Author: bill

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Winter Ales

IMG_20141212_183531I drank this beer last month after drinking a Fat Tire from the tap at Jungle Jim’s Pint night. New Belgium was the sponsor this night. Since Jungle Jim’s bar was having gas problems and it looked like pulling stout was more problematical than pulling the Fat Tire ale.  Especially during the winter months I like dark beers so I bought a bottle of Salted Belgian Chocolate Stout. It is an intriguing beer with a definite chocolate taste to it. It might be a beer I would take to party since it is a conversation piece but it is a little too expensive for my general consumption.
IMG_20150125_164726A more affordable brew is this Holiday Ale I brewed in November. It had a little sweet taste with a hint of spices when I brewed it but that has all but disappeared with the bottle conditioning. I think the malty flavor is overwhelming the spices now.  I really like the Irish Stout I brewed last year but it is gone. So now I am left with the Holiday Ale, some Irish Red Ale, and a Winter Ale that I should be bottling soon.
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Will we allow ourselves to be sorted into factions and turned against one another?

When I heard President Obama ask this question in the 2015 State of the Union speech I immediately thought of the pressing problem we have with reforming, replacing, or repealing the Affordable Care Act insurance exchanges. ACA exchanges is a dumb policy that is not only inefficient and cumbersome but it has split the American middle class into factions and turned ourselves against one another. It is an easy moral and political argument to make that ACA exchanges as a necessary policy to facilitate wealth redistribution between the rich and the poor. It is a completely different moral and political argument when the ACA is more accurately described as wealth redistribution amongst the middle class. That is how Professor Gruber, one of the architects of the Affordable Care Act,  described it. As a healthy person in the middle class when I see higher health insurance rates I conclude that last year’s pay raise went to pay either someone else’s health insurance, protect insurance companies from bad government policies, or to help build a federal health care bureaucracy. It makes me bitter. As a healthy person I was not supposed to be affected by ACA reforms. Instead of stimulating the economy and creating jobs, increased health care spending is likely causing the middle class to hunker down. When I look at 21,000 pages of new regulations and rising health insurance costs, I think it is fair to describe the ACA as a deal made in political hell between between HHS, Democratic politicians, and insurance companies. It looks and smells like cronyism so it is not exactly the moral high ground that the middle class is likely to rally around. It is the second question he posed in the SOTU speech that goes to the heart of the reform, replace, or repeal debate. How do we recapture the sense of common purpose when the ACA has pitted middle class factions against each other? Is the ACA too morally corrupt to middle class sensibilities that reform is impossible or can we find some non-partisan reforms to make the ACA less evil?

Will we allow ourselves to be sorted into factions and turned against one another — or will we recapture the sense of common purpose that has always propelled America forward?

Many politicians believe that “America is great because America is good.” and  “If America ever stops being good, it will stop being great.” Tocqueville attributed American exceptionalism to the fact their “morals can turn the worst laws to advantage”.

So how do we reform health care if America stops being good?

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Venezuela should be rich, but its government has destroyed its economy

imrs2Since I lived in Venezuela in the 1960s and have blogged about it in the past, I was surprised to find an article at the Wonkblog about the Venezuelan economic crisis. I am surprised anyone cares right now. The chance of a political solution appear slim. Venezuela will fix its problems in 2015 but it will not be civil. Here is the leading line from the article.

The problem with socialism isn’t that you eventually run out of other people’s money. It’s that you eventually run out of oil money.

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Is 2015 The Year Active Stock Pickers Finally Catch Up To Passive Investors?

About a year and a half ago the company I work for closed down their 401K and I rolled it over to an IRA. My wife recommended that I talk to her Schwab advisor and he recommended two nice mutual funds, Buffalo Flexible Income(BUFBX) and Yacktman Focused Service(YAFFX). At first glance they both looked good since Morningstar gave one of them four stars and the other five stars. Being the analytical guy I went over to Yahoo finance and compared them to S&P 500. I was not impressed so I decided to look at ETF alternatives. I ended up settling on an ETF that focused on U. S. Stock companies with dividends, SCHD.  It not only had better performance over the last year than the two mutual funds but it had lower transaction costs and a lower initial investment requirement. I decided I would look at those mutual funds again in about six months.

Six months later I am watching Consuelo Mack’s Wealthtrack and one of her guests is making a strong argument that a fundamentally weighted index fund he created for Schwab was the better mousetrap when it comes to maximizing index fund performance. So I compared his fund(FNDX), the dividend fund(SCHD), and the mutual funds recommended to me to the S&P 500. The S&P 500 and FNDX were tied and SCHD was not far behind. I found it interesting that the mutual funds were still doing poorly.

Last month my son came home for Christmas and complained that his mutual fund lost money. About the middle of last year he set up a Roth IRA and started investing monthly in a moderately conservative mutual fund from USAA(UCMCX). Despite a four star rating from Morningstar he had lost money. The irony of a conservative investment losing money in a good market had me chuckling. So I did a what-if simulation of him buying Buffalo Flexible Income instead and found that he would of lost money, too. I was beginning to see the trend. Passive investing trounced active stock pickers in 2014 and the money was flowing out of active funds into passive funds. A couple of days later my suspicions were confirmed when I read this article, Mutual Funds: Why Vanguard Won 2014, and What That Means for 2015.

As the S&P 500 index climbed to one record after another last year, the vast majority of mutual fund managers actively picking stocks to try to beat the market fared very, very poorly. Among the 1,417 large-cap growth managers that Morningstar tracks, only 171, or about 12 percent, managed to beat the 13.7 percent total return of the S&P 500 for the year.

I do not know if active stock pickers can catch up to passive investors in 2015 but it they do not, there will be a lot less of them in this business by the end of the year.

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Voters Think Obama’s Plan Makes More Middle Class Taxes Likely

When President Obama says he wants to help the middle class by taxing the rich, I get worried. I cynically associate his idea to President Reagan’s nine scariest words, “I’m from the government and I’m here to help.” It is still fresh in my mind President Obama claims that the Affordable Care Act would allow me to keep my insurance plan if I wanted and that it would lower my health insurance costs. Since my health insurance costs are rising rapidly I think I have a very good reason to be skeptical of Democratic politicians when they say they want to help the middle class. Fool me once, shame on you; fool me twice, shame on me. What surprised me was this Rasmussen poll showed that there are a lot of people who are leery of the President’s latest claims. Here is one the more intriguing statements in the report.

One reason for the opposition may be that 66% of all voters think that if the president and Congress agree to a plan that raises taxes on wealthy Americans, it’s likely that middle-class taxes will go up, too. Thirty percent (30%) consider that unlikely. But this includes 33% who say a middle-class tax hike is Very Likely and just five percent (5%) who consider it Not At All Likely.

From the Rasmussen poll it looks like the President and the Democratic party have a trust issue with 66% of the population. This trust issue reminded me of this chart from a Gallup poll before the last election. The Rasmussen poll appears to confirm that the “the way federal gov’t works” is still a more important issue to most people than “wealth and income distribution” issue.

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The Affordable Care Act’s Missed Opportunity To Control Health Care Costs

For a person who has concluded that the Affordable Care Act was not only bad legislation but a missed opportunity to do something meaningful about controlling health care costs. Chris Conover highlighted this problem in the article, Steven Brill On Obamacare: Right Diagnosis, Wrong Prescription, on Forbes.com.

And perhaps most disturbing of all, when Stahl presses him “is there any way now to go back and add cost containment” Brill opines “it was impossible then; it’s more impossible now”  ultimately concluding that only when it becomes a fiscal crisis will we do anything to rein in spending.

I disagree with Mr. Brill.  The task has become more difficult but the VA model will not be a solution in my lifetime. That political bridge to a single payer system was burned with the scandal. Now we are negotiating health care cost efficiency reforms without Medicaid expansion to lure politicians to the table. You have to start somewhere and there is no other choice!

Next time someone starts whining about income inequality tell them controlling health care costs would have been a good first step at putting money back into the middle class’s pocket book.

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Hey O’Reilly, How About A Killing MLK Book?

Over the last two weeks I have been enjoying the Killing Jesus and Killing Kennedy: The End of Camelot audio books. My wife and I enjoy O’Reilly’s story telling approach to history. This weekend we heard the relationship of the rise of Fidel Castro in Cuba and Kennedy. It seemed particularly timely considering current events. If O’Reilly and Dugard want another historical subject that gets “people engaged with their country”, Martin Luther King seems a natural subject.

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Can This Health Care Economy Grow 3% In 2015?

This week I was trying to get my head what the weak retails sales report for December and the currency freak-out by Switzerland says about the prospective of 2015 US economic growth. Although everyone seems happy about the US economy and jobs I am getting a little worried. This health care driven economy has very short coat tails when you compare it to the more traditional housing driven economy and there is no better example of this than weak retails sales for December despite lower gasoline prices. Despite good GDP growth, good employment numbers, and positive consumer sentiment, the consumer is not spending on goods. The weak retail sales numbers supports a speculation I made in a previous post that the Affordable Care Act is primarily wealth redistribution and every additional dollar spent in health care is a dollar subtracted from retail sales. 

Then we have the currency freak-out by Switzerland. As the European Union crisis has deepened, demand for the Swiss Franc has risen. As the Quartz article, Absolutely everything you need to understand what happened to the Swiss franc this week, explains:

A strong franc hurts the Swiss because it makes their exports more expensive for foreign buyers, and the country has a giant export sector.

In the case of Switzerland, exports account for 72.2% of their GDP. To protect Swiss exports In September 2011, the Swiss National Bank set a limit on the amount of strength it would tolerate. Last week they gave up and let the Swiss Franc float. Swiss exporters and the financial markets were not amused. Even though Switzerland is not part of the European Union they have been drug into the European Union problems and have increased the likelihood of a Swiss recession.

The United States has a strong currency but the US economy is not nearly as dependent on exports as Switzerland or Germany. Unfortunately the effects on export dependent companies in the US is the same as it is in Switzerland. When you combine the export weakness with the expected weakness in the oil sector and auto sales, you have to wonder where the retail sales demand will come from. If European deflation is almost a certainty then can the US be far behind. Switzerland is one of the best managed economies in the world and they gave up the currency fight. When you combine weak retail sales, oil demand, auto sales, and housing demand with deflation worries, it makes me wonder how this health care driven economy can grow 3% in 2015.

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The Link Between The Health Care Economy And Income Inequality

Ever since the latest GDP report said the economy grew at a 5% rate in the latest quarter I have been thinking of the theme song for the Jeffersons, Movin’ On Up. Surely With 5% growth everyone should be feeling a little wealthier like the Jeffersons. Here are some of the lyrics from that song.

Well we’re movin on up,
To the east side.
To a deluxe apartment in the sky.
Movin on up,
To the east side.
We finally got a piece of the pie.

The irony is that despite 5% growth I do not feel wealthier in 2014 and am pretty sure my wealth in 2015 will diminish even more. So I started exploring the GDP contributions and found that most of the gain in Real Personal Consumption Expenditures(PCE) is attributable to health care(23.8%).This is not too surprising since health care has growing faster than every other PCE category since I started working in 1976. As long as our politicians were unwilling to slow down health care cost increases, it was just a matter of time before it would be number one. What was surprising was that the next three largest contributors were Financial services and insurance(16.3%), Recreational goods and vehicles(14.1%), and Motor vehicles and parts(12.8%). Missing in action were those durable and non-durable stalwarts of clothing, furnishings, food, gasoline, and housing. Obviously this health care economy is a much different economy than the Jeffersons were enjoying in the 1970s. The “Jeffersons” in this economy are definitely not moving on up. That is when I started thinking about my number one financial problem for 2015, health insurance.

In a previous post I mentioned that my grandfathered insurance premium for January 2015 will be $479. This is up 18% from my 2014 insurance premium of $407 and up 54% from my 2011 premium of $311. The lowest cost bronze plan in 2015 would cost me $923. As a person whose last insurance claim was made in the 1990s I think the fair market value for my health insurance is probably around $311 and everything charged above that amount is the equivalent to a wealth redistribution tax. From the perspective of my employer I got a raise since they paid more for my services. Unfortunately for me my raise did not buy clothing, furnishings, or bolster my retirement savings. Instead it went to pay other people’s medical expenses and insurance.

Unfortunately for the Affordable Care Act supporters it is an easy argument to show that income inequality increases when the health care economy is based primarily on redistributing wealth between different parts of the middle class. It did not have to be that way. Reforming health care costs was an essential part of health care reform and an integral part in supporting a growing the economy and creating good paying jobs. Instead we see a health care system that is dominating the economy and is literally sucking the growth out of other sectors of the economy. It looks like we are in a race to the bottom. Milton Friedman would probably have this to say.

A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.

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My HRA Is Not Dead… It Can Pay Bills in 2015 With Existing Funds

Yesterday my boss told me that our existing HRA plan which I was told would terminate on December 15, 2014 can pay bills in 2015 with funds that were committed in 2014. I guess that since it has funds we can keep on going until it runs out. This is short term solution since the company cannot add additional funds to the HRA in 2015. My boss is hoping that H.R.5860 – Small Business Healthcare Relief Act of 2014 will pass and allow companies to catch up on 2015 funding and payments.