One Of The Most Overbought Markets In History

My Comments: As someone with presumed knowledge about investing money, my record over these past 24 months has been pathetic. I’ve been defensive, expecting the markets to experience a significant correction “soon”…

I lived through the crash of 1987, the crash in 2000, and then the Great Recession crash in 2008-09. I saw first hand the pain and chaos from seeing one’s hard earned financial reserves decimated almost overnight.

Only the crash hasn’t happened. But every month there are new signals that one is imminent. And still it doesn’t happen.

I’ll leave it to you to decide if what Mr. Bilello says makes any sense. I’m not sure it does.

by Charlie Bilello, October 22, 2017

The Dow is trading at one of its most overbought levels in history. At 87.61, its 14-day RSI is higher than 99.999% of historical readings going back to 1900.

(Note: Developed by J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings, and centerline crossovers. RSI can also be used to identify the general trend. TK)

Sell everything?

If only it were that simple. Going back to 1900, the evidence suggests that such extreme overbought conditions (>99th percentile) are actually bullish in the near term, on average.

Come again? In the year following extreme overbought readings, the Dow has actually been higher roughly 70% of the time with an average price return of 14.2%. From 5 days forward through 1-year forward, the average returns and odds of positive returns are higher than any random day. While the 3-year and 5-year forward returns are below average, they are still positive.

Does that mean we’ll continue higher today? No, these are just probabilities, and 30% of the time the Dow is lower looking ahead one year.

What it does mean is that one cannot predict a market decline based solely on extreme overbought conditions. Declines can happen at any point in time and “overbought” is neither a predictor nor a precondition of a bear market to come.

If one is going to predict anything based on extreme overbought conditions (and I would advise against doing so), it would be further gains. I realize that doesn’t conform to the conventional narrative of “overbought = bearish,” but the truth in markets rarely does.

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Medicare open enrollment begins Sunday – and not just for those age 65 and up…

My Comments: Have you noticed a flurry of ads on TV recently talking about Medicare and all the benefits you are entitled to for one easy price per month? I have.

The ads promote the use of Medicare Plan C, also known as Medicare Advantage plans. They are a sop to the insurance industry, giving companies a way to make more money by selling you stuff you may or may not need.

Years ago I decided those extras had little value to me and only lined the pockets of agents and companies at my expense. That’s not to say you might find value with them but as a financial professional, I refused to play the game.

Last year during the open enrollment period, I checked my coverage for Part D, the prescription drug coverage plan. I went to https://www.medicare.gov/, found the spot where you can compare alternatives, and entered the drugs I’m taking for a price analysis. The result was signing up for a different provider and it saved me $85 per month. Not bad.

That being said, if you are already on Medicare or your 65th birthday is around the corner, I encourage you to visit the official Medicare web site. It has good information. Go here: https://www.medicare.gov/

Normally when I write one of these posts it’s to share an article written by someone else. This time I’m simply going to give you two active links to follow if you think any of this is important to you.

Link #1: https://goo.gl/p8nRiF

Link #2: http://flip.it/fg6foM

Remember, there’s also a link just to the right on this page where you can schedule a conversation with me as you wrestle with all this…

Why Britain needs the immigrants it doesn’t want

My Comments: As someone born on British soil, I am more than casually interested as Britain comes to terms with it’s choice to leave the European Union. Immigration is but one of several areas with huge economic implications for Britain in the coming years.

There are parallels between what is expressed in this article by Ivana Kottasova and what the United States is moving toward in terms of immigration. The immigration fault lines in this country and the efforts of the current administration to curtail immigration will significantly influence the economic well being of your children and grandchildren in the years to come.

by Ivana Kottasová / Oct 18, 2017

Britain has a problem: It wants fewer immigrants, but its economy desperately needs more.

The British government is seeking to slash the number of immigrants from the European Union following its departure from the bloc in March 2019.

It’s planning tougher controls despite warnings that more EU workers are needed to harvest the country’s crops, build homes for its citizens and build its next startup.

The risks are especially pronounced in health care.

The National Health Service says there are over 11,000 open nursing jobs in England, and another 6,000 vacant positions across Scotland, Wales and Northern Ireland.

The overburdened system, described by the British Red Cross as facing a “humanitarian crisis,” already relies on 33,000 nurses from the EU.

“We would describe the NHS as being at the tipping point. There are huge staffing problems,” said Josie Irwin, head of employment at the Royal College of Nursing. “Brexit makes the situation worse.”

Jason Filinras, a 29-year old from Greece, was recruited last year to work as a front line nurse at a hospital just north of London.

Filinras joined the hospital’s acute admissions unit, where he runs tests and determines how to treat patients after they have been stabilized in the emergency room.

“If you have a patient who is not able to take care of themselves, you have to do all the basic things for them — from helping them with washes, helping them with toilet, feeding them,” he said.

Heis just one of 250 nurses recruited from the EU by the West Hertfordshire Hospitals Trust over the past two years to work in its three hospitals. EU citizens now make up 22% of its nursing staff.

The trust didn’t have a choice. The unemployment rate is at its lowest level in four decades, and there simply aren’t enough British nurses.

The shortage of workers cuts across sectors — from agriculture to education — and across skill levels. There aren’t enough fruit pickers and there aren’t enough doctors.

The political impetus to reduce immigration from the EU can be traced to 2004, when Britain opened its borders to workers from eight eastern European countries that had joined the bloc.

Government officials expected 5,000 to 13,000 people from the countries to come to Britain each year. Instead, 177,000 came in just the first year.

Critics say that increased immigration has changed the fabric of local communities, and undercut the wages of British workers.

It’s an argument that has currency with voters. Immigration was the most important issue for voters ahead of the Brexit referendum in June 2016, according to an Ipsos Mori poll.

Theresa May, who became prime minister in the wake of the EU referendum, has promised to bring annual net migration below 100,000. The figure was 248,000 in 2016.

It had been difficult to meet the target because EU rules allow citizens to move freely around the bloc. May says that Brexit will mean an end to free movement.

“The government is putting politics above economics, which is quite a dangerous game,” said Heather Rolfe, a researcher at the National Institute of Economic and Social Research.

Labor economists say that a radical decline in immigration would hurt the British economy.

The Office for Budget Responsibility, the government’s fiscal watchdog, said that 80,000 fewer immigrants a year would reduce annual economic growth by 0.2 percentage points.

“To lose these people would be pretty tough and it would mean that some sectors might find it very difficult to survive,” said Christian Dustmann, professor of economics at University College London.

Some EU workers, upset over political rhetoric and a lack of clarity about their legal status, are already leaving Britain. Net migration from the EU fell to 133,000 last year from 184,000 in 2015, according to the Office for National Statistics.

The impact is already being felt: The Nursing and Midwifery Council said that roughly 6,400 EU nurses registered to work in the U.K. in the year ended March, a 32% drop from the previous year. Another 3,000 EU nurses stopped working in the U.K.

“It’s all this uncertainty that will make us leave,” said Filintras. “I can’t say that I am 100% sure that I won’t think about leaving.” If he does move home, he will be hard to replace.

Irwin said the British government has made it less attractive for new British nurses to enter the profession by scrapping college scholarship programs and capping salaries. Applications for nursing courses are down 20% as a result.

Nurses make an average of £26,000 ($34,600), while German supermarket chain Aldi offers college graduates a £44,000 ($58,500) starting salary and a flashy company car.

Trouble also looms in other sectors.

A third of permanent workers supplying Britain with food are from the EU, according to the Food and Drink Federation.

The British Hospitality Association, which represents 46,000 hotels, restaurants and clubs, has warned that the sector faces a shortfall of 60,000 workers a year if the number of EU workers is sharply curtailed.

KPMG estimates that 75% of waiters and waitresses and 37% of housekeeping staff in Britain are from the EU. British farms are heavily dependent on seasonal workers from the bloc.

“If you cannot harvest your strawberries anymore … then supermarkets might buy the strawberries directly from Poland,” said Dustmann.

Business groups and labor unions have repeatedly called on the government to moderate its negotiating position. But May has shown no signs of backing down.

“The government is interpreting the vote to leave the EU as a vote against immigration … and to some extent that is true,” said Rolfe.

Boston, a town on the east coast of England, shows why: According to census data, the town’s foreign-born population grew by 467% in the decade to 2011. In 2016, the town had the highest proportion of voters choosing to leave the EU.

How to Get Medicaid for Nursing Home Care Without Going Broke

My Comments: Politicians apparently have no earthly idea what getting old does to your finances. Of the 50 state Medicaid directors, red states and blue states, all 50 came out in opposition to the most recent attempt by Congress to repeal the ACA or ObamaCare.

None of us are willing to allow the elderly to die in the streets for lack of care. That means programs like Medicaid must be properly funded.

We can argue till the cows come home about the need for rules to prohibit unfair advantages and you’ll get my approval for such rules. There will be competing agendas but does that mean we should give up?

And somehow, these rules must be written to allow intelligent financial planning. Rules that include how to be cared for without losing your financial sanity. Gabriel Heiser’s ideas have value for all of us.

Gabriel Heiser 9/21/2017

Well-off people can easily go broke paying for sky-high nursing home care: First they deplete their own funds and then, eventually needing Medicaid, spend down nearly all the rest of their assets to qualify for that government program designed for low-income individuals.

The way to avoid this terrible situation is to put in place a Medicaid asset-protection plan early on. One powerful solution is to buy a single-premium immediate annuity, says attorney K. Gabriel Heiser, an elder care Medicaid expert, in an interview with ThinkAdvisor.

For 25 years, Heiser focused exclusively on elder law, and estate and Medicaid planning. He is author of “How to Protect Your Family’s Assets from Devastating Nursing Home Costs: Medicaid Secrets” (Phylius Press 2017-11th updated edition).

Sixty percent to 70% of nursing home patients are on Medicaid, says Heiser.

In determining eligibility, Medicaid differentiates sharply between “assets” and “income.” The potential Medicaid recipient is permitted to have only $2,000 in assets, though they can still receive certain income under certain circumstances.

In the interview, Heiser discusses a number of techniques — all of them legal — to shelter or reduce assets to qualify for nursing-home Medicaid.

One of the best, he says, is a so-called Medicaid-Friendly annuity, which essentially converts “countable” assets into income, which is exempt.

The average cost of nursing home care is $92,000 a year and much higher in New York and Hawaii, among other states. The average stay is two-and-a-half to three years. Care for a person with Alzheimer’s disease in a locked unit can come to more than $450,000 annually and is typically for a period of at least five years, Heiser says.

Though Medicaid wasn’t created for middle-class people “to pass their money on to their children at taxpayers’ expense,” Heiser writes, he reasons that it makes sense and isn’t unethical to “avail yourself of the laws” in order to minimize expenditures on nursing home care and indeed “pass those savings on to your children.”

Most folks make the mistake of waiting too long to plan for asset protection, says Heiser. They should begin at the first sign that their spouse, parent or sibling likely will need nursing home care.

Heiser was formerly chair of the estate planning committee of the Massachusetts Bar Association and an adjunct professor of the College for Financial Planning at David Lipscomb University. A professional version of his book, “Medicaid Planning: From A to Z,” is directed at attorneys, financial advisors and CPAs.

ThinkAdvisor recently spoke with the semi-retired Heiser, 68, on the phone from home in San Miguel Allende, Mexico. He revealed some of his Medicaid secrets and how they can help clients shelter their assets. Here are highlights:

THINKADVISOR: What’s critical to know about Medicaid?

GABRIEL HEISER: To qualify, you can’t have more than $2,000 in Medicaid-countable assets. So if you have cash in the bank or any other assets that aren’t on the exempt list, they’ll count toward the $2,000. That’s not a very high amount — but the point of Medicaid is that it’s supposed to cover the poor.

You write that hiding money and not reporting an asset on a Medicaid application is fraud.

Yes, fraud against the government. You’ll be disqualified for Medicaid, and there are also criminal penalties.

What about having income?

You can still qualify if you have, say, pension income. But there’s a cap of $2,205 a month for Medicaid recipients. However, some states have a rule that if your income is over that figure, you can direct your Social Security or pension into a trust — a Miller Trust, also known as a Qualified Income Trust.

The trustee pays the money to the nursing home, and Medicaid pays the difference. Typically, the bills are going to be more than $2,000 a month. So even though you have income over the cap, you can still qualify by setting up that trust.

Note: there are three more pages of Gabriel Heiser’s words of wisdom on this topic. To read the rest, click HERE.

The End Of Capitalism Is Already Starting–If You Know Where To Look

My Comments: I argued last week (Is Capitalism Killing America?) that pure communism and pure capitalism are flawed economic models for society. They simply define the ends of a continuum along which we as a society are struggling to place ourselves.

I think this topic needs a better understanding. Mindful that economics is as easy to understand as Gaelic to any newcomer, an effort to get ones arms around it will go a long way toward solving the political riddle that is consuming us these days, not just in America but across the planet.

In terms of how the underlying economic model defines our lives, at one end, the individual has complete freedom to say and do whatever comes to mind. At the other end, the individual has virtually no freedom to say and do. Control instead lies with the state, which in today’s world means a geographically defined area administered by the state.

In times past, this might have been a kingdom, or perhaps a tribal group with loosely defined geographic borders. Today we are defined by areas with largely agreed upon boundaries which 99% of the world’s population accepts as reality.

The challenge for all of us it to determine just where on that continuum is the soft spot that defines a comfort zone for those living within those agreed upon boundaries. These comments by Eillie Anzilotti help us better understand the search for equilibrium.

By Eillie Anzilotti / Sep 18, 2017

These days, Richard Wolff is feeling pretty glad he stuck around teaching this long. Now in his 70s and lecturing at the New School University and having become, over the course of his nearly 50-year-long professorial career, one of America’s most prominent Marxist economists, Wolff is used to being fringe. That’s no longer a word that can apply to him, or to his ideas. Over the summer, inequality experts Jason Hickel and Martin Kirk launched a conversation on this site when they posed the theory that capitalism is at the core of the many crises gripping our world today. To Wolff, that’s not news. But it is new to him to see the same ideas he has taught for decades being met not with scorn or skepticism, but with genuine interest.

In 2011, the same year that Occupy Wall Street injected dissatisfaction with the financial system into the American mainstream, Wolff founded Democracy at Work, a nonprofit that advocates for worker cooperatives–a business structure in which the employees own the company, and share decision-making power over salaries, schedules, and where profits are directed. “If I had to pinpoint right now where the transition away from capitalism is happening in the United States, it’s in worker co-ops,” Wolff says. Though he’s been championing the cause of cooperatives–a radically democratic departure from the top-down capitalist business structure–for years, certain recent events, like the 2008 recession and the presidency of Donald Trump, poster boy for corrupt capitalism, have galvanized a distinctly anti-capitalist movement in the U.S.

“Americans are getting closer and closer to understanding that they live in an economic system that is not working for them, and will not work for their kids,” Wolff says. Growing awareness that wages have been unable to keep up with inflated costs of living have left younger generations particularly disillusioned with capitalism’s ability to support their livelihoods, Wolff says, and with CEOs out-earning employees by sometimes as much as 800 to 1, it makes sense that public interest should be swinging toward a workplace model that encapsulates shared ownership, consensus-based decision making, and democratized wages.

Admittedly, Wolff acknowledges, a small boom in the number of worker-owned cooperatives in the U.S.–consecutive years of double-digit growth in co-ops since 2010 have brought the total up to around 350, employing around 5,000 people–does not exactly scream revolution. But perhaps that’s because historical precedents for alternatives to capitalism have conditioned us to expect its end to dramatic and cataclysmic.

But that might be mean we’re looking in the wrong places. “I don’t want people to think in terms of Russia and China,” Wolff says. In their pursuit of an alternative, Wolff says, those countries neglected to do the work of transition at the micro scale, instead initiating wide-sweeping reforms at the state level and leaving their populations in the lurch.

Instead, Wolff says, it’s instructive to look to the transition to capitalism, and understand that it’s the smaller waves and shifts in the way things are done that signal true change.

Before capitalism emerged in Europe, there was feudalism, a radically different system in which nothing–neither land nor labor–was for sale, and serfs orbited their feudal lord like ribbons tethered to a maypole. Feudalism’s inhumanity was different from capitalism’s: Instead of being unable to work and earn money to pay for rent and necessities, serfs were dependent on the lords for their livelihoods and their schedules and for a piece on land upon which to labor. Their stability was contingent on the lord’s generosity or lack thereof.

Sometimes, serfs would get squeezed, Wolff says–maybe a serf who was permitted to work his own land three days a week was cut down to two, and had to work on the lord’s the rest of the time, struggling to feed his family. Those serfs would run away. They’d jet off into the forests around the manors, where they’d encounter other runaway serfs (this is the origin of Robin Hood). That group of runaways, who’d cut ties with the feudal system, would establish their own villages, called communes. Without the lord controlling how the former serfs used their land and their resources, those free workers set up a system of production and trade in the communes that would eventually evolve into modern capitalism.

“The image of the transition from feudalism to capitalism was the French Revolution, and that was part of it,” Wolff says, “but it wasn’t the whole story. The actual transition was much slower, and not cataclysmic, and found in these serfs that ran away and set up something new.”

In the U.S., businesses converting to cooperative workplace models are the functional equivalent of those runaway serfs. Around 10 cities across the U.S. have, in recent years, launched initiatives specifically to support the development of worker co-ops, which have been especially beneficial in creating job and wage stability in low-income neighborhoods. Because workers are beholden to themselves and each other, rather than a CEO and a board of directors, the model parts ways with the capitalist structure and advances something that more closely resembles a true democratic system.

“This is the beginning of the end of capitalism,” Wolff says. “Whether these experiments–which is what we have to call them at this point–will congeal into a massive social transformation, I don’t know. But I do know that massive social transformations have never happened without this stage. This stage may not do it, but change won’t happen without it,” he adds. These subtle shifts away from capitalism are not just apparent in the development of more co-ops, Wolff says. Over the past year, he’s been called in to meet with CEOs at large financial firms, who seemed to Wolff to be steeling themselves for a dethroning. As CEOs continue to disproportionately outearn their employees, the call for a dismantling of the system has become loud enough that they seem to have no choice but to pay attention. While it’s a flimsy gesture, some have distributed their bonuses to their employees.

“The move toward co-ops and the change in consciousness I’ve witnessed in workplaces and among my students are the two mechanisms of transformation that are now underway globally, and I’d like to say–it’s more a wish than anything else–that it’s too late to stop them,” Wolff says. “And the sheer beauty of this is that nothing fuels this movement more than capitalism’s own troubles, and the displeasure, disaffection, and anxiety it produces.”

Of course, the thought currents and little blooms of democratic workplaces are not enough to engineer a new economic system. These developments are all happening outside of the political system; in the White House and in Congress, the presence of big capitalist businesses continues as strong asever. But the fact that local governments like New York City and Austin have launched incubator programs for worker-owned cooperatives indicates that they’re not incompatible with the current political system.

Could it look something like inviting Medicare and Medicaid recipients into the legislating body that decides the future of healthcare in this country? Could it look something like involving women in the legal processes that determines what resources they can access to care for their own bodies? Something like a cooperativized Housing and Urban Development department that brings those people it aims to serve into the process of determining how best to do so?

Or what about developing a justice system that relies not on removing people from the formal economy via mass incarceration, but that emphasizes cooperative employment and job training at both points of re-entry and pre-incarceration? Kimberly Westcott, associate counsel in the New York-based Community Service Society, a 172-year-old anti-poverty organization, has begun a program through Democracy at Work to teach cooperative work within prisons. If the cooperatives that could form inside prisons could function just like those on the other side, are the walls necessary?

FIA: Dream Investment or Potential Nightmare?

My Comments: The article below by Jane Bryant Quinn in the AARP Bulletin are fine, as far as they go.

My initial reaction was to reject her comments out of hand as they reflect a bias that to my mind is not accurate. But then I decided to expand on her thoughts. I apologize if I made this too technical for some of you.

Most of the Fixed Index Annuities (FIA) sold are probably very close to having the features and limitations she describes. If there is indeed $60B flowing into FIAs each year, then they are being sold by every run of the mill agent across the planet. And most of those are probably selling whatever their company is telling them to sell. A strong reason for them to sell FIAs is that they make good money for the company. If the client benefits, it’s an incidental benefit for most of them.

I decided to add my two cents worth, below in red, based on what I know after 40 plus years as an entrepreneur in financial services, and the qualities and features of the FIAs I’ve chosen to present to potential clients. You should draw your own conclusions about the merits of FIAs, or the lack thereof.

by Jane Bryant Quinn, AARP Bulletin, October 2017

I’m getting mail about an apparent dream investment. It promises gains if stocks go up, zero loss if they fall and guaranteed lifetime income, too. What’s not to like? Plenty, as it turns out.

The investment is called a fixed-index annuity, or FIA, and it’s issued by an insurance company. Sales are booming — $60.9 billion in 2016. FIA contracts vary, but this is how they work. (Sales are booming, not so much because of the financial benefits, but because they offer emotional benefits as well. ie “I get to stay invested in the markets and I won’t lose any money…”)

You buy the annuity with a lump sum, which goes into the insurer’s general fund. You are credited with a tax-deferred return that’s linked to the market — for example, to Standard & Poor’s index of 500 stocks. If the S&P rises over 12 months, you receive some of the gain. For example, your credits might be capped at an increase of 5 percent, even if the market soars. If stocks go down, you take no loss — instead, your FIA receives zero credit for the year. ( Many FIAs do have caps limiting the upside potential. The one’s I offer clients have NO caps. If the index goes up 50%, you get 50%. If it goes down 50%, you get nothing credited. You have shifted the downside risk to an insurance company. It also means that when the market goes back up again, you are starting from zero and not from somewhere lower. That in turn means at the end of the next crediting period, you are higher than if you were starting in a hole somewhere.)

Each year’s gains or zeros yield your total investment return. . (Your money is NOT invested in an index, whether it’s an S&P500 index or any of dozens of other indices. The yield on bonds inside the insurer’s general fund is used to buy option contracts and the return given the client is a function of the performance resulting from those options.) But I see problems:

Low returns. Salespeople might claim that FIAs could earn 6 or 7 percent a year. But with fees, they’ll struggle to match the low returns from bonds, says Michael Kitces of the wealth management firm Pinnacle Advisory Group in Columbia, Md.(The product I prefer buys 2 year option contracts with the bond yield. Over a ten year period, any ten year period since 2000, a 2 year option result exceeds two consecutive one year options 87% of the time. Some of this is due to the fact that 2 year options are cheaper than 1 year options. In this scenario, a 6% geometric mean return is not unreasonable.)

High fees. You can’t find out what you’re paying for investment management. Costs are buried in the black-box system used to adjust the credits to your account. Sales commissions run 5 to 7 percent and may be hidden, too. Under the new fiduciary rule, which requires advisers to put your interests ahead of theirs, commissions have to be disclosed if you’re buying the annuity for a retirement account, but not for other accounts.

Salespeople sometimes claim, falsely, that their services are free. (Numbers shown in hypothetical illustrations provide by sales agents are always net of fees. At least the ones I show prospective clients. Yes there are obviously costs inside FIAs. I’m sorry but no one works for free. What is critical, however, is the net return to you the buyer.)

Profit limits. Every year, the insurer can raise or lower the amount of future gain credited to your account. You face high risk that returns will be adjusted down. (Yes, this happens. It’s a function of market cycles, of interest rates in general, and the performance of the index chosen. The FIAs I offer have NO CAPS and will credit whatever the option used calls for.)

Poor liquidity. You can usually withdraw 10 percent in cash, each year, without breaking your guarantee. But you’ll owe surrender charges if you need your money back before five or 10 years are up. You might also forfeit some gains. ( This lack of liquidity is the price you pay for shifting the risk of loss to an insurance company. It’s the same thing you do with your car, your house, your life when you buy life insurance, etc. The benefit to you from this ‘cost” is the avoidance of downside risk associated with market corrections. Without the ability to offset this risk to an insurance company, many people opt instead for ‘guaranteed’ returns which actually means you are guaranteed to go broke if you get less than the increase in the cost of living. The cost of a guaranteed returns might mean you run out of money sooner.)

Lifetime benefits. For about 1.5 percent a year, you can add a “guaranteed lifetime withdrawal benefit” to your FIA. Promised yearly payments run about 5 percent. But, Kitces asks, why do it? Your basic FIA already provides a lifetime income. What’s more, 5 percent is not a return on your investment. The insurer is merely paying you your own money back, in 5 percent increments — and charging you 1.5 percent for the “service.” If you live long enough, you’ll exhaust your money and the insurer will pay, but that doesn’t happen often. ( I choose not to offer these anciliary benefits to clients. They serve to make more money for the company by playing to your fears.)

For a guaranteed income, try a plain-vanilla immediate or deferred annuity. It’s cheaper, and you’re not apt to be led astray. (It’s possible you will be led astray. The rules today do not support a fiduciary standard. They should, but our current administration is working hard to avoid that outcome. It’s back to buyer beware despite the best efforts of some who think all financial advisors should be legally required to work in a clients best interest.)

On balance, Jane Bryant Quinn’s comments are essentially correct. But only if you are talking about the arguably poor contracts that so many companies and their agents are interested in selling. If you find someone who is happy and willing to act in your best interest, you are much more likely to find FIAs that resemble the contracts I prefer for my clients. They are a way for you to stay invested in the markets and at the same time, remove the risk of market losses within a crediting cycle.

Is Capitalism Killing America?

My Comments: In the minds of many, capitalism is the antithesis of communism. And they are essentially right. In the minds of many, communism and socialism and fascism are one and the same. And they are essentially wrong.

Communism is an economic model where the state owns everything involved in providing goods and services to the members of society. All members of that society are bound by a framework that starts at the state and ends at the state. History has shown this to be a fatally flawed model.

At the other end of the continuum is capitalism, where the state has no say in the production of goods and services to benefit the members of society. Everything is determined by the individual first and then slowly upstream as determined by the collective will of many individuals. Rules and regulations are anathema and are to be opposed and vilified at every opportunity.

Into this mix appears religion and other social pressures that have evolved over the millennia to create a mechanism which allows us to survive and thrive. I argue that capitalism in it’s unfettered state is an equally flawed economic model.

Bring all this into the 21st Century and you have arguments pro and con.  How does society find that spot along the continuum between the two models to best meet the needs of ALL OF US. It matters not that it doesn’t have a convenient name. What matters is that we focus our time and energy on the creation of a balance between the rights of individuals and the rights of society. The goal is to preserve society such that both individuals and society can survive and thrive.

We are in the midst of such a discussion today. The emergence of Trump and the push back from the non-Trumps will structure the framework that our children and grandchildren will experience as they travel through life. Without an agreed upon balance resulting in an economically viable middle class, we are doomed to failure. Your voice needs to be heard.

September 18, 2017 | by Theodore Kinni

On August 2, 2017, the Dow Jones Industrial Average hit a record-breaking 22,000—its fourth 1,000-point advance in less than a year. That same day, I read the first sentence in Peter Georgescu’s new book, Capitalists Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation: “For the past four decades, capitalism has been slowly committing suicide.”

How does Georgescu, the chairman emeritus of Young & Rubicam (Y&R) and a 1963 graduate of Stanford Graduate School of Business, reconcile the Dow’s ascent with his gloomy assertion?

“The stock market has nothing to do with the economy per se,” he says. “It has everything to do with only one thing: how much profit companies can squeeze out of the current crop of flowers in the garden. Pardon the metaphor. But that’s what corporations do—they squeeze out profits.”

In the latter half of the 1990s, Georgescu shepherded Y&R through a global expansion and an IPO. He has served on the boards of eight public companies, including Levi Strauss, Toys “R” Us, and International Flavors & Fragrances. He also is the author of two previous books, The Constant Choice: An Everyday Journey from Evil Toward Good and The Source of Success. An Advertising Hall of Fame inductee, the 78-year-old adman is still pitching corporate leaders. Now, however, he is trying to convince them to fundamentally rethink how—and for whom—they run their companies.

The fault lines in capitalism

Capitalism is an endangered economic system, Georgescu says. He sees a dearth of demand across the global economy, even as American corporations record their highest profits ever. “How does this magic happen?” he asks rhetorically. “You engineer it. You buy back your stock at 4% and change. Your earnings per share go up and the market says, ‘We like that.’”

What does he mean? He cites the seminal research by economist William Lazonick, who studied S&P 500 companies from 2003 to 2012 and discovered that they routinely spend 54% of their earnings buying back their own stock (reducing the number of outstanding shares and driving up share prices) and 37% of their earnings on dividends—both of which benefit shareholders. That leaves just 9% of earnings for investment in their business and their people.

This financial legerdemain obscures two fundamental fault lines in capitalism, and particularly in the US economy, according to Georgescu. The first is a lack of investment by companies in their own futures. “Our companies are not competitive because they don’t invest in themselves,” he says. “Total R&D investment is down. Total basic research, which is the precursor of innovation, is down dramatically. Investment in infrastructure has fallen to critical levels.”

The second fault line is the lack of investment by companies in their employees. “Innovation is the only real driver of success in the 21st century, and who does the innovation? Our employees. How are we motivating them? We treat them like dirt. If I need you, I need you. If I don’t, you’re out of here. And I keep your wages flat for 40 years,” says Georgescu, who points out that growth in real wages has been stagnant since the mid-1970s.

The engines of capitalism are sputtering

The lack of investment by US corporations in their businesses and people is not only causing the engine that powers innovation gain to sputter, but also slowing the engine of demand that produces topline growth. Why? Median household income in the U.S. is less than 1% higher today than in 1989, according to the Census Bureau. “There’s no middle class, and the upper middle class has very little money left to spend, so they can’t drive the economy. The only people driving the GDP are the top 20% of us,” Georgescu says.

Today’s mantra is ‘maximize short-term shareholder value.’ Period. The rules of the game have become cancerous. They’re killing us.

Peter Georgescu

In Capitalists Arise!, Georgescu shows how these issues are impacting the American public. Nearly 60% of American households are technically insolvent and adding to their debt loads each year. In addition, income inequality in the U.S. is reaching new peaks: The top layer of earners now claim a larger portion of the nation’s income than ever before — more even than the peak in 1927, just two years before the onset of the Great Depression.

Georgescu lays the blame for all of these conditions on the ascendency of the doctrine of shareholder primacy. “Today’s mantra is ‘maximize short-term shareholder value.’ Period,” he says. “The rules of the game have become cancerous. They’re killing us. They’re killing the corporation. They’re helping to kill the country.”

Back to responsible capitalism

Georgescu is convinced he knows how to beat this cancer, and he’s pitching it to corporate leaders across the country. “The cure can be found in the post–World War II economic expansion. From 1945 until the 1970s, the US economy was booming and America’s middle class was the largest market in the world,” he says.

“In those days, American capitalism said, ‘We’ll take care of five stakeholders,’” he continues. “Then and now, the most important stakeholder is the customer. The second most important is the employee. If you don’t have happy employees, you’re not going to have happy customers. The third critical stakeholder is the company itself — it needs to be fed. Fourth come the communities in which you do business. Corporations were envisioned as good citizens—that’s why they got an enormous number of legal protections and tax breaks in the first place.”

In Georgescu’s schema, shareholders are the last of the five stakeholders, not the first. “If you serve all the other stakeholders well, the shareholders do fine,” he says. “If you take good care of your customers, pay your people well, invest in your own business, and you’re a good citizen, the shareholder does better. We need to get back to that today. Every company has got to do that.”

We welcome your comments at ideas@qz.com. This post originally appeared on Insights, by Stanford Business. http://stanford.io/2wBV8Wd