Question the Data

This Wuhan Coronavirus or Covid-19 has numbers that reminds me of the video of the BP oil leaking into the ocean that was on television everyday. As people kept seeing the BP oil leak into the ocean, people got more and more fearful of what was going to happen to the Gulf Coast. There was legislation passed to compensate businesses for their losses due to the BP oil leak and the damage from it. What ended up happening? It became a money grab by a bunch of crooks claiming that they lost their businesses due to the BP oil spill and come to find out, a lot of these people were just out and out stealing money. Do you even remember the effect of the BP oil spill? The truth is that it did not have the effect that the television news and the doomsayers said it would. A lesson for today no less.

So, here we are with this Coronavirus. The massive legislation has already passed and supposedly will be passed out to worthy businesses and people. However, I am sure that there will be all kinds of abuse by unscrupulous bad actors. There always is in situations like this. I suspect that the truth will turn out the same as the BP oil spill. It will not be as bad as the modelers, the health experts and the doomsayers on television tells us everyday.

Let me point out something to think critically about. According to Wikipedia, the U.S. death rate in 2018 was 8.7%. Also, according to the Johns Hopkins Coronavirus map (equivalent of yesterday's BP oil spill video) that changes by the minute, the U.S. has a death rate of 2.55% as of this minute. (4/3/20: 1:26 pm) However, when you look at the death rate for Italy, Spain and other countries hard hit by this Coronavirus, you will see a death rate around 10 - 11%. We keep hearing from the medical experts that most of the people dying in all countries have "underlying health conditions." So, this begs the question..."What percentage of the people dying are 100% related to Coronavirus and only Coronavirus?" These medical experts keep repeating the phrase "underlying health conditions." Therefore, an easy conclusion would be that of the 2.55% U.S. death rate, then a large portion of those are related to "underlying health conditions." Further critical thinking would say that a much smaller percentage is actually 100% related to Coronavirus, probably 10% - 20% of the 2.55% figure. An inescapable conclusion then is that the death rate in the U.S. to Coronavirus is primarily related to those people with underlying health conditions (80% - 90%). If we were to see the age breakdown instead of just one number (all deaths), we would see more deaths at older ages. Some of these numbers have leaked out of Italy, but for some reason are not being shared here in the U.S.

This all brings me back to that 8.7% U.S. death rate. If underlying health conditions are a major contributor to that 2.55% death rate, then this means that it is probably safe to say that our U.S. death rate will climb to around that same Italy and other countries. The death rate in the U.S. would be 2.55% plus 8.7% on the low side, or 11.22%. Assuming the modelers worst case scenario on the high side would be adding the 8.7% and the 10 - 11% (Italy figure) for a total of 18.7 - 19.7% U.S. death rate. However, would this really be accurate? I for one do not think so. Let me explain why.

You have to assume that these people with underlying health conditions are actually part of that normal 8.7% death rate, but things got sped up a little due to the Coronavirus. These modelers (garbage in and garbage out) are predicting doom and gloom to cover their rear ends. They will always err on the side of worst case scenario, then when it doesn't materialize, they will all breathe a sigh of relief. My financial plans are worthless if the data going into them is wrong. The same is true for these modelers and their protections. It is garbage in, garbage out.

This all begs a host of questions.

• Why are we shutting down our economy based on these health experts, if the reality is that the majority of the deaths are people with underlying health conditions? 
• Further, if people with underlying health conditions are most of the 2.55% figure, then even if we assume a worst case scenario figure of 10 - 11% (Italy like) of people who get the disease, then how much higher will this really be above our normal 8.7% U.S. death rate? I believe these figures bleed over each other and will never get to 18.7 - 19.7% death rate of people who contract the Coronavirus. That's not going to happen, because of the efforts we have already taken.
• Why are we relying on these behind-the-scenes "modelers" in the first place? We need to question everything and be skeptical of data models.
• If the actual death rate of Coronavirus is a small percentage of 2.55%, then this is easily measurable. The risk for healthy people is a range of 0.255 - .051% (10 - 20% of the 2.55% figure). This is the quantifiable risk - 0.255% - 0.51% to healthy people. It is more dangerous to drive your car than this figure.
• Even assuming the worst case scenario, if the U.S. death rate jumped to 10% (Italy figure), then that would still mean that the majority of deaths would still be attributed to those "underlying health conditions." Therefore,  assuming 10 - 20% of that 10% death rate would mean that the effect of Coronavirus killing people would be 1 - 2%. Eureka! We are killing the economy for a 1 - 2% risk to healthy people. Seriously? This is stupid.

Here is the real problem. The hospitals are woefully unprepared. We are buying time during the month of April to ramp up the health care system. I think the President is going to side with the American people and get us back to work in May. Let's pray for a good outcome better than the one we have right now. The actual death rate numbers do not and will not justify killing the economy for a 1 - 2% risk of healthy people. As Americans, we take risks all the time. We can afford this risk. Let people with underlying health conditions adjust their lives to the risk, but put the rest of the healthy people back to work. Sooner, rather than later.

It Is Only Temporary - If You Cooperate

Personally, I do not like to hear people talk about depression and suicide in tough times. Although it may seem overwhelming to some people right now, it is only temporary. This is no time to jump off a cliff, reach for a bottle or grab a handful of pills. This is only temporary...if you cooperate.

People are dying everyday, but people are dying everyday anyway from other things like cancer, flu, car wrecks, and job site accidents. Yes, this invisible enemy can be scary, but not if you are smart and make good decisions. Nobody likes to self-quarantine, but right now and for the next month, this is the best thing we can do. After all, it does not take a smart person to figure out, if you stay away from other people, then you will not get infected and more importantly you will not infect other people. This means that the virus has no place to go and when warmer temperatures arrive, then the virus will go away for most locations in America. Pray for global warming and 100 degree temperatures!

The problem is going to be people moving around from hot spot areas. People from cold climates traveling to the United States will be an issue. Let's trust our health officials to recommend that this kind of travel be stopped. They are working overtime and deserve a lot of respect for the sacrifices that they are making.


Of course, some states like Florida are instituting tough measures for travelers from hot spots like New York. I don't mean to pick on New York, but to explain my point, I think it is important.  What good does it do for Florida to have tough measures in place when people from hot spots are traveling to Florida instead of self-quarantining? All these "travelers" are doing is delaying the end of this. Think about it. If all New Yorker's stayed home and didn't get in their cars and drive to Florida or other states, then there would be a flattened curve in a shorter amount of time. However, if they travel to other states and infect others, then this drags it all out for a longer period. You do not have to be a PhD to figure this out.

Self-quarantine and quit traveling around. This is where being smart comes in. Are you going to be smart about this? Or, are you going to be a narcissistic and travel around the country, because you feel like it?

Regulations, Regulations, Regulations!

Why is it that people in government think the way to solve a problem committed by a small subset of people is to make new rules that apply to everybody?

A case in point: Regulation Best Interest and Form ADV 3 - CRS. (See June 5, 2019 Final Rules)
https://www.sec.gov/rules/final/finalarchive/finalarchive2019.shtml

This proposed rule by the SEC applies to all broker-dealers and investment advisers. The problem is that this rule favors broker-dealers over investment advisers. There are a couple of lawsuits filed against this proposed rule and we will see how this all pans out. However, herein lies the problem. Broker-dealer representatives can sell Variable Annuities that pay 6% (or more) commissions to their clients and still comply with RegBI. Well, you might say... "What is the big deal as long as it is disclosed to clients in writing?" More disclosures? We really need more disclosures? Let me get this straight. As long as your broker puts it in writing that he is charging you 6% commissions and you do not even have to sign Form CRS, then this makes it okay? Give me a break.

Here is another problem. Think about this from the best interest of the client for a minute. This broker sells you a 6% commission Variable Annuity with a 10 year surrender charge and has given you the proper Form CRS disclosure. What this broker did not tell you was that you can get a multitude of Variable Annuities without any commissions and no surrender charges. Guess what? He didn't put that in his RegBI disclosure either.

Do you see the problem here? How can you ever sell a client a Variable Annuity that pays 6% commission with a 10 year surrender charge knowing full well and trust me, the broker knows full well, that there are Variable Annuities without commissions and no surrender charges? How can this ever be in a client's best interest? It cannot. Pure and simple.

In my opinion, the issue is and always has been to protect broker-dealers over investment advisers like my firm. https://www.marianfs.com.

How do I plan to solve this issue at my firm? Give the Form CRS, plus a side-by-side comparison of the fees currently being paid by a client against the fees if they move to my firm. All you people who still do business with broker-dealers, really need to come see me, or reach out to me. Seriously. This one form will open your eyes to how your broker is not doing things in your best interests and quite frankly, never will. This form is copyrighted by the way, so don't get any ideas you brokers.

Secure Act

The Secure Act has several provisions in it that will affect most people at one point or another. Once the President signs it, then the Secure Act will go into effect with several of these provisions summarized for easy interpretation.

The required minimum distribution age will be raised from 70 ½ to 72. In addition, there are new minimum distribution tables being prepared that will factor into this change. Right now, if you have an IRA, you can choose to re-calculate your RMD each year and pull out that amount. This is based on an IRS Table and this will be changing to allow people a slight benefit meaning that they will be able to pull less out of their IRA’s and let more of their IRA’s continue to grow. 

A negative impact of the Secure Act is related to Inherited IRA’s for non-spouse beneficiaries. In the past, if you inherited your parent’s IRA account for example, then you could roll it over to an Inherited IRA account and pull out RMD’s based on your age theoretically “stretching” it out over your lifetime. This is why they called it a “Stretch IRA.” Now, with the Secure Act, you are going to have to pull it all out within ten (10) years. I believe that this is going to be effective for Inherited IRA’s after January 1, 2020 and the IRS has to issue guidance in the first quarter of next year. I also believe that there will no longer be any RMD’s required from these Inherited IRA’s. You will just have to pull it all out within 10 years.

There will be penalty free withdrawals for expenses related to the birth or adoption of a child form retirement plans.
 
In regard to 529 plans, they will now be able to be used to pay student loan payments.
 
Small businesses will be able to join forces with other small businesses to establish retirement plans. For example, several small dry cleaners could band together and establish a multiple employer retirement plan thereby becoming eligible for lower costs to administer it and better investment choices. Administrative expenses would be shared among the dry cleaners in this example. Not sure how this will work in real life as competitors may not want to work together, but it could be any small businesses who band together like a dry cleaners shop, an auto repair shop and a small survey company.
 
Lifetime income annuities will be allowed in pension plans. This is the insurance lobby at work and totally unnecessary in my opinion. Lifetime income annuities pay a guaranteed income for as long as you live and once you die, then there is no balance left for heirs. Unless of course, you choose a lower payout for yourself with a beneficiary option. (This means lose cash flow in retirement.) The returns on these income annuities are typically very, very low and any good portfolio manager worth their salt can do better with just systematically paying cash flow from principal. With an annuity, you are giving your money to the insurance company, not your heirs. Beneficiary options will be structured so that your most money paid out to you is while you are living and a poor payout if you want a beneficiary.  Further, there is even a provision that favors insurance companies. Basically, if a retirement plan does not offer lifetime annuities, then you can do an IRA rollover of your 401(k) and purchase the annuity in your IRA rollover account. Again, this favors insurance companies, not you. I would be adamantly against these lifetime income annuities inside of retirement plans and IRA accounts, personally. They simply are not needed.

Unearned income for children in the past was taxed at very high trust and estate rates. Now, this will be changed to the tax bracket of the parents. Unless, there are no parents, then they would still be taxed at the trust and estate tax rates.
 
Next year, retirement plans can be started (adopted) as late as the tax filing deadline. In the past, they had to be established by December 31^st. This will be a benefit to businesses.
 
There is a three-year tax credit for start-up retirement plans for small employers who include automatic enrollment for their employees in their plans. Also, the maximum percentage for automatically enrolling participates will be raised from 10% to 15%. The employer chooses the figure from 1% to 15%.

You will now be able to contribute to an IRA after 70 ½ if you have earned income. In the past, you could not contribute past age 70 ½ if you had earned income.
 
Those are the highlights of the Secure Act. Of course, there are other provisions too numerous to mention, but most do not apply to regular people.