LTC covers a wide definition of health and daily care either in a health care facility (that doesn’t sound friendly) or in your home.  Over the last decade, LTC policies have been money losers for insurance companies.  Some insurance companies, such as Prudential Financial, have decided to exit the LTC industry.  Those remaining have raised premiums and/or cut back on coverage.  This is typical of a new insurance industry, as loses (read claims) are vastly different than the actuarial assumptions made initially.

Those wanting to purchase LTC should create an outline of services to be needed and the potential timeline of when those services might be needed either in their home, or at a health care facility.  You will need to understand the cataloguing of services offered by the insurance companies.  A US government sponsored website provides a more global and consumer friendly overview of LTC care issues.  The for-profit sponsored website by MetLife, provides similar information but with a twist of research being done on the LTC insurance market.    Medicare offers a comparison website which can compare and assist in balancing the Medicare rules and your LTC needs.

Bottom line:  Planning and implementing a LTC care plan is going to be a burden both financially and time wise.  If you are worth $5- 7 million sometime in your 50′s you can probably self fund the costs.  If you are worth less you should consider LTC issues and what is right for your financial situation.

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Terroritorial disputes:  China requires energy independence to protect its economic growth.  Massive oil/gas reserves lie in disputed waters off the coast of China.  Currently, China has territorial disputes with Japan, Vietnam, Philippines, Malaysia and even Brunei in the East China, South China and Yellow Seas.   The disputes lie around what defines a coast line.  The United Nations International Law of the Sea states that a nation’s coast line extends 200 nautical miles out to sea.  According to China, islands should be considered as part of the coast line definition.  Expect to see many headlines and military threats over the Spartly Islands in the South China Sea and Pinnacle/Diaoyu/Senkaku Islands in the East China Sea.

Free trade: The largest trading partners with China are the US, Europe and Japan.  Each of these trading partners either is in economic conflict with China (US), territorial disputes (Japan) or have their own economic problems (Europe).  The goal of China over the next 10 years is build its economic and political links with other economic zones where it has the power to force its will (e.g. Latin America, Middle East, and Africa).  This will help it to de-link from it’s current dependence on the US, Japan and Europe.

Demographics:  Approximately by 2015, China’s working-age population will peak.  According to a UBS research report the working-age population will drop from 82 million in the last decade to 23 million in this decade.  This will affect Chinese GDP growth (estimates range from 3% to 7% currently), the past limitless supply of migrant labor to the coastal factories, and the exporting of deflation thru cheap labour (labour costs are increasing in the double digits currently).   The new leaders are confronted how to keep China growing and relevant without letting its current overinvestment and debt burden from causing social and economic disruptions.

Overinvestment and debt:  Over the last decade China has gone on an investment spree of building anything you can imagine from roads, dams, buildings, railroads etc.  A big unknown are how many of these projects will add economic value to the future growth of Chinese GDP and how were they funded.  China does have a $3 trillion surplus account allowing a lot of flexibility dealing with this issue.  However, the transition and re-balancing of the Chinese economy from an export led nation to an American type of economic model of export/import and domestic consumption is the critical issue for future Chinese growth.   A challenge to domestic growth was caused during the last banking crisis in China (mid 1990′s).  The Chinese central bank kept interest rates low allowing the financial sector to repair itself causing households to save more and spend less.  This pattern of high saving and low interest rates has continued to the current day.  Transitioning Chinese households to spending is a key challenge for the new leadership.

Bottom line:  China will be an important going concern economically, militarily and geopolitically.   Investors need to understand the paradigms China will experience.

The post What is happening with China lately? appeared first on Midland Wealth Management.

Over the last 10 years developed and developing countries have been focused on finding new energy sources away from the politically unstable Middle East.  In the early part of this century a new gas extraction technology, hydraulic fracturing, has unlocked vast resources in the US and globally.  As with any new technology there are unintended consequences.  This new form of gas extraction has environmental impacts which governments are still deciding how to regulate the impact of using this technology.  Some countries, such as France, has stopped all use of hydraulic fracturing, due to potential environmental damage to it’s water supply.   Then there are recent discoveries of gas in less obvious places such as Tanzania and Mozambique with reserves equalling those in Iraq and the Arctic below and around the North Pole with reserves exceeding those in the middle east.  The extraction of those supplies are highly dependent on government regulations, technology and the supply chain pressures.

National oil companies especially in the developing world, such as China’s Cnooc or Brazil’s Petrobas, are in a full sprint to gather energy producing properties.  Asia currently is and has always been in a energy supply deficit.  They are acquiring energy assets in non-mature markets or fields such as Africa and the Arctic, respectively.  However, their success has been hampered by countries not wanting to “lose” control of their energy assets.   In Colombia, Ecopetrol, has managed to re-nogiatate contracts, bring in private investment while retaining control and ownership of their energy assets.  This general approach is being copied around the world except in America.  The world roughly consumes 93 million barrels/day (compared to 100 million b/d in 2007) and the estimates for depletion of current reserves versus expectations of new discoveries increasing barrels/day vary somewhat greatly.  The differences in these estimates come down to technology, cost of production to get the energy fields into production and government regulations.  Nobody has a perfect answer on how those factors will affect future energy production in the future.

Bottom line: There is plenty of gas and oil still in the ground.  The issue is the cost of extraction and cost of distribution.  If you want cheap gas, it probably needs to be found near your doorstep.

The post Issues for future oil/gas prices appeared first on Midland Wealth Management.

Traders believing the turmoil in the Middle East will heighten (oil embargo from Europe on Iranian oil, Israel bombs Iran etc.) are in the $150/barrel camp.  On the opposite side of the spectrum are those in the $50/barrel camp; they are focusing on the collapse of Chinese growth (due to over indebted banks from real estate loans) and the collapse of the Euro and/or a major recession in Europe (caused by the austerity measures suggested by the Germans to get European countries back to fiscal prudence).  The options market has seen more protection/speculation for an increase than a decrease in oil prices (meaning buying protection/speculating on the downside is cheaper than doing so on the upside).   Since traders and/or speculators have placed such huge bets on these two potential oil price outcomes, any changes in oil prices will be magnified.

Bottom line:  Investors should be prepared for major swings in oil prices, up and down, and have plans on how this will affect their portfolios.

The post Oil prices for 2012 appeared first on Midland Wealth Management.

Data from the College Board suggests that $100 billion was taken out last year in student loans and that debt is to hit $1 trillion for the first time ever this year.  According to Mark Kantrowitz, publisher of FinAid.org, 40 percent of college graduates can’t afford to make their student loan payments and are delinquent, deffering or in default.  He says that the real issue for borrowers is the lack of jobs available after graduation, and those who have jobs are underemployed.  Today students are borrowing twice the amount in student loans than they did just ten years ago with tuition costs rising faster than inflation.   The College Board reports that the cost of in-state tuition at a four-year public university has jumped 8.3 percent in the past year.  Universities have unfairly raised education prices greater than what students could earn after graduation.   Many students leaving college today have degrees without a clear application to the workforce.   In the current environment with lower GDP growth than in the past, students and/or parents should consider  how much to spend on a college education and for what purpose.   Some parents can afford $220,000 for a philosophy degree from Princeton (true story) but most cannot. 

Obama’s loans initiative attempts to alleviate the student loan debt crisis by forgiving student debt after 20 years as compared with 25 years under current law.  In addition, the cap on student loan payments will be lowered to 10% of disposable income, decreasing it from the current cap of 15% of disposable income.  Critics say that this plan is simply a new version of the old plan and some accuse Obama of passing this bill in order to regain the dwindling support from young people, who were instrumental in his 2008 presidential election. 

Before a parent or student decides on whether a college education is worth the expense and effort perhaps everyone should consider some version of this question: How does the college education machine work and how am I am going to profit and/or be happy from it after graduation?  Egos should be set aside.  Biases should be set aside.  Just an analysis of the facts, the current/future economic environment, student’s goals and student’s/family budget constraints.

Bottom line: A college education can be worthwhile if the decisions are made looking forward while accepting responsibility for your actions.

The post What is a college education worth? appeared first on Midland Wealth Management.

• Additional Provider Choices
• Providers must limit out-of- pocket costs.   

According to the website www.healthcare.gov, Medicare pays insurance companies offering Medicare Advantage  over $1k  per person than is spent per person in the original Medicare, resulting in increased premiums for all Medicare beneficiaries, including the 77% of beneficiaries who are not currently enrolled in a Medicare Advantage Plan.  The new law plans to level the playing field gradually by eliminating the discrepancy.  People enrolled in Medicare Advantage plans are still supposed to receive all the guaranteed Medicare benefits, and the law is to provide bonus payments to Medicare Advantage plans that provide high quality care. 

Some additional changes intended to positively impact Medicare include the following:

• Increased Medicare coverage for preventative treatments (to begin on or after September 23, 2010)
• Move to an electronic system for medical records (to begin October 1, 2012)

In addition, the Act intends to close the donut hole in Medicare Part D. 

• An estimated four million seniors reached the gap in Medicare prescription drug coverage, also known as the “donut hole” in 2010.  Each eligible senior received a one-time tax free $250 rebate check.
• The first checks were mailed in June, 2010, and continued monthly during 2010 as seniors hit the coverage gap. 
• In 2011, seniors who reach the coverage gap will receive a 50% discount when purchasing Medicare Part D brand-name prescription drugs (last year Part D paid for the first $2,840 in costs and then picked back up after costs exceeded $6,440).
• Over the next ten years, seniors will receive additional savings on brand-name and generic drugs until the coverage gap is closed in 2020.
• In addition, there will be higher Part D premiums for individuals who have income above $85k ($170k for couples).
• Exemptions for higher premiums can be filed at a local SSA office for those who have received a lump sum from their retirement/401(k) disbursement.

Planners should also be aware of the following: 

• Early Retirement Reinsurance Program- Under the new law, people who retire between ages 55 and 65  are to be able to continue to receive healthcare coverage from their last place of employment until they are eligible for Medicare due to the $5 billion program to provide financial help for employment-based plans to meet this need.  This program is intended to extend until 2014, at which point the Exchanges are said to be in place to make more affordable coverage available to these retirees. 

Proponents of the Act say it allows for more people to be able to have access to affordable health care coverage, and will prevent insurance companies from dropping people who get sick or denying people coverage with pre-existing conditions. 

Critics of the Affordable Health Care Act say that the costs are too great for the American people as it not only is proposed to raise government spending by trillions of dollars, but also increase health insurance premiums for millions of Americans.  In addition, the Act is said to be cutting more than half a trillion dollars from Medicare, which could, in fact, jeopardize care for seniors.

Bottom Line:  The Act proposes many changes to healthcare affecting current and future retirees, some of which are already in the works, however, it is difficult to say how our healthcare system and Medicare will be impacted by the Act going forward, as the potential for new leadership to enter the White House nears.

The post The Impact of the Affordable Care Act on Medicare appeared first on Midland Wealth Management.

The issue for the Fed is when the official short-term interest rates are close to zero, the only option to ignite growth is to borrow more money which, long-term, does not allow America the opportunity to emerge from its lingering debt situation. Without a third round of quantitative easing the US economy will likely have alternating economic periods of strength and weakness. Utilizing quantitative easing to jump-start the economy is comparable to having to use jumper cables to start your car. If the battery is bad, or the electronics in the car are faulty, draining the battery faster than normal, at some point the battery needs to be replaced or the faulty electronics repaired. Long term it does not make sense to be dependent upon quantitative easing to keep the economy going as it doesn’t make sense to need the assistance of jumper cables each time you start your car.

The markets, stock, bond, commodity, and currency, will experience more periods of volatility (think jumpiness) as the second round of quantitative easing concludes. Investors should carefully consider the quality of their assets, the risk/return trade-off of those assets and the timeline of their goals.

Bottom line: Every country that has experienced and successfully recovered from a financial credit crisis has done so by cutting expenses and raising revenue (e.g. Sweden, Canada, and Finland circa 1990). Another round of quantitative easing is not worth the price. It would be like giving an alcoholic smaller amounts of liquor to attempt to end their drinking problem.

The post Is another round of Quantitative Easing worth it? appeared first on Midland Wealth Management.

Below is a table from Oaktree Capital Management, L.P. on the history of junk bond yields and the differences over US Treasury bonds ( 100 basis points is 1%, so 1773 basis points is 17.73%).    What is noteworthy is how investor yields  are declining and the yield difference compared to US Treasury bonds is also shrinking.  This means that junk bond investors are currently taking on more risk and receiving less return. 

Junk bonds swing from greatly overvalued to undervalued.  The middle ground does not last a long time.   From 2005 to 2007, investors in junk bonds focused on the risk of missing opportunities rather than analyzing the junk bond as offering a good balance of risk vs. reward.   Then came the financial crisis.   Today investors can see evidence of some of the excesses from the bubble years creeping back – payment-in-kind bonds, covenant-lite debt, rising leverage ratios of completed buy-out deals and more leveraged buy-out activity.   Although the irrational exuberance exemplified in the financial markets between 2005 and 2007 is not representative of today, in a low interest rate environment investors should be careful not to make “handcuffed” investment decisions (people making decisions on the belief they have no choice.)  Investors always have a choice.   Additionally, many of the companies that were responsible for leveraged buy-out deals occurring in the 2005-2007 time frame are re-issuing their junk bonds, and these junk bonds are not necessarily being issued on “investor-friendly” terms.   Consequently, those deals also find their way into junk bond funds.  

Bottom line:  Junk bonds are no-longer a “cheap” investment .    Investors allocating money into junk bonds in today’s low interest rate environment should be cognisant of what is occurring with private equity restructurings and deals in the leveraged buy-out space.

The post Are junk bonds still a good option? appeared first on Midland Wealth Management.

The futures markets allow investors or speculators to make or lose money based on the direction of a commodity.  The term commodity in the futures markets can vary from US Treasury interest rates or currency rates to oil, corn, iron ore, etc.  For purposes of this discussion, commodities will relate to non-financial commodities.   Commodities trade on today’s price and prices on various dates in the future.   Those prices in the future are sometimes lower or higher than today’s price.  When it is higher, anybody invested in a passive commodity ETF  can lose money even if today’s price is rising consistently.   That is because the commodity ETF investments mature at $100 for example and the commodity has to invest into the future at a higher price of $103, let’s say,  thus losing $3 from day one.  This occurs even while today’s price is rising everyday.   When the future prices are declining the ETF does not have this problem.  However, don’t investors invest in commodity ETFs to make money when commodity prices are rising?   There are active commodity ETFs which use blackbox strategies to solve this problem but investing with blackbox strategies creates a new set of problems.   Hedge fund managers take advantage of the manadatory investments made by passive commodity ETFs each month, manipulating commodity prices to their benefit, which can be detrimental to the passive commodity ETF investor.

Companies who produce, farm, and extract commodities are generally publicly-traded companies where investors purchase their stock.   Generally, if the current price of the commodity is increasing, the stock price will increase.   However, there are other factors impacting the stock price such as the quality of earnings, the difference between the extraction/production price of the commodity versus the current price of the commodity, and the general interest in commodity companies.   The risk for investors is that a 100% correlation does not exist between the increase in the value of the commodity and the increase in the price of the stock.

Since the late 1990′s large pension funds have been investing in passive commodity indices.   This was due to a study by Goldman Sachs showing uncorrelated movements between commodity prices and stocks-the great diversifier( source:  Index Investment and Financialization of Commodities; Ke Tang and Wei Xiong).   Well, 20 years later everybody is doing this type of investing.   The commodity futures markets are now being influenced by the “passive indexers.”   Stock and commodity prices are now moving closer together.  This is a bad diversifier.

Bottom line: Warren Buffet said investing in an investment that does not produce earnings or cashflow is speculative.   Speculation is the hope somebody will pay more tomorrow for the same investment you purchased today without considering earnings or cash flow.   Although commodities can provide value in a portfolio, as with any other type of investment, it is important to understand the level of risk involved.

The post Do Commodities Belong in a Diversified Portfolio? appeared first on Midland Wealth Management.

Using words to express a thought or to follow instructions is an inexact science.   How many people feel Help Manuals are easy to understand?  An estate planning attorney has to combine all the goals, objectives and philosophies of a client with all relevant state and federal law, including all applicable state and federal tax law, to create one document. The drafting of the Will is the simple part.  Understanding the law and it’s subtleties with respect to the wishes of the client can be quite complicated.  However, the most difficult part is providing sound advice, which requires both knowledge and experience. 

Legalzoom.com or other do-it-yourself websites require users answer a string of questions using a “decision tree” form of logic.    These sites do not offer assistance on a question that would be considered legal in nature.   Their documents assume a mother and father with illiquid assets, no special needs children, and harmonious heirs is the same as a mother and father with liquid assets (stocks and bonds), a special needs child and a highly combative family.  These do-it-yourself website tools treat all families and situations alike. 

Bottom line: Why would anyone be “penny wise and dollar foolish” on an estate planning document?  Mistakes can cost hundreds of thousands of dollars or more if the documents are drafted poorly.  An estate planning attorney has the ability to tailor estate planning documents to adhere to  a client’s unique circumstances, whereas, do-it-yourself websites, such as Legalzoom.com, are unable to  provide this level of customization or advice.

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