be in the minority according to the Milken Institute, which studied 78 factors to determine the 20 best places to retire. While there were some southern cities mentioned, it was surprising the number of northern cities listed and the cities themselves were even more surprising. For example, would you have thought Scranton would be on the list? It was in the 19th spot, along with Syracuse in the 17th spot; Philadelphia in the 16th spot; and Baltimore in the 13th. Just in case you are interested, Honolulu was in the 20th spot. The top ten? (10), Pittsburgh; (9) Washington, DC Metropolitan area; (8) Toledo; (7) Salt Lake City; (6) Des Moines – West Des Moines; (5) Greater New York Metropolitan area; (4) Boston; (3) Omaha; (2) Madison, WI; and the number one place was Provo – Orem, Utah. The South was only represented by a few cities like Jackson, MS in the 12th spot, and Baton Rouge in the 14th spot. Little Rock, AK (it is in the South, isn’t it?) was in the 15th spot. We don’t see Arizona, Texas, California, or Florida listed.
· While America may be the richest country in the world, nearly half of retirees (46.1%) die with less than $10,000 in assets. In other words they are living paycheck to paycheck, and in fact, many don’t have any wealth in real estate. (Source: National Bureau of Economic Research Report)
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 25 years.
RAY, KIM, ERIC, BRUCE, LOU, NANCY, TINA, and JON
©8/15/12 ProVise Management Group, LLC
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