Hang Together or Hang Separately?

Over the years that I have followed politics there has been one major difference between the two major political parties in the United States.

Democrats always circle the wagons around their own. They don't admit mistakes. They don't criticize their leader. They always stick to the party line. They always stick together no matter how bad it seems to be.

The Republicans follow a completely different path. I don't know if it is because they believe they are driven by values and virtues but they are far less likely to stay the course on anything. There seems to be no glue holding any of them together.

Democrats follow the advice that Benjamin Franklin gave his fellow signers of the Declaration of Independence shortly after they declared independence from Great Britain.

“We must all hang together, or assuredly we shall all hang separately.”

Republicans, on the other hand, seem to follow this 16th century proverb.

"Every man for himself and the Devil take the hindmost."

Contrast the difference in how the impeachment proceedings of Richard Nixon and Bill Clinton played out.

Richard Nixon lost the support of a minority in his own party when there were impeachment hearings and was forced to resign.

Bill Clinton was actually impeached by the full House (only 5 Democrats voted for one of the articles of impeachment) but not one Democrat in the Senate voted for his conviction.

Bill Clinton would not have survived in office if the Democrats had not stuck together.

Richard Nixon did not survive because his own party did not hang together behind him.

Consider as well the differences we already see between the Obama and Trump administrations.

Barack Obama's administration was wracked by scandal upon scandal.

Benghazi.

IRS scandal.

Hillary Clinton email server.

Solyndra.

Operation Fast and Furious.

Spying on Journalists.

NSA spying scandal.

Iran nuclear deal and ransom payment.

How many times did Democrats say these should be investigated more fully even though there were massive conflicts of interest involving the Obama Administration and its Justice Department?

ZERO.

How many special counsels or independent prosecutors were appointed?

ZERO.

However, here we are barely four months into the Trump administration and we already have a special counsel appointed to investigate Russian collusion in the election.

Would this have happened to Hillary Clinton if the tables were reversed? Not in a million years.

The Democrats would never have allowed it.

Just as important, the media would not have allowed  it.

The media actively turned down the volume on every one of the scandals mentioned above to protect Obama and the Democrats. With regard to Trump and the Republicans, the media does nothing but amplify anything and everything they can to advance their anti-Trump agenda.

Of course, Donald Trump has one other problem that is unique to him.

He is not really accepted by the Republicans on Capitol Hill as one of their own. Therefore, it makes evereything even more difficult for President Trump. He truly is in the swamp and most Republicans officeholders would be just as happy to see him bogged down in their swamp. There are probably only a handful that are truly interested in giving him a hand at draining the swamp.

Does the GOP have it wrong?

Do the Democrats have it right?

I would not like to think that circling the wagons and ignoring all values and principles is the way to conduct yourself. However, you have to look at the facts.  The Democrats have gotten the results they wanted. The Republicans win elections but get very little in the way of results.

Like it or not, Trump now represents the Republican Party in the minds of most Americans. Those GOP officeholders might think there is some distinction between themselves and Trump but I can guarantee you it is lost on 90% of Americans.

I wrote about all of this last June right at the time that Trump was securing the nomination but when many GOP officeholders were on the fence about Trump in a blog post titled "Risky Business".

Every Republican politician has to make a high risk decision whether they are on or off the Trump Train. It is a decision fraught with risk to those in office.

The people are sovereign in our system. Their power is absolute  Unfortunately, too many people don't believe it. The simple fact is that politicians have no power unless the people provide it.

Laws that do not have public backing do not survive over the long term. Lawmakers who make laws that people do not support do not stay in office very long. Politicians who do not do the will of the people soon need to find other employment.

We have heard many in the Republican Establishment say that Donald Trump does not represent the principles and values of the Republican Party. He might not represent what the Republican Party has been heretofore. However, if he wins in November, Donald Trump will be the Republican Party. The people will have made the decision of what it now stands for and against. Those that aren't supporting Trump will be at risk of not serving much longer. That is just the way the power of the people works. 

The Republicans on Capitol Hill need to understand what Benjamin Franklin said and what the Democrats practice.

They better starting learning to hang together.

If not, they will assuredly all hang separately in the very near future.

Baby Data Dump

I have an interest in demographics and have written about it from time to time in BeeLine.

It is a window to the future that is too often overlooked or ignored.  The long-term trends are often the most difficult to see in the 24 hour news cycle world we live in today.  In this day and age when there is so much focus on the trees (even the leaves at times!), demographics forces you to look at the forest.

I have been tracking U.S. birth rates for a number of years. The birth rate data for 2015 was recently released by the National Vital Statistics System section of the U.S. Department of Health and Human Services.

A few factoids from the report.

• There were 3,978,497 reported births in the U.S. in 2015
• That is 1% lower than in 2014

• 40.3% of the births were to unmarried women
• In 1960, only 5.3% of birth were to unwed mothers as shown in the chart below.
• 70.1% of black babies and 53% of Hispanic babies were born to unwed mothers in 2015.
• Rate for Whites is 36.8% and Asians is 16.4%

Credit: Child Trends Databank

• There are more babies born to mothers in the age 25-29 age group than any other age cohort. The age 30-34 cohort now has more babies than does the age 20-24 group.
• However, the birth rate per 1,000 for women 25-29 and 20-24 is the lowest it has ever been in the history of the U.S.
• The total fertility rate for all women over their lifetimes is 1.84 children. This is below the 2.1 replacement rate necessary to maintain a stable population. It has been below this level since 1971.

• Teen births continue to decline.
• Teen births are at a record low. Births to teens are 46% below their levels in 2007 and  about 1/3 of what they were in 1960.

• Births of twins dropped slightly from its all-time high in 2014---33.5 per 1,000 births compared to 33.9 in 2014. Triplets and higher-order births are decreasing---down 46% since 1998 peak.
• There were 133,115 sets of twins born during the year
• 24 sets of quintuplets were born during the year. These births used to get all sorts of publicity. When is the last time you saw anything about this on the news?

• Six women of age 19 had their 8th child  (or more) during 2015! (Are you kidding me?)
• Three Hispanic women, Two white women, one black woman 

• 754 women age 50-54 gave birth to a child during the year
• 232 were first births (Congratulations! However, these mothers will be eligible for Social Security and Medicare when their kids are teenagers. Good luck as well!)

The chart below shows births from 1950 through 2015 in order to give you some better perspective on historical birth rates.  This is a chart that I have been tracking since the early 1990's.

You can see the Baby Boom period which existed up until 1965. It was followed by what I call the Baby Dearth period which lasted roughly from 1966-1986. There was not one year in this 20-year period in which births were above 3.8 million.

1986 to 2009 might be called the Baby Boom Echo period.

However, since 2010 there has not been one year in which births have exceeded 4 million.

Where are we headed with births in the future?

Boom or bust?

It is already a bust in most of the rest of the developed world. And the UN expects that trend to continue and extend to the rest of the world between now and 2050 until most countries are below the replacement rate.

Why does it matter?

Economies need people.  They need them to invent things, build things and to buy things.  They need them to invest and innovate.  They need them to start new businesses.  They need them to pay taxes. If you don't have a supply of new people replacing older people in a society you begin to shrink and you eventually shrivel away.

When the old outnumber the young you are heading for big problems. Who buys the real estate that has been built? Does a 60-year want to start a business?  Most inventions and innovations have historically come from those in their 20's and 30's than in their 50's and 60's.  Thomas Edison invented the phonograph at age 30.  Alexander Graham Bell was 29 when he invented the telephone. Steve Wozniak invented the Apple I computer at age 26. Larry Page and Sergey Brin were both age 25 when they incorporated Google.  If you don't replenish with enough young blood, you really do die as an economy and and as a society.

We are already in uncharted territory in historical terms on birth rates. It could become even more uncharted in the future.

It's Not Fair!

It has been said that there is nothing more dangerous than for an investor than to see their neighbor grow rich.

Why?

Because it usually means you will do something stupid with your money to catch up with the Jones'. They might have purchased Apple at $10. You are buying at $140. It is an altogether different cost/benefit relationship. However if your neighbor can get rich buying Apple, you should be able to do it as well. It does not work that way. You can't let emotions get in your way when it comes to money.

Of course, emotions always get in the way. It is the way of the world.

We also don't measure ourselves in a vacuum. We measure ourselves in relation to others.

For example, Harvard students were asked in a survey whether they would prefer (a) making $50,000 a year while others made half, or (b) $100,000 per year while others made twice as much.

The majority chose (a) even though they made only half as much in absolute terms---$50,000 rather than $100,000. It is not logical but that is the way our minds work.

People do not measure their circumstances in absolute terms. They measure in relative terms.

We constantly hear about income inequality and unfairness in the U.S. economic system. However, measured on a global scale, 56% of Americans are considered "high income" and 32% are considered "upper middle income" according to Pew Research. That is 88% of all Americans. Only 7% are considered "middle income", 3% "low income" and 2% "poor" when measured across the entire world.

On a global scale, of all the people in the world, 56% are considered low income and 15% are considered poor. Only 7% meet the high income definition.

In other words, 56% of Americans are considered high income as measured against a global standard in which only 7% are. On the other hand, 71% of the people in the world are considered "low income" or "poor" while only 5% of Americans are in that group. Despite these facts, there are millions in this country who think they live in an economic system that is unfair.

You begin to understand where all of this comes from if you view this video clip that a BeeLine reader sent me.

The video is an excerpt from a TED talk by Frans de Waal, a primatologist, ethologist, and professor of primate behavior at Emory University.

It is a little less than 3 minutes but it is well worth the time.

You should have a much better understanding of the concept of relative compared to absolute incomes and where it comes from.

You might also see a little bit of yourself in the clip.

I know I did.

Click here if the video does not open in your browser.

Teen Green

Piper Jaffray is out with its semi-annual "Taking Stock With Teens" survey research which highlights spending trends and brand preferences among U.S. teenagers.

What caught my eye in the survey was the fact that Chick-fil-A has unseated Starbucks among teens in the restaurant segment. Starbucks had been at the top of the survey for the last seven years.

This ranking is all the more remarkable when you consider that Starbucks has over 13,000 store locations in the United States compared to just over 2,000 for Chick-fil-A. There are still areas of the country where Chick-fil-A has not opened a lot of stores, particularly in the Northeast.

Chipotle, Buffalo Wild Wings and Panera follow in the restaurant rankings. I guess those Happy Meals that teens ate when they were younger didn't make a permanent impression.

Food is the top spending category for teens and it has been growing in importance over the last decade compared to clothing purchases. Teens spend 24% of their money on food compared to 19% on clothing. In 2003, food accounted for 15% of purchases and clothing was over 25%.

This chart shows how teen spending on food and clothing has changed since that time.

Cars (9%), accessories and cosmetics (9%), shoes (8%), video games (8%), and electronics (7%) are other significant teen spending items according to the survey.

Nike is the favorite clothing line by a wide margin.

Nike is even more dominant as a footwear brand with teens.

Snapchat is their favorite social media platform followed by Instagram. Facebook is the favorite of only 11% of teens. Do the central bankers in Switzerland realize this?

It is no contest when it comes to teen preferences regarding smartphones. 81% of teens expect their next phone to be an iPhone. That is also the highest percentage that the survey has ever found on that question. This would appear to bode well for the launch of the iPhone 8 later this year.

Looking at all this teen spending made me wonder where the money they are spending is coming from?

Knowing what I do about the labor force participation rate for teenagers, it does not look like most of them are spending their hard-earned money. The labor force participation rate for teens aged 16-19 has been dropping steadily since 2000.

Only about 1/3 of teens work today compared to an average of about half for the previous 50 years up until the year 2000.

The survey indicated that about 63% of teen spending comes from their parents. Yes, the same parents who can't afford to save for their own retirement or for their child's college education have the money to give their teens to go to Starbucks to buy a white chocolate mocha frappuccino blended coffee.

One of the great joys in life is spending someone else's money. My wife and I always marveled at how quickly our teens decided they didn't need something that they had told us they desperately needed when we told them "You make a great case for buying that. It is probably a good use of YOUR money. Go ahead, we support your decision." Things that they said were necessities quickly became unnecessary when they had to spend their own money.

Total U.S. teen spending (by and for teens) is approximately $260 billion per year. To put that in context, that is more than the entire GDP of Venezuela...or Pakistan, Finland, Greece or New Zealand.

My advice to all of these teens--- enjoy it while you can.

It won't be long before the roles are reversed and you will be paying the bills for your own teens...as well as my Social Security and Medicare and those of millions of others.

Work hard. You teens are going to need the green.

Obamacare Repeal Observations

The House GOP has passed their version of the repeal and replacement of Obamacare.

It will now be up the U.S. Senate to develop their own version and then see if it can be reconciled with the House bill.

Will whatever comes out of this process be better than what we have right now?

I have no idea.

The only thing I know is that it could not be worse no matter what the critics are saying right now.

The mistake Trump made on Obamacare

That being said, I think President Trump made a political mistake in getting behind the Republican effort in the House. I understand why he did it. He kept hearing the statements in his head that he made during the campaign that he was going to do something about Obamacare. He said he would repeal Obamacare. He said he would make it better for everyone.

Of course, when you are dealing with something like Obamacare, there is no way you can make it better for everyone. Someone is going to be unhappy.

To show you how ridiculous it all has become, Jonathan Gruber (the so-called architect of Obamacare who I wrote about previously in a BeeLine post) is claiming that many of Obamacare's problems are due to Trump! I kid you not.

I think this goes to show that Trump would have been much smarter to go on the stump and make the case consistently that Obamacare is coming apart at the seams.  He could cite evidence of that almost every day. And he could have exhorted Congress to do something about it. Not the GOP Congress. The entire Congress.

For example, consider this Washington Examiner story on proposed Obamacare premium increases in Maryland and Virginia. Insurers in Maryland have requested average rate increases for 2018 of between 18% and 59%. In Virginia, insurers have requested rate increases averaging 30.6%.

Iowa is on the verge of having no individual health care options under Obamacare as the lone insurer left in the state has stated it is close to exiting the state market.

Humana has stated it will exit all of the Obamacare exchanges in 2018 no matter what happens in Congress. 

What Trump should have done

Trump then should have made it clear to both parties that he would not sign any repeal and replace bill unless it had substantial bipartisan support.

This would have three political advantages (what else is important in Washington?).

First, it would have allowed Trump to stay above the fray for the time being and allow him to do what he is best at. Elevate attention to the real problem---Obamacare--- while also allowing him to keep his political powder dry until he was needed at the end to help put a final deal together. Who is better than dealing?

Second, it puts the political pressure on the Democrats rather than on his own party, as it is right now. The message would be clear---the Democrats gave us this mess, they have a responsibility to help fix it. If they are not willing to act, they own every bad story that comes out on Obamacare leading to 2018.

Third, this strategy would have protected members of his own party. Yes, many were elected because of their promise to repeal Obamacare. However, what is the point of winning in 2010 on a promise to repeal Obamcare if you are going to be defeated in 2018 because you messed up the repeal of Obamacare? 

I understand the desire to do something but I don't think the GOP in Congress understands where this is all going to end.

For example, I believe it is already too late to make any real changes for the individual plan market for 2018. There simply is not enough time for insurers to re-do their products and pricing. That means Obamacare plans and prices will be in place for 2018 at a minimum. Any changes will not come until 2019---after the mid-term elections. You see that from the news stories above where insurers have already made most of the big decisions for 2018. 

When you also consider the fact that the Republican House bill envisions turning many of the decisions back to the individual states on key points in the law (what are essential benefits, risk pools, etc) having anything ready for the 2018 year looks even more far-fetched.

Pre-Existing Conditions Should Be A Non-Issue

One final point on all the craziness surrounding those that are trying to defend Obamacare.

The biggest issue that those who want to defend Obamacare seems to be about the possibility that coverage for pre-existing conditions could be lost in any repeal and replacement of the present law.

The first thing to consider is that there is no issue regarding pre-existing conditions at all with regard to anyone in a group health plan as long as the individual had coverage previously. In other words, if you are in one group plan and change jobs and join another plan, that plan cannot deny you coverage as long as you had continuous coverage for the last 12 months

Let's put that in context. There are approximately 156 million people who have group coverage in the United States. There are another 105 million people who are on Medicare or Medicaid. There are 6 million in various public plans. There is no real pre-existing condition issue with any of these people within these plans. This accounts for 270 million people.

The pre-existing condition issue (even if Obamacare is repealed) only relates to the 22 million people who are on individual plans (or would enter those plans from a group plan) and the 28 million people who are still uninsured despite the fact that Obamacare has already mandated they purchase coverage for over 3 years.

I have never understood why the HIPAA law that disallows pre-existing conditions in group plans was not simply extended to the individual marketplace as well. It would solve the problem once and for all. You could not be denied coverage for a pre-existing condition if you had previous coverage in the preceding 12 months. Problem solved!

It really should be an easy fix today as everyone, by law, is supposed to have had coverage for the last three years. There should be no one with a pre-existing condition in the United States anymore. Obamacare was supposed to fix that.

Of course, the problem is that 28 million people have had every opportunity to buy coverage (liberally subsidized for those with lower incomes) and yet have not done so. That is the sad truth about Obamacare. It really has done very little to reduce the ranks of the uninsured unless the taxpayers are paying the bill.

All of this disruption and costs for a meager 1%?

Investors Business Daily reports that 14.2 million gained coverage under Obamacare since it was enacted. However, 12 million of that number are on Medicaid. 2.2 million more are covered in the individual market. However, 84% of those are receiving subsidies. By my count, that means of the 14.2 million that have gained coverage, 97.5% of them are having their coverage paid for by someone else.

Think about that 2.2 million number for a moment.

ObamaCare has caused massive disruptions of the individual market, forced millions to drop health plans they like, caused huge price spikes and mounting insurance losses, created monopoly markets around the country, and resulted in the virtual takeover of the individual market by HMO plans.

That's to say nothing of the enormous costs of setting up and running the ObamaCare exchanges and the trillion dollars in subsidies to offset the cost of premiums for lower-income families.

All to increase the number of privately insured by a meager 1%.

Yes, Obamacare is a great deal for that 1% and those who are now on Medicaid. It is always great if someone else is paying the bill.

However, what about the millions and millions of other people who have lost coverage they liked, or seen their health care costs and taxes go up to fund Obamacare?

For those who don't qualify for subsidies, the costs of the coverage is causing more and more people to go without coverage. A perverse result indeed and one that will only get worse if Obamacare is not reformed.

It needs to be reformed but President Trump and the GOP are making a monumental political error in trying to do this while the Democrats who caused the mess sit idly by.

Facebook- Good As Gold?

There was once a time when central banks owned gold and silver to back their currency.

In fact, each dollar of U.S. currency could at one time be converted to silver of equal value. This was denoted on paper currency which were called "Silver Certificates".

Note that on the top of this 1957 silver certificate bill it states,

"This Certifies That There Is On Deposit In The Treasury Of The United States Of America"

and it continues on the bottom,

"One Dollar In Silver Payable To The Bearer On Demand."

The United States ceased producing silver certificates in 1964 and ceased redeeming these bills for silver in 1968.

What do you get today? A Federal Reserve Note. What is on deposit backing that up? These are the reported gold reserves held by various countries around the world. Of course, all of these are mere fractions of the currency in circulation for these countries.

Gold Reserves by Country as of Dec. 2016
Credit: Statista.com

The United States continues to have the largest gold reserves in the world. Contrast that with Canada which now has absolutely no gold reserves. It has sold over 1,000 metric tons since 1965.

The UK sold off half of their reserves in the 1999-2002 period which explains the UK's relatively low standing on this chart. They also managed to do that when gold was selling at about 25% of what it it trading for today. And we are supposed to believe that central bankers are the smartest people on the planet?

On the other hand, Russia and China have been net buyers of gold reserves in recent years. as have other third world countries. Both have added approximately 700 metric tons of gold reserves since 2009.

Credit:BMGBullion.com

Many of these countries have turned to gold as an alternative to accumulating US Treasuries on the balance sheets of their central bank. The US dollar remains the world's reserve currency and US Treasuries continue to make up about 60% of reserve assets for most central banks.

On the other hand, Switzerland, which for decades has been known for its rock solid currency and has been considered the ultimate safe haven for the world's most conservative and risk-averse investors, is embarked on an altogether different diversification plan for its reserve assets.

The Swiss Central Bank now owns more shares of Facebook than Mark Zuckerburg!

How many of those global elites know that when they are opening up a Swiss Bank account with those Swiss francs they are really relying on Facebook and other U.S large cap stocks for the backing of that currency?

This Reuters story provides the background in which it reports that the Swiss Central Bank now holds equity investments equal to over 161 billion Swiss francs in its reserves. That is about 20% of its total foreign exchange reserves. Equity holdings are up 41% in the last year. $62 billion was invested in U.S. stocks alone as of last June. That number is undoubtedly much higher today.

Why are the Swiss backing their currency with stocks?

The simple answer is that they have virtually run out of bonds to buy. As their monetary base has expanded they needed reserves to back it up. To fight the economic problems in Europe they bought so many bonds that interest rates fell to zero and below. They simply couldn't buy any more bonds at negative rates with the risk attached should rates rise. In order to continue their "free money" policies, they had to continue to expand their balance sheets and they needed to diversify their risk. Their answer has been to buy massive amounts of equities.

However, is this really a safer strategy in the long term?

When you see what is going on here you should also get a little nervous about stock market values. The Swiss National Bank is creating Swiss francs out of then air and then using those francs to buy stocks thereby pushing up the price of those equities.

The Swiss are really are not buying Facebook, Apple and Exxon Mobil directly but it is doing so through index funds to keep their transaction costs low.  Of course, these large cap stocks dominate the indexes and over the last year the share prices of the largest stocks are up around 30% compared to 15% for the S&P 500 as a whole.

The Swiss are not the only one to be using its central bank to buy equities.

Japan has been printing money like there is no tomorrow and the Bank of Japan has become the top shareholder of many of Japan's largest companies in the process. In fact, the BOJ is on track to be the largest shareholder of 55 of the companies in the Nikkei 225 stock average by the end of the year.

Again, Japan is buying stakes in equites through passive investing using ETFs (Exchange Traded Funds). However, the equity purchases have become so large in comparison to other investors that the Bank of Japan effectively owned 60% of the nation's ETF market as of last June!

No matter how you look at it there is a lot of air being pumped into stock markets around the world as a result of massive money printing.

The question is what problems are we going to see when the air starts seeping out of the balloon or, even worse, the balloon bursts with no warning?

The good news in the United States is that under current law the Federal Reserve is barred from owning any corporate assets---stocks or bonds.

However, Fed Chairman Janet Yellen seems to be envious of some of the other central bankers in the world and thinks it might be advantageous to have that authority to help the U.S. economy in a downturn.

Why is it that in developed countries the central bankers all want more tools in their toolkit and the developing countries are only interested in gold?

We live in a very confusing world indeed when Facebook is considered to be just as good as gold.

Friday Favorites

The House of Representatives passed a bill on Thursday that will repeal and replace Obamacare. The bill now moves to the U.S. Senate.

I have written about Obamacare numerous times since it was enacted. I had long stated that the law was poorly designed and would vastly increase costs. I predicted that it would bring down the number of uninsured but it would come at a high cost in disrupting the individual market and in putting federal and state government budgets on the hook for hundreds of billions of dollars in new spending for subsidies and Medicaid expansion.

What a mess it all is. Fixing it is like trying to repair a broken egg.

Will the House Republican bill make it better? That is still open to question. However, the GOP didn't have much choice. Obamacare's individual market will totally collapse at some point as things stand now. The rest of the program is totally dependent on more and more money being spent to prop up the subsidies and Medicaid spending.

I have many new readers over the last year or two so I am introducing a new segment where I will republish some of my favorite posts from the past on select Fridays.  It seemed appropriate that the first Friday Favorite is from March 28, 2013 ( 9 months before Obamacare became effective) which I titled, "The Unaffordable Care Act".

It might be impossible for anyone today to conceive of spending 4 days in the hospital and walking out with a bill for $82.56.  That was the total bill for my wife's birth in 1952.

How did we get from there to here?

A lot of it involves the increased involvement of the federal government in the health care industry and the loss of the concept of what insurance is supposed to be.

Read how health care costs got totally out of control and how I predicted Obamacare would make the problem worse, not better.


The Unaffordable Care Act
(Originally published March 28, 2015)

Does your homeowner's insurance pay if the water heater needs to be replaced?

Does your car insurance pay for oil changes?

Of course not.  If these things were covered by insurance the costs of these insurance coverages would be astronomical.  People buy insurance for large, unexpected costs to protect their assets and savings.  The basic principle of insurance is that it allows a large number of individuals to pool and share risks so as to protect the group from unexpected losses that only some would likely incur in any one period.

Therefore, homeowner's  insurance is there to protect you from the catastrophic impacts of a fire or tornado that could totally destroy your home.  It is not designed to pay for a furnace that needs to be repaired or replaced.  The same is true for auto insurance.  It is there to pay for damage caused by a hailstorm or being rear-ended on the freeway but it does not pay to repair or replace a transmission.

When health insurance was first introduced it followed the same general principles of all insurance.  In fact, most early versions of health insurance were actually called hospitalization insurance.  Coverage only was provided if you ended up in the hospital and were exposed to the risk of the high costs associated with a hospital stay.  Doctor visits, x-rays, drugs and the like were not considered within the purview of health insurance.

Those were much simpler times.  Health care costs were also much cheaper.  In 1965, the average cost of a one day stay in the hospital was about $45.  Yes, you read that right-$45! By 2002, that cost had increased over 28-fold to $1,289.  Today that cost is around $4,000 per day.

Inflation since 1965 has pushed prices up by about 6.4 times. Therefore, adjusted for inflation, a day in the hospital should only cost about $288 today.

Should you not believe how much hospitalization costs have changed, here is a copy of the hospital bill for the birth of my wife.  The total bill was $82.56 for four days in the hospital for mother and daughter in 1952.

First and foremost, health insurance costs have increased dramatically because underlying healthcare costs have increased.  You can see from the above what has happened with hospital costs.  New technology, drugs, tests and treatments also have also pushed up costs over the years.

In addition, there has been a continuing trend in using health insurance to cover more and more and more costs.  Routine doctor visits, physical therapy, mental health visits and the list goes on.  The end result is that health insurance looks less like the traditional model of insurance, which is to protect people from catastrophic loss, and has become nothing more than a model designed to transfer costs to a third party.  Health insurance today has little to do with sharing the risks of the people in the insurance pool.  It really is about creating a pool where the risks and costs are transferred to a third party (an employer or the federal government) that is completely removed from the process.

It probably should not come as a surprise that the explosion in health care costs in this country began in 1965-the year that Medicare and Medicaid took effect.  This is when the traditional health insurance model began to break down and the third-party pay system took over.  This chart shows health care spending in the United States from 1900-2012.

We were told when Barack Obama first ran for President that he was going to do something to make health care more affordable.  I remember something about reducing the average family's cost of health care by $2,500 per year.  I also remember something he signed into law called "The Affordable Care Act".  You might know it as Obamacare.

Obamacare is upon us and it will largely take effect in 2014.  The non-partisan Society of Actuaries released a report this week on what we can expect to happen to health care premiums as a result of Obamacare. The news is not good for most Americans.  This independent group of actuaries predicts that Obamacare-driven changes could drive up underlying health care costs by an average of 32% due to mandated benefits, increased use of medical services and other provisions in the law.  My state of Ohio is expected to see an 81% increase in costs!

What does HHS Secretary Kathleen Sebelius have to say about the increases?

"Some of these folks," Sebelius said, referring to those hit by ObamaCare's price spikes, "have very high catastrophic plans that don't pay for anything unless you get hit by a bus. They're really mortgage protection plans, not health insurance."

Investor's Business Daily says it better than I can.  Obamacare is the exact opposite of what is needed to  control health care costs and make it more affordable.

Sebelius has it exactly wrong. It's precisely those catastrophic plans that are real insurance, which in case anyone has forgotten is supposed to protect against unforeseen costly events, not pay $20 doctor visits.

What Obama and company are trying to force down everyone's throats isn't insurance, it's massively expensive prepaid health care.

Too bad for those who'd rather buy real insurance and spend their money on something else.

The problem is that ObamaCare's push toward comprehensive "insurance" coverage will only fuel health care cost inflation.

Back in 1960, people paid almost half the nation's health care tab out of pocket. By last year, that figure had dropped to just over 10%, with the rest paid by government health programs or increasingly generous, tax-subsidized workplace health benefits.

That, in turn, has pushed up health spending, since it looks to consumers like they're getting something for virtually nothing.

By driving out-of-pocket spending for health care down even further, ObamaCare will only succeed in driving up costs for everyone.

Perhaps we should stop calling it Obamacare and just start referring to it as "The Unaffordable Care Act".

Renewables Revision

I am biased. You are biased. Everyone is biased.

It is the way our brains are built.

Daniel Kahneman, who won the Nobel Prize for his work in behavioral economics, wrote this in his book, "Thinking Fast and Slow".

"A remarkable aspect of your mental life is that you are rarely stumped.  The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way. You like or dislike people long before you know much about them; you trust or distrust strangers without knowing why; you feel that an enterprise is bound to succeed without analyzing it'"

In other words, you have an opinion or bias about almost anything before you are even confronted with facts. And even when you have those facts, you are likely to interpret them in such a way to reinforce the opinion you had at the outset.

No where is this more evident today than in the reporting of the mainstream media on President Trump. They did not like him when he was running. One survey found that 96% of them contributed to Hillary Clinton during the campaign. They like him even less now that he is President.

No matter what Trump does the mainstream media will spin the story to their bias.

As an example, here is a graphic to show positive vs. negative stories on the Big 3 networks for the first month of the Trump Presidency. This used to be called the "honeymoon" period. There was no honeymoon for Donald J.Trump.

By comparison, here is a study that the Pew Research Center did on media coverage of Barack Obama during his first 100 days. Positive stories outnumbered negative by about 2:1.

Of course, it is one thing to let your bias show through when you are writing a blog like BeeLine and it is something altogether different if you are allegedly a "journalist" who is supposed to report a story supported with facts.

I came across just such a story when a friend of mine sent me this article from Tom Randall in Bloomberg titled, "The Cheap Energy Revolution Is Here and Coal Won't Cut It". 

Wind and solar are about to become unstoppable, natural gas and oil production are approaching their peak, and electric cars and batteries for the grid are waiting to take over. This is the world Donald Trump inherited as U.S. president. And yet his energy plan is to cut regulations to resuscitate the one sector that’s never coming back: coal. 

Clean energy installations broke new records worldwide in 2016, and wind and solar are seeing twice as much funding as fossil fuels, according to new data released Tuesday by Bloomberg New Energy Finance (BNEF). That’s largely because prices continue to fall. Solar power, for the first time, is becoming the cheapest form of new electricity in the world.

You can see the bias in the article almost immediately with the swipe at Trump and the coal industry and you understand it more fully when Randall later warns of the coming catastrophe from climate change if we don't totally eradicate carbons from our economy.

Just meeting the Paris goals for emissions reductions doesn’t go far enough to fend off the catastrophe scientists anticipate from climate change. Eventually the economy will need to decarbonize completely—in energy, agriculture, construction, manufacturing, and land use. And solutions for some of the trickiest and most expensive parts of that equation are still decades away.  

There are a lot of good charts and encouraging news about the development of renewables in the article. However,  I couldn't help but think that I was not getting the whole story while I was reading it with the bias that was underlying the entire piece. Therefore, I did some fact checking myself.

Let's look at a few of the "facts" from the article.

Renewables are beating fossil fuels 2:1 in investment in power capacity.

I assume this is true but why is that? A big reason is that a majority of states (link to the entire list of states) have mandated that utilities in their states sell or produce a certain percentage of power from renewable sources. For example, California requires that 33% of all power in the state be from renewables by 2020. If you have a coal, gas or nuclear plant why would you invest any more in these assets if you are faced with this requirement? Even worse, if you have a perfectly good working coal plant, this mandate could force you to close it down to meet the mandate. Who pays for that? The consumer.

 Coal is getting crushed

Coal has obviously been crushed. However, when did coal start its downward slide? It coincidentally began right at the time that the Obama administration and its EPA decided that they wanted to regulate it out of business. Of course, the emergence of fracking and new abundant supplies of natural gas has made gas much more price competitive at the same time. You be the judge on how much has been market forces and how much of coal being crushed has been due to government regulation (which the author fails to mention).

Americans Are Spending Much Less on Energy

Yes, Americans are spending less on energy than they did in 2008. Why is that? A lot of it has to do with the advances in fracking, horizontal drilling and new discoveries of shale oil and gas deposits. By the way, these are all things that the climate change lobby did not want us to do. What would the costs of energy be without these advances? What if we had relied solely on renewables as Obama and the author of this article seems to want us to do?

In addition, this report on renewable mandates indicates that electricity costs in those states that require certain percentages of renewables are nearly 40% higher than in states without a mandate. If renewables are so cost effective then why are the costs in those states so much higher?

A big reason is that renewables like wind and solar only generate intermittent power. There always needs to be back-up generation capacity. If the sun isn't shining or the wind is not blowing, you need another power source and that generally means fossil fuels. That also means that consumers are paying for both sources of power.

Todd Royal of Energy Post presents a more balanced view of the future of renewables titled "What Is Holding Back Renewables?"

When looking at the total cost of renewables versus coal, natural gas, and oil there really isn’t a comparison in the near-term because wind and solar can only generate intermittent electricity, while nuclear and hydroelectric energy face significant social and environmental resistance. Fossil fuels can be run without backup supplies, and factoring in those expenses – even with renewable technology having achieved significant cost reductions – fossil fuels are the most economical, scalable choice.

After I first read the Bloomberg article and I sensed the inherent bias, I sent it to a BeeLine reader who is a retired utility executive and knows a great deal about this subject. I asked him if I was misreading anything in the article? Was the author revising and reserving a few facts from the article? He told me that my instincts were correct. Renewables are not as cheap as portrayed.

In addition, he pointed me to a recent story about Idaho Power in which that utility recently sent out a letter to all its customers advising them of a rate hike due to a surplus of renewable energy. How can that be? You can read for yourself the explanation of how this could occur but it points to another federal law that is at play in this area---PURPA--the Public Utility Regulatory Purposes Act.

The federal government enacted PURPA in 1978 during America's energy crisis, partly to encourage greater use of renewable energy.  The law requires utilities, like Idaho Power, to buy all the power generated from small, independent projects, like wind and solar, even if the utilities don't need the extra power to meet customer demand. 

PURPA is undoubtedly another reason why so many renewable projects have been funded in recent years. How can you not like a project as an investor when you know you have a captive customer the minute it comes online? And that revenue stream gets set and established under a 20 year contract from inception with the utility customer.

Of course, a wind farm can generate power but that power also has to get to the grid. That cost is borne by the utility and, as my BeeLine source shared with me, with costs of building transmission lines at nearly $1 million per mile, it is a significant cost. This is even more so when the power generation from a wind farm is so variable. A line from a wind farm may also only be used 30% of the time--- a line from a traditional power source is used nearly 100% of the time. Who pays in the end for this additional cost? The consumer.

What do I make of all of this?

The "Cheap Energy Revolution" is not nearly as cheap as Tom Randall of Bloomberg wants you to believe it is. Or what his bias wants it to be.

We may get there one day. I am all in favor of cheap, renewable forms of energy. However, biased reporting does not make it true today by proclaiming it is "here".

Trump is right to get government off the back of the coal industry. It remains our most abundant energy source. It is foolish to not utilize it to the fullest extent.

Let renewables beat it fair and square. Don't let the climate change lobby do it. Or biased reporting.

Extreme Weather or Extreme Views?

Global warming is making hot days hotter, rainfall and flooding heavier, hurricanes stronger and droughts more severe. This intensification of weather and climate extremes will be the most visible impact of global warming in our everyday lives. It is also causing dangerous changes to the landscape of our world, adding stress to wildlife species and their habitat.

This statement by the National Wildlife Federation is typical of those who have bought in to the religion of climate change and man-made global warming.

Of course, the high priest of climate change is Al Gore. This is what Gore said about extreme weather at the 2016 Climate Action Conference in Washington, D.C.

The climate-related extreme weather events – and I won’t go through all of them – but every night on the television news now is like a nature hike through the Book of Revelation.

Many of you may also remember last year when many liberals who worship at the climate change altar were also saying that California's five-year drought was permanent due to global warming.

That was a year ago. This is now. Water levels at almost all of California's major reservoirs are at or above historic levels.

Credit-Whatsupwiththat.com

Talk about an inconvenient truth.

Or consider this recent report by the U.S Drought Monitor that indicates that drought levels have fallen to records lows in the lower 48 states (since the monitor started 17 years ago) with just 6.1% of the nation experiencing such dry conditions.

What was that about droughts being more severe?

It is just not droughts either. This data all relates to the United States as recently summarized by Marc Morano of The Climate Depot.

"It is not just droughts that are at or near record levels. On almost every measure of extreme weather, the data is not cooperating with the claims of the climate change campaigners. Tornadoes, floods, droughts, and hurricanes are failing to fit in with the global warming narrative."

Tornado activity has been declining. In fact, 2016 was one of the quietest years since formal records began in 1954 and was actually the fifth year in a row that tornado activity has been below historical averages.

Hurricane activity has been declining. In fact, despite category 1 hurricane Matthew that heavily damaged Hilton Head Island last Fall, there still has not been a category 3 hurricane to make landfall in the United States since 2005. 

Flood disasters are also sharply down in the United States compared to what we have been accustomed to seeing over the years.

Al Gore and others have argued for years that global warming will bring us more extreme weather. The facts have been the exact opposite almost from the day he started saying it.

Where is the extreme weather?

Perhaps it is outside the United States? After all, weather and climate know no borders.

However. global weather-related disaster losses as reported by the global insurance industry also show a downward slope.

This could be due to better loss prevention controls. However, any improvement in this regard is probably cancelled out by much more costly development along coast lines throughout the world.

Despite the evidence, why is Al Gore able to keep saying what he does and why do so many people readily believe it?

The easiest answer is due to the recency bias that is present in our brains. We remember and put the highest value on those things we experience most recently. This has become an even bigger issue in our modern age as we are deluged with images, videos and news from around the world. However, no one is providing any context with this news.

We see the egg frying on the sidewalk in Dallas. We see the half-filled reservoir in California. We have 24 hour coverage of every hurricane that might threaten the United States. We have iPhone video of the tornado that struck Canton, Texas on Saturday night.

Looking at other extremes, we even see pictures via Twitter of the Pac12 golf championship in Boulder, Colorado that was disrupted by snow this weekend.

It has been said that if you are a hammer everything looks like a nail.

I guess it could also be said that if you have fallen for the climate change mantra, every weather event looks extreme.

The only extreme thing I can see in all of this are the views of the Climate Change lobby.

They have no room for debate, discussion or dissent irrespective of any inconvenient truths that get in the way of their "settled science".  It is beyond me how they can continue making the claims they have made about increasing levels of extreme weather when the facts totally contradict their claims and predictions.

They call the people that don't agree with them "deniers". Looking at what they have said and what has actually occurred regarding extreme weather, you have to ask what are they?

Caveat Emptor

Traditional retail stores are under siege. The numbers of store closings indicates the dimensions of the problem for bricks and mortar stores.

This chart from The Wall Street Journal shows the effects. A projected 8,000 store closings this year. U.S. retail employment is stagnant. Three major retailers, The Limited, BeBe and WetSeal, are getting out of retail stores completely. The Limited will still have an online presence. WetSeal is finished for good and it is not clear yet if BeBe will continue as a internet retailer only.

If you look at this evidence you might come to the conclusion that the consumer has won. They have voted with their pocketbooks and they prefer the ability to comparison shop and the convenience of shopping online. It would appear that consumer power is winning the day.

However, will that be the end of the story?

I first studied the theory and practice of dynamic pricing over 20 years ago. Simply stated, dynamic pricing suggests that no two consumer are alike. They have different motivations for buying based on their current situation and environment and will pay different prices for the same product or service.

In order to best maximize profit, a seller needs to understand these differences. The airline industry was one of the first to recognize the power of dynamic pricing and it has long priced its seats accordingly. The business traveler in seat 6C may have paid $799 for her seat but the vacation traveler in 6B was only enticed to fly by the $199 fare.

Coca-Cola understood these differences many years ago in how they priced their product in supermarkets versus the fountain market. Consider your willingness to pay for a Coca-Cola. In a grocery store, you may decide you don't need Coke in your house if it costs more than $1.49 for a 64-ounce container (2.3 cents/oz) but you willingly pay that for a 16-ounce cup at a fast food restaurant (9.3 cents/oz) and you might pay $3.49 for the amount of Coke (21.8 cents/oz) at a bar with your friends in order to be sociable.

There is a 10-fold factor on what you will pay for a Coca-Cola based on your circumstances at the time.

Vintage Coca-Cola Ad (1960)
www.vintageadbrowser.com

The Atlantic is out with the downside of the demise of traditional retail and it points in the direction of dynamic pricing as something we all need to be aware of as we shop, compare, click and have our products shipped to us. As Jerry Useem, the author of the article puts it, "How Online Shopping Makes Suckers Of Us All".

Credit: The Atlantic, May, 2017 issue

Our ability to know the price of anything, anytime, anywhere, has given us, the consumers, so much power that retailers—in a desperate effort to regain the upper hand, or at least avoid extinction—are now staring back through the screen. They are comparison shopping us.

They have ample means to do so: the immense data trail you leave behind whenever you place something in your online shopping cart or swipe your rewards card at a store register, top economists and data scientists capable of turning this information into useful price strategies, and what one tech economist calls “the ability to experiment on a scale that’s unparalleled in the history of economics.” In mid-March, Amazon alone had 59 listings for economists on its job site, and a website dedicated to recruiting them.

The prices that you see in a traditional store are all the same for everyone. That may not be the case when you shop online.

“I don’t think anyone could have predicted how sophisticated these algorithms have become,” says Robert Dolan, a marketing professor at Harvard. “I certainly didn’t.” The price of a can of soda in a vending machine can now vary with the temperature outside. The price of the headphones Google recommends may depend on how budget-conscious your web history shows you to be, one study found. For shoppers, that means price—not the one offered to you right now, but the one offered to you 20 minutes from now, or the one offered to me, or to your neighbor—may become an increasingly unknowable thing.

We all came to love the internet for the freedom, convenience and power it has given us. It broke down walls (literally in traditional retail) and gave us a whole new world of transparency.

However, transparency works both ways and internet retailers know more about you than you know. They increasingly know what is important to you and what is not. Are you a bargain shopper or an impulse buyer? When you are more likely to shop? (Tip from the article-most people shop weekday so retailers often raise prices in the morning and lower prices in the evening when there is less traffic).

I have only two words of advice, and despite all the changes in technology and the evolution of man and society, it still holds as much weight today as it did 2,000 years ago.

Caveat emptor.

Money and Marriage

Four years ago I wrote a blog post that is still among the five most viewed on BeeLine. It was titled "Degree Dearth=Date Dearth" and it detailed what I predicted would be an increasing problem for young women seeking a husband---the significant imbalance between female and male college graduates.

Why is that a problem?

Women have historically tended to date and marry men of at least equal educational attainment. However, that is becoming an increasingly difficult goal today. Almost 60% of college graduates are now women. Only 40% are men. This is true for almost all college degree programs.

What difference does it make whether you both went to college? It becomes important because those who have college degrees tend to make more money. Does a women want to marry someone who makes less money than she does?

You would think that it shouldn't matter but it seems that it is pretty important.

CNBC.com recently wrote about the problem in a story titled "Millennial women are 'worried', 'ashamed' of out-earning boyfriends and husbands".

There is also data that supports the fact that when the woman earns more than the man in the marriage, the odds of the marriage ending in divorce increases.

You can see the dimensions of the problem even better in the results from the recent U.S. Census Bureau study that I cited last week on "The Changing Economics and Demographics of Young Adulthood: 1976-2016" which showed that more 18-34 year olds are living with their parents than with a spouse.

That study had another interesting statistic with regard to the income of 18-34 year old males.

41% of these young men made less than $30,000 annually in 2016.

In 1975, only 25% of men of a similar age failed to achieve that level of income (in constant dollars).

If you are a well-educated, young woman looking for marriage material, that statistic is not real comforting today. The pool of eligible bachelors could be looking pretty small depending on where you live.

You know it is bad when there are 10 women for every 8 men in a city and that is in the Top 10 list for best U.S. cities for dating.

Credit: Washington Post

As I stated above, all of this talk of education and income levels should not matter. After all, isn't it about love and companionship first and foremost? If you have that all should be well in the world.

The problem is that even though the world has changed our basic biology and the way the male and female brains are wired has not changed with it. There are primal emotions deep within us that dictate a lot about what we are looking for in a mate.

Many marriage experts will tell you that the most important factor that a woman is looking for in a husband is security. Women want to feel secure that they will be protected and cared for. Men, on the other hand, are looking most for respect. They want to have the respect of their wife.

Do you see a potential problem when the wife is out-earning the husband in the house considering these underlying factors in marriage involving men and women? How does the wife feel secure? How does the husband feel respected?

If you doubt how powerful these factors are in us, consider the survey research I cited previous blog involving the dating preferences of millionaires . When asked what they were looking for in a potential spouse insofar as money is concerned, there was a massive difference between men and women.

It seems that the vast majority of the millionaire men, 79.6% according to the survey, are seeking non-millionaire women.  However, 84.5% of the female millionaires want to date another millionaire.

The female millionaires made it clear that they are not looking to use their money to take care of someone else.  However, the men seem to want to find someone they can take care of.

In short, the men are looking for respect. The women are looking for security. Even when they are making a lot of money themselves.

Many marriages survive and thrive despite the woman bringing home more money. However, like everything else in a marriage, it requires work to make it work.

What is particularly interesting in all of this is, despite the fact that many Millennial women are earning more than Millennial men today, the youngest Millennials (ages 18-25) of both genders are increasingly in favor of a traditional home in which the man is the breadwinner and the woman stays at home. This is particularly true of young males.

This is from a Daily Caller article on the survey which has tracked young people's opinions on the roles of men and women since 1977.

42 percent of high school seniors in 1994 believed that the best family arrangement was one in which the husband was the financial-earner and the wife stayed at home — this figure increased to 58 percent in 2014. When looking specifically at men ages 18-25, support for this arrangement increased from less than 20 percent in 1994 to nearly 50 percent in 2014.

I assume these young men have not seen the Census Bureau study above in which they are more likely to be living in their parent's basement than supporting a young bride at home in a few years!

The other thing that young women have not likely seen is this blog post by Penelope Trunk on "How To Pick a Husband If You Want To Have Kids".  I referenced Ms. Trunk's advice to women on this subject in my previous post on this subject. I don't know if the choices are as stark as she lays them out but I think there is food for thought here.  For me, this would turn daunting into depressing if I were a single woman.

This is how Penelope sees it.

You cannot pick a husband to have kids with until you know if you want to work full-time while you are raising them. Some women will say they know for sure that they do want to work full-time. Most women will say that they don’t know for sure. But there are actually only two choices: be a breadwinner or marry a breadwinner. Then, within those two choices, there are a few strategies you could use.

Most people just will not like these choices. Nothing here is good. It’s reality, and of course it’s not as good as fantasy. The only good, real thing is that you have choices, and you can figure out who you are and what you need and you can get what you need. 

There will be people who say you can’t choose who you fall in love with. This is a lie, of course. There are a million people you could fall in love with. If one is impractical, just go find another.

However, as I point out in the statistics above, it may be just as impractical to "go find another" in light of the dating pool of eligible bachelors in various cities across the country.

It is worth the full read.

Should you think that I don't understand the husband/wife dynamic on incomes and think that I am a chauvinistic pig, this is what Ms. Trunk says on the subject. This is a married woman speaking, not me.

Statistically your marriage is high risk if you and your husband are both in the workforce and you earn more than him because surveys show that you will resent him. This is not logical, or social, it is primal. Statistically, you will marry a guy who does not make as much as you and then you will have kids and get a divorce. Because women hate the feeling of out-earning their husbands.

What does it all mean? We will find out in time. However, we are in uncharted territory with regard to the changing roles of men and women in the workforce and in society. Those changes have come faster than our brains are evolving. Marriage is not easy to begin with. It seems to be getting even more difficult with this new dynamic in play.