Dennis Miller – The Burning Platform

Run Away from the Economic Tsunami

By Dennis Miller

This warning comes from “Big Al” Greenspan, age 88. He’s been in the news a lot lately, speaking with Gillian Tett of the Financial Times at the Council on Foreign Relations and at the New Orleans Investment Conference. After reading several reports of both events, I spoke with Casey Research colleagues who’d attended the conference and asked, “Did Big Al really say this, this, and this?”

Their response was crystal clear: “Yep! That’s exactly how I saw it and what I took his remarks to mean.”

Mr. Greenspan is issuing a warning to anyone who will listen, ‘fessing up to things many of us thought might be true. His candor reinforces many of my worst fears:

The Federal Reserve is raining money down from the heavens to fund unprecedented government spending and to keep the banking system solvent.
The credit needs of the US government are so huge that if the Fed didn’t add liquidity to the system, the private sector would be choked out, unable to afford to borrow money.
An inflationary bonfire is just a spark away. Big Al likened the money supply to kindling awaiting a match to ignite an inflationary explosion.

The Fed’s Real Job

Greenspan made it clear that the Fed’s mission is to help fund US government spending and to defend the banking system. In his talk at the Council on Foreign Relations, he also mentioned coordinating with other central bankers throughout the world.

In essence, the Federal Reserve functions as a low-interest Visa card with no spending limit. The Fed enables a spendaholic government, dealing it trillions of doses of its drug of choice.

Frankly, Janet Yellen inherited a mess. When she talks about the Fed’s role in combating inflation and promoting unemployment, it’s window dressing. When push comes to shove, the needs of the US government and big banks take priority. As long as government spending continues, the Fed will continue to feed the beast with cheap money—just like Big Al says.

On Government Debt

While US government debt is reportedly in the $17-trillion range, that’s a drop in the bucket compared to its real liabilities. On top of Social Security obligations and unfunded pension promises, Big Al also reminds us that no one knows what the Fed’s true liabilities are because it has essentially guaranteed the liabilities of too-big-to-fail entities.

All this means that the US government cannot satisfy its debts without inflating the US dollar at a much greater rate than most of us could imagine.

He Who Has the Gold

Unlike Ben Bernanke, who’s likened gold to an ancient relic, Big Al sees things differently, stating: “Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Greenspan went on to discuss tapering and agreements with central banks, confirming that gold serves a very important role in monetary reserves.

All this reminds me of the other golden rule: “He who has the gold makes the rules.” Russia and China must believe that, given their buying habits over the last few years.

Warning Recap

Let’s review Big Al’s warning. The Federal Reserve’s primary mission is to support out-of-control government spending. To do so it’s “created” trillions of dollars. Regardless of who is in office, politicians can’t help themselves. Spending will continue. If the Fed tries to reverse the trend, there will be a significant market event. If it keeps doing what it’s doing, significant inflation is inevitable.

A lot of people will be hurt. Seniors and savers, particularly those holding the majority of their wealth in US dollars, are standing on the seashore so they can get a better view of the tsunami. There is a better way.

The day will come when the inevitable becomes imminent. I fear for those who ignore or refuse to accept the warning. Anyone who holds gold and/or other inflation hedges likely isn’t shocked by what Big Al is saying. For everyone else, don’t ignore Greenspan’s warnings—they are crystal clear.

If you’re one of the seniors or savers who’s standing at the shoreline, watching the tsunami come in but unsure of where to run, we can show you a path to safety. Every Thursday my team and I share timely, no-nonsense financial strategies for risk-adverse investors in our free weekly e-letter, Miller’s Money Weekly. Sign up here to start receiving your free copy now.

The article Run Away from the Economic Tsunami was originally published at millersmoney.com.

Will You Light $180,000 on Fire by Taking Social Security at Age 62?

By Dennis Miller

On the television series Dragnet, Sgt. Joe Friday was known for his calm demeanor while questioning witnesses. When they began to ramble, he would corral them with comments like, “Just the facts, ma’am.” Sound advice for the witness stand, but when it comes to retirement planning, Sgt. Friday was giving the wrong instructions. Instead of asking for “just the facts” we should ask for “all the facts.”

A recent article for Bankrate featured a frightening graphic quoting Social Security Solutions founder William Meyer: “Two-thirds of Americans take Social Security at age 62, giving up $180,000 if single, $323,000 if married.”

With those statistics in mind, holding off until age 70 can seem like a no-brainer. Let’s take a closer look, though, with “all the facts” in plain sight.

The Social Security Administration’s website offers a handy tool for estimating benefits. We used it to run through a few hypotheticals for a man I’ll call Joe Friday.

Let’s assume Joe was born on January 1, 1953. This would make him 62 on January 1, 2015, and he plans to retire immediately before this birthday. Joe would rather sail around the world than work. To keep it simple, let’s say he’s unmarried—or married to his boat, so to speak.

Joe’s current annual salary is $200,000, which puts him above the Social Security maximum ($114,000 in 2014). According to the calculator, if Joe starts receiving Social Security benefits beginning at age 62, his monthly check will be $2,000. If he waits until age 70, he’ll receive an estimated $3,562 per month (all amounts are in 2014 dollars), or $1,562 more. In other words, if he waits eight years, his monthly benefits will increase by approximately 78%.

And there you have “just the facts.” Wait eight years longer… receive 78% more each month. Now, let’s explore “all the facts.”

If Joe takes Social Security at age 62, he will have collected $192,000 by age 70. At this point, he is well ahead of the game.

About 10 years and 3 months later, or just after Joe’s 80^th birthday, though, he will have received the same total amount in benefits whether he began taking them at age 62 or age 70. Taking the benefits at age 62, however, won’t put him $180,000 behind, as Meyer said, until he reaches 89 years, 10 months of age.

With that in mind, Joe should consider a few details before waiting to take Social Security:

If he lives past 80 years, 3 months of age, he’ll receive more money. If not, waiting is a bum deal.
These estimates are just that: estimates. They do not take into account potential changes to the Social Security system. The government could reduce benefits, tax a larger portion, or scrap the program entirely. With so many uncertainties, there’s something to be said for having some money in hand, even if it’s in exchange for more (but not guaranteed) money later.
These calculations ignore the value of money. They assume Joe will spend, not invest his Social Security, from age 62 until age 70.

So, what is the right decision? If Joe asked me, I’d recommend he consider:

His realistic life expectancy based on his health, lifestyle, and family history;
Whether he needs the money now; and
Whether he’s confident the Social Security system will remain intact throughout his lifetime.

If Joe were married, he’d also want to consider his spouse’s income and expected longevity.

When you make these decisions for yourself, keep in mind that taking Social Security at 62 or 70 are not the only choices. You can start receiving benefits any point after age 62; the amount will go up with each passing month.

I have a high school classmate who, at age 70, told me about his quadruple bypass and how he’d outlived every male in his family… by 20 years! He died shortly thereafter. My own grandmother passed away two months shy of her 100^th birthday, and my mother’s twin sister just celebrated her 99^th birthday. Although a man who reaches age 65 today can expect to live, on average, until age 84.3, you know many more details about yourself. Although it’s uncomfortable to think about, you can make a more personalized estimate than “84.3.”

Because you can’t know for sure if you’ve made the right decision until after the fact, the best decision is one that weighs all of your personal facts. Headlines and sound bites might make it seem like a no-brainer, but it’s not. I’m sure most of the two-thirds of Americans who take Social Security at age 62 have good reasons for doing so. Many who wait and enjoy increased benefits can likely say the same.

Learn more retirement truths every Thursday by signing up for our free e-letter, Miller’s Money Weekly.

The article Will You Light $180,000 on Fire by Taking Social Security at Age 62? was originally published at millersmoney.com.

Why Janet Yellen Needs Her Own Magic Show

By Dennis Miller

What do Siegfried and Roy have in common with Federal Reserve Chairman Janet Yellen?

Shortly after the Bureau of Labor Statistics released unemployment data last month showing that joblessness had dropped below 6% for the first time since the 2008 crash, the Federal Reserve announced it would stop government bond purchases; Quantitative Easing is history.

The Federal Open Market Committee’s (FOMC) October 29 announcement states:

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. …

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. … Accordingly, the Committee decided to conclude its asset purchase program this month.

To better understand what all that means in English, we need to back up a bit.

In 2012, Principal Global Investors Economist Robin Anderson noted of Yellen:

Janet Yellen … is the latest in a string of Fed bigwigs to get behind an idea of using explicit inflation and unemployment targets to inform the market about the Fed’s future plans—forward guidance, in Fed-speak. …

Essentially, the idea is to set up explicit thresholds for inflation and unemployment measures (the two mandates for the Fed) to help set expectations about the future of monetary policy if there should be a disconnect between the two.

In other words, the Fed leans on concrete inflation and unemployment data to form policy. That sounds intelligent, straightforward, and simple; however, it’s the kind textbook talk we should expect from someone living in a world of theory. Most of the time, the person making these statements has never been responsible for or had her job performance measured by a sales budget, expense budget, or achieving profit goals.

As I’ve mentioned before, in the words of Yogi Berra, “In theory there is no difference between theory and practice. In practice there is.”

Ms. Yellen quickly discovered that Yogi was right. In May 2014, during testimony before a joint congressional committee, she said the 6.5% unemployment goal was being taken off the table, and she refused to give Congress any goals or timelines. She simply repeated that rates would remain near zero for a considerable time and would rise only when stronger economic conditions allowed.

Can you imagine the president of any major corporation standing up at a stockholder meeting and refusing to answer shareholders’ questions? “I’m not sure how much we will sell next year, nor do I know how much money we will earn. But when we get there I will tell you. You can trust me.”

Well, the day arrived, and Ms. Yellen says it’s time for bond buying to stop. And a few months down the road, the Federal Reserve is likely to begin slowly raising interest rates, even though she said she plans to keep interest rates low for a considerable period of time. Why? The unemployment rate, as reported by the BLS and shown in the graph below, is now below 6%.

Ms. Yellen has jumped and is now saying “that was our secret target.” This is her justification for stopping bond purchases. Hmm… sure looks like the Fed knows what it’s doing. Surely announcing that happy days are here again just before the midterm elections was a mere coincidence.

Take a look at the chart below showing the Labor Force Participation Rate as reported by the BLS on November 1.

I might be a 74-year-old with aging eyes, but even I can see that the line is going down. If true unemployment were going down, wouldn’t labor force participation be going up?

When it comes to raising interest rates Ms. Yellen has a big problem. Greenspan let that cat out of the bag at a recent New Orleans investment conference attended by members of the Casey Research team, noting that it was naïve to believe the Federal Reserve is independent of the government.

To justify the Fed’s easy-money policies, he said the government’s insatiable need for capital would have “crowded out” the rest of the economy. In straight talk that means if he hadn’t juiced the system with easy money, interest rates would have risen so high that capital would have been too expensive for the private sector. There is a universal truth: government-spending obligations preempt the need for sound money policies every time.

Ms. Yellen can trumpet all she wants about the Fed promoting employment and keeping inflation under control. Mr. Greenspan has made it clear that the real mission of the Fed is that of dealer to government spendaholics.

Over time, addicts want more frequent injections and bigger doses, and Ms. Yellen has inherited an addict in advanced stages. To solve the real problem (the addiction) requires an effective intervention (hopefully before it’s too late) and real behavioral change or the addict dies an ugly death.

Dr. Lacy Hunt estimates that every 1% increase in the interest rate would add $130 billion annually to the budget deficit. Projected deficit increases will run his estimate to $260 billion. Currently, if interest rates increased 4% it would add $520 billion to the deficit, accelerating the need for even more juice.

The government has reported that the annual deficit is going down. The Fed is keeping a lid on interest rates. When government debts are sold in a free market, though, interest rates will rise. Yellen knows this and she is doing everything she can to hide it. Ask her to set a target? Forget about it!

So, what do Siegfried and Roy have in common with Yellen? Both lean heavily on smoke and mirrors. Maybe it’s time for her to take their place in Las Vegas. For updates on her show times—along with timely investment news and economic analysis—sign up for our free weekly missive, Miller’s Money Weekly here.

The article Why Janet Yellen Needs Her Own Magic Show was originally published at millersmoney.com.

4 Steps for Avoiding a Capital “C” Catastrophe in the Next Downturn

By Dennis Miller

When the tech and real estate bubbles burst, many of my friends lost 40-50% of their retirement portfolios almost overnight. Is a similar downturn looming?

Take a look at the chart below showing the S&P’s performance since 2008.

Caution is in order. We may see a major correction, a huge downturn, or this bubble could continue to grow for quite some time. I’ll leave the timing predictions to others. Still, investor euphoria worries me. Even those playing with retirement money often ignore warning signs, thinking the parabolic rise in stock prices is never going to end. However, this time is NOT different.

Look at the Nasdaq’s performance just before the tech bubble crash:

From March of 1999 to March of 2000, the Nasdaq doubled, and investors were euphoric. Are you feeling that euphoria today?

Don’t Let the Next Downturn Make You Poor

The goal for a retirement portfolio is to create enough of an income stream that you can maintain your current lifestyle over the long haul while the balance grows ahead of inflation. This portfolio should also include enough safety measures to keep you whole regardless of what the market does.

Sounds simple, but it can feel like walking and chewing gum—to the power of 10. Treasuries are supposedly safe… but from what? Sure, you won’t lose your principal, but they won’t protect you from inflation. Certain stocks are solid; after all, many companies survived the Great Depression… but will they keep paying dividends when you need them? Investing in a turbulent market is a gyroscopic balancing act with endless variables.

4 Lifejackets

While outlining the entire Miller’s Money safety system is beyond our scope here, there are four must-do safety measures anyone can easily implement.

#1—Set strict position limits. No single investment should make up more than 5% of your overall portfolio. That means rebalancing at least once a year. I have a friend who brags about how well his portfolio has been doing. Turns out, 80% of his holdings are in Apple. While Apple is a fine company and has done well, he should consider locking up most of his gain and focusing on capital preservation.

#2—Use trailing stop losses. We recommend setting trailing stop losses at 20% or less on all market investments. Stop losses can prevent catastrophic damage to your portfolio. As our portfolio grows, a trailing stop can help lock in a gain. While you may still face setbacks from time to time, a trailing stop limits them. You’ll live to fight another day.

I’ve spoken to some retirement investors who limit each holding to 4% of their portfolio and set 25% trailing stops. Whatever makes sense! Just limit the size of each position—and in doing so the potential for catastrophe.

#3—Diversification is the name of the game. This means internationalizing, too. Holding 5-6 mutual funds all in the United States or in US dollars just won’t cut it. You must diversify into non-correlated assets all over the world; so, should one segment or market tank, it won’t bring down a major portion of your portfolio.

You should also review the correlation of the asset you’re considering. What events in the market will cause the price to rise and fall? And pay particular attention to the near term. For example, until recently, utility stocks were considered the gold standard for retirees. Now there is so much capital in this sector, the stocks are correlating much closer to changes in interest rates.

Look for assets that are either uncorrelated to the market or those which may move in the opposite direction (the market goes down, this goes up, and vice versa).

Again, the game is: hold on to as much capital as possible and live to fight another day.

#4—Look for low duration on income investments. Bond sellers tout the safety of US government and investment-grade bonds. They are correct as far as default is concerned; however, a sudden rise in interest rates would mean a large loss for an investor holding these bonds who resells them in the aftermarket.

Retirement investors normally hold bonds for interest income, and they hold them until maturity. While some say bonds are still a good investment, most of these folks are traders. They buy high duration bonds (their market price moves significantly with changes in interest rates), betting on interest rates continuing to decline, and plan to sell for a profit down the road. We are not traders or market timers. Unless you are comfortable holding a bond until maturity, stay away from it.

When you invest money earmarked for retirement, using models that were in vogue as recently as 10 years ago will leave you vulnerable. Whether you’re considering bonds, utilities or any other investment vehicle, having the most up-to-date information is imperative. You can learn more about where bonds fit—or don’t fit—in your retirement plan by downloading our timely and free special report, Bond Basics, today. Access your complimentary copy here.

The article 4 Steps for Avoiding a Capital “C” Catastrophe in the Next Downturn was originally published at millersmoney.com.

Is Gold as Dead as Florida Hurricanes?

By Dennis Miller

It’s been over 3,280 days since a hurricane hit Florida. As hurricane season comes to a close next month, only Mother Nature knows how long the streak will last.

Like many Floridians, my wife and I stayed home and rode out a hurricane—once! We’d built a home on Perdido Key, a barrier island west of Pensacola. It was engineered to withstand 150-plus mph winds, and it was a beautiful home with a master bedroom spanning the entire third floor, looking out across the Gulf of Mexico.

Hurricane Danny hit the Gulf shortly after we moved in. It was a fast-moving Category I with winds gusting in the 75-80 mph range. Full of confidence and a bit curious, we decided to hunker down and ride it out. At the speed it was traveling, it should have been over in a matter of hours. Then, Danny caught everyone by surprise and stalled in Mobile Bay, pounding us for three days.

The waves on the Gulf were terrifying. We watched the rising tide bang boats against the rocks and sink others. Our front door had a double deadbolt with a keyhole on each side. Water shot through three feet into the room for 24 hours straight. Newly planted palm trees strained against support wires and toppled onto their sides.

We tried to get some sleep in our bedroom, but we could feel the house move with each gust of wind. We watched bits and pieces of our neighbor’s tile roof fly off and smash a few feet from our house. We were trapped and terrified for three days.

The no-hurricane record has been all over the Florida news, highlighting concern that people are becoming complacent. They don’t understand what adequate preparation entails. The storm itself can be horrific, but the aftermath can be equally disastrous, leaving people without food, water, power, and access to basic services for several days. Homes that survive a storm often have to be gutted because of mold and mildew. Without power, sewage immediately becomes a problem.

Plus, if your flood, wind, and homeowners insurance is not up to date, say hello to serious financial hardship. Many Floridians discovered too late that their policy limits had not increased with inflation and wouldn’t cover the cost of rebuilding.

Are You Crazy?—Part 1

Just for fun, I told a friend that I was thinking about selling my generator and dumping our emergency supplies. He looked at me in disbelief and finally uttered, “Are you crazy? When the next one hits, don’t try to mooch off of us. It’s every man for himself.”

Exasperated, he explained that hurricane-causing conditions had not gone away. Until the sun no longer heats the water, we no longer have large and fast temperature changes, and there are no trade winds, a hurricane is a constant threat.

He was red in the face when he finished. I told him I was kidding and wanted to discuss something else: economic hurricanes.

Food, Water, a Generator, and Gold

Many financial pundits are shining the all-clear signal, saying that our economy is fine. People are bailing on gold and mining stocks because they’ve dropped so low. To paraphrase my colleague, Casey Research Chief Economist Bud Conrad, gold sentiment has dropped to zero.

Take a look at the price of gold over the last decade:

Precious Metals Fall into Two Camps

High inflation (Hurricane Danny) and hyperinflation (Hurricane Katrina) are two potential threats to all of our lives. While we hope neither hits, we should still prepare.

At Miller’s Money, we put metals into two categories. The first is core holdings. This is pure insurance against a catastrophe—much the same as our hurricane survival package. Not all storms are category V. Even if we don’t have hyperinflation, during the Jimmy Carter era we experienced double-digit inflation that devastated a lot of retirement nest eggs. Investors holding long-term 6% certificates of deposit would have lost 25% of their buying power during a five-year period, even after they collected the 6% interest.

What if the storm intensifies into hyperinflation and its inevitable aftermath? Many of the items we keep for hurricane emergencies may come in handy if the food supply is interrupted, electricity is cut off, or the currency collapses. Metals will protect us from the rising tide of inflation and protect our purchasing power.

The second category for metals and metal stocks is investment. These holdings are bought with the express intent of selling down the road for a nice profit. There is quite a debate going on in this arena. Some experts are touting the terrific buying opportunity. Others say gold is an ancient relic and there are a lot of better investment opportunities available. Should you take advantage of the buying opportunity or unload?

We set strict position limits in the Money Forever portfolio. When you’re investing money earmarked for retirement, which is our focus, the speculation portion is limited because preserving capital is the overriding consideration.

Gold stocks fall into two general categories. The first is established mining companies and the second is exploration and development companies. Stock in the first group is more directly related to the current price of gold. Every dollar fluctuation in the price of gold adds or subtracts from their net profit as their costs are primarily fixed.

For exploration and development companies, it’s a combination of the price of gold, their ability to raise capital, and a heavy emphasis on the economic viability of their discovery. In a large number of cases a major mining company buys them out and takes them into the production phase.

In both cases, there are certain events that can produce spectacular results; however, the risk is also high. The real question is do you have room to invest any more capital in the speculative portion of your portfolio? That’s up to the individual investor to answer. If you do have room, there are some incredible bargains in the market today. Our metals team travels the globe and has identified many candidates selling at true bargain-basement prices.

What about your core holdings? Should you buy or lighten your portion of metals? The first question to answer is: do you have ample core holdings at the moment? We recommend holding 10%-20% of your net worth in core holdings, depending on your comfort level. (Mining stocks are generally not core holdings; they are speculative.) A lot of investors are slowly building to that target. If you think you should add more, then the current prices present a terrific opportunity.

Once you add to these core holdings, then the daily price fluctuations are no more relevant than the price of the case of beef stew we have stored in our closet. It’s insurance for a catastrophe we hope never happens. When the big one hits, we could probably sell our stew for an astronomical sum, but we won’t because it will help us survive. We would use some of our metal holdings, priced at current value, to buy things we need.

Are You Crazy?—Part 2

The same friend who was flabbergasted by my pretend plan to dump our hurricane supplies asked if I planned to sell any of our gold. I looked at him and asked, “Are you crazy?” Then I explained that the conditions that spawn inflation have not gone away either.

The reasons to own gold have compounded over the last decade. The US government has printed trillions of dollars, our country’s debts are out of sight, and the Chinese and Russians are doing everything they can to oust the US dollar as the world’s reserve currency. When the world no longer needs or wants to hold dollars, they will fly out the door faster than any hurricane wind mankind has ever seen. The value of the dollar will drop like a two-ton anchor and the price of gold will soar.

Precious metals are insurance against the ultimate financial hurricane. Fiat currencies eventually collapsed; the US dollar will not get a free pass. Just as sure as the sun heats the water, we have large and fast temperature changes, and there are trade winds, an overly indebted government will experience a currency collapse.

We have all had ample warning and should be prepared. Don’t be fooled by the short-term thinking.

For more up-to-date economic analysis and time-tested tips for protecting your nest egg, sign up for our free weekly e-letter, Miller’s Money Weekly. Follow us on Twitter @millersmoney.

The article Is Gold as Dead as Florida Hurricanes? was originally published at millersmoney.com.

Straight Talk from Yogi Berra: 9 Ways to Retire Rich

By Dennis Miller

“In theory there is no difference between theory and practice. In practice there is.”—Yogi Berra

It’s October, AKA the major league baseball postseason. As a lifelong baseball fan, I take the wisdom of Yogi Berra seriously. And when it comes to planning for the autumn of life, Yogi is spot on.

It seems as though every day an article titled “5 Tips for Retirement Saving” or something similar hits my inbox. I scan for the author’s name, and I’m amazed by how often it’s distinctly contemporary—Jennifer, Brandon, or another name of that vintage. Jennifer’s title is something like “staff writer,” and I immediately picture a fresh-faced young person with a newly minted journalism degree. After work, maybe she jumps in her starter BMW and heads to a local watering hole with her friends to gripe about student loan repayments.

“Jennifer” means well. After all, she’s just doing her job. She recommends setting financial goals, getting out of debt, living within your means, and saving from a young age. I won’t argue with those recommendations. Jennifer’s grandparents probably did just that. If you can pull off following that advice to a T, chances are you’ll accumulate a good deal of wealth.

However, once Jennifer has tried to put her advice to practice for a couple of decades, she might understand that it’s neither simple nor easy, despite how it might sound. Most people know what they should do, but it’s often tough and painful to execute in real life.

During my 74 years I’ve met a lot of successful and rich retired friends who sure didn’t go about it Jennifer’s way. How many baby boomers do you know who married young, raised a family, put their children through school, and consistently saved in their 20s, 30s or even 40s? There are a few, but many—if not most—young families lived through a decade or more of “Why is there is so much month left at the end of the money?”

Several times a month a 50- or 60-year-old Miller’s Money subscriber writes in asking for help with how to accomplish a last-ditch push to save. Truth be told, most of my friends never got serious about retirement until after they’d raised children. It doesn’t mean they were right; it’s just the way it was. Should they have started earlier? Of course. But they didn’t. Some didn’t know how, some were overwhelmed by day-to-day expenses, and some overspent on stuff, stuff, and more stuff. Many got serious in the nick of time, but they did it.

Retiring Rich When You’re Under the Wire

Whatever your age, fretting about what you didn’t do is futile. Start making the needed changes today.

The best place to begin is to define “rich.” For our team, rich means having enough money to choose whether or not to work and enough money that you control your time. Rich means you live comfortably according to your personal standards. If you’ve lived a middle-class lifestyle, a rich retirement means you can maintain that same lifestyle without worry.

Ten days out of high school, I was on a train to Parris Island, South Carolina. One of the best teachers I ever had was SSgt. Thomas R. Phebus. He was an archetype—the ideal combination of common sense and straight talk. I’m going to take a page out of his book and share some straight talk on how to make a rich retirement your reality.

The 9-Step Program

#1—Saving money is a bitch! When I entered the work force, every major company and most government agencies offered some sort of pension plan. The bottom line: come work for us at age 25, stay for 40 years, retire at 65, and we’ll continue to pay you until you die, normally another 20 years or so.

Pension plans are no longer the norm. Corporate America just couldn’t do it. Some filed for bankruptcy and broke their promises. Either way, in the private sector, 401(k)s are the new norm. They’re optional—no one makes you contribute.

Now local governments are filing for bankruptcy, many unable to fulfill their pension promises. No matter whom you work for—a big or small corporation, a government agency, or yourself—if you want to retire, be damn sure you’re saving… no matter what you’ve been promised.

#2—Plan to work your tail off. I don’t know anyone who’s accumulated even modest wealth working 40 hours a week. If you want to work for 40 years and pay for 60-plus years of life, chances are you’ll have to do more than that.

When you work, you trade your time, talent, and expertise for money. When you retire, you trade your money for time. In theory, you can work 60 hours a week, live off two-thirds of your income (40 hours’ worth), and invest the remaining one-third (20 hours’ worth). However, if you start saving early, perhaps saving income equal to 10 hours of work will be enough. Your savings will have more time to accumulate and compound, and you’ve bought yourself extra leisure time along the way.

If both spouses are working hard outside the home, which is the norm today, work toward living off of one paycheck and investing the other (or using it to pay off debts and then start investing). Many of our retired friends did just that.

#3—Don’t complain when others have more. Someone always will.

This one saddens me. We have a few friends who chose to work 40 hours a week for most of their working lives. They felt it was important to spend more time at home with their families, and there’s nothing wrong with that choice. Still, it’s a trade-off.

I look at it as though they enjoyed mini slices of retirement time when they were young. If that’s your choice, don’t begrudge others who chose a different path and worked and/or saved more. They don’t owe you anything.

#4—Get out of debt and stay that way. Virtually every wealthy friend I have only started to build wealth after eliminating debt, including home mortgages. Some theory-loving pundits suggest taking out a low-interest mortgage and investing the money with the hope of earning more than the mortgage interest. Oh really? Most people’s investments don’t perform that well.

The chart below highlights how poorly the average investor stacks up:

Sure, some beat the odds, but even professional fund managers struggle to do so. As of mid-2013, 59.58% of large-cap funds, 68.88% of mid-cap funds, and 64.27% of small-cap funds underperformed their respective benchmark indices, according to Aye M. Soe, McGraw Hill financial director.

If the big boys have a hard time and the average investor earns just 2.1%, one better secure a darn low mortgage rate before borrowing to invest.

One of the top ways to blow your nest egg is to stop working while you still have a mortgage. Downsize if you have to. Your personal home is not an investment; it’s part of the cost of living.

#5—Get smart while you get out of debt. Commit some of your time to financial education long before you plan to retire. Part of the reason the average investor earns just 2.1% is that many, if not most, haven’t taken the time to learn. If you want to out-earn the average investor, start by investing in education.

Understanding the markets is an ongoing process. The investment world is constantly changing, and if your interests lie elsewhere, it can be a challenge to keep up. A little commonsense scheduling goes a long way, though. Record your favorite programs and watch or listen at night when you’re tired. Then find an hour a day when you are fresh and devote it to more focused study. An hour-long television show has 15-20 minutes of commercials. You can bank that much study time by hitting fast forward.

#6—Set realistic objectives. Get some professional help and a thorough financial checkup so you can set sane targets. With those in place, you can build a realistic plan. The sooner you go through this exercise, the less painful it will be to make any necessary lifestyle adjustments.

#7—Get a grip on your expenses. Investments appreciate (at least that’s the plan). Cars, televisions, and most other stuff depreciate.

Some years ago I read that around 90% of top-of-the-line Lexuses and Mercedes were financed. I live in a community where most of the homes have three-car garages. I shake my head as I drive down the street in my Toyota and see three luxury cars in a garage. I wonder how many of them are financed. It’s easy to have well over $150,000 invested in rapidly depreciating automobiles. With so many long-term auto loans available today, it’s also easy to owe more than the car is worth fairly quickly. Once you get on that treadmill, it’s hard to get off.

All cars are not created equal. I’ve owned my share of luxury autos and can share from personal experience that a routine oil change can cost 10 times more than it does with a Toyota or the like. Is the added prestige of a luxury automobile really worth the extra cost?

#8—Put yourself first. Another common way to blow your nest egg is to spend too much money on others. Your family should not expect you to support them in adulthood, pay for your grandchildren’s college education, or help with major purchases. Take care of yourself and your spouse before anyone else. In time, your family will come to appreciate your self-sufficiency. If not, too bad.

#9—Take advantage of free money. I cannot fathom why such a large percentage of workers with 401(k)s do not maximize their contributions. In addition to the tax benefits, many employers match a percentage of those contributions; it’s free money.

If your employer doesn’t offer a 401(k), maximize your IRA contributions. And if you’re over age 50, don’t forget the catch-up provisions that allow you to save even more. This is low-hanging fruit, so run and grab as much of it as you can.

Retiring rich requires a series of choices; they are often difficult. A comfortable retirement is not a foregone conclusion, even if you lived comfortably in your working years. Since WWII, we have enjoyed one of the most productive economies the world has ever seen, yet many seniors are broke. When you reach retirement age, you don’t have to be one of them.

Start mapping your own path to a rich retirement by reading Miller’s Money Weekly, our free weekly e-letter where my team and I cover pressing money matters and share unique investment insights for seniors, savers and other income investors—all in plain English. Click here to receive your complimentary copy every Thursday. Follow us on Twitter @millersmoney.

The article Straight Talk from Yogi Berra: 9 Ways to Retire Rich was originally published at millersmoney.com.

Yield-Hungry Baby Boomers Are on a Death March

By Dennis Miller

Today’s forecast: yield-starved investors forced into the market by seemingly permanent low interest rates will continue to be collateral damage. For some, that collateral damage may involve more than the loss of income opportunities… many could be wiped out completely.

At the Casey Research Summit last month, I asked the participants in our discussion group: “If there were safe, fixed-income opportunities available paying 5-7%, would you move a major portion of your portfolio out of the market?”

They all answered a resounding, “Absolutely.”

Participants relying on their nest eggs for retirement income said they felt forced into the market for yield. Their retirement projections weren’t based on 2% yields, the rough rate now available on fixed-income investments. They’d planned on 6% or so. What other choice do they have now?

The Federal Reserve knows seniors and savers are collateral damage. Former Fed Chairman Ben Bernanke has openly acknowledged that the Fed’s low-interest-rate policy is designed to prompt savers to take more chances with riskier investments. In their book Code Red, authors John Mauldin and Jonathan Tepper shine a harsh light on that policy, writing:

Central banks want people to take their money out of safe investments and put them into risky investments. They call it the “portfolio balance channel,” but you could call it “starve people for yield and they’ll buy anything.”

I have to agree with Mauldin and Tepper.

The collateral damage inflicted upon seniors and savers is twofold. First, it’s the loss of safe income opportunities. The Fed’s low-interest-rate policies have saved banks and the government an estimated $2 trillion in interest alone. $2 trillion added to the balances of 401(k) and IRA accounts would sure bolster a lot of desperate retirement plans.

But there’s no sign the Fed will reverse its low-interest-rate policies in the foreseeable future. So, yield-starved investors, including throngs of baby boomers maturing into retirement age each day, play the market and risk their nest eggs in the process.

The Federal Reserve has succeeded in forcing savers to take billions of dollars out of fixed-income investments to hunt for better yields. Take a look at the chart below showing the S&P 500’s performance since 2004. The Index has almost tripled since its 2009 bottom. There hasn’t been a major correction in well over 1,000 days.

When the bubble burst in 2007, the S&P took a 57% drop. I had friends just entering retirement who suffered 40-50% losses. Their stories are not uncommon, and some are now back at work—and not by choice.

This is the second form of collateral damage, and it can be much more devastating. It’s one thing to lose an income opportunity and call it collateral damage, but quite another to lose 50% or more of your life savings. If the market drops radically, as it did less than a decade ago, the life savings of many baby boomers could be destroyed.

No one knows when the next correction will occur. However, many pundits believe a major correction is due. Others say we can continue on the same track, much like Japan has done for 25 years.

Here’s what we do know: the Fed has made it clear that it plans to hold interest rates down for quite some time.

When you invest money earmarked for retirement, you risk trying to time the market. Even seasoned investors would be foolhardy to think they’ll have enough time to easily exit their positions and lock in gains. It never works that way.

Now is the time for caution. Whether you’re a do-it-yourself investor or work with an investment professional, it’s a good time for a complete portfolio analysis with an eye on this question:

What happens to my portfolio if the market completely collapses?

There are concrete steps you can take to avoid catastrophic collateral damage. Sticking to firm position limits, diversifying geographically (including international holdings), non-correlated assets, setting trailing stop losses, and holding short-duration bonds come to mind.

Be wary of any advisor touting the “buy and hold” philosophy. They’d point to the chart above and note that the market went from 700 to 1,900+ in five years. If investors are patient, it will come back after the next drop. Unfortunately, seniors don’t have time to sit around and wait.

No one can guarantee the market will rebound as quickly as it did in the last decade. It’s not the “buy” in “buy and hold” that concerns me. There are excellent companies out there that pay healthy dividends and will rebound relatively quickly. Depending on your age and financial condition, it’s the indefinite holding that could be a problem.

If you’re not comfortable holding an investment for a decade or more, consider using a stop loss. After all, would you rather suffer a major loss and hope against hope that the market rebounds fast, or be proactive and keep your nest egg intact?

The best way to avoid becoming collateral damage is to take safety precautions before the next big, bad event takes place. One easy (and free) way to start strengthening your financial know-how is to read our e-letter, Miller’s Money Weekly. Each Thursday my team I cover hot-button financial topics and share the tools income investors need to live rich in today’s low-yield world. Click here to begin receiving your complimentary copy today.

The article Yield-Hungry Baby Boomers Are on a Death March was originally published at millersmoney.com.

Cold Feet: Why Shareholders Should Fear the Hasty Corporate Marriage

By Dennis Miller

I never understood why Sears bought Kmart. Sears was a giant retailer, the dominant tenant in shopping malls throughout the US. Kmart was the spawn of S. S. Kresge’s dime stores. They served different consumer groups—different strata. When they came together, they combined a lot of the same merchandise in their stores, and they both lost their identities. I don’t see either surviving much longer.

Instead of allowing two companies to die, some embarrassed management teams settle on divorce, selling off the scraps for a fraction of what they paid—and leaving angry stockholders to ruminate over how management could have spent the cash better (think dividends).

How can titans of industry capable of earning and retaining billions of dollars also lose billions seemingly overnight in a bad acquisition?

To help answer that question, I’m going to focus on companies that merge with the intention of truly melding into one. They may continue to operate under separate names; however, management thinks the companies’ synergy will make both stronger—a true marriage.

How Three Strata of Consumers Buy

In my first career, companies hired me to improve their market share and gross profit margins. My team and I would start by surveying a client’s good customers, asking: “What criteria do you use to select a supplier, and how do you rank those criteria?”

The answer was always the same: service, quality, and price, and in that order. For individual consumers, though, the order of that answer varies.

There are three general strata of consumers. The first is the “carriage trade,” comprised of affluent people who live in expensive neighborhoods and might shop at Neiman Marcus. In the ‘50s and ‘60s, these folks drove Cadillacs. When we re-collated out our survey results by stratum, this group ranked quality first, service second, and price third.

If your business serves the carriage trade, you focus on product improvement, serving the customer better, and maintaining your profit margin. That’s how you beat your competition.

The next consumer stratum encompasses the middle class. Think Buicks and Oldsmobiles. These consumers rated service first, quality second, and price third. They could be swayed by a good sale occasionally, but it had to be a heck of a good deal.

Consumers in the third stratum want only one thing: the lowest possible price. These consumers clip coupons and are willing to drive several extra miles to save money. This is why Walmart stores have much larger trading areas than their competition. Walmart does a great job in this stratum by advertising price as the primary reason to shop at its stores.

If you do business in the third stratum, you look for every possible opportunity to cut your costs so you can beat your competitor by offering lower prices while maintaining your margins.

As an investor, if the strata of two merging companies don’t line up, be cautious of any hype. If you don’t think it’s a good fit, move on to the next potential investment.

Culture Conflict Brews Animosity

Conflicting corporate cultures should also send up a huge red flag in investors’ minds. The unwritten rules within any company that dictate its internal and external behavior matter, and they don’t change easily.

Think of any married couple you know with conflicting beliefs and values. Those marriages always struggle; daily life becomes a constant negotiation, and that can go on for decades. The couple quibbles over how to spend money, how to discipline children, which other couples to socialize with, and just about everything else. Frugal Fred throws a fit each time Spending Sally comes home from the store. He thinks Sundays are for football, while she wants to spend the day antiquing. She’s dead set on sending their kids to private school, and he thinks it’s a waste. Ultimately, one partner has to adjust his or her core values, or these conflicts will foster resentment… and often end in divorce.

Similar conflicts take place in the corporate world. If the unwritten norms, beliefs, and values of the merging companies don’t synch, they’re heading down a rocky path, possibly to Splitsville.

Dominating a Stratum Develops a Culture

When a company dominates a stratum, a distinct culture emerges. Think of Apple, which dominates the high-end computer sector. It’s constantly looking for ways to improve and innovate its product lines so the company can raise prices and increase its margins. I just bought my first Apple computer, and I’ve found that its customer service is far and away the best.

Contrast the attitude of Apple’s employees with those at Walmart. Walmart’s corporate employees focus on negotiating better prices from vendors and cutting costs anywhere possible. Walmart passes those savings along to customers, and its in-store employees, in turn, offer minimal assistance.

Apple and Walmart are both profitable, but their corporate cultures are worlds apart and could never produce a happy marriage.

On the other hand, consider Beats, the manufacturer of headphones and speakers that Apple purchased for $3 billion. There’s controversy as to whether Apple overpaid, and only time will tell.

The two companies’ cultures seem to be a good fit, though. Beats products are expensive, and every technician I ask recommends them. Apple stores sell several brands of expensive, high-quality headphones, but Beats’ headphones will be in Apple stores soon, designed specifically for Apple products and Apple customers. Many of the other brands will probably disappear.

Miller’s Money Chief Analyst Andrey Dashkov adds that, “Synergies tend to materialize when the customer base and approach to the market are the same between the two parties. Kraft’s acquisition of General Foods is a good example.”

He agrees that the Apple/Beats deal looks good for many of those reasons.

When Management Doesn’t Fit the Mold

There are dozens of other invisible aspects of corporate culture. One past client of mine was a corporate travel agency. It priced its services by rebating part of the commissions the airlines paid travel agents. My client didn’t want to get caught up operating on razor-thin margins, so it looked for ways to bring extra value to its clients to justify its pricing.

One of the company’s potential clients was a very profitable member of the Dow 30 Index—let’s call it the Big Name Company. My client secured its business after making a presentation to the corporate vice president of sales by asking, “Are you aware that over 90% of your sales people are traveling between 9:30 a.m. and 3:30 p.m. Monday through Friday?”

The vice president was shocked. Face-to-face selling time in front of customers is gold. My client pointed out that Big Name Company was losing potential sales time to travel, and it was costing the company.

I asked my client why he’d done that analysis. Turns out, he had a friend who worked for the competition, and every time it hired a salesperson from Big Name Company, the company ran into difficulty. The new employee couldn’t adapt to its culture of working 50-60 hours a week.

The focal point of management is another key aspect of company culture. Some companies micromanage the smallest details from the corporate level. These companies haven’t developed managers who are risk takers and independent thinkers. If such a company merges with a decentralized company, the transition can be particularly difficult. In these situations, it’s not unusual for top managers to leave shortly after the merger because they just don’t fit the mold.

Investment Implications

As an investor, I only consider betrothed companies as investment candidates when they have similar cultures and values and operate in the same market stratum. When you read about a potential merger or acquisition, look beyond the hype. If companies are a good fit, there are a lot of hidden synergies which can lead to pleasant earnings surprises. There are terrific opportunities out there for folks who crunch the numbers and evaluate strata and corporate culture.

For more commonsense financial insight and timely investment news, sign up to receive your free copy of our e-letter, Miller’s Money Weekly, every Thursday. Follow us on Twitter @millersmoney.

The article Cold Feet: Why Shareholders Should Fear the Hasty Corporate Marriage was originally published at millersmoney.com.

Start Swimming or Drown: Don’t Expect a Life Vest to Save You from Low Rates

By Dennis Miller

Touring the Alamo, presenting on how retirees can succeed in a crisis economy, and picking the brain of one of the world’s top economists, Dr. Lacy Hunt, about the future of low interest rates were among the highlights of my recent trip to San Antonio for the Casey Research Summit. In addition to authoring two books and countless articles for leading financial publications, Dr. Hunt is executive vice president of Hoisington Investment Management Company, a firm that manages $5.4 billion.

Lacy is also a favorite speaker of mine because in addition to being a terrific economist capable of running rings around the likes of Alan Greenspan, he can relate the big economic picture to average investors. He rates very high on the common-sense scale—a good philosophical fit for the Miller’s Money team.

Now, let’s find out what Dr. Hunt sees on the horizon for interest rates.

Dennis Miller: Lacy, thank you for carving out time to talk. Many baby boomers and retirees have borne the brunt of the bank bailouts. Interest rates are far below their retirement projections, and they’re hoping the good old days of 6% CDs and the like will come back quickly. Lacy, this started eight years ago. What would you say to folks looking for high yield rates on top-quality, fixed-income investments to return to “normal?”

Lacy Hunt: My pleasure, Dennis.

Interest rates are unlikely to normalize for several years or even longer. The low interest rates are a reflection of the overleveraged condition of the US economy, which is severely constraining growth. Long-term high-quality yields such as 30-year Treasury bonds are likely to decline in yields over this period as inflation eases.

Dennis: When planning for retirement, many baby boomers anticipated 6% returns and inflation under 2%. Those were conservative estimates. If interest rates are going to remain low, which I too believe is the case, this will continue to force boomers to risk more money in the market or change their retirement lifestyle.

People looking for some sort of yield and income have flooded the market with money. What do you see in the market’s future over the next five years or so?

Lacy: This is a time for caution concerning the stock market. I would recommend highly conservative investors who cannot rebuild nest eggs with earnings from employment remain on the sidelines until the risk of another recession is resolved. The stock market gains are being fed by excess liquidity rather than an improvement in corporate earnings. Such imbalances have historically led to swift downdrafts in the price of risk assets.

One way to protect risk assets bought for yield in this environment is to balance them with a partial holding in long-term US Treasury bonds. T-bonds are negatively correlated. If risk assets continue to do well, then Treasury holdings will limit the upside gain; but in the event that risk assets falter, T-bonds will limit downside losses.

This is not the time to shoot for the roses. I realize a lot of retirees have to invest in the market for income during this cycle, but you need to be very careful.

Dennis: In your San Antonio presentation, you said something to the effect of “When ‘buy now and pay later’ is your philosophy, eventually ‘pay later’ overwhelms the system.”

Lacy, anyone who has high credit card debt, student loans, and/or an abundance of monthly payments eventually has to come to grips with that situation and change his ways. You pointed out that not just the United States government, but also the rest of the world has astronomical debts growing at an alarming rate. How do you see this unfolding, and what are the investment implications for baby boomers and retirees?

Lacy: Extreme over-indebtedness for economies results in a number of critical symptoms: poor economic growth in comparison to the historical norm; the business cycle operates but in a much more muted fashion; inflation falls to abnormally low levels, and in many instances, the result is deflation; due to poor growth, demographics deteriorate; and long-term Treasury bond yields, which are heavily influenced by inflation, fall to historically low levels and remain depressed until the over-indebtedness is corrected. Also, the low inflation environment persists for a long time.

All of the major economies are experiencing the effect of “pay later” overwhelming “buy now,” and these symptoms are all too evident in the global economy.

As I mentioned earlier, if you have to be in the market for income, you need to be very careful and have a good exit plan.

Dennis: One final question. I often hear from Miller’s Money subscribers who really feel caught in the middle. They want the safety of top-quality, fixed-income investments, but they need better yield in order to supplement their other retirement income.

What tips might you have for folks who find themselves in that position?

Lacy: We believe there are opportunities for excellent returns in long-term US Treasury coupon and zero-coupon bonds. We have our accounts with a 20-year duration, which is a very aggressive stance and a very uncommon strategy. The returns will be caused by appreciation in the value of these bonds in the difficult business environment ahead. However, this path will be very volatile, and investors will require patience.

Due to this volatility, investors should include holdings in long-term Treasury bonds as part of a diversified portfolio. If the bull run in stocks continues, the Treasury bonds will too, reducing the upside gains. However, in a bear market, holdings of Treasury bonds will limit the downside risk of the total portfolio.

I would caution everyone to work with a bond professional, though. When to buy and what types and amounts is not something the average stockbroker really understands.

Dennis: Lacy, as always, thank you so much for your time and insight.

Lacy: My pleasure, Dennis.

San Antonio’s biggest highlight was the chance to meet and shake hands with Miller’s Money Weekly and Miller’s Money Forever subscribers. For more expert interviews, timely financial commentary and need-to-know economic news, sign up for our free, weekly e-letter here. And follow us on Twitter @millersmoney.

The article Start Swimming or Drown: Don’t Expect a Life Vest to Save You from Low Rates was originally published at millersmoney.com.

Home Healthcare Cuts Threaten 500,000 Jobs and Put Female-Owned Businesses at Risk

By Dennis Miller

That title wouldn’t make for much of a campaign slogan, and yet, it’s the natural outcome of one particular politician’s promise. As the editor of a retirement-focused newsletter, most of the notes I receive about the Affordable Health Care Act, or Obamacare, are first-person accounts of how a reader’s change in coverage or cost is affecting his finances. These (mostly sad) stories prompted several discussions with Andy Mangione, vice president of government relations of the Association of Mature American Citizens (AMAC). Andy serves as the lead legislative and government contact for AMAC in Washington, DC. He’s also responsible for national grassroots outreach and developing strategic partnerships.

Andy is AMAC’s man on the scene in Washington, and he kindly agreed to sit down for an interview on the significant budget cuts to home health care that have been made as a result of Obamacare. I’ll let Andy get into the details.

Dennis Miller: Welcome, Andy. Thanks for taking the time to educate our readers on the latest goings-on in Washington.

Andy Mangione: My pleasure, Dennis.

Dennis: Andy, let’s get right to it. I know you’re very concerned about how cuts to home health care will impact seniors. This is no longer a theoretical problem. I’d like to ask a two-part question: Can you tell our readers a bit about your organization and how these budget cuts will affect “mature American citizens?”

Andy: Dan Weber, a private citizen, founded AMAC as an alternative to and competitor of AARP. AMAC is a right-of-center, conservative member benefits and senior advocacy organization for Americans age 50 and older. AMAC offers many of the same benefits and services as AARP. The biggest difference, though, is our approach to advocacy. AMAC is a member-driven organization. We do not sit in a boardroom and determine our stance on issues unilaterally. We take our marching orders from our members. They determine the issues that I bring to Washington, DC and help us to determine our policy and issues positions.

We have over 1.2 million American members living in all 50 states. We add approximately 1,000-2,000 new, dues-paying members each week.

I think it’s important to describe the Medicare home healthcare recipient before getting into the cuts. The average age of this beneficiary is 82. Two-thirds live below the federal poverty level, and they have chronic illnesses like heart disease, COPD, and diabetes. These are Medicare’s oldest, sickest, and poorest beneficiaries. Most of these folks reside in rural areas, and the majority of them are women.

The $22 billion cuts over four years to Medicare home health care will mean these homebound seniors will have to seek care outside of their homes. The cuts will also devastate the home healthcare sector. And where will the money from these cuts go? To fund subsidies on the insurance exchanges and to expand Medicaid—two key components of Obamacare.

Sick Seniors Forced into Nursing Homes

Dennis: I recently wrote an article about long-term care insurance, which many refer to as nursing home insurance. I pointed out that a major provision of long-term care is home health care, which is actually “avoid nursing home insurance.” If the government is cutting back on money for home health care, what options will be available for those who need care?

Andy: They’ll be forced to receive care in nursing homes or other institutional settings, which greatly increases their cost and negatively affects their healthcare outcomes. Also, keep in mind that most recipients of Medicare home health care reside in rural areas and do not have the same choices for nursing home or other institutional care that those who live in urban areas do.

Dennis: Won’t that further overload hospitals and nursing homes, which in turn will add to the overall costs?

Andy: Absolutely. Medicare home health care saved the Medicare program $3 billion over the last three years. Expenditures for non-Medicare home health care will definitely rise since these patients will be treated in nursing homes and other institutions.

Dennis: I don’t know of anyone who, given a choice, wouldn’t prefer to stay at home for care. What impact will these budget cuts have on the home healthcare industry?

5,000 Home Healthcare Companies to Collapse by 2017

Andy: The Centers of Medicare and Medicaid Services (CMS) looked at these cuts and estimated that nearly 500,000 jobs in the home healthcare sector will be lost. They also estimate that 5,000 home healthcare companies will become insolvent as a result of these cuts by 2017.

Dennis: You touched on something I hadn’t thought through before: the significant impact these cuts will have on working women and small-business owners. What can people do now? The budget cuts have already been passed. Is it too late?

Andy: It’s not too late. H.R.5110, the SAVE Medicare Home Health Act, was recently introduced to rescind these cuts and replace them with commonsense accountability for home healthcare agencies, which would increase the quality of care for patients. The House will vote on the budget-neutral H.R.5110 in the fall, and if it passes—and it has a good chance of doing so—then it’s on to the Senate.

90% of the businesses that provide home health care are small businesses. And, as I previously mentioned, CMS estimates that 5,000 of these businesses are at risk of closing their doors as a result of these cuts. Women own the majority of these businesses, and the majority of their employees—the nurses and other allied health professionals who provide care—are also women. CMS also estimated that 500,000 of these jobs are threatened by these cuts.

Also, the vast majority of the patients receiving home health care are women. Any way you evaluate it, these cuts to home health care disproportionately affect women in a very negative way.

Dennis: I’d like to ask one question on a different topic. When I’ve written about Obamacare in the past, I’ve received three forms of feedback. The first was genuine concern, and the second was political criticism. Third, I heard from a large group that basically has a hard time believing it. Their sentiment was: “That just could not happen in America!” How do you respond to people who are having a hard time believing that Obamacare is going to have a major and possibly negative impact on their lives and their health care?

Andy: I would say that elections have consequences. Not only can this happen in America, it already has happened! President Obama burst onto the national scene promising hope and change and certainly delivered on the “change” promise. Only it was not the change that most Americans were seeking.

Like it or not—and AMAC members most definitely do not like it—Obamacare is now the law of the land. All is not lost, though. There’s always another federal election every two years, when Americans have the opportunity to right the ship and elect people who identify with their values and beliefs. Get involved and research candidates before giving your precious vote to an articulate, attractive candidate who looks great in a suit. Take the time to find the substance behind the style.

Dennis: Andy, thanks for sharing your boots-on-the-ground input. Hopefully our subscribers will pitch in and let their elected representatives know how they feel.

If you enjoy timely expert interviews like this one, straightforward economic analysis and no-nonsense financial insight, sign up to receive my free weekly e-letter, Miller’s Money Weekly today.

The article Home Healthcare Cuts Threaten 500,000 Jobs and Put Female-Owned Businesses at Risk was originally published at millersmoney.com.

I Didn’t Believe the IRS Anyway

By Dennis Miller

Lois Lerner’s emails are back from the dead—sort of. The former IRS official’s BlackBerry, however, is still long gone. The IRS intentionally destroyed it in June 2012 (after congressional staffers interviewed Lerner about the IRS targeting conservative groups) as the Deputy Assistant Chief Counsel acknowledged in a recent sworn declaration.

We’ve all met someone we just don’t trust but don’t know why. There’s often a pretty good reason to feel that way.

Has someone ever made an insincere attempt to flatter you? Their words might be complimentary, but their body language, tone, and/or context let you know the compliment is phony. Does this guy really think I’m that stupid?

So, up goes your trust wall. If he’ll lie about this, he’ll lie about anything.

The IRS debacle is a prime example of why we build trust walls. The emails Congress requested had (supposedly) been deleted when several hard drives crashed. I asked my colleague Alex Daley (our in-house technology guru) what the probability was of that happening. Here’s what he had to say:

Everyone who ever owned a computer knows that hard drives are finicky beasts. In fact, Google uses a LOT of hard drives and so they have published all kinds of research on their failure rates. The gist: there’s about a 1 in 36 chance a hard drive fails in any given month. The math says then that if the IRS was practicing good data center management practices—we have to assume, however silly it might seem, that the agency responsible for holding the most personal information on American citizens outside the NSA is following best practices—then the chance of seven hard drives failing at the same time and wiping out the data on them is about 1 in 78 billion.

How rare is that? The odds of winning the Florida Lottery are roughly 1 in 23 million. So it’s 340 times more unlikely than you winning a state lottery. The odds of winning the Powerball are 1 in 175 million; for Mega Millions, the odds are 1 in 259 million.

Of course, we give the IRS too much credit. The risk of hard drives failing increases with age, and we suspect the IRS, like much of the government, isn’t spending a lot of time rotating hard drives. The odds also increase if you keep all the drives in one place, using old-fashioned persistence techniques. Then a fire, flood, electrical issues, or any other number of problems could easily wipe out the whole lot at once.

At one point there seemed to be only one plausible explanation for allowing so much data to disappear: negligence.

Turns out, however, the data weren’t even gone. As Judicial Watch President Tom Fitton last week:

Department of Justice attorneys for the Internal Revenue Service told Judicial Watch on Friday [August 22] that Lois Lerner’s emails, indeed all government computer records, are backed up by the federal government in case of a government-wide catastrophe. The Obama administration attorneys said that this back-up system would be too onerous to search. The DOJ attorneys also acknowledged that the Treasury Inspector General for Tax Administration (TIGTA) is investigating this back-up system. ….

There are no “missing” Lois Lerner emails—nor missing emails of any of the other top IRS or other government officials whose emails seem to be disappearing at increasingly alarming rate. All the focus on missing hard drives has been a diversion.

It sure seems clear why so many Americans feel put down. Does the government really think we’ re that stupid? Maybe. I look at it this way: I suppose it’s possible a dog can eat your homework. It’s still a lousy excuse that no one will believe. It’s no wonder politicians rank so low on our trust scale.

Whom Can You Trust?

The IRS is in our lives, period. If you live here in the US or you’re a US citizen living abroad, you can’t sever the relationship. Here’s the upside, though: for the most part you can choose to conduct your private affairs with trustworthy people.

One of the most common emails I receive is from readers looking for a trustworthy broker or financial advisor. Most come with sad tales: they had to fire their advisor because something felt fishy. Maybe they’d been directed to overly risky investments or high-fee mutual funds. Some couldn’t pinpoint their advisor’s exact offense but just knew in their gut something was amiss.

We should all expect the people we pay to help manage our money to put our interests ahead of their own. One reader said that paying fees to an advisor to put his money into high-fee investments made it almost impossible to end up with the growth he needed. He clearly wasn’t getting the service he deserved and had good reason to look elsewhere.

The Female Brain Detects Deception Best

I recently finished reading The Female Brain by Louann Brizendine, M.D. Dr. Brizendine shares quite a bit of scientific evidence to support the existence of female intuition. In brief, women score higher on tests for reading nonverbal communications and on average have more receptors for those cues than their male counterparts.

That explains why my youngest daughter recently fired an attorney. I was quite proud. She explained, “I got tired of feeling like I was being talked down to!” When I asked her to elaborate, she felt he thought she was stupid and should blindly follow his advice without question. She was picking up on the little things that might seem trivial but cause our subconscious mind to take notice.

At one point in my career, I sought advice from a top public speaker. (Maybe I wanted to be more like my daughters.) This speaker had an uncanny ability to “read, sense, and feel” his audience. He did this mostly through nonverbal clues and suggested I read Body Language by Julius Fast to help my subconscious mind tune in to nonverbal cues.

I read the book and learned that much of it was based on works like ‪Kinesics and Context: ‪Essays on Body Motion Communication by ‪Ray L. Birdwhistell. So I read those books too and worked to sharpen my subconscious mind’s nonverbal recognition skills. Perhaps that also helped me picked up on the suspect explanations coming from the IRS. It’s certainly helped me trust my gut when deciding whether or not to do business with someone.

An attorney, stockbroker, money manager, or certified financial planner can have a great track record and all the requisite credentials you could ask for. That’s not enough. If he or she makes you uncomfortable but you aren’t sure why, don’t ignore your instincts. Switching course and hiring someone new can be an expensive headache, but it can save you over the long run.

For weekly, no-nonsense tips on protecting your bottom line and living rich at any age, sign up here to receive my free missive, Miller’s Money Weekly directly in your inbox each and every Thursday.

The article I Didn’t Believe the IRS Anyway was originally published at millersmoney.com.

How You Can Play to Win When Market Makers Are Calling the Shots

By Dennis Miller

The American Legion sponsored a carnival every summer when I was a young lad. My dad was a legionnaire, so each year I had a job. Beginning at age 12, I hauled soft drinks and food to the various concession booths well into the night, which probably violated some labor laws.

Dad warned me about the carnival barkers, telling me to never play games where you try to win a giant teddy bear. They were rigged, he said, and no one ever wins—“So don’t waste your money.”

I questioned Dad’s advice when I saw other boys carrying giant teddy bears to the delight of cute teenage girls. So I quietly watched some of the games. Some people won silly goldfish, but few won the giant teddy bear.

Then I befriended some of the carnival workers and told them what my dad had said. To my surprise, they took his remarks personally. Each one stepped outside his booth to demonstrate just how easy it was to win by pinging ducks or knocking over little stuffed clowns with ease. The guy who shot the BBs told me to ignore the rear sights because they were off center. He also told me exactly where to hit the moving duck to make it go down. Ping, ping, ping! He knocked them down one after another.

He argued that the game was not rigged; if it were, eventually no one would play. But the odds were tilted toward those who practiced. I tried it, lost a dollar (one hour’s pay), and realized it was cheaper to buy the teddy bear than to spend the money to learn how to win consistently.

I think about those carnival games often, when friends and readers ask about market makers, brokers who help keep markets liquid and profit in the process. Do they just hold a unique position, or is something fishy going on?

24 Men Make History Under a Buttonwood Tree

Let’s take a step back to answer that question. The history of what would later become the New York Stock Exchange began in 1792, when 24 brokers and merchants signed the Buttonwood Agreement outside 68 Wall Street—under a buttonwood tree, of course.

The securities market grew, particularly in the aftermath of the War of 1812, and in 1817, a group of brokers established the New York Stock & Exchange Board (NYS&EB) at 40 Wall Street. At that time, stocks were traded in a “call market” during one morning and one afternoon trading session each day. A call market is exactly what it sounds like: a list of stocks was read aloud as brokers traded each in turn.

Whatever the benefits of this seemingly orderly system, it did not foster liquidity, and in 1871 the exchange, which had been rechristened as the New York Stock Exchange (NYSE) in 1863, began trading stocks continually throughout the day. Under the new system, brokers dealing in one stock stayed put at a set location on the trading floor. This was the birth of the specialist.

Designated Market Makers (DMMs), who are assigned to various securities listed on the exchange, have since replaced specialists. DMMs are one type of market marker, which are broker-dealers who streamline trading and make markets more liquid by posting bid and ask prices and maintaining inventories of specific shares.

Since the NYSE is an auction-based market, where traders meet in-person on the floor of the exchange, the DMMs, who represent firms, maintain a physical presence on the floor. Unlike the NYSE, the National Association of Securities Dealers Automated Quotations (NASDAQ) is an exclusively electronic exchange. Plus, it has approximately 300 competing market makers (not physically present at the exchange). Stocks listed on the Nasdaq have an average of 14 market makers per stock, and they are all required to post firm bid and ask prices.

Why Market Makers Matter to Retail Investors

You may be thinking, “That’s great, but why should any of this matter to me?” Well, because the existence of market makers should affect a few of your trading habits—for thinly traded stocks in particular.

Trades are not automatically executed via magical computer elves. When you place a buy or sell order (likely via the Internet), your broker can choose how to execute your trade.

When you place an order for a stock listed on the NYSE or some other exchange, your broker can pass that order on to that particular exchange, or it can send it to another exchange, such as a regional exchange. However, your broker also has the option of sending your order to a third market maker, a firm ready to buy and sell at a publicly quoted price. It’s worthwhile to note that some market makers actually pay brokers to route orders their way—say, a about penny or so per share.

On the other hand, your broker will likely send your order for a stock traded on the Nasdaq, an over-the-counter market, to one of the competing Nasdaq market makers.

And of course, your broker can always fill your order out of its own inventory in order to make money on the spread—the difference between the purchase and sale prices. Or it can send your order (limit orders in particular), to an electronic communications network (ENC), where buy and sell orders of the same price are automatically matched.

With that in mind, there are two steps you should take to make the most of your trades:

Always place orders at limit prices, as opposed to market prices. As of Tuesday, the price for Coca-Cola is a bid of $41.23, and the ask price is $41.24; the spread is a penny.If you put in an order to buy at $41.24, a market maker could buy at $41.23 and sell it to you for $41.24, pocketing a penny per share. If you buy 100 shares, they make $1.00. That is their profit for making the market.
If you put an order in at “market,” it can cost you a lot more. The depth of the current bids goes all the way down to buy at $34.01 (there are a couple of orders to buy KO for $22.12 and even one as low as $3.00, but the probability they will be filled is negligible), and the sell side goes up to $53.68 (again, there is one order to sell KO at $88 but this investor won’t find a counterparty in his right mind that would take it). That means there are currently orders sitting with the market maker to be executed at those respective prices.

If the market maker sees a market order, he would buy the stock at $41.23 and sell it at a much higher price. A market order is basically a license for the market maker to steal. You want the best price for any stock you’re trading; entering a market order will ensure you don’t get it.

The spreads for thinly traded stocks are generally larger. If you want to buy, you can offer a lower price than the bid, or perhaps a penny higher. If you want to trade several thousand shares, consider doing so in small tranches, so you don’t show your full hand to the market maker.

Know the role market makers play when executing stop losses. For the Miller’s Money Forever portfolio we generally set a trailing stop loss when we buy a stock. Entering a stop loss order with your broker will automatically generate a sell order should the stock drop to that number. A market maker can see that number and may drop down to buy your stock at the low price and then resell it for a profit.As a practical matter, I set stop losses for big companies like Coca-Cola that trade millions of shares per day. The stop loss was there for a reason, and I don’t want to risk the price dropping further before I can sell it.
Some pundits think you should never enter a stop loss with your broker. They prefer another method: a stop loss alert, which many brokerage firms offer. They notify you through an email or text message if the stock drops to the stop loss price, and then you can go to your computer and enter the sell order. We always use the alert for thinly traded stocks, so we’re less vulnerable to an aggressive market maker.

If you are concerned about showing your hand to the market maker, by all means, use a stop loss alert. If you think the risk associated with stop losses is minimal for high-volume stocks, you may want to use both stop losses and stop loss alerts, depending on the stock.

Whether any of this means the market is “rigged,” I’ll leave to those $500-per-hour lawyers to hash out. This is the game we’re playing, so it’s critical to understand the rules, whether we like them or not.

Whether you’re a retail investor or just a guy shooting at moving ducks at a carnival, you need knowledge and skills to succeed. My free weekly missive, Miller’s Money Weekly, exists for that very reason. We provide retirement investors with the education and tools essential for a rich retirement. Receive your complimentary copy each Thursday by signing up here.

The article How You Can Play to Win When Market Makers Are Calling the Shots was originally published at millersmoney.com.

65,000 Marines Hold up a Mirror to the Economy

By Dennis Miller

I was 18 years old when I left boot camp for Camp Lejeune, North Carolina, where the Marine Corps stationed 65,000 troops. When my unit got our first weekend pass and could actually leave the base in civilian clothes, something I hadn’t worn in several months, I put on a brand new pair of Levis, no belt, penny loafers, white socks, and a collared, buttoned shirt. I had no hair to comb—the Marine Corps saw to that.

My take home pay was less than $50/month, so my entertainment options were limited. My friends and I got on a bus headed for the nearest town: Jacksonville, North Carolina. We soon realized Jacksonville was full of the same people we saw on base all week. We weren’t old enough to drink, so the local bar was out. My high school friend Paul and I had enlisted together and proclaimed, “We’re 65,000 marines all dressed up with no place to go!”

It’s funny how some memories are still vivid 55 years later. This summer a friend asked why the stock market was doing so well while the economy is doing so poorly. Without thinking, I answered, “We’re all dressed up with no place to go.”

Are we in a bull market or a bear market?

Let’s start with basic definitions, courtesy of my online dictionary:

Bull market—A period of generally rising prices. The start of a bull market is marked by widespread pessimism. This is the point when the crowd is the most bearish. The feeling of despondency then changes to hope, optimism, and eventually euphoria.
Bear market—A general decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear and pessimism.

Take a look at the chart below tracking the S&P 500 from January 2006 to July 2014.

The chart makes it seem as though the pessimism of the 2008 crash is behind us. Stock prices are now at an all-time high (unadjusted for inflation).

So, is it a bull or a bear? The bull markets of the past coincided with boom times: employment was high and there was that feeling of optimism and euphoria. But where’s the hope, optimism, and euphoria now?

Yes, we see some characteristics of a bull market, but look at real gross domestic product from 1950 onward in the chart below and a growling bear may appear in your mind’s eye.

That’s right: we’ve never been at -2.9% outside of a recession. In other words, it’s neither a bull nor a bear, as market performance isn’t synchronizing with real gross domestic product.

Bud Conrad, one of my colleagues at Casey Research, offered a grim analysis of the chart above immediately after the Q1 data was published:

The above is based on the annual change in GDP; quarterly readings are more sensitive and volatile. Still, it’s worth noting that Q1 GDP growth came in at -2.9%—an awful number that suggests we’re dangerously close to a recession (the official definition of a recession is two consecutive quarters of GDP contraction).

First-quarter numbers have since been revised to -2.1% year-on-year, and Q2 came in at +4% year-on-year. That’s good, but it’s difficult to see an uptrend yet, given the negative shift over the first quarter.

Frightening Unemployment

Part of the Federal Reserve’s mandate is to promote maximum employment. How well is that going?

The Bureau of Labor Statistics (BLS) reports a national, seasonally adjusted unemployment rate of 6.1% for June 2014. 6.1% isn’t the whole story, though. As James Rickards noted in a post for the Darien Times, although 288,000 jobs were created in June, the number of full-time jobs dropped by 523,000. The widely reported increase is the result of 800,000 new part-time jobs.

As Rickards notes, the increase in part-time employment will likely continue, driven in part by Obamacare’s coverage requirements for full-time employees. This statistics charade is not breeding optimism and euphoria.

Meanwhile, unemployment inched up to 6.2% in July.

Why Are We Seeing Horns?

If the economy is struggling, why does the stock market look bullish?

Bud Conrad shared a telling graphic with my team to help answer that question.

The Fed is flooding the system with money. That money is propping up the stock market. When the Fed tries to put the brakes on the stimulus, the stock market abruptly turns down. What happens if the Fed decides to change course and stop buying government debt and/or raises interest rates? Will the bubble burst?

A New Breed of Problem

If a correction is inevitable, why not pull out of the market and wait? The short story is, there’s nowhere else to go. There are no solid fixed-income investments.

The chart below sums up the story neatly. It shows 6-month CDs and 6-month Treasuries, but the trend is the same for all fixed-income investments over this 30-year period. We enlarged the final period shown in the chart so that you wouldn’t have to strain your eyes to see the yellow line representing new series 6-month CDs.

The stock market may look good on paper, but prices are generally higher than the fundamentals justify. Eventually a correction will occur. Here’s what I see happening:

The economy is sending mixed signals. We may be in a recession already; however, no official will say that until after the election.
Consumers are not spending despite some of the good incentives to do so. Baby boomers are concerned about their retirement and holding their wallets tight. When pessimistic about the economy, spenders cut back on wherever they can.
Government-reported data is questionable at best—massaged for political purposes. Use it accordingly.
There are no safe fixed-income investments available that will keep up with inflation. A decade ago you could have sold your stocks and upped your positions in inflation-beating, high-quality bonds. Not today. The Fed has indicated they are going to keep interest rates low for quite some time.

We have a bull-like market because of government policies, not because of solid fundamentals. I am not the guy standing on the street corner holding a sign saying, “Repent, the end is nigh.” But I don’t know how much longer things can continue in limbo.

Waiting for the Return of Fundamentals

As we wait for the market to start trading on fundamentals again, be nimble. That means avoiding long-term commitments. Make sure you can get out of any position quickly.

US investors also need to step a bit further out of their comfort zone. The market capitalization of public companies incorporated in the US is approximately 34% of the world’s total market capitalization, but US investors have 72% of their assets invested in their home country on average.

I shudder when readers mention how many eggs they have in their home country’s basket. I encourage all investors to review their holdings and diversify internationally.

As we wait for things to shake out, keep yourself current on economic change and the best investment strategies for retiring rich in any environment by signing up for my free weekly e-letter, Miller’s Money Weekly.

The article 65,000 Marines Hold up a Mirror to the Economy was originally published at millersmoney.com.