Market Musings Blog

What do you do with financial accounts when a loved one is diagnosed with Alzheimer’s? This question is becoming more pertinent by the day as we live longer.

The issue of protecting assets that had heretofore been shared is a delicate one to be sure. We have seen any manner of difficulties arise as investors become less capable, including spending addictions; or the opposite -giving away joint assets; inappropriate trades, or simply misplacing or misunderstanding accounts (annuities are particularly tricky); forgetting passwords; incurring debts or forgetting to pay bills, etc.

A plan for Alzheimer’s ideally begins before anyone is affected. An easy way to start is with how assets are titled, allowing more than one person to have a measure of control over accounts. However, if you have an estate plan, be aware that you can defeat that plan if you change titling that your attorney has recommended. Another approach might be to grant another party power of attorney in some form. POA’s come in different strengths and should also synch with your estate plan. In extreme cases, and where you can gain cooperation with the affected patient, a conservatorship or trust may be in order.

Keeping an eye on transactions and accounts on a daily or at the very least a weekly basis is another possibility. This scrutiny has the added benefit of allowing you to watch for hacking fraud as well. Often you can sign up for email or other alerts as transactions process in credit card, bank, and investment accounts. Just be sure that the device you use to accept these alerts is itself well protected from theft. Don’t forget to watch for Social Security payments to arrive too. Those of us who do not receive SS yet aren’t tuned up to watching for it!

Credit card limits can be lowered, to help prevent overspending; and someone should monitor bills and billpaying activity so items do not go into arrears. Automatic bill paying from a checking account can be employed in some cases, but even this should be monitored as amounts can change, resulting in overdrafts.

Although it sounds self serving, an investment manager who is tuned in to the aging investor can cast a watchful eye on the situation frequently (we watch every account every day) and make suggestions as needed. If you bank at a branch where the personnel are stable and you know them, sometimes a banker can be drafted to duty, alerting a co-owner of suspicious activity. Be aware that no one will talk to you about accounts on which you have no authority – that’s where joint titling comes in handy.

In yet another blow to corporate America, Equifax has belatedly let us all know – and by ‘all’ I mean nearly every adult in America – that our information has been stolen. Since these credit reporting agencies are repositories for virtually every number that is important to you – bank account numbers, credit card numbers, your SS number – this is completely alarming. (Also alarming is the fact that company executives claim they ‘didn’t know’ about the hack while they sold millions of dollars worth of Equifax stock.)

You can fight back by either placing a fraud alert at each of the credit reporting agencies (Transunion, Experia, and Equifax), or you can place a ‘security freeze’ on your accounts at these entities. You must place the freeze at every agency, or you risk leaving a hole to be exploited nefariously. You will receive a PIN either online or in the mail – keep that, or unwinding the freeze will be very time consuming. I decided to be a guinea pig for this exercise and visited each agency. Though all the agencies offer online forms to effect a freeze, none of these forms worked for me. I used the phone instead. Before you groan, I experienced no waiting on hold, as the systems are automated. In Oregon, there is a $10 fee for placing the freeze, with each agency.

The security freeze will not allow access to your credit report. It’s not appropriate for everyone – certainly you do not want to use it if you are in the middle of buying a home for instance – but the idea is it will not allow anyone to use your information to open a new account – including you. You can temporarily ‘unfreeze’ your report if you need to, but that will require the same process that signing up for it in the first place did.

All told, I managed to place security freezes at all three agencies in about 35 minutes. Not bad. We’ll see if I start receiving calls from entities that are accessing my credit report! For further information, visit https://www.howtogeek.com/209396/how-to-prevent-identity-thieves-from-opening-accounts-in-your-name/

The debate over health insurance in the US continues to rage. No one likes any of the solutions proposed by anyone very much. But it’s not the solutions that are the problem; it’s the nature of the debate. When did we become obsessed with health insurance, versus health care? This reminds me of the basis of most magic tricks: distraction.

The very nature of this debate proves that market forces are long gone from the health care industry. We don’t even think of health care in terms of market forces any longer. But here is one that should enter the debate: the supply of health care. Heretofore, we have only spoken of the demand for health care; nary a soul brings up the supply. Yet, the laws of supply and demand cannot be repealed. If legislation increases the demand for healthcare, and the supply of it does not change, then the price will rise.

Take nursing. The supply of nurses is restricted in the US because of aging faculty, aging teaching facilities, just plain not enough teaching facilities, and retirements of practicing nurses. The shortfall that’s been brewing here is about to become a crisis, as aging baby boomers further stress a system that isn’t working very well. Some 80,000 qualified nursing school applicants were turned away in 2012 due to facilities shortages; this is the latest number I could find, but that’s up from under 70,000 a few years earlier, so it’s a good bet the number is far higher now.

What about hospitals? Well, the number of hospitals in the US has been sliding for decades. In 1975, there were 7156 registered hospitals in the US. In 1995, there were 6291. Now there are 5564. Not good from a supply perspective.

And the US graduates close to 18,000 doctors every year, year in and year out, with very little change for decades. With retirements looming for this cohort too, the number of physicians may well decline in years to come, not increase.

Aside from the miserable supply/demand statistics – which should cause us to demand some different policies from our legislators – there is zero price transparency in the medical field. Consumers cannot order a ‘menu’ of services showing prices, as everyone expects for, say, a restaurant. Why not? One reason is that there’s no incentive to shop or even understand prices if the buyer is not paying for the service. In fact, with mandated insurance, there’s actually an incentive to purchase more services, to make the insurance ‘pay for itself’. Furthermore, since insurers can only adjust prices for age and tobacco use, there is also nearly zero incentive to stay healthy and fit.

These things need to change before we have cost effective health care in the US. Unfortunately, I see no probability on the horizon that we’re going to have an all-inclusive debate on this topic. Future generations will be stuck with ever increasing bills for health services. In turn, when your family is paying through the nose for health care, you can’t buy much else, and the economy cannot grow as fast. Not a good outcome, for sure.

For the last ten years at least, investment managers who analyze stocks looking for value have had a tough time performing well. It’s becoming easy to wonder if value investing doesn’t ‘work’ any more. Jeremy Grantham has mused that large companies growing ever larger gain economic power at the expense of competitors, permanently, breaking the mean reversion that typically happens when a company is out of favor, fixes itself, and then appreciates. Others believe that with computers choosing stocks to an ever greater degree, small forays from fair value are rapidly arbitraged away. Too, an argument can be made that the Fed’s easy money policies have confused price discovery and distorted capital flows in many areas of the economy, possibly even perpetuating our low-growth environment. When growth is scarce, investors pay ever more for it, rejecting slow growers in favor of faster growth. Finally, with indexing so popular, money flows to the largest companies, boosting their values at the expense of other stocks. All of these may be true to some extent – for now.

But on a more ominous note for investors of all stripes, the willingness to pay ever more for companies that do not make much if any money is sounding quite a lot like 1999, the pinnacle of technology valuations that held for over fifteen years. Back then, tech stocks surged into early 2000, then fell like a rock. The Nasdaq did not recover its peak valuation until mid 2015. Countless stocks have never regained the prices of those days, despite experiencing recent record earnings. Cisco Systems, Intel, Qualcomm, and Verisign are all well below their prices of late 1999-early 2000. (Interestingly, IBM – a stock that the market loves to hate right now – is well above its peak of 1999.) In another eerie commonality, the Fed was beginning to tighten back in 1999. Here is what David Bianco, chief equity strategist at Deutsche Bank, wrote in 2013 about that time frame:

“The yield curve didn’t invert until March of 2000, however 1999 was feared to be late in the cycle by many investors despite low inflation given that it was eight years since the last recession. The popular debate at the time was whether or not the business cycle had been tamed and elongated versus history. The PE of the S&P 500 climbed to 20 and higher, which contributed to a correction in 7/99-10/99, but the market rebounded and rallied strongly into year-end as the economy displayed health with unemployment falling further and dipping under 4% in early 2000. However, 2000 brought signs of excessive investment in technology and telecom. A demanding PE and a hard rolling over of profits on a business spending recession started a bear market exacerbated by 9/11/2001.” (My emphasis added.)

Does that sound familiar?

The 2000-2002 time frame marked a redemption for value investors, who had been squeezed for years until then. Value investing entered a halcyon period, which lasted for several years. Investigating market history as we’ve done here reminds us: The more things change, the more they stay the same.

Anyone invested in the municipal bond market should keep an eye on Puerto Rico which declared a special form of bankruptcy allowed to it by Congress in a special law passed a couple of years ago. The territory, where population has been declining for decades, borrowed a virtual boatload of money in the last ten years, propelled by a very irresponsible government. The net result is an enormous and growing debt load per person – and since Puerto Ricans are US citizens, all they need to do to escape this debt is to move to the mainland, which they are doing in droves. Of course, this exacerbates the debt load for those remaining.

Some 45% of Puerto Ricans live in poverty. No, that is not a typo. And most of the rest of its citizens work for the government, which now has to go on a drastic diet, so you can see what’s coming down the pike. Not anything good.

Investors in municipal debt are sometimes – rarely, but sometimes – stung by default events like Puerto Rico’s. Usually, except for very small niche-y situations, these train wrecks are thoroughly visible long before they happen, as was Puerto Rico’s. The normal course of events – if there is a normal – is that the claims of creditors, including bond holders, are settled by the courts. While case law is slender in this arena, lessons from Detroit, Vallejo, and others teach us that anything can happen in court. Basically, once a municipal bankruptcy occurs, you can bet that the return on your bonds is very likely to experience a severe haircut. Even when bond indentures establish a claim that appears to be prior over another claim, if there isn’t enough money, there isn’t enough money and everyone is going to experience pain.

Among the claimants, too, are pensioners, current workers, and vendors. None of these parties may directly own bonds, but they will be sharing the same pot of money as bond holders, and will find themselves reluctant participants in the court process.

The events in Puerto Rico are particularly noteworthy not just for the outcome on the island – the court case will also add to law that may be used by Hartford Connecticut, which is well on its way to its own special train wreck, and possibly Illinois, which is becoming intractable. We shall see what happens.