Preview of Coming Retirement Attractions

January 28, 2014

  • A whiff of mandatory retirement savings? The 5 peers into the abyss of tonight’s State of the Union
  • Stocks stabilize: What a “90/90 day” means going forward
  • A sector that looks like a bargain… but is likely to get cheaper still
  • China’s record-setting gold, by the numbers
  • An energy play an “old lady-hippie” can love… Canadian health care, continued… and more!

  “When Thomas Jefferson took office in 1801,” the site Mental Floss informs us this morning, “he decided that the idea of showing up before Congress to deliver a grand address sounded like something a monarch would do, so he decided to bag the speech.

“Instead, he wrote down an annual message and sent it to Congress, where a clerk read it aloud to the assembled legislators.”

Just a bit of perspective before the uber-hyped State of the Union address tonight.

  Among the things the current occupant of the White House is supposed to announce tonight: “the creation of a new retirement savings plan geared toward workers whose employers don’t currently offer such plans,” says The Associated Press.

Say what?

“Because commercial retirement accounts often have fees or high minimum deposits that are onerous for low-wage workers,” the story goes on, “this program would allow first-time savers to start building up savings in Treasury bonds. Once the savings grew large enough, a worker could convert the account into a traditional IRA, according to two people who have discussed the proposal with the administration.”

It appears he will implement this program by executive fiat, bypassing Congress. The details are fuzzy… but it sounds like the proverbial camel’s nose under the tent for “mandatory retirement savings” — the wet dream of BlackRock CEO Larry Fink.

“BlackRock,” Addison Wiggin wrote last year in Apogee Advisory, “is the world’s largest money manager, with $3.79 trillion in assets under management. Fink would like even more.” For months, Fink has been pushing for an Australian-style system of forced retirement savings, the better to prop up both stocks and Treasuries.

It’s hard to tease this out until we know more about the plan. More tomorrow…

 The president who broke with Jefferson’s State of the Union precedent, by the way, was the vainglorious Woodrow Wilson. It was in 1913 — the wretched year that also gave us the Federal Reserve, the income tax and popular election of U.S. senators.

No surprise, really: If you can imagine the condescension of the current president melded with the pious certitude of his immediate predecessor, that’s Wilson in a nutshell. “Wilson read the Constitution as providing the president with the broad authority to serve as a national spokesman,” according to the Congressional Research Service.

Of course…

  Stocks are drifting up as we write, with every major index in the green. The Dow has recovered the 15,900 level.

Traders aren’t nearly as concerned about what’s in the State of the Union speech tonight as what will be in the Federal Reserve’s policy statement tomorrow. The Fed’s Open Market Committee begins two days of meetings today, the last one that will be presided over by Ben Bernanke. (No press conference this time. Yeah, we’re bummed too.) Another $10 million “taper”? We shall see…

[Ed. Note: Congratulations to Options Hotline readers. Six weeks ago, Steve Sarnoff urged them to buy put options on Wal-Mart. It was a textbook trade: Shares sank about 6% between then and now, while the option soared 90%. Yesterday, he said it was time to take profits. For access to Steve’s next recommendation — due this Sunday — look here.]

  Today’s action notwithstanding, a 10% correction in stocks is now in progress, according to money manager and prolific blogger Barry Ritholtz.

The key: Friday was a “90/90” day. That is, 90% of the volume was down, and 90% of stocks closed lower.

“The motivation for this change,” writes Mr. Ritholtz, “is less relevant than the actual swing in buying. Whether it was caused by emerging-market turmoil or fears of a Federal Reserve taper or the expectation that the president will admit in his State of the Union address that he was really born in Kenya is irrelevant.

“Looking at the past examples of deep 90/90 sell-offs, we have seen only modest rebounds followed by more selling after days such as Friday.” He’ll change his tune if we get a 90/90 up day.

  “Selling out of U.S. stocks for emerging-market exposure right now would be like jumping out of the frying pan right into the fire,” says The Rude Awakening’s Greg Guenthner.

Just in case the thought crossed your mind, heh.

The recent carnage in emerging-market currencies and stocks is on hold this morning: India’s central bank is jacking up interest rates. Turkey is likely to follow. Brazil is dropping hints to that effect.

“But just a few weeks into January, the charts look broken,” says Greg of developing world stocks. “While the S&P has dropped 3.6% to start the year, the iShares MSCI Emerging Markets ETF (EEM) is down almost 9%. That’s a nasty drop for a basket of names that looked to be getting its act together just a few months ago…

“Expect some wild action from emerging markets over the next several months,” Greg concludes. “Ultimately, I think many of these names will move lower.”

  Gold is holding the line on $1,250 after it sank yesterday afternoon. At last check, the bid is $1,252.

 China’s gold import totals for 2013 are in.

Well, the imports that come via Hong Kong. That’s the information the Chinese leadership allows to go public; imports via Shanghai are a black box.

That said, net imports totaled 1,108.8 metric tons — a 33% increase from 2012. For the month of December, gross imports totaled 126.6 metric tons — which is yet another year-over-year increase.

“Increasing disposable income guaranteed healthy demand for gold in China last year,” Song Heping of Xiamen City Commercial Bank Co. tells Bloomberg.

Well, that and lower prices. And probably fears about the country’s “shadow banks,” as mentioned yesterday.

How much of this gold ended up at the People’s Bank of China is yet another black box. But as we said a week ago, the “big reveal” might come as early as this spring.

  “Can we save the planet?” a reader implores our Byron King. “We have to begin by valuing things like water, topsoil and the genetic diversity that nature provides.”

The email came from a self-described “old lady-hippie” who nonetheless concedes, “I like money too, especially when I make it in the stock market.”

Byron — an oil field geologist by training — was receptive to the reader’s message. “‘Saving the planet’ is a true, noble cause. It’s something to which people devote entire careers, if not write long books. Then again, other people establish businesses to control pollution, use less energy, increase efficiency, reduce waste and generally help the world spin ’round and ’round with less of a mess in its wake. Save the planet and make some money at it, right?”

  Yes, it can be done. Think about this: “The cost of energy in the commercial and industrial sectors of the U.S. economy is over $2.25 trillion per year,” says Byron.

“Consider a company like AT&T, for example, with a yearly energy bill over $1.4 billion. Or look at an industrial titan like General Electric, which spends $350 million annually on energy. Even Adidas, the shoemaker, spends over $200 million per year buying energy. Saving a small fraction of that adds up to serious bucks.”

Entire companies have sprung up with the sole purpose of helping the AT&Ts and GEs of the world cut their energy bills. “The starting point,” Byron explains, “is to take existing energy facilities — power plants, turbo-generators and the like — and run them better. That is, get more efficiency while balancing energy output with demand. Use less fuel in a power plant, for example, while still meeting all demand load.”

In the current issue of Outstanding Investments, Byron identifies one of his favorite plays in this growing niche.

  “Yes, I am Canadian, and I believe our system is great,” writes a reader carrying on our discussion of health care in the Great White North.

“You hear about long wait times, and this is true, but mostly for items that are nonlife-threatening, e.g., hip and knee replacements. I personally have had a total knee replacement (waited six weeks) and this past summer was rushed to emergency in the evening and next morning woke up in intensive care, where I spent 10 days. Not bad service I would say. And the nice part — my cost: $0.00.

“Sure, it is covered in our income taxes, but you never have a situation where you are wiped out financially. The health care system is controlled by our federal government and operated by our provincial governments; that is why some provinces charge additional premiums. I happen to live in Alberta, where there is no additional premium. We are certainly able to select our own general practitioner, and when necessary he refers you to a specialist, as in heart surgeon, ophthalmologist, etc., all for the same price, $0.00.”

  “Yes, I am a Canadian, and no, our system is not perfect. It also has flaws (not as many and not as big as yours, but still flaws).

“We do have a more healthy citizenry, for a variety of reasons, and no, it is not free. As you keep expounding, though, just as in investments, we look at the value, not just the cost. The return is priceless.

“My suggestion, though, would likely assist in most areas of your society. It is to limit the amount of funding that can be directed to elected officials and nonelected government agencies by individuals, companies or industry lobby groups. Make indiscretions on both sides a federal offence with minimum jail terms.

“In the USA, influence goes to the highest bidder. That may be why the rich get richer and the poor get poorer.

“And please consider that a solution ‘not invented here’ can still be a solution. Thanks for listening.”

The 5: We understand the impulse to limit campaign contributions and such. We’d think a far better solution would be to limit government power in the first place.

  “Your rhetorical question,” writes an MD to whom we responded yesterday, “on whether our health care is more expensive because of obesity, smoking, violence, etc., should be answered with an unequivocal yes!

“Your insinuation that ‘cost-shifting schemes’ make it more expensive should be answered with no, but indirectly yes. Indirectly, those schemes cost us hardworking taxpayers more money in the form of increased taxes (the uncompensated care fund) and higher health insurance premiums (the ‘savings’ from the difference in charges and the discounted fee for service).

“I believe every American taxpayer should be made aware of what a fraud the uncompensated care fund is and should call out their local hospital on the hypocrisy they spew when commenting on all the ‘charity’ care they provide when, in reality, they benefit far more financially to be stiffed by an uninsured patient than being paid Medicare rates by an insured senior.

“The average reimbursement to a hospital from the uncompensated care fund is an insane 70-75% of the ‘cost.’ Average Medicare reimbursement is 28-30% of ‘cost.’ Physicians are not part of this scheme, only hospitals.

“Any nonbrain-dead health care consumer knows that the ‘charges’ on their insurance EOB (explanation of benefits) have ABSOLUTELY NOTHING to do with what their hospital or physician is paid. It is about as relevant as a random congressional hearing. Our health care system has glaring flaws that need to be fixed but not replaced with a less-efficient and more-expensive boondoggle such as Obamacare.”

The 5: Thanks for the insight. Sounds as if we’re broadly on the same page. And we give you props for not invoking trial lawyers as the sole excuse for sky-high health care costs.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. As always, we refer interested readers to our Obamacare survival package.

rspertzel

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