Friday, June 24, 2011

Ramblings on the Debt Crisis

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

I have been asked a lot about the upcoming debt ceiling "crisis", how it would affect the markets and if we should position differently.

Maybe I am too complacent, but at this point I do not believe there is anything serious brewing. I firmly believe that it's just another game of political chicken and someone will blink.

Or maybe both sides blink. But I do not think that Congress gets to the point where they vote down a rise in the debt ceiling. That's an untenable position for a politician.

As an aside, I have heard several unconfirmed reports that it is unconstitutional to default on our debt. If that's true, I am sure the lawyers have lined up their cases. From my seat, the politicians will probably go to the 11th hour and then make a deal.

There have so many opinion pieces written about what to do about our debt and budget deficit. I have written much about this before, so I don't have a lot of new info. I firmly believe this has to be a bi-partisan solution. Congress cannot cut too much too quickly or we will end up in recession very soon. They can't do nothing because at this rate, there will be a debt crisis.

I believe we need to cut $100B - $150B every year for at least the next decade. While that could stymie growth a bit and make us look more like Europe, there would be a light at the end of the tunnel. If we get a little luck, organic growth would increase tax receipts and help even more.

Michael Boskin, former chairman of the council of economic advisors under Bush I, wrote a good piece last week in the Wall Street Journal regarding budget cuts and tax increases. The vast majority of the time (I think he put the number at 75%), tax increases do not lead to increased tax receipts, something I have long believed. Boskin opines that a workable ratio is $4 or $5 in budget cuts for every $1 in tax increases. I think that could be politically tenable and a decent bi-partisan solution.

I also believe that we are in dire need of tax reform. We desperately need to simplify the tax code. Broadening our tax base is a good start. Maybe that's a euphemism for a tax increase, something I have a hard time swallowing, but I don't think so. Our system is broken and needs repair. When someone making 10 million dollars is paying less tax than someone making what is now considered "rich" - $250,000 -something is really wrong.

Let's get rid of the absurd deductions that only the truly rich can take advantage of because they can afford the expensive lawyers to find loopholes. At the same time, we can actually cut the number of tax brackets and tax rates. With the energy and agricultural sectors booming like never before, I have a hard time swallowing tax breaks and worse, subsidies. But with lobbyists running Washington, that's a tall order to correct.

In this country it's still amazing that only about HALF actually pay income taxes. Yes, that's correct. Roughly 50% of Americans pay income tax. At the same time, given what you read in the media, you would think that the lower income earners are footing the bill for everyone else. It's simply not true. The ever shrinking, but much needed, middle class bears the brunt. When the middle class starts to grow again, you will know that our economy and country has embarked on another multi decade run of prosperity.

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

Follow us on Facebook at and on Twitter @Paul_Schatz

Thursday, June 16, 2011

Questions to Ask Before You Consider Moving Assets to Another Advisor

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

A fact of life every adviser faces is the knowledge that our clients regularly receive solicitations from other advisers, money managers, brokers and investment companies.

Some clients will leave to take advantage of those offers. What really hurts, however, is seeing former clients damaged by poor advice, or advice that does not take into consideration the client’s situation.

With that in mind, we present questions you should ask of any adviser who solicits your confidence and the management of your financial assets:

What is the adviser’s experience and how will your assets be managed?
Don’t just accept the adviser’s word. Verify.
Information on a Registered Investment Adviser can be found  throught the Securities Exchange Commisison (SEC). Information on brokerage firms and individual brokers can be found here. If the individual is not registered, it is a red flag.

If the individual uses a particular investment approach, find out how long it has been in use and what the results are.  Results too good to be true usually aren’t.
How will your assets be held?
Ideally, your assets should be invested in a separate account in your name at a national custodian or brokerage firm. You should be able to independently verify the status of your account. Your adviser should have no access to funds in the account other than a preauthorized ability to withdraw periodic fees. If you do not have transparency, your risk increases. Deposits should never be made out to the individual.

How is the adviser compensated? 
Does that compensation present a possible conflict of interest?  If the individual is paid to solicit your investment in a specific money manager or investment vehicle, is their advice unbiased and in your best interest?

Has the adviser asked the right questions?
Your adviser should understand what you want to accomplish and how a recommended investment fits with your financial situation. You don’t want an adviser who is selling a solution without finding out what you need. 

Is the recommended investment appropriate for you?
You know best what you need in terms of capital preservation, how much and when you will need income from your investments, liquidity, ability to pass on to heirs, etc. If the individual is not asking you about those needs, you need to ask those questions. Make certain you understand the answers and preferably have them in writing. Verbal promises and assurances are not enforceable in court.

If the investment does not work out as anticipated, what is the individual’s exit plan? 
Will they strive to protect your investment or are you on your own once you invest?

How much will it cost to implement the new adviser’s solution?
If you are required to liquidate assets, what costs will be incurred liquidating those assets?

This is particularly important when liquidating insurance products. Has the new adviser given any consideration to capturing dividends prior to selling assets?  What will it cost to purchase recommended investments?  Will those investments be liquid or will you have to commit to a holding period?
And then, ask yourself why you are considering the new adviser.
If you are dissatisfied with some aspect of our services, we would like an opportunity to talk to you about the issue before you make any changes.  If your answer is because you like the individual, you want to help them out or you feel pressured to make the change by the individual or another adviser, step back and give yourself time to reconsider your decision.

Your first priority should be the safety and profitability of your assets. There will always be another opportunity to invest in the next greatest thing as long as you have not lost your assets on a poor decision. 

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

Follow us on Facebook at and on Twitter @Paul_Schatz

Thomson Reuters Sentiment Index: Health care consumer confidence steadied in May

Americans’ confidence in their ability to access and pay for health care improved in May, according to a consumer sentiment index produced by Thomson Reuters.
Respondents surveyed for the index reported an improved outlook when asked if they had experienced a reduction in or loss of insurance coverage in the past three months. Overall, the Thomson Reuters Consumer Healthcare Sentiment Index rose three points from 95 in April to 98 in May, a statistically significant increase.

“This recovery in confidence is encouraging when compared with last month’s numbers, but the month-to-month variability in sentiment could be an indication of underlying uncertainty among health care consumers,” said Gary Pickens, chief research officer at the Thomson Reuters Center for Health care Analytics.

The index, which is based on the Thomson Reuters PULSE™ Healthcare Survey is updated monthly.

The Thomson Reuters PULSE Healthcare Survey collects information about health care behaviors, attitudes and utilization from more than 100,000 U.S. households annually. It is representative of all United States adults and households. The Consumer Healthcare Sentiment Index is based on responses from a survey subset of 3,000 respondents each month. Its baseline measurement of 100 was set in December 2009.

IRS grants go to Quinnipiac University and UConn

The Internal Revenue Service has awarded nearly $10 million in matching grants to Low-Income Taxpayer Clinics (LITCs) for the 2011 grant cycle, including two recipients from Connecticut.
The IRS awarded $75,000 to Quinnipiac University in Hamden and $88,000 to the University of Connecticut's Greater Hartford campus.

LITCs are organizations that represent low-income taxpayers in federal tax controversies with the IRS for free or for a nominal charge and/or provide tax education and outreach for taxpayers who speak English as a second language.

Through the LITC program, the IRS awards matching grants of up to $100,000 a year to qualifying organizations.

Questions about the LITC Program can be addressed to the LITC Program Office at (202) 622-4711 (not a toll-free call) or by e-mail at IRS Publication 4134, Low-Income Taxpayer Clinic List, provides information on LITCs in each geographic area and the languages each clinic serves in addition to English.

Friday, June 10, 2011

The 6 Week Nap

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

Imagine you have been asleep for six weeks and just woke up.  The stock market has declined five straight weeks, a rare occurrence, and is working on six today. 

The sovereign debt crisis in Europe is percolating again with Greece, Ireland and Spain teetering.  Last Friday's employment report, as you can see below, showed very few jobs being created in May with unemployment ticking slightly higher again.  As I have mentioned before, if this was a normal recovery, job growth would be soaring right about now.  Since mid 2010, we are more like hovering.

Bernanke & Company's QEII, which pumped $600B into the system will be ending in a few short weeks.  And the S&P Case Shiller Index of home prices just hit an eight year low.  Yes, you read that right.  Home prices, except the ones we are trying to buy, continue to make post crisis new lows and are back to levels not seen since 2002 and 2003.

You would be hard-pressed to "feel good" right now.  One would have thought that stocks would be down 10-20% with this horrible backdrop.  But they are not.  From high to low, the stock market has pulled back 6%, yet another 4-8% pullback that I keep discussing.

If you add in the somewhat extreme nature of the selling wave along with the surge in investors buying protective put options and newsletter writers more bearish than bullish for five consecutive weeks, you have all the makings for at least a short-term low.  I am going to stick my neck out and say that the bottom is not in place yet and will likely need one more selling wave to hammer in. 

My theme for a while has been that there should be at least one more stock market rally left IF there is a big correction coming in Q3.  I still believe that.  All the makings are there.  Failure to rally in the coming weeks would usher in some not so pleasant memories of bear markets passed, which would mean sharply lower prices very soon.  But we can cross that bridge if and when it happens.
FYI, I will be on CNBC’s Squawk Box at 6:10am on June 13.
Feel free to email me with any questions or comments at
Until next time…
Paul Schatz
Heritage Capital LLC
Follow us on Facebook at and on Twitter @Paul_Schatz

Wednesday, June 8, 2011

Merchant win over banks on debit card fees not so clear for consumers

By FI$CALLYFIT and the Associated Press 

WASHINGTON — Merchants triumphed over bankers in a battle for billions Wednesday as the Senate voted to let the Federal Reserve curb the fees that stores pay financial institutions when a customer swipes a debit card. It was murkier, however, whether the nation’s consumers were winners or losers.

As a result of the roll call, the Fed will be allowed to issue final rules on July 21 trimming the average 44 cents that banks charge for each debit card transaction. That fee, typically 1 to 2 percent of each purchase, produces $16 billion in annual revenue for banks and credit card companies, the Fed estimates.

The central bank has proposed capping the so-called interchange fee at 12 cents, though the final plan could change slightly.

Frank Keating, president and chief executive officer of the American Bankers Association said the ABA  "along with the thousands of community banks we represent, is deeply disappointed with the outcome of today’s Senate vote."

American consumers will now have to pay more for basic banking services and community banks also will suffer, he said. "They will see a reduction in a key source of revenue that allows them to offer low-cost banking services to everyday consumers and supports lending and fraud protection measures. Key banking regulators have unequivocally stated that small banks will be harmed by the underlying Durbin amendment. It is simply unconscionable that the Senate would not act to protect community banks from this destructive effect," Keating said.

Victorious merchants said the lowered fees should let them drop prices, banks said they could be forced to boost charges for things like checking accounts to make up for lost earnings and each side challenged the other’s claims.

Consumer groups were not a united front, either: While the consumer group U.S. PIRG said consumers would benefit, the Consumer Federation of America took no formal stance but said it was concerned about what both industries might do.

Travis B. Plunkett, the consumer federation’s legislative director, said the amount of savings that stores pass on to consumers would depend on how competitive their markets are. He said he also worried that the Fed’s current proposal might be too restrictive, which might tempt banks to “use that as an excuse to increase charges on customers they value the least, low- to moderate-income customers.”

In Wednesday’s vote, senators trying to thwart the Fed’s rules needed 60 votes to prevail but fell six votes short, 54-45. That delivered a victory for Sen. Richard Durbin, D-Ill., the Senate’s No. 2 Democrat, who muscled the provision into last year’s financial overhaul law requiring the Fed’s action.

Wednesday’s roll call shot down a proposal by Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., that would have delayed the Fed rule for a year. In the meantime, the Fed and three other agencies would have studied whether the Fed’s current proposal is fair and rewritten it if at least two agencies decided it wasn’t.

Edmund Mierzwinski, consumer program director for US PIRG, which represents state public interest research groups, said some banks might curtail the rewards programs that many attach to their debit cards, such as awarding cash back or airline miles. But he said checking account fees would not rise.

“There will be competition,” Mierzwinski said. “Banks will be forced to come up with innovative ways to lower costs in their card networks.”

Camden R. Fine, president of the Independent Community Bankers of America, challenged that, saying the Senate vote would mean that “consumers of lower socio-economic status will get hammered” because bank fees would rise.

“Where do people think banks get the money to subsidize these products” like free checking accounts, he said. He also challenged assertions that stores would pass the savings from lower fees to customers.

“Does anybody not smoking dope believe merchants will pass some big windfall to consumers?” he said, adding later, “I mean, what are they going to cut prices by, a penny?”

Merchants, however, argue that they will be forced to lower prices to reflect the curbed debit card fees.

“The retail industry is the most competitive business environment going today,” said Brian Dodge, spokesman for the Retail Industry Leaders Association, which represents many large merchants like Target and Home Depot. “There is no doubt competition would drive any interchange savings out of the system, which would be reflected by lower prices.”

Affirming that was Dennis Lane, who has owned a 7-Eleven store in Quincy, Mass., for 37 years. He said he pays $7,000 to $10,000 annually in credit card swipe fees.

“Whenever I can reduce my cost of doing business, any responsible retailer reduces costs to the consumer,” he said. He also said those savings could allow him to hire summer workers.

On the other hand, the head of a credit union in Mountain Home, Idaho, said slashing debit cards fees would have a huge cost for his business.

Curt Perry, president of Pioneer Federal Credit Union, says cutting the fee to 12 cents per swipe would cost him $780,000 a year. The new fee system would not take into account such expenses as covering fraud, which he said cost him $170,000 last year, leaving him considering options like charging a fee for debit cards or checking accounts.

“We’d have to pass that on, we’d need to generate that revenue from somewhere,” he said.

Friday, June 3, 2011

Save your receipts: Summer day camps may reap tax benefits

Many working parents must arrange for care of their children age 12 or under during the school vacation period.

A popular solution — with favorable tax consequences — is a day camp program. Unlike overnight camps, the cost of day camp may count as an expense toward the Child and Dependent Care Credit.

Here are five facts the Internal Revenue Service wants you to know about a tax credit available for child care expenses:
  1. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the year.
  2. An expense for an overnight camp does not qualify.
  3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
  4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is also available by calling 800-TAX-FORM (800-829-3676).

Painful Solutions to our Debt Crisis

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

Last week’s contribution - "Inflation? I Spit in your Face!" drew an interesting question.

How does our national debt factor into the equation of my non systemic inflation argument? The answer is an easy one and somewhat of a copout. It depends on how the government intends to correct our addiction to the debt problem and looming crisis. Debt in itself is inherently deflationary if you agree with the premise that it must be serviced and eventually repaid. The whole process of deleveraging, reducing the amount of debt, is anything but inflationary for individuals and companies as we saw in 2008 on steroids!

Let’s walk through some scenarios on how Uncle Sam can attempt to fix the problem.
One way to eradicate ourselves of debt is print our way out. The Federal Reserve would monetize by essentially printing money and buying up all of the Treasury bonds, notes and bills. As you can imagine, that would flood the system with more money than it has ever seen and likely cause our currency to completely collapse, which would make all assets denominated in dollars (oil, grains and other commodities) skyrocket to crisis levels. It would also likely trigger more systemic inflation with money velocity soaring along with wages.

Think about the million, billion and trillion dollar Zimbabwe notes or the Weimar Republic post WWI with folks using wheelbarrows full of money to buy groceries from always bare store shelves. Dollars would be worth much more today than tomorrow so people would spend them as fast as they came in. Prices and interest rates would rise day after day, week after week and month after month until the crisis abated. The U.S. Treasury and government would also lose credibility and investment grade credit ratings around the world for a measurable period of time. Our economy would likely collapse.

The opposite end of the spectrum would be strict austerity to cure our debt problems. In that case, government spending would be cut, cut and cut some more, triggering rolling recessions with intermittent periods of stability rather than recoveries. In an extreme case, as we’ve seen abroad, strikes, protests and even riots could fill our city streets. It would “feel bad” for an extended period of time, perhaps a decade or more, but the U.S. would emerge with a very lean and competitive society at the end.

The best possible - and most unlikely - scenario to cure our debt problem would come from organic economic growth. By growing the economy, the percentage of debt to GDP would be reduced, not to mention all the added tax revenue that would come in to the Treasury. I don’t think anyone really thinks this can work now.

One proposal in Congress that I totally disagree with is to simply raise taxes on the wealthy to solve the countries addiction to debt. To begin with, I have seen study after study that shows decreased tax receipts from an increase in tax rates. Increasing tax rates generally hinders economic growth. Additionally, roughly 75% of all discretionary spending (cars, travel, non-staple retailers, leisure, etc.) is done by those making $250,000 or more. How do you think that group would react to having their tax rates rise dramatically? In fact, many of those folks are small business owners, which our economy is built on, and run their finances through their personal tax returns. How do you think a sharp rise in taxes would affect their hiring?

Before someone responds by telling me to look at how well the economy did with higher tax rates under Bill Clinton, those were different fiscal times. We did not have a debt crisis or a structural unemployment problem. The ground was very fertile for growth in the mid 1990s following the S&L Crisis and recession of the early 1990s.

Look, in the 1940s, the top tax rate was more than 70 percent! And the economy grew like a weed. I can’t imagine anyone arguing that our economy could survive rates even close to that today. It would be worse than the Great Depression. My belief is that trajectory is more important than the absolute rate. By cutting taxes from 70% to 60%, that is incredibly stimulative. By raising taxes from 30% to 40%, it is highly restrictive.

I have said for three years that we have run out of painless solutions. It’s going to hurt! Pick your poison. If I were in Congress and not beholden to special interests (HA!), I would cut $100B to $150B from the federal budget every year for the next 10 years. No area would be unscathed, including entitlements and defense. That would certainly curtail growth and make us look more like a European country than the U.S.
At the same time, I would completely revamp the tax system and broaden the tax base. Too many people have used gimmicks and loopholes to avoid paying taxes. We need to remove so many of the insane deductions and credits. The time has come. Sorry big oil, but you have made hundreds of billions of dollars over the past decade and your subsidies and tax credits are absurd. Sorry big corporate farms, but paying you not to grow crops is ridiculous when food prices are at all time highs. When we had a glut of crops and the farming industry was on the verge of extinction, I may not have agreed with the subsidy, but I understood. Now it’s an embarrassment.
At the same time, we need to incentivize R&D in cleaner and greener energy, but not superficially as we’ve seen. We really need to make it appealing for entrepreneurs. Look at how many of the great companies were born during a recession in someone’s garage. Anyone know of a company called Microsoft? The government needs to step up and allow that ground to be fertile again.

Finally, I would be naïve if I thought this could get through Congress without any compromise. While I do not believe in higher taxes, especially in the corporate world where companies just park themselves offshore, I understand that there has to be some give and take. On the social security front, I would accept raising the tax rate and the amount where it is capped in return for also raising the age to 70 over the coming decade or so with further increases if life expectancy increases.

So in the end, I believe there is only one scenario where our debt crisis leads to systemic inflation and I do not think that path is likely. We have become a country of instant gratification and whiners, me included. If America is truly going to solve our debt problems and reliance on foreign capital, we are all going to have to sacrifice over this decade.

FYI, I will be on CNBC’s Worldwide Exchange from 5:35 a.m. to 5:55 a.m. on June 7.

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

Follow us on Facebook at and on Twitter @Paul_Schatz

7 Practical Gifts for College Grads

Consumer savings expert Andrea Woroch has been featured as a media expert source on NBC's Today Show, FOX & Friends, MSNBC, ABC News NOW and many more.

Sure, an all-expense-paid trip to Europe seems like the ultimate graduation gift. However, college students who face thousands of dollars in academic debt may need to jump on the job hunt sooner than expected. With new financial responsibilities looming, recent grads will appreciate whatever help they can get.

To help soften the real world blow, here are 7 practical gifts that job-seeking college graduates will appreciate:

Resume Service
The first thing employers see is an applicant's resume and cover letter. Unfortunately, the style of these documents has become more complex in recent years. Graduates won't get noticed using the old method of simply listing experience by date. Cover letters are now approaching works of art, mentioning much more than that applicant is interested in the job and is a good team player, trustworthy and a hard worker.

A resume service will create updated documents so subsequent resumes and cover letters live up to modern standards. Costs run roughly $100 to $200, depending on the services you desire. It's worth paying extra to have an expert explain the latest tricks and how graduates can alter these documents for each job. Sites like ResumeMyCareer can help you compile a professional and competitive resume at an affordable cost.

Home Furnishings

After living with cinder-block bookshelves and saggy mattresses for four years or, worse yet, being surrounded by their childhood furniture while living at home, graduates might appreciate an upgrade on everything from a couch to kitchen implements especially those moving into a new apartment to be closer to their new 9 to 5 job. You might also put together a basket of upscale bed and bath products so the grad can finally dump their dollar-store shampoo and soap.

Gift Cards

The 2011 crop of college graduates faces more debt than any other generation, so money is always a welcome gift, especially to help them get through that first, unstable post-school year. Grads not comfortable with the idea of asking directly for money can create a gift card registry at to receive gift cards from hundreds of merchants in a variety of categories from apparel to food, gas and much more.

Job Interview Clothing
Suits can be overkill in some places, unless the graduate lives in a big city or is looking for a management position. Most employers will expect something a bit more casual these days. Men should have a dress shirt, pants and shoes with a matching tie and, perhaps, a sports coat. Women will need a demure outfit of skirt and blouse or dress with basic pumps. A coordinated jacket would nicely complete the outfit.

Foreign Language Lessons
College graduates face a tough job market and with high unemployment rates, that means more experienced competition. Given any opportunity to improve his or her skill set, grads can make themselves more marketable to potential employers depending on the position. Consider gifting Spanish lessons (Rosetta Stone is an effective and affordable option) or perhaps a GMAT review course for help towards MBA school admissions.


Backpacks and messenger bags are great for toting books and water bottles, but grads will have a better chance of securing a job when they show up looking sophisticated. A soft-sided briefcase with room for a laptop, resume binder and lunch will give any job seeker a more professional appearance.


With instant email access and GPS navigation, a smartphone will keep recent grads connected with potential employers and recruiters so they never miss an interview opportunity or an offer. Not to mention, the various apps that offer banking on-the-go, cheap dinner recipes and location-based drink specials to help make their lives a little easier.