Tag Archives: Gainesville

“Are We There Yet?”

108679-bruegel-wedding-dance-outsideAs a parent, I remember this question well from days past. This time, however, it’s being asked by those of us with money invested in the global stock and bond markets.

All of us are following a life path that includes stops along the way. Some stops we choose to make and others are forced on us. Some of them are in good places and others not so good places. These comments talk about a bad one on the horizon and how your life might be better if you don’t have to stop.

Sometime soon, most likely in the next three 3 years, many of us will hit a road block. With that in mind, what follows is designed to help the reader gain a better understanding about how to have money positioned before that happens. This is particularly important if you are soon to be, or are already, retired.

In retirement, your investment focus will shift away from the accumulation of money and focus instead on the distribution of money. That’s not to say your money will no longer accumulate, but the emphasis will change. This is because instead of you working FOR money, money now has to work for YOU.

None of us individually has any control over the markets. What we do have is control over where and how our money is working for us. For almost everyone, the rules that define successful accumulation are different from the rules that define successful distribution.

Two primary drivers that define success in either phase are the stock market and the bond market, which is driven by interest rates. Knowing more about why this is relevant is in your best interest. You will also find it’s in your best interest to avoid the coming road block if you can.

Let’s first look at interest rates. Following this paragraph is a chart that shows the general level of interest rates in the U.S. over the past 222 years. In that entire time, you see four high points in green and low points in orange. The time span from high points to low points has been 27 years, 37 years and 26 years. The last high point was in 1981, 34 years ago. What this suggests to me is that with current interest rates near zero, an upturn in rates is going to happen. How soon is up for debate, but inevitable.
200+year interest ratesWhen interest rates rise, the effect on bond values is negative. No one is going to pay you as much for a bond that yields 4%, if with the same money they can buy a bond that yields 5%. This is a fundamental law of finance. Before the shift happens, you should be out of bonds and into cash or into tactical approaches that help you avoid losses.

Let’s now look at the stock market. Instead of individual stocks, I’m going to focus on the S&P500 Index, widely regarded as representing the entire US stock market. It includes the 500 largest capitalized companies in the US, many of whom sell globally, so their performance to some degree reflects what is happening across the planet.

The next chart reflects the closing price of the S&P500 on every given trading day over the past 40 years. These years largely reflect how the dollars you had invested in the stock market performed as it accumulated. Your goal at the time was to grow your pile of money as large as reasonably possible.

Retirement was down the road, and if a road block happened, it didn’t matter so much. What you heard everywhere was “buy and hold” or “hang in there”. But now the rules are different and the big question you must ask is “When Will The Next Downturn Happen?”. Or perhaps “Are We There Yet?”.

1974-2013 SP500From 1975 -1982, the rise was imperceptible. Then it started upward and in spite of what happened in 1987, it was a lot of fun. Then came the internet bubble that burst in early 2000 and we all experienced the pain associated with large declines in our account values.

Next came the mortgage bubble that burst in 2008-2009. Again there was a lot of pain and some of us are still recovering from that episode. For the past 3 years we’ve been watching what appears to be an inexorable climb up above previous historic highs.

I try to avoid promoting a sense of fear. However, there seems to be an inevitability about the fact that sometime, most likely in the next few years, there is going to be another bubble. Again there will be widespread pain and fear and gloom across the country, if not the entire planet. Perhaps a better question to ask is “Are You Ready For It?” Or maybe “When it Happens, Will You Be Able to Sleep At Night?”

My point is to cause you to evaluate or re-evaluate what you are doing now and consider options that will eliminate some of the pain that is sure to come, and to consider options that might even cause your accounts to grow.

While all of this is speculative, it is based on historical experience. And unless you plan to be dead in a few months, how all this plays out could dramatically influence your peace of mind and financial freedom in the years to come. Not to mention the financial freedom of those you leave behind.

All of us have different pain thresholds. The more money we have compared to our accepted standard of living, the less likely the pain. What you choose to do with your life in retirement, however, is up to you.

If you take appropriate steps to protect yourself, then chances of a succesful retirement from a financial perspective are better. Living a life free from fear about your financial future is possible.

It’s up to you what you do. But I encourage you to believe acting sooner rather than later will be in your best interest.

(The charts were found at finance.yahoo.com)

by Tony Kendzior, CLU, ChFC / October 1, 2014

 

 

 

 

A Crisis Less Extraordinary

080519_USEconomy1My Comments: For those of you who can stomach economics and the sometimes arcane language of investments, this is an interesting analysis. It comes from a source called Seeking Alpha where I have a membership. Their articles are also infused with lots of charts which I often choose to leave out.

So if for any reason you cannot get to their site to continue reading and see all the accompanying charts, let me know and I’ll forward to you a PDF file with the full article. All this is to help you get ready for the next downturn which will happen.

Eric Parnell, CFA, Gerring Capital Management Aug. 14, 2014

Summary
• It is often said that the financial crisis that was unleashed from July 2007 to March 2009 was a once in a century event.
• But upon closer examination, the market shock resulting from the financial crisis was not all that extraordinary.
• In fact, it was rather modest in many ways when compared to other major historical bear markets.
• And this fact alone may be setting investors up for a far more challenging bear market experience the next time around.

It is often said that the financial crisis that was unleashed from July 2007 to March 2009 was a once in a century event. Some investors even take comfort in this notion with the belief that any future stock bear markets will almost certainly pale in comparison. In short, if one could survive the financial crisis, one can certainly weather what may come in the future. But upon closer examination, the market shock resulting from the financial crisis was not all that extraordinary. In fact, it was rather modest in many ways when compared to other major historical bear markets. Instead, the only thing that has been truly extraordinary this time around has been the policy response. And this fact alone may be setting investors up for a far more challenging bear market experience the next time around.

Second Worst Bear Market In The New Millennium

The bear market sparked by the financial crisis was not even the worst bear market we have experienced since the calendar flipped into the new millennium. In many respects, the bear market associated with the bursting of the technology bubble was worse. This is due to the fact that the magnitude of the decline during both bear markets was effectively the same. But stocks (NYSEARCA:SPY) reached the bottom of the financial crisis bear market in a little less than half the time at 412 trading days by March 2009 versus the more than 700 trading days before stocks reached their final post tech bubble bottom in March 2003.

2000 VS 2008Now some might say that what made the financial crisis bear market worse was the sharp magnitude of the declines from October 2008 to March 2009. To this I say nonsense. These two past bear markets moved in complete lockstep for the first 300 trading days. It was not until policy makers allowed Lehman Brothers to fail when the financial crisis bear market deviated to the downside. But the net effect of this outcome was the stock market equivalent of ripping the band-aid off quickly instead of slowly. In short, the Lehman failure delivered stock investors to the bottom much more quickly, which many could argue ended up being a great advantage. For even if policy makers helped rescue Lehman the same way they saved Bear Sterns six months earlier, it still would not have alleviated the rotting mortgage debt problem that was festering in the financial system at the time. Instead, the stock market likely would have continued dying a slow and painful death into the summer of 2010 if not longer. And since policy makers seemingly felt like they screwed up by letting Lehman fail, they have been overcompensating ever since by printing trillions of new currency to support the stock market and the economy, the latter of which has been in vain.

Verdict: Bursting of the tech bubble was worse than the financial crisis for investors.

Great Depression Markets Much Worse

The bear market during the financial crisis was also mild when compared to those during the Great Depression. When matched up against the bear market from 1929 to 1932, the financial crisis market was relatively mild in comparison until the very end and was not even able to catch up to the pace of the Great Depression bear market at its darkest moments. And while the financial crisis bear market ended after 412 trading days, the Great Depression bear market lower for a few more years before finally ended down nearly -90% on a price basis.

CONTINUE-READING

Exactly Where We Are In This Cycle

retirementMy Comments: This is a major question for investors. Whether you are accumulating money for the future or are already retired and focused on making sure you have enough money to last, knowing what is likely to happen in the near future leads to peace of mind and financial freedom.

This is one opinion. Watch for another opinion in the next few days called “Are We There Yet?”.

Steve Sjuggerud, / Sep. 9, 2014

I was on stage at The California Club in Los Angeles… being put on the spot. And I didn’t have a good answer… It was a private meeting, so it was a small crowd of less than 50 people. At the end of my speech, I answered a few questions.

I like to give good answers when I can. But this time, I didn’t have a good answer. I fumbled around, sharing some facts. But I knew I could give a more accurate answer once I had run some numbers. I promised that I would respond more accurately in DailyWealth. So here goes…

“Steve, you did some great work on cycles years ago,” an attendee said. “So exactly where are we in this cycle, based on the last 100 years?”

He was asking for the BIG picture. I like that. Most people focus on today, and forget about the big picture. I could answer this question in a variety of ways. But the chart below is the simplest way to answer it…

The big idea is, the stock market goes in big cycles, from being loved to being hated. For example:
• Stocks were loved in the decade of the “Roaring Twenties.” Then they crashed in the Great Depression, and then World War II came along.
• Stocks were loved in the 1990s, then spent much of the 2000s going nowhere, delivering no return at all, really (when you adjust for inflation).

The question is ultimately getting at this: After soaring since 2009, are stocks overly loved right now? For your answer, take a look at this chart. It shows the 10-year annualized return on stocks (after inflation).

You can see the peaks were around the Roaring Twenties, and the dot-com boom. You can see the busts around the Great Depression and the inflationary 1970s. The important thing to look at is where we are today…

Take a look:
10YR REAL RETURN
So, where are we in this cycle? Are stocks overly loved, like they were in 1929 or 1999? Or are they overly hated, like they were in the Great Depression or the 1970s?

Based on this simple chart, we are somewhere in the middle… Stocks aren’t overly hated, or overly loved. Based on history, we are somewhere in the middle of this cycle.

I will admit, this is not the most statistically robust way to look at things… After all, there are only three of these major cycles to look at over the past 100 years. How can we say for sure that stocks will peak in the same place they peaked the last three times? We can’t.

This is simply a rough look at history. I believe it’s about right, though…

I think we’re not at the bottom, and we’re not at the top either.

I think we have a couple more innings left in this great bull market. And based on history, the last inning often delivers some of the biggest gains.

So, in short, yes, stocks have moved up a lot since 2009. But based on the last three cycles over the past 100 years, there’s still plenty of room to run…

Good investing.

America’s Perpetual War on Terror By Any Other Name

FT 11FEB13My Comments: This has nothing to do with financial planning. However, for me it has a lot to do with my perception of myself as a contributing member of society. I vote at every opportunity, which I think gives me the right to voice my opinions, which sometimes includes a lot of bitching and moaning.

Decaptitating American citizens in a mideastern desert, while appalling, does not in and of itself constitute a threat to these United States. But…

Like it or not we live and breathe, both physically and economically, in an increasingly integrated world. And like it or not, maybe by accident of birth, we are the lead dog in the human pack when it comes to sustaining civilized society. Which means we cannot sit on our side of the ocean and hope it all works out for everyone else.

By Edward Luce / September 14, 2014

If you embark on something with your eyes half-open, you are likely to lose sight of reality

Few have given as much thought as Barack Obama to the pitfalls of waging open-ended war on an abstract noun. On top of its impracticalities – how can you ever declare victory? – fighting a nebulous enemy exacts an insidious toll. Mr Obama built much of his presidential appeal on such a critique – the global war on terror was eroding America’s legal rights at home and its moral capital abroad. The term “GWOT” was purged the moment he took over from George W Bush. In his pledge last week to “degrade and ultimately destroy” the Islamic State in Iraq and the Levant, known as Isis, he has travelled almost full circle. It is precisely because Mr Obama is a reluctant warrior that his legacy will be enduring.

The reality is the US war on terror has succeeded where it was supposed to. Mr Bush’s biggest innovation was to set up the Department of Homeland Security. If you chart domestic terror attempts in the US since September 11 2001, they have become increasingly low-tech and ineffectual. From the foiled Detroit airliner attack in Mr Obama’s first year to the Boston marathon bombings in his fifth, each attempt has been more amateur than the last. The same is true of America’s allies. There has been no significant attack in Europe since London’s July 7 bombings nine years ago. Western publics have acclimatised to an era of tighter security.

If this is the balance sheet of the US war on terror, why lose sleep? Chiefly because it understates the costs. The biggest of these is the damage an undeclared war is doing to the west’s grasp on reality. Myopic thinking leads to bad decisions. Mr Obama pointedly avoided using the word “war” last week. Although there are more than 1,000 US military personnel in Iraq, and more than 160 US air strikes in the past month, he insisted on calling his plan to destroy Isis a “campaign”. Likewise, the US uniforms are those of “advisers” and “trainers”. These kinds of euphemism lead to mission creep. If you embark on something with your eyes half-open, you are likelier to lose your way.

In 2011 Mr Obama inadvertently helped to lay the ground for today’s vicious insurgency by withdrawing US forces from Iraq too soon. He left a vacuum and called it peace. Now he is tiptoeing back with his fingers crossed. The same reluctance to look down the road may well be repeating itself in Afghanistan. Mr Obama went out of his way last week to say that the Isis campaign would have no impact on his timetable to end the US combat mission in Afghanistan. The only difference between Iraq in 2011 and Afghanistan today is that you can see the Taliban coming. Nor does it take great insight to picture the destabilisation of Pakistan. In contrast to the Isis insurgency, which very few predicted, full-blown crises in Afghanistan and Pakistan are easy to imagine. So too is the gradual escalation of America’s re-engagement in Iraq.

Mr Obama’s detractors on both right and left want him to come clean – the US has declared war on Isis. Why else would his administration vow to follow it “to the gates of hell”, in the words of Joe Biden, the vice-president? Last year, Mr Obama called on Congress to repeal the law authorising military action against al-Qaeda that was passed just after 9/11. “Unless we discipline our thinking . . . we may be drawn into more wars we don’t need to fight,” he said. Mr Obama is already vulnerable to what he warned against. His administration is basing its authority to attack Isis on the same unrepealed 2001 law.

Why does America need to destroy Isis? The case for containment – as opposed to war – has received little airing. But it is persuasive. The main objection is that destroying Isis will be impossible without a far larger US land force, which would be a cure worse than the disease. Fewer than 1,000 Isis insurgents were able to banish an Iraqi army force of 30,000 from Mosul in June – and they were welcomed by its inhabitants. Last week Mr Obama hailed the formation of a more inclusive Iraqi government under Haider al-Abadi. But it has fewer Sunni members than the last one. Nouri al-Maliki, the former prime minister, has been kept on in government.

The task of conjuring a legitimate Iraqi government looks like child’s play against that of building up a friendly Syrian army. Mr Obama has asked Congress for money to train 3,000 Syrian rebels – a goal that will take months to bear fruit. Isis now commands at least 20,000 fighters. Then there are America’s reluctant allies. Turkey does not want to help in any serious way. Saudi Arabia’s support is lukewarm. Israel is sceptical. Iran, whose partnership Mr Obama has not sought, is waiting for whatever windfalls drop in its lap. The same applies to Bashar al-Assad, Syria’s president.

Whose army – if not America’s – will chase Isis to the “gates of hell”? Which takes us back to where we started. Mr Obama wants to destroy an entity he says does not yet pose a direct threat to the US. Mr Bush called that pre-emptive war. Mr Obama’s administration calls it a counterinsurgency campaign. Is it a distinction without a difference?

The US president’s aim is to stop Isis before it becomes a threat to the homeland. History suggests the bigger risk is the severe downside of another Middle Eastern adventure.

It is hard to doubt Mr Obama’s sincerity. It is his capacity to wade through the fog of war that is in question.

When It Comes to Claiming Spousal Benefits, Timing Is Everything

Family and fenceMy Comments: The questions surrounding Social Security are almost endless. It’s a complicated system and as more and more of us reach eligibility, it is clear that simply signing up as soon as you are eligible will cost you and your family lots of money and options over the years.

Philip Moeller / Sept. 9, 2014

Seemingly straightforward questions about claiming Social Security spousal benefits can wind up becoming complicated in a hurry. Here’s one answer.

Recently I received a question from a reader that opens up all sorts of concerns shared by many couples:

I am four years older than my husband. I have reached my full retirement age (66) in June 2014. My own benefit is very small ($289/month), since my husband is the bread earner. I have been mostly a stay-at-home mom.

Should I just claim my own benefit now and wait four more years for my husband to reach his full retirement age, then apply for spousal benefits? That means he will get about $3,000/month, and I will get half of his benefit.

Or should my husband apply for early retirement now, at age 62, so I can apply for my own spousal benefits? He can then suspend his benefit and wait four more years until his full retirement age to get more money.

Please advise.

First, your husband should not apply for early retirement at 62. If he does so, his benefit will be reduced by 25% from what he would get if he waits until age 66 to file, and a whopping 76% less than if he waits to age 70, when his benefit would hit its maximum.

Further, if he does file at 62, he cannot file and suspend, as you suggest. This ability is not enabled until he reaches his full retirement age of 66. So if he files early, he will be triggering reduced benefits for the rest of his life. And because his benefits are set to be relatively large, this reduction would involve a lot of money.

If your household absolutely needs the money now, or if your husband’s health makes his early retirement advisable, he could file early and then, at 66, suspend his benefits for up to four years. They would then grow by 8% a year from their reduced level at age 62 – better than no increase, but not nearly as large a monthly benefit as if he simply files at age 66 and then suspends.

I normally advise people to wait as long as possible to collect their own benefits. But this is probably not the best advice in your case. Here’s why:
When your husband turns 66 in four years, it’s clear that you should take spousal benefits based on his earnings record. You say he would be entitled to $3,000 a month at that point and that you stand to get half of that, or $1,500 a month. That $3,000 figure seems a little steep to me, so I’d first ask you to make sure that is his projected benefit when he turns 66 and not when he turns 70.

In either event, however, it’s clear that your spousal benefit based on his earnings record is going to be much, much higher than your own retirement benefit. Even if you waited to claim your own retirement benefit until you turned 70, your spousal benefit still would be much higher.

Thus, you’re only going to be collecting your own retirement benefit for four years, from now until your husband turns 66. Even though your own retirement benefits would rise by 8% a year for each of those four years, those deferred benefits would never rise enough to come close to equaling the benefits you will get by filing right away.

So, take the $289 a month for four years, and have your husband wait until he’s 66 to file for his own retirement benefit and enable you to file for a spousal benefit based on his earnings record. He may decide to actually begin his retirement benefits then or, by filing for his benefit and then suspending it, earn annual delayed retirement credits of 8% a year, boosting his benefit by as much as 32% if he suspends until age 70.

If he does wait until 70, he will get his maximum monthly benefit. But you also will benefit should he die before you. That’s because your widow’s benefit would not just be equal to your spousal benefit but would equal his maximum retirement benefit. So, the longer he waits to file, the larger your widow’s benefit will be.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Source file: http://time.com/money/3306319/social-security-spousal-benefits/

4 Reasons Why Not To Go Long The S&P

global investingMy Comments: Some of my responsibility as an investment advisor is to provide warning if I think there are pending changes in market direction. But since I have no idea what I may eat for lunch today, telling folks about the next crash will happen is pure speculation. But…

I compensate for this inability by having as much of their money as possible in accounts that have historically moved away from the markets and into cash and short positions when the signals are strong that a downturn is happening.

I’ve included only one chart from the article here. To the extent you want to see the rest, this link should take you to my source article: http://seekingalpha.com/article/2466765-4-reasons-why-not-to-go-long-the-s-and-p

Jack Foley, Sep. 3, 2014 2:43

Summary
• Many large cap stocks are not making new highs like the SPY. This is a worrying sign.
• Interest rates have to rise in the future which will put downward pressure on the stock market. Veteran trader Steve Jakobsen believes we could drop 30% from here.
• Oil seems to have bottomed and oil has the potential to make the whole commodity sector rally along with it.

The S&P 500 (NYSEARCA:SPY) has broken through the physiological number of 2000, and commentators and speculators alike are predicting higher highs from here. I am ultra short on this market but it is becoming increasingly hard to predict when this market will roll over in earnest. Investors who are short the market are really hurting right now, and it takes a brave investor to stay short in this environment. Nevertheless, the risk is all to the downside so an investor must stay extremely nimble if profits are to be made. Let’s explain why.

First of all, even though the market is making new highs, there are many large cap stocks that are not participating in this move. Look at the General Electric Company (NYSE:GE) to see how far it is below its all-time highs.
14-9-16 General ElectricAlso because we have extremely low interest rates, corporate earnings are inflated. Bonds and stocks have rallied hard for the last few years as these markets have been the benefactors of the US’s low interest rate environment.

Nevertheless, interest rates one day will have to rise. When they do, investors will start shifting their money back into fixed term savings accounts. Bonds trade inversely to interest rates so when rates rise, bonds will come under pressure. The problem with low interest rate environments is that they can create asset bubbles. I believe we have one forming in stocks, in bonds and in certain real estate markets globally. In London, for example, property prices may rise by 30% this year which is unprecedented in a struggling global economy we have nowadays.

Veteran trader Steve Jakobsen believes that we could see a 30% drop in the S&P 500 from these levels. Jakobsen believes that equities is the only asset class that hasn’t been really affected from this ongoing global financial crisis.

Therefore, he believes one day the S&P 500 will revert to the mean which could be as much as 30% lower than where we are now.

Finally, I like the movement oil is making at the moment and I think we have finally found a bottom. Tthe spot price of light crude oil has gone from $108 in June to a rising $95 at the moment. The bottom seems to be in and if oil can rally from here, I believe it will put pressure on the stock market as funds will start to leak into the commodity markets. Oil has the potential to take the whole commodity complex with it when it’s in bull mode, so depressed agricultural commodities such as Corn and Sugar should also benefit. As you can see from the chart below, commodities have struggled as a whole in the last few years as equities have rallied hard.

Yes, equities and oil can rally together and have done so up to January 2013 since 2008 (practically everything rallied once the Fed ran their printing presses) but since January 2013 oil has not participated in the move. Once the Federal Reserve eventually ends all stimulus programs (either voluntarily or by demand), I have no doubt capital will start leaking into the commodity markets and oil. Also if geopolitical tensions in Iraq and the Ukraine escalate, oil will spike and the world stock markets will decline sharply.

To sum up, there are enough warning signals to warrant not being long here in the US stock market. If you still think the rally is not finished, I would advise scaling down your position size.

Rural Hospitals Pressured to Close as Healthcare System Changes

healthcare reformMy Comments: Most of us have long since put ObamaCare in the rear view mirror. We’ve acknowledged there are flaws and there will be unintended consequences, but for the most part, it’s the law of the land.

Some of us have long since determined that it’s existence will be in our best interest over time. What caught my eye here is an example of evolving economics. And it has special interest for me since one of the financial niches I work is to help smaller non-profit hospitals retain and attract the best talent possible, given their limited resources.

To the extent any of my readers have a connection with not-for-profit hospitals, I’d really like to hear from you as I have found an extraordinary employee benefit idea that will make money for the hospital and help them keep their staff intact.

Robin Respaut of Reuters / 7 SEP 2014

In January, Linden, Texas native Richard Bowden suffered a mild stroke. Within minutes, medics had taken the 68-year-old to the local hospital emergency room, less than a block from his house.

“They checked me out real good,” said the former city councilor, whose East Texas community of nearly 2,000 has relied on the Linden hospital since the 1960s.

Shortly after returning home, Bowden learned he would outlast the hospital itself: the facility was about to close because there weren’t enough patients. “It blindsided me,” he said. “It’s 15 miles to the next hospital. Out in the country, that seems like a long way.”

Small, rural hospitals like Linden have always struggled to remain viable, but things are getting worse, fast. Rural communities are shrinking at a time when healthcare providers are being pressured to cut costs and release patients sooner.

Twenty-four rural hospitals have closed across the county since the start of 2013, double the pace of the previous 20 months, according to the North Carolina Rural Health Research Program. For graphic see: http://reut.rs/1lGqpBb.

“Even with community support, investment in quality personnel and equipment, patient activity was not at a sustainable level,” Steve Altmiller, president and chief executive of Linden hospital’s owner, Good Shepherd Health System, said in a statement announcing the closure. “The decision to close the Linden facility, while difficult, is one that is occurring across the country.”

Now the Affordable Care Act, better known as Obamacare, is bringing additional pressure. Obamacare is designed to fold the poor and uninsured into the healthcare system, but changes in how the federal government pays for the disadvantaged are already pressuring the hospitals that cater to them, such as rural ones.

Reformers are eager to see some hospitals close, including many out in the country. They argue that good care in the form of clinics and modern ambulances can tend to residents much better than decades ago, undercutting the need for local emergency rooms.

Investors are being warned of the change. Standard & Poor’s Ratings Service in August concluded that the nonprofit hospital sector is “at a tipping point” from the drop in the number of patients cared for. Moody’s Investors Service reported hospital revenue growth and operating margins are at all-time lows. Fitch Ratings wrote that the Affordable Care Act has accelerated the transition of patients out of the hospital and into clinics by tightening reimbursements and emphasizing technology.

“There is a big transition happening,” said Mark Claster, president of investment firm Carl Marks & Co and vice chairman of North Shore-Long Island Jewish Health System board of trustees. “I don’t think smaller hospitals are prepared, and I don’t think they can be. I don’t think they have the economic wherewithal.”

A PAUCITY OF PATIENTS
Good Shepherd acquired Linden from the city nine years ago and spent $6 million on renovations, including revamping the emergency room. “It was very modern,” said Linden Mayor Clarence Burns.

The hospital’s net revenues grew from almost $8 million in 2006, the year after the acquisition, to $13.3 million in 2010, according to Texas Department of State Health Services data.

But operating losses were constant and accelerated, along with bad debt, which grew to nearly $3 million in 2012 from $990,000 in 2006. By 2013, the little hospital had a cumulative $11 million in losses under Good Shepherd, according to the nonprofit’s financial statements.

Good Shepherd declined to discuss finances with Reuters. Public statements by the company, financial records in bond disclosures, and the state of Texas data describe changes over the years.

Two trends hurt the hospital: the number of patients shrank, as did hospital reimbursements from Medicare and Medicaid, two primary payment sources for rural facilities. Further issues lay ahead, including changes in federal funding for indigent patients and rural hospitals.

In the six years leading up to 2012, Linden’s admissions dropped to just over four patients a day on average, from about 10 patients in 2007, according to state data. Fewer than one person per hour came to the emergency room in 2014.

Linden had 1,988 residents in the 2010 census, down nearly 12 percent in a decade.

Good Shepherd blamed losses on a paucity of patients and federal cuts to reimbursement in Medicaid and Medicare. For example, Medicare payments were cut 2 percent as part of the sequestration federal budget battle in 2013.

Larger health systems with a variety of services and fewer Medicare patients can try to shift offerings, raising revenue by providing specialty surgeries, such as a hip replacement, or oncology services. But smaller hospitals with fewer resources have less flexibility.

Implementation of the Affordable Care Act may exacerbate the problem for small facilities. “Revenues are coming down and expenses are not coming down as quickly,” said George Huang, municipal securities research director at Wells Fargo Securities. “The smaller guys have fewer resources available to them.”

The federal government historically has supported rural hospitals. Since 1997 it designated many as “critical access” facilities, recognizing that their small size meant they could only focus on essential medical services. Such hospitals got extra federal funds.

Last year, the U.S. Department of Health and Human Services’ Office of Inspector General recommended the government tighten rules on critical access hospitals to save money. That would likely to cut the number of such facilities by two-thirds.

Funding for the poorest also is changing, as the Affordable Care Act cuts payments for indigent care, in the expectation that many impoverished and uninsured will move to Medicaid. But 23 states have not expanded Medicaid, fearing it could eventually leave them with financial burdens. So in those states, a gap in federal support for the poor has emerged.

Hospitals in states that don’t expand Medicaid will see their profit margins drop by a few percentage-points by 2021, reported research firm The Advisory Board Company. “For many, that could be the difference between being profitable, and being in the red,” the firm wrote on its website in July.

The majority of rural residents in the United States live in states which are not expanding Medicaid, reported the North Carolina Rural Health Research Program. A majority of the 24 hospitals closed since the start of 2013 are in those states.

“In states that are not expanding Medicaid, we’re seeing hospitals close. The finances are just not working out,” said Tim Jost, Washington and Lee University School of Law professor.

‘LONG LIVE FEWER HOSPITALS’
Making healthcare more affordable and efficient is a good thing, say analysts. As the dominant provider in the marketplace, hospitals have “become incredibly inefficient,” because there was less incentive to keep costs down, said Jason Hockenberry, health policy and management professor at Emory’s Rollins School of Public Health.

One in five hospitals, over 1,000 at least, will close by 2020, forecasted Ezekiel Emanuel, a White House health policy special advisor who helped shape the Affordable Care Act.

“Long live fewer hospitals. Welcome to the new age of digital medicine,” Emanuel wrote in his book, Reinventing American Health Care. Clinics can more efficiently take on many duties performed by hospitals, leaving hospitals to focus on the severely ill, he said.

Emanuel predicts the first hospitals to go will be smaller ones, which already operate with less than half of their beds filled. When Linden closed, less than 20 percent of its beds were occupied on any given night.

For Linden resident Bowden, the next trip to the hospital would certainly be longer, although it would be in an emergency vehicle that is a different technological breed from when the little hospital was built.

For decades he’s heard ambulances “ripping up to the hospital.” Now that it is closed, he says, it has been real quiet.