Friday, March 26, 2010

Health Care Bill Not So Healthy

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Although the political wrangling continues over the legality of the health care bill, for all intents and purposes, it's law, like it or not. On the one hand, it's a positive that we've gotten at least something done on this issue. But, this bill is FAR from being great in my humble opinion.

This morning, I had a conversation with a client whom I routinely disagree with. We always have very spirited political, social and economic discussions. Sometimes he makes a good point that causes me to reassess my position, like today, and other times I do. And sometimes, we agree to disagree.

From my seat, that is good and healthy debate; always respectful, never personal. Two individuals from different sides of the political spectrum and from different generations. The question is... why can't our elected officials in Washington behave like this?!?!

Getting back to health care, one of the problems with reform is that we're not dealing a straight social or free market issue. Think of yourself as the CEO of a health insurer whose top priority is to deliver results to the shareholders. That's your fiduciary responsibility. The more times your company says "no", the more profits in the corporate coffers.

As a customer of that insurance company, you pay significant premiums to cover you in case of health issues. You expect a "yes" when the time comes. You expect life to be preserved. The problem is that health insurance companies are a hybrid and cannot be a straight capitalist/free market model. There must be regulation to "insure" life and protect the insured as another client (physician) offered at lunch today.

I am NOT in favor of government run health care, but I think we all know that without the proper oversight, the insurance companies become the sector of "no" to maximize profits. It's a social and free market issue that doesn't seem to have a good compromise. The health care bill does have some pluses, such as added coverage for meds, subsidies for lower income families to buy insurance and hopefully a small business tax credit.

Socially, I am 100% in favor of fixing the preexisting condition problem. But I do know that shareholders are hurt by that. I am not in favor of requiring everyone to buy health insurance. I don't know our forefathers personally, but I have a hard time believing that they would be in favor of this. I also don't think they would have too much respect for Nancy Pelosi who believes that "pursuit of happiness" means forcing citizens to buy a product.

If you don't want to buy auto insurance, you don't have to drive. If you don't want to buy homeowner's insurance, don't buy a home or buy one without a mortgage. Since smoking and obesity are huge burdens on the healthcare system, is Congress going to mandate our weight or outlaw smoking to protect the system? Will they pass a bill forcing us indoors during peak sun hours because of skin cancer danger?

I've seen the Congressional Budget Office (CBO) estimates on what the bill is going to do over the next 10 years in deficit reduction. Wonderful. It's primarily through tax increases and this insane idea that the government can find hundreds of billions in savings from Medicare waste and fraud. If it was so easy, why hasn't anyone done it before???

And while the CBO is an independent group, who ever said they were correct or even good? Show me ANY of their previous long range forecasts that have come true. You can count me as a skeptic here. I don't buy it.

And the tax increases are the crowning point of not only this bill, but additional increases coming online in 2011. Have we not learned ANYTHING from FDR's great mistake in 1937 when he raised taxes and removed fiscal stimulus, causing Great Depression Part Deux?

The folks at Casey Research recently penned a piece entitled, "Help! I've Been Taxed and I Can't Get up!" The general premise of the article is HOW we are going to pay for all this spending. If you don't know, by doing nothing, taxes are going up in 2011 to the pre-Bush cut levels. That's a huge increase during a very fragile recovery.

Forget about income tax levels for a minute where the top rate is going from 35% to 39.60%, dividends and interest are going from 15% to ordinary income levels. To rub salt in the wounds, the new health care bill adds the Medicare tax of 3.80% to capital gains, interest and dividends beginning in 2013.

Add another 0.90% tax on all income earners above $250,000 and you have the recipe for slow economic growth at best, another recession or two at worst. It's not a pretty picture. The Casey folks also point out that it's possible for the 3.80% Medicare tax to hit you when selling real estate for a gain, even the lower income brackets. Additional tax increases are seen in raising the deductible medical expense threshold from 7.50% to 10%.

There are other less widespread taxes starting in 2013 that are almost certain to raise various medical costs, but I think you get the picture. I feel like a politician saying this, but I am for lower taxes and smaller, less interventionalist government. Boy, do I feel like the odd man out!

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Energy Star Fraud

The Government Accountability Office (GAO), or the investigative arm of Congress, was asked to conduct testing to see if it could obtain Energy Star partnership status for bogus companies and if it could submit fictitious products for Energy Star certification.

A report released Friday says 15 phony products won the Energy Star label. GAO investigators tried to pass off 20 fake products as energy efficient and only two were examined by an independent party.

The Energy Star program began in 1992 and is overseen by the U.S. Department of Energy and the Environmental Protection Agency. It aims to identify products that decrease greenhouse gas emissions and lower energy costs. Additionally, federal and state governments offer tax credits and other incentives to encourage the use of products that brandish the Energy Star label.

Federal officials agreed after the investigation that the rating program is vulnerable to fraud and abuse in large part because manufacturers conduct self-certifications and often their claims are not verified by an independent party.

Is your state offering incentives for buying "green" appliances? Do you still trust the Energy Star label? Let me know what you think...

Construction employment declining in 49 states and D. C.

Construction employment in forty-nine states and the District of Columbia declined between February 2009 and February 2010, according to a new analysis of federal employment data released today by the Associated General Contractors of America.

As construction job losses extend into their third year, the new data highlights the need to expand the Build America Bond program, trade group officials noted. “With only one exception, the construction jobs picture varies from bleak to bad all across the country,” Ken Simonson, the association’s chief economist, said in a statement. “We can’t afford to turn our back on any opportunity to boost investments in infrastructure and construction.”

Alaska was the only state to see an increase in construction employment (0.6 percent, 100 jobs) between February 2009 and February 2010.

Association officials urged the U.S. Senate to authorize an expansion of a range of infrastructure bonding programs including Build America Bonds, which were first made available as part of the stimulus package and have been used to provide over $70 billion to finance 834 different infrastructure projects.

Click here for state-by-state construction employment data.

Forum in Hartford, CT on gender rating in the health insurance market

WHAT: Informational Forum on Gender Discrimination in the Health Insurance Market

WHEN: Tuesday, March 30; 1:00 p.m.

WHERE: Legislative Office Building, Hartford , Room 2D

WHO: This forum is being organized by the Insurance and Real Estate Committee, and is sponsored by the Permanent Commission on the Status of Women (PCSW), Connecticut Women’s Education and Legal Fund (CWEALF), and Citizens for Economic Opportunity. Speakers will include representatives of the National Women’s Law Center, based in Washington, D.C. and Jamie Stirling, CEO of Stirling Benefits of Milford, CT.

WHY: Women are paying up to 30% more for health insurance than men simply because of their gender. The presentation will include how the federal health care reform bill will affect the gender rating used by health insurance companies.

Thursday, March 18, 2010

Gold Getting Ready for Another Assault

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Gold is and always has been a hot topic to write about. Goldbugs, investors who have a permanently positive opinion on gold, are some of the most passionate market people in the world. Ask them a simple investing question and you’ll like get an answer that includes gold. Gold is a hard asset. It’s tangible. It used to be enormously important to our financial and many around the globe when currencies were attached to its price.

Today, while gold is certainly used commercially, it’s also now widely available to be traded and invested in by individual investors. This can be done through the commodity (futures) market, coin dealers and popular exchange traded funds like GLD, which trade like stocks on the New York Stock Exchange.

I’ve written many pieces about gold over the years, including two blog contributions last year. My firm has two independent gold strategies for our clients that trade and invest in baskets of gold and other mining stocks. Always surprising to me, we have more assets in this area than any other of our now nine investment programs.

As gold was making its last nearly vertical run from $1000 to $1200 in December, I questioned whether or not we were seeing the makings of the latest bubble in our financial system.

If this pattern continues, which is the most likely path right now, gold should begin to move much higher and revisit the $1200 level during the second quarter with a chance at making a new, all time high as the weather becomes hot.

For this scenario to occur, given how correlated commodities and stocks have become, you would expect the stock market to also surge next quarter, which just happens to fit nicely with my long-term forecast of Dow 11,500 to 13,000 between Memorial Day and Labor Day.

Finally, to give you a long, long-term perspective of the metal, below is a chart going back to 1985. The secular bear market in gold lasted from 1981 to 2001 and saw gold collapse from roughly $1000 to $250. So if the current secular bull market mirrored the bear market, it’s possible that gold could continue higher the rest of this new decade, well into thousands of dollars an ounce.

My early December comments were “the best thing gold can do now to preserve its healthy bull market would be to digest its enormous gains over a period of months, sawtoothing its way to the $1000 area before resuming the upward climb in mid 2010. But if we don't see much weakness between now and January, the odds favor an even more powerful, parabolic acceleration to a final peak in 2010 that would likely see $100 move in one day towards the end.”

Thankfully for gold bulls and bugs, gold cooperated and began to consolidate those huge gains. From THE top in December, gold sawtoothed (think jagged edges of a handsaw) its way to the $1040 area, a roughly 15% correction that saw many investors jump ship to other vehicles and become very negative on the shiny, yellow metal.

To be fair, I did not believe at the $1040 level that gold was putting in the ultimate low, even though we were a big buyer of the gold stocks one day later. It just seemed like another opportunity.

When you look back at previous, similar behavior in gold, a few things are constant. First, the metal usually digests gains for a period of 3-15 months. Second, at some point during that period, gold goes from making lower highs and lower lows to higher highs and higher lows as you can see below.

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC

Friday, March 12, 2010

Stock Market Getting Tired But Higher Prices Still Lie Ahead

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

In early February I contributed a piece here entitled, Bottoming Process Continues, where I made the case that stocks had either just bottomed or were about to, and that would lead to another strong run to new 2010 highs. I wrote similar articles in my newsletter, Hang in Bulls... Bears Almost Done that was followed up with Bottoming Process Continues Building. After forecasting a 4-7% pullback in January (we saw 8.5%), I was very confident that the decline was close to ending and a new leg higher would ensue, carrying the major averages above their 2010 highs on the way to Dow 11,500 - 13,000 when the weather turned warm.

Although rare, it's always nice when the market perfectly cooperates with your thought process and even nicer when your clients are the beneficiaries! So here we are, back at the highs and everything looks mighty rosy again, right? Well... kinda, sorta.

My forecast for the Dow remains in play sometime between Memorial Day and Labor Day, but the very short-term is a bit cloudy with the worst volume pattern since the bull run began. Volume is so important as it is the horsepower of the market’s engine. The stock market can fall and fall on light volume, but sustainable rallies have always required increasing volume. Stocks have rallied in almost straight line fashion, but are in need of a quick pause to refresh. My favorite analogy is that of the great steakhouse dinner.

Between the appetizer, salad, steak, various sides, wine and dessert, you can barely stand at the end of the meal. And before it's time for your next feast, you must digest the food. Markets work in similar ways. After a big rally, the market has to digest to make room for the next meal. The bigger the rally, the longer the digestion. In the current case, all the market needs is a good, short-term cleansing before it's ready to eat again.

I imagine that whatever weakness we are going to see should be right ahead of us. How long it lasts and how deep it goes are questions that will be answered along the way. In the most bullish case, we'll see a few nasty down days that look and feel really bad, but end quickly. But if investors don't increase their level of worry and don't become more concerned after a few days like that, we'll probably see a deeper and longer pullback. The first level I am watching is 1120 - 1125 on the S&P 500 and 10,300 - 10,400 on the Dow.

Should this pullback materialize, and it rebuilds a little worry in the market, I think it can be bought with both hands for another move to new 2010 highs during the second quarter. As I've mentioned before, one of the most important things to watch is sector and index leadership. Before any "real" correction (10-20%) sets up, there should be some clues here from what's leading and lagging.

Over the past year, with all the cheap and easy government money being thrown around, the financial markets have done nothing seriously wrong to jeopardize the bull run. But with Bernanke & Co. already beginning to pull the punch bowl by ending their trillion dollar purchase of mortgage backed securities and the Obama administration raising taxes in 2011 by letting the Bush tax cuts expire, the markets are much closer to another problem later this year and into 2011.

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC

Wednesday, March 10, 2010

Income Limits on Roths Removed, Investors Taking Advantage

More than one-third (or 40%) of eligible investors working with tax advisors are expected to complete a Roth IRA conversion by year end, according to a study released today by Fidelity Investments.

The motivation? The recent removal of income limits for Roth IRA conversions.

A Fidelity survey of nearly 500 tax advisors found advisors believe that 43% of their clients would benefit from a Roth IRA conversion, given two-thirds of advisors also think income taxes will generally rise in the future. Most ( or 88%) advisors also expect discussions with their clients about Roth IRA conversions will increase during the next six months.

Fidelity said the survey findings correspond with company figures that show a surge in investor
interest in the Roth IRA conversion guidance in January.

"As this is a complex decision, it’s encouraging that investors are engaging
financial services providers and tax advisors to develop an overall retirement plan and
discuss the potential benefits of a Roth IRA conversion,” Chris McDermott, senior
vice president, investor education, retirement and financial planning for Fidelity
Investments said in a statement. “Fidelity believes investors should consider a variety of tax strategies when saving for retirement, including a Roth IRA, which offers tax-free growth potential."

Tuesday, March 9, 2010

U.S. Employers Expect Modest Hiring in 2Q

U.S. employers have modest hiring plans for the second quarter this year, according to the results of the latest Manpower Employment Outlook Survey, conducted quarterly by Manpower Inc.

"U.S. hiring activity is still in neutral, but revving toward first gear," said Jonas Prising, Manpower president of the Americas. "It's moving in the right direction, but it will take some time, with no major speed bumps, before it can accelerate."

This quarter's research concludes:

·Year-Over-Year Increase : With a seasonally adjusted Outlook of +5%, employers indicate a moderate increase in hiring expectations compared to one year ago, when the seasonally adjusted Outlook was -2%.

·Stability Continues: 73% of employers, a record-tying high, expect to keep staff levels stable, which is good news for the currently employed.

·Industries Recovering: Twelve of 13 industry sectors surveyed report positive Net Employment Outlooks, meaning employers in most industry sectors plan to add staff during the second quarter.

·Local Picture Improving: Among 201 surveyed Metropolitan Statistical Areas, 94% indicate a positive or neutral Net Employment Outlook, indicating cautious optimism is becoming more widespread geographically.

"We continue to see encouraging signs in hiring activity in the U.S.," Manpower Inc. Chairman and CEO Jeff Joerres said. "Key industries such as manufacturing and construction are seeing notable improvements on a year-over-year basis."

Of the more than 18,000 employers surveyed across the nation, 16% anticipate an increase in staff levels during the second quarter of, while 8% expect a decrease in payrolls, resulting in a Net Employment Outlook of +8%. When seasonally adjusted, the Net Employment Outlook becomes +5%.

Seventy-three percent of employers expect no change in their hiring plans, with the final 3% of employers indicating they are undecided about their hiring intentions.

A positive outlook is reported in all four of the U.S. regions surveyed. The Northeast has the strongest outlook (+8%), followed by the South and West (+6%). The outlook in the Midwest (+4%) is the weakest of the regions surveyed.

The Manpower Employment Outlook Survey's United States results are based on interviews with more than 18,000 employers located within 200 Metropolitan Statistical Areas (MSAs), as defined by the federal government, and one MSA in Puerto Rico.

Friday, March 5, 2010

With Federal Reserve Rates Near 0%, What's Happening to Your Credit Card?

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Kudos to the credit card companies for doing their best to help Americans reduce their credit card debt.

Although, that might not be their intent or desired result. Many credit card holders have received notices in the last few months of dramatic increases in their interest rates and fees, more than one might expect in a financial environment where the federal government is trying to hold interest rates to a minimum.

The reason is a law passed by Congress last May, limiting the ability of banks to adjust credit card rates and fees. Many credit card issuers decided their best mode of defense is to raise rates and fees in advance of the law taking effect in February. Lower rates can then be offered as "special promotions."Credit card issuers are also well aware of predictions that the next credit collapse will be the credit card market, as unemployment continues in the double digits and depressed real estate prices make consolidating debt in a home loan less feasible.

What should individuals do to avoid being hit with higher fees and 28% (or higher) interest rates on their credit cards?

Number one is to avoid carrying a balance on your card on which you will have to pay interest. Only use credit cards with a grace period and pay off balances within the grace period.

Number two is to never miss a payment.
Missed payments not only incur late fees (which have jumped to $50 and more at some credit companies) but also could trigger increases in your interest rate. To make certain you never miss a payment, set up an automatic minimum balance payment from your checking account to your credit card. There's no charge to do so and it could save you considerable funds if a particularly crazy month or travel results in overlooking a bill's due date.

Remember: Credit cards have always been a poor way to borrow money. The rates and calculation of interest charges are set up to benefit the credit issuers, not the consumer. While using a credit card has a number of benefits, including fraud protection and the ability to earn points and cash back, you should only use a credit card for charges you can afford to pay.

Please feel free to email me with any questions or comments at

Until next time…

Paul Schatz

Heritage Capital LLC