by ilene - October 13th, 2015 8:22 pm
A problem with measuring inflation in a way such that the numbers do not adequately reflect what most of us experience--increasing costs of health care, food, college tuition, rent--is that even as our cost of living increases, COLA adjustments may not follow. Next year, there will be no adjustment. Nancy Altman, founding co-director of Social Security Works, shows that this is not merely an academic difference. ~ Ilene
On October 15, the Social Security Administration will announce some news that will be distressing to more than one in four households: there will be no Social Security cost of living adjustment ("COLA") for 2016. This is no small matter. The purpose of the annual adjustments is to ensure that Social Security's benefits don't lose value over time. They are intended to keep seniors and other beneficiaries afloat, to allow them to tread water. But they are not floating; they are sinking.
You would be hard pressed to find a senior who has not seen the cost of medical care, prescription drugs, food and other necessities go up. You would also be hard pressed to make the case that Social Security benefits are too generous. Averaging just around $16,000 a year, they replace just 40 percent of a medium-income worker's wages. Modest though they are, Social Security benefits are vitally important. Two-thirds of seniors rely on their Social Security benefits for half or more of their incomes. Social Security constitutes virtually all of the income of one-third of senior beneficiaries. The dependence is even higher among workers who have become disabled.
The zero automatic adjustment has happened only twice before, in 2010 and 2011. All three zero years, 2010, 2011, and now 2016, will have occurred during the Obama administration. When there was no COLA in those other years, emails blaming the Democrats flew around the internet, but the President and Congress have nothing to do with the size of the adjustment. It is all done mechanically by a measure known as the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Ironically, though Social Security is paid to workers who have reached old age, and generally retired, who cannot engage
by ilene - October 13th, 2015 4:32 pm
By John Mauldin
“The first wealth is health.”
– Ralph Waldo Emerson
“Man needs difficulties. They are necessary for health.”
– Carl Jung
Decisions, decisions. Many Americans will have to make a big one in the next 60 days or so. How you decide will affect both your health and your wallet. Hospital management and doctors are seeing significant differences in the trends of patient care and are moving to adapt. Some of the changes they implement are going to create significant economic impacts on households and local communities.
In this week’s letter we’re going to take another look at healthcare trends. Healthcare is roughly 20% of the economy and every bit as impactful as the energy and food sectors.
Two years ago this week I wrote “The Road to a New Medical Order” with my friend and personal physician, Dr. Mike Roizen of the Cleveland Clinic. That letter was an attempt to discuss the Obamacare launch and the changes it will bring. Rereading it now, I see that we missed some points. (Mike is the Chief Wellness Officer and head of The Wellness Institute at the Cleveland Clinic. He is one of the premier antiaging doctors of the world. He has sold over 12 million books (including numerous bestsellers), has written 165 peer-reviewed publications, holds 14 patents, and serves on many FDA committees and boards. His awards are numerous. He has often appeared on the Oprah Winfrey Show with “Dr. Oz.”)
Mike and I have an ongoing conversation about the changes in the healthcare world. Some of the changes that are coming are very positive, and others are downright remarkable, creating trends that no one seems to have even guessed at. Others are not so salutary. We’ll examine the great and not so great trends. Plus, I’ll offer some practical healthcare-related personal-finance tips for those of us of a certain generation. I was actually pretty excited to find some of this information, and so I’m going to enjoy passing it on to you. This week’s letter should be fun. Let’s dive right in.
by ilene - October 13th, 2015 4:30 pm
Courtesy of Lance Roberts via STA Wealth Management
In last week's update, I discussed the short-term oversold condition that existed at that time. I wrote,
"As you can see, the markets did retest the late August lows, and when combined with the very oversold conditions, led to a frantic "short covering" rally back to previous resistance. It is worth noting that the recent market action is very similar to that of the August decline and initial rebound as well.
…have seen the end of the current correction or is this just another "reflexive rally" that will fail?"
The chart below is updated through yesterday's close.
Currently, the bulls have clearly been in charge of the market. The question is for "how long?"
While last week's FOMC minutes gave the "bulls" some confidence that the Federal Reserve is not removing its accommodative policy, it was the massive amount of short-interest (people betting on markets to fall) that provided the fuel.
The chart above, from ZeroHedge, shows the massive jump in short-interest that has to be covered as stock prices rise. When players are "short the market," bullish reversals in prices force traders to close out their positions by "buying" into the market. This fuels additional buying, which pushes prices higher, which forces more players to close out their short positions. This cycle continues until the "fuel" is exhausted. This is why market rebounds tend to be extremely sharp and fast, but also fade just as quickly.
For a visualization think about the "Whoosh Bottle" where an air/gas mixture is fairly inert until ignited by a catalyst. (Vine by @scienceporn)
That mixture of oversold market conditions, combined with a sharp rise in "short interest" in the market, was the perfect accelerant waiting on a match. That match was the Fed failing to hike rates and a lack of China in the headlines.
However, there is a big difference between a fundamentally based "bull market" advance and a short-covering rally in a "bear market" cycle. While it is too early to say that we are indeed in a bear market, there are…
by ilene - October 13th, 2015 1:54 pm
Courtesy of Mish.
In news that is bound to make the inflationists at the Fed as well as property owners happy, Landlords Will Hike Rents by 8% this Year.
Some 88% of property managers raised their rent in the last 12 months and 68% predict that rental rates will continue to rise in the next year by an average of 8%, according to a survey of more than 500 of Rent.com’s property management customers, which the site says represents thousands of rental properties and hundreds of thousands of rental units. That’s nearly three times the wage increase that most employees can expect this year.
What’s more, 55% of property managers said that they are less likely to offer concessions or lower rents in order to fill vacancies. One reason why they’re getting even tougher: They are in a stronger position than they were this time last year.
More than 46% of property managers surveyed reported a decrease in rental vacancies in Rent.com’s survey and, in the second quarter of 2015, vacancy rates in the U.S. for rental housing was 6.8%, the lowest it has been in almost 20 years, according to data from the U.S. Census Bureau.
Despite this, many renters are spending more than 30% of their income on rent (the amount generally recommended) and need help qualifying for the lease.
Reader "BJ" is retired but works part-time a number of hours each week, surveying apartments for rent. He reports …
I am retired but work part-time for Yardi from my home, surveying apartments for rents. Yardi runs a full survey 3 times a year, Jan, May and Sept. These generally run about 6 weeks.
Yardi has the country divided into 24 sectors and we normally work 6-7 sectors once a month for a week on a rotating basis. Toward the end of the survey, we can work any market and I've been keeping track of a few select places. From what I see, rents are up and up a lot. Some of the places I watch are up 7% or more than last year for the same apartments.
The absolute worst
by ilene - October 13th, 2015 11:21 am
Courtesy of Mish.
The Dutch investigation into flight MH17, shot down over Ukraine, officially concluded today. The Official Report Confirms MH17 Shot Down by Missile.
Dutch officials have confirmed that Malaysia Airlines flight MH17 was brought down by a missile and criticised Ukraine for not closing its airspace over its eastern regions despite the conflict, in the first official investigation findings into the crash that killed 298 people in July last year.
The year-long investigation determined that MH17 was shot down by a Russian-made Buk anti-aircraft missile but did not seek to establish who fired it because this was not part of its mandate. “Flight MH17 crashed as the result of detonation of [a] warhead outside the airplane,” said Mr Joustra, who chaired the investigation.
Kiev and its western allies blame Russian-backed Ukrainian separatists, while Russia has insisted it was the Ukrainian armed forces.
Earlier on Tuesday, Moscow gave its own version of events, which implicated Ukrainian troops on the frontline.
Yan Novikov, general director of the Russian state arms producer Almaz-Antey, which manufactures the Buk system, said experiments carried out by the company proved initial findings presented in June. These included evidence that the Buk M1 missile that brought down MH17 was fired not from the village of Snizhne that was controlled by pro-Russian rebels but from nearby Zaroshchenske.
There is a difference of opinion over who controlled Zaroshchenske at the time, with the Russian military claiming it was in the hands of the Ukrainian military while Kiev insists it was held by Russian-backed rebels. Mr Novikov declined to comment on who was in control when the plane crashed.
But he said tests had confirmed that the missile that brought down MH17 was an old model, the 9M38, which was first manufactured in the Soviet Union in 1986 and decommissioned by the Russian army in 2011. The statement implied that the missile complex could not have come from Russia.
The Dutch Safety Board report will not directly address the issue of who was responsible for the MH17 disaster. A separate Dutch-led criminal investigation is continuing.
In July, Russia vetoed a draft resolution at the UN Security Council to set up an international tribunal into the disaster.
The type of
by ilene - October 13th, 2015 11:08 am
Courtesy of Pam Martens.
President Bill Clinton Signs the Gramm-Leach-Bliley Act on November 12, 1999, Repealing the Glass-Steagall Act
The average American, scraping to get by, put food on the table, pay the mortgage, has no time at all to drill down and root out the real facts that would enable him or her to separate propaganda from the economic reality facing the U.S. and the rest of the globe.
That’s why we created Wall Street On Parade. It’s a labor of love for our fellow citizens to give you a meaningful jungle guide to survive this era of unprecedented corruption and hubris with a roof still over your head and a shirt on your back.
In a few years, when you look back, you’ll realize “jungle guide,” if anything, was a serious understatement.
This morning stock markets around the globe are flashing red. The perceived wisdom is that the news driving stocks lower is a report out of China that its imports plunged 17.7 percent year over year in September, the 11th straight decline.
Make no mistake about it, just as Lehman Brothers was set up to take the fall for triggering the 2008 collapse, China is being groomed as the new scapegoat for the coming crisis. But China’s economic slump is only a symptom, not the disease.
by ilene - October 13th, 2015 10:54 am
Courtesy of Lance Roberts via STA Wealth Management
When I was growing up my father, probably much like yours, had pearls of wisdom that he would drop along the way. It wasn't until much later in life that I learned that such knowledge did not come from books, but through experience. One of my favorite pieces of "wisdom" was:
"Exactly how many warnings do need before you figure out that something bad is about to happen?"
Of course, back then, he was mostly referring to warnings he issued to me "not" to do something I was determined to do such as jumping off the roof with a bedsheet convinced it was a parachute. After I had broken my wrist, I understood what he meant.
Over the weekend, those warnings came to mind as the recent bounce in the financial markets once again has individuals scrambling to grab "bedsheets" to jump off the roof once again. Of course, much of their behavior is driven by mainstream commentary suggesting that the recent market rout is over.
However, there are currently plenty of warning signs that suggest that individuals might want to reconsider the risks before taking that leap. Here are four warnings to consider.
Warning 1: Profit Margins
"While I am not talking about recession yet, I do think we are seeing economic weakness toward the end of the business cycle. And while that doesn't mean recession in the near-term, it could do in the medium-term.
We know from history that the dates when profits rolled over coincide very much with the slide into recession. My interpretation of these data is exactly as Barclays says, that you get enough of a slide in profits and it generally leads to recession. That is because the profits recession comes as a result of a weakening economy that has weakened so much that companies are no longer able to cut costs, buy back shares or massage accounting enough to keep profits rising.
We are now in the seventh year of a cyclical recovery and bull market. Shares have
by Market Shadows - October 13th, 2015 9:38 am
Financial Markets and Economy
Global oil markets will remain oversupplied next year as demand growth slows and Iranian exports are poised to recover with the lifting of sanctions, the International Energy Agency said.
Johnson & Johnson is buying $10 billion worth of itself (Business Insider)
Johnson & Johnson is set to report third-quarter earnings results on Tuesday morning.
Ahead of the release, the company announced a $10 billion share buyback program.
German investor confidence fell to the lowest level in a year as Europe’s largest economy faces the fallout of Volkswagen AG’s emissions scandal and weaker growth in emerging markets.
Falling profits don’t signal an economic recession (Market Watch)
There’s nearly always a story in the market about how the U.S. economy is headed for recession, and this week’s version is that the earnings U.S. companies are just beginning to report will drop for the second straight quarter — and that means a recession.
Amid the worst terror attack in its history, divisive looming elections and a slowing economy, one of Turkey’s most entrenched bears has picked now of all moments to turn positive.
The government sold its last stake in Royal Mail and now shares are tumbling (Business Insider)
For the first time in its history, the Royal Mail is a fully private company, and the markets do not like it one bit.
Double figures is looking out of reach, for now.
by ilene - October 13th, 2015 9:05 am
Courtesy of Charles Hugh-Smith of OfTwoMinds blog
We all know helicopter money of some kind is coming as the global economy spirals into recession. Quantitative Easing (QE)--the monetary stimulus of distributing newly created central-bank money to private banks--has been discredited, as even cheerleaders and apologists now admit it has only widened wealth and income inequality.
So what's left in the toolbag of central banks and states to stimulate recessionary economies if QE has been discredited? The answer: Helicopter Money.
Gordon T. Long and I discuss Helicopter Money in the video program below. Who is likely to receive the first drops, and who will be the ultimate winners and losers.
Gordon leads off by covering how money is created by central and private banks, i.e. how money is lent into existence.
Next, we discuss how helicopter money works: central states issue bonds (new debt) to fund helicopter drops of free money to stimulate demand for goods and services, and central banks buy the bonds with freshly created money. This monetizing of state debt by the central bank is the engine of helicopter money. When the central state issues $1 trillion in bonds, the central bank buys the new bonds and promptly buries them in the bank's balance sheet as an asset.
The Japanese model is to lower interest rates to the point that the cost of issuing new sovereign debt is reduced to near-zero. Until, of course, the sovereign debt piles up into a mountain so vast that servicing the interest absorbs 40+% of all tax revenues.
But the downsides of helicopter money are never mentioned, of course. Like QE (i.e. monetary stimulus), fiscal stimulus (helicopter money) will be sold as a temporary measure that quickly become permanent, as the economy will crater the moment it is withdrawn.
The temporary relief turns out to be like heroin, and the Cold Turkey withdrawal, full-blown depression.
So where will the first drops of helicopter money land? How about the student loan Titanic, which is already bow down after hitting the iceberg of reality? Or how about some big fat tax credits, politicos' favorite form of helicopter money?
Gordon and I discuss the possibilities in Is Helicopter Money to Follow QE (35:47 video, with Gordon T. Long).
The Oldest Trick In The Book: Here Is How Johnson & Johnson’s “Beat Earnings” Despite Sliding Revenues
by ilene - October 13th, 2015 8:45 am
The Oldest Trick In The Book: Here Is How Johnson & Johnson's "Beat Earnings" Despite Sliding Revenues
Earlier today, one hour before consumer and medical products conglomerate Johnson & Johnson was set to report Q3 earnings, it unexpectedly announced that it would launch a $10 billion buyback, a move which we said would presage earnings that are "almost certain to be very bad."
A few minutes later this skepticism was confirmed when JNJ announced a huge miss in Q3 revenues of $17.1 billion, far below the $17.45 billion consensus estimate, and a whopping 7.4% down compared to the year earlier.
Of course, seen in this light the buyback announcement was merely there to cushion the blow from the weak Q3 earnings.
And yet, when looking at JNJ's EPS line, things were not nearly as bad, because despite a 7% slide in revenues and a whopping 40% collapse in pretax net income, somehow JNJ reported Q3 non-GAAP EPS of a solid $1.49, actually beating consensus of $1.45, and only 7% lower than a year ago.
Hardly terrible… until one looks at the detail and finds the same "oldest accounting gimmick in the book" which as we showed was used by both Coke and Intel last quarter: namely "adjusting" tax rates.
Here is what happened: a year ago, JNJ had a GAAP effective tax rate of 30.3%. This year? The number tumbled 38.9% to just 18.5%. Obviously applying a 40% lower tax rate to a 40% lower pretax number will result in almost a wash, and that is precisely what happened, because JNJ's non-GAAP, adjusted EPS dropped a very modest 7.5% from $1.61 to $1.49.
What happens if one applies the same tax rate to Q3 2015 as the company used a year ago?
Then again, to "offset" the bitter taste in the public's mouth from a 38% plunge in earnings, JNJ would have to buyback so much stock it would be downgraded to Junk overnight. Which will still happen, but not quite yet: for now investors in the S&P continue to willingly play along with these non-GAAP, charge addback, tax rate games played by company management teams. It is only after the money runs out that everyone will finally wake up to what has been going on before everyone's eye but it will be too late.