Last week, Cambridge, MA-based Biogen (Ticker: BIIB) reversed itself and said it would go ahead and seek FDA approval for its Alzheimer’s therapy Aducanumab after announcing in March 2019 that Aducanumab did not result in statistically significant improvements in Alzheimer’s treatment. Biogen stated that a closer review of its testing data revealed that Aducanumab was in fact statistically effective among patients who received the highest doses during trials.

Treatment, Not a Cure

Aducanumab is a treatment that delays the progression of Alzheimer’s dementia. It is not a cure for Alzheimer’s, but it is hoped that this treatment may someday lead to a cure.

Cost/Benefit

Although there is no mention of possible pricing in Biogen’s press release, Aducanumab will no doubt be very expensive. Let’s say the drug is effective in delaying the progression of dementia by 2 years on average, meaning a senior with Alzheimer’s dementia will enjoy 2 more years of being “with-it”. And, let’s say a year’s worth of Aducanumab will cost $500,000 – probably not too far off of an estimate, given that Biogen has spent possibly $3 Billion so far, with more to go to get final FDA approval. The question is: is it worth it? The answer probably depends on your position. If you (or your parent, for whom you are making medical decisions) is 90 and has achieved all that they want, you might decide to let nature take its course and opt not to spend the money. However, if there is something left to live for, you might decide that it is worth it and to pay the money. As medications become more complicated and expensive, especially with regard to Alzheimer’s, which is proving to be an incredible puzzlement, these are the types of questions that patients and their caretaker families will have to decide.

Financial Plan for Your Upcoming Alzheimer’s

The Alzheimer’s Association estimates that over 1/3 of people 85 and over have Alzheimer’s disease. Should we make plans for it now? Should we plan to save $1 Million so that we can have our 2 years of Aducanumab? My answer is that there are too many unknowns at this point. We don’t know the price of Aducanumab (or any other medication or treatment that might soon come out). We don’t know if Medicare or any other drug plan will pay for it or at least help. However, we do know that we will all get older and hopefully live a long life. As such, we need to make plans, such as:

• Save what you can so that you have some money for medical care when you are older.
• To that end, if you are in a health insurance plan that allows for a Health Savings Account, take advantage of it because the money that you invest in an HSA can be invested with principal growth tax-free as long as the money is used for qualified medical expenses.
• If you are able to do so, purchase long-term-care insurance. Better to do it when you are younger because premiums will be cheaper.
• Don’t mortgage your house to the maximum and refinance into a HECM reverse mortgage so that you can draw upon it to pay for your health care when the time comes.
• Have children and encourage them to have children in turn so that you will have younger family members to help when you need care when you are older.

IMO

I think the concept of saving $500,000 or $1 million for Alzheimer’s treatment when you don’t know if you will even get Alzheimer’s is too difficult of a proposition fraught with too many unknowns, such as whether or not you will opt to go for any expensive treatment that may extend your abilities for a relatively short time. It is better to prepare for what you do know, which is that you will grow older and your health is likely to deteriorate as you do.

During this time of the year in California, where I live, dry, usually hot Santa Ana winds are common. The combination of single-digit humidity levels and high winds are perfect conditions for spreading wildfires, such as those which resulted in the deaths of 85 people in the Camp Fire in 2018. I believe California is merely the first state to experience this and other power companies in other states will follow suit. The electric grid is growing less dependable, in my opinion. Severe weather events will always happen in some capacity.

Cut the Power

California’s utilities, Pacific Gas & Electric the most prominent but not the only one, are responding by cutting off power prior to the onset of the forecasted Santa Ana condition in areas deemed to be high risk for wildfires. In early October, a good chunk of Northern California, including the Napa Valley wine region, was cut off from power. PG&E is already likely insolvent due to liability suits from previous fires, and so they decided to limit their liability by taking preventive action.

How would you like it if, as a customer who has their utilities cut right when you want to run the air conditioning, to be without power? It seems like a step back in progress, as well as a huge inconvenience. It likely will affect property values in the affected areas.

What Can You Do?

Fortunately, due to improved technology, individual homeowners have more options now when the power goes out. One is to install solar panels and a battery. A Tesla Powerwall battery combined with a Tesla-owned SolarCity solar panel system is one option, but there are other battery manufacturers such as LG. It’s expensive, with a Powerwall battery system at about $14,000 and a solar panel system $20,000 or more based on size. Wealthy preppers might be able to afford it and it is “clean” but probably out of the price range for many homeowners.

Generac

Another less expensive option is a home generator. Generac (GNRC) is a market leader in this space, and GNRC stock is up over 70% YTD 2019. A homeowner can buy a Generac system that can power your whole house for under $10,000, which may sound like a lot compared with a small generator you can buy from Home Depot, but it is a better, more dependable option. A homeowner can hook a Generac directly to a gas line and can have the generator automatically click on in the event of a power outage. As with most other things in life, it is best if you plan ahead and install a Generac (or another generator system) at a time when you don’t need it.

IMO

I don’t own a Generac (although I am thinking strongly about it) and I don’t own GNRC directly. GNRC has gone up a lot and is now trading at 20 times earnings, and so I advise caution as to timing your purchase of the stock if you buy it at all. Nevertheless, I believe the combination of severe weather throughout the country coupled with utilities less willing to take liability risk during these events coupled with declining population in some rural areas (such as my native Upstate New York, New England, farm areas, and other areas not participating in economic growth for any number of reasons) will result in more frequent power outages. Homeowners will adapt by becoming more self-reliant and buying either a solar and battery system (expensive) or a high-end generator system (less expensive).

We have two pieces of information that are in conflict. On one hand, former Harvard President and US Treasury Secretary and current Harvard Economics Professor Larry Summers said recently that US interest rates could go to zero or below if we have another recession. On the other hand, Bank stocks are up, with JP Morgan (JPM) at an all-time high of about $120 as I write this. These two information points are in conflict because zero interest rates have been bad for European banks and they would be bad here in the US. Is Summers correct, or are investors correct for buying bank stocks such as JPM?

Summers

Summers’ statement was prefaced in that “if” there is a recession, “then” interest rates in the US would drop to zero. In his comments, Summers says he believes we are headed to a recession but probably not in the next 12 months. Summers served as Treasury Secretary under President Clinton and is a critic of the Trump administration’s economic policies.

Negative Rates In Europe

Negative rates have been a disaster for banks in Europe and they would be a disaster here in the US. Deutsche Bank (DB), for example, is at a near all-time low at about $8, and other European banks have performed similarly. It is very difficult for banks to make money when rates are zero or below. They have to rely on fee income, which may be strong but not nearly as lucrative as is traditional lending. Rates have lingered at zero or below in Europe for several years, as they have in Japan. By selling bank stocks down to their lows, investors indicate that they don’t see a good future in European bank stocks.

US Banks Reach Highs

Investors in US banks, by contrast, see a bright future. JPM’s stock reached a high on October 16 after a strong earnings report. Other large banks such as Wells Fargo (WFC) and Bank of America (BAC) followed suit and also reached highs. Investors are indicating that they don’t see a recession looming and that economic growth and bank earnings will continue to be strong.

IMO

I side with those who are buying US bank stocks, although I don’t own any of them directly. I agree that we are not headed to recession any time soon and that corporate earnings, including bank earnings, will continue to grow. Summers has a bias and is trying to do his part to put forward the notion that the US economy is not as strong as the statistics suggest and so voters should consider his side in the next election. The stock market is a leading indicator, and that bank stocks are at a high indicates that investors on balance believe a recession is not imminent and therefore interest rates will not be turning negative any time soon.

RH, formerly known as Restoration Hardware, is confounding to me. They seem to do everything wrong, but their stock keeps going up! As this weekly chart shows, RH is up almost 40% YTD 2019 and has more than doubled since a correction in May from below $90 to above $180.

What Does RH Do “Wrong”?

Catalogs: RH still sends out catalogs to its existing and would-be customers. Not just cheap, thin catalogs, but heavy, thick, glossy, expensive catalogs, and multiple catalogs each year. It doesn’t seem to make sense in this age of the Internet and corporate websites that a large-scale retailer such as RH would bet big on catalogs, but they have done so. The Sears Catalog is a bit of American nostalgia that was a big thing in the early 20th Century, and some other retailers still mail catalogs, but not on the scale of RH. Yet, sales grow at RH and operating margins remain strong, in the high-teens, according to the RH corporate website. By the way, RH also has a big, glossy website, to complement its catalogs.

Big Stores: RH is opening new, big Gallery stores and has a presence in most major retail markets in the US, with an eye toward international expansion of its retail stores. This defies the conventional wisdom that the likes of Wayfair and Amazon will gain market share in the furniture segment without such a large build-out of “old fashioned” retail stores. RH believes that its customers want to see, feel and experience their product first-hand and not on some website, and so far so good with that.

Lack of In-Store Inventory: RH has big retail stores but they don’t have a lot of inventory in them. Instead, RH’s stores are more like showrooms. If a customer wants to buy something, even something small, chances are the in-store salesperson will order it through the RH website and have it delivered either to the store or to the customer’s home. Usually, the reason one goes to the store is to buy something and bring it home, but not at RH. Granted, it doesn’t make sense to stock large furniture at the store, but RH doesn’t typically stock much at all at their stores.

What does RH Do Right?

Inventory Control: Since it stocks most of its inventory in warehouses and not at stores, RH can better manage its levels of inventory. This keeps them from overspending. RH also has a “just in time” system that works well most of the time, although its website does admit to some glitches. RH has also been able to avoid issues with tariffs by moving some manufacturing out of China and into other countries. It hasn’t been 100% smooth but RH has done a good job keeping things running.

Membership: Instead of constant sales, RH keeps its prices relatively stable but offers a membership program that currently charges $100 per year in exchange for 25% off full-priced items. Sounds kind of like Amazon Prime, but without the Video service. RH believes its membership program increases customer loyalty.

High-End Demographic: RH’s products appeal to a high-income demographic which appears not to be as price sensitive. Sales and remodels of high-end homes are still strong and mortgage rates remain low, all of which are good for RH.

Restaurants: Who ever heard of opening a restaurant in a furniture store? RH is doing just that in a few locations, and the restaurants are a hit and are causing a buzz. The restaurants are driving traffic to their stores, which is good for sales. The food is good, too!

Good Products: RH’s high-end customers are satisfied by high-quality products from RH. RH produces good stuff that their customers like, and so they go back and sign up as members so that they can buy more stuff at a better price. It’s a good cycle for RH.

IMO

I am not recommending to buy or not to buy RH. The purpose of this post is to recognize that RH does things in ways that fly in the face of conventional wisdom and that despite this, or maybe because of this, RH has been able to enhance shareholder value, particularly in the last couple of years.

…Would you do it the same? Think about a financial decision you made during the past week – something you decided to buy or not, an investment decision you made, or maybe a dinner out. Now that you made the decision, are you happy with what you did? Or would you make a different decision? Did you consider alternatives? Or did you decide on its own merits without looking at alternatives? Chances are, the way you went about making that decision is similar to the way you make most of your decisions. After all, if you are reading my blog, you are likely in your 40’s or older and are relatively entrenched in your ways. You can’t teach an old dog new tricks, right?

New Tricks

Well, if you are not happy with a financial decision you made recently, perhaps you should think about using “new tricks”, or a new methodology for your own personal financial decision making. Maybe if you take your time to be analytical and look at alternatives, perhaps you will make a better decision or at least a decision you will be happy with, next time. Take your time – is there really a rush or a deadline for you to make your decision? If you feel like there is a rush, maybe next time you need to start the process earlier so that you won’t feel as rushed when the deadline comes? Start with a small decision, perhaps about where to get your morning coffee. You like Starbucks, but is Starbucks really worth the money for you? Could you be just as satisfied with a lower-cost alternative such as McDonald’s? Or can you brew it yourself, even if it means you need to wake up 10 minutes earlier? If you are happy with your Starbucks, then great! You have made a good financial decision for yourself and the cost of Starbucks is a good value for you.

Is Trendy Good?

Take it to the next level of how you invest your money. If you like trendy places like Starbucks (although I know there may be other coffee shops that are trendier), maybe you like to have your money invested in trendy stocks as well. Maybe Facebook, Alphabet/Google, Apple, or Netflix – all trendy high-tech stocks in companies that are still mostly growing. If you like those stocks, be prepared to pay a premium for them in the form of high price/earnings ratios. Does that fit your personality? Or would you be just as happy (or happier) owning less trendy stocks that cost less relative to their earnings? Unless you thrive on volatility (and some people do), less trendy stocks tend to be less volatile and therefore allow you better to sleep at night. In addition, the future earnings potential for these less glamorous stocks (such as high dividend stocks, for instance) may be just as rosy as for the aforementioned high tech stocks.

IMO

Step back and be honest with yourself about a recent financial decision you made, whether it involves big money or small. Are you happy with your decision? If not, then perhaps you need to look (honestly, again) at the way you made that decision. Maybe next time you need to be more careful with how you decide things that involve your money. Maybe part of being careful involves hiring a financial planner like me who will help you with that decision. If so, please let me know and I would be happy to help!

As of October 1, we are now into the 4th Quarter of 2019. Will it be a repeat of the 4th Quarter of 2018 for stocks? Q4 2018 was really bad. The S&P 500 index was down over 14% for the quarter, and other indexes were similarly down. Moreover, two of the biggest stock market crashes – 1929 and 1987 – both occurred in October of those years. Could history repeat itself this year?

Maybe…

There certainly could be a 4th Quarter correction. The stock market recovered nicely from its 4th Quarter 2018 slump. As I write this, the S&P 500 is within 3% of its all-time high, despite a number of big issues out there that have a lot of investors concerned, such as:

• Global trade, especially between the US and China;
• An apparent worldwide economic slowdown excluding the US, at least at the present time;
• Geopolitical uncertainty, including heightened tensions involving Iran due to tightening sanctions;
• Flat to slightly inverted yield curve;
• The longevity of the stock market rally, with the belief we are in the “late innings” of a 10 year plus rally; and
• Increased discussion in the press about a possible recession.

All of these are valid points. A recession can be a self-fulfilling prophecy if enough businesses scale back because they think everyone else is gearing up for a recession. Stocks are considered to be a leading indicator, and it is the time leading up to an official recession (6 months of negative GDP growth) that have been the worst for stock performance.

…Or Maybe Not?

On the other hand, there is a lot of evidence that we will not be heading into recession and that growth will continue, albeit at a somewhat slower pace. These include:

• Declining overall interest rates, and the inability of the yield curve to actually invert despite weeks of trying. For example, one year ago, on 10/1/18, the 10 Year US Treasury rate was 3.09%, vs. about 1.6% now. The 2 Year rate was 2.8% a year ago vs. 1.4% now. Rates across the board are much lower now.
• An accommodative Federal Reserve, which has lowered short-term rates and looks to continue to do so, though perhaps not as quickly as our President wants.
• Corporate earnings remain strong.
• Does the US economy necessarily weaken because the rest of the world does? Or might the US economy continue to strengthen in order to take up the slack?
• US Unemployment remains low at 3.5%, meaning there don’t appear to be layoffs in the face of a potential upcoming recession.

IMO

My opinion is that there will not be a recession at least for the next 18 months. That doesn’t mean the stock market won’t correct due to the volatility and uncertainty out there. It does mean that any correction should be looked at as a potential buying opportunity. I think rates are too low and the Fed is too accommodative for there to be the basis for a repeat of 2018 and a 14% correction in the stock market for the 4th Quarter. As for now, hold your current equity positions (assuming you are well diversified), and potentially look to add to them if you have the cash and you see a dip you can buy.

Recently I was walking on a crowded sidewalk and found myself behind a big man wearing a gray suit. Mr. Gray Suit was carrying a large backpack that hung to his side. He was wearing headphones and seemingly lost in whatever he was listening to. And, he was walking slowly. In short, he was taking up the entire sidewalk and holding up pedestrian traffic. Lost in his own world, and seemingly unaware of the other people whose lives he affected at that moment. Have you ever encountered this type of person? Mr. Gray Suit was just the latest example for me. In this era of smartphones, Google Maps, Apple Music, podcasts, audiobooks, and headphones, I find more and more examples of people lost in their own space and unaware that they are having an impact on other people’s space, even at a moment in time.

Are You Aware Of Your Finances?

All of this got me thinking about people and whether they are similarly unaware of their financial place on the sidewalk. (How’s that for a transition from a sidewalk encounter to a financial blog topic? Smooth? Or not very?) Do you think you are big, move slowly, and therefore block other people from achieving their goals? Are you small and nimble and able to pick your way through the crowded space? Perhaps you are a “tour guide” and hold a small flag high or wear a crazy shirt so that others in your group will always know where you are? Or are you always on your Maps app on your phone, unsure of yourself and needing constant direction and reinforcement for your actions? As an adviser and financial planner, I see all of these types. None is better or morally superior to another.

What Is Best For You?

The goal is to find the method that works best for you, as long as you don’t become Mr. Gray Suit and block others (perhaps in your own company or family) from achieving their own goals. Most of the time, unless you are really on top of things and know exactly where you want to go and how you want to get there, it is best if you have some outside guidance along the way. Maybe you don’t need constant guidance in the form of an in-person tour guide or your favorite Maps app, but it is highly advisable to look at your route before you set off on a trip.

IMO

Making your plan before you start your trip is where I come into the picture. As a CFP® Professional, I can help you develop your destination and plan your route. I can also make sure you are aware of where you are and that you don’t get in the way of other people while you are on your journey. It is really hard to get somewhere if you don’t know where you want to go! This is especially true with your finances. Contact me so I can help you with your goals and your route to get there.

Are you thinking about quitting our job but you don’t know what your health insurance will cost (or not sure if you can even obtain it) if you quit? You’re in good company. It is hard to estimate your health insurance costs because the exchanges aren’t geared to let you do that.

The Exchange

If you quit or lose your job for whatever reason, you have the option of keeping your current health insurance for 18 months through COBRA. After the 18 months is up, or if you decide not to use the COBRA option at all, the most likely case is that you will purchase your insurance through your state’s exchange website. What will that cost, you might ask? You might visit your state’s exchange to find out. Problem is, the exchange won’t give you an accurate answer unless you are in the Open Enrollment period. The exchange will give you the cost of various plans if you want to purchase them today under the Special Enrollment provision. Are the Special Enrollment terms indicative of what it will cost during open enrollment? Possibly, but unlikely.

Open Enrollment Is Coming

The good news is that the Open Enrollment period on the health exchanges is coming soon. Depending on your state, Open Enrollment starts in October or November and lasts for 30-60 days. During Open Enrollment, you will get a much better estimate of what type of health insurance you can obtain and what it will cost. You will need to answer a few questions online and perhaps act like you really want to buy the insurance right then, but at least it will provide you a better sense of what your health insurance will cost.

IMO

Use the upcoming Open Enrollment period to daydream about quitting your job. Take the information you can find on your state’s exchange during Open Enrollment and plug it into your cost spreadsheet to calculate what it might cost for you to quit your job. It won’t be 100% accurate but it will give you a decent estimate of what your health insurance will cost.

Someone recently asked me to comment on this article that was recently posted on Motley Fool and Nasdaq.com. The article takes issue with analyses that conclude that one should delay filing for Social Security until Full Retirement Age (FRA) or later. According to the article, if one takes the time value of money into account, one might conclude that they should file early because money today is worth more than money delayed until a later date. Said another way, if, instead of spending their monthly Social Security check, the recipient invests their check and earns a “reasonable” 5% return on their money, the breakeven point is delayed by several years, making it better to file early. This is true especially if the filer has health issues and does not expect to live long after their FRA.

Research By the SSA

It turns out that the Social Security Administration was aware of this issue well prior to this new Motley Fool article. This dissertation, posted in 2016 on the SSA.gov website, concludes after lengthy iterations and analysis that claiming at age 62 maximizes lifetime benefits at a discount rate of 3.8% or higher for men and 4.6% or higher for women. If you are able to invest your Social Security and earn those annual returns rather than spend it, you are better off filing as soon as you can at age 62 rather than wait until FRA (67 years old in my case) to file for your monthly benefits. Instead of a breakeven of 5-7 years (which would translate roughly to Age 72 to 74), the breakeven would be several years later, making it better to file early despite receiving reduced monthly benefits.

My Problems

One problem I have with this is that most people aren’t able to invest their Social Security. Instead, they spend it. If they spend it, the discount rate (or reinvestment rate) goes to 0%, meaning that the standard breakeven analysis is valid. Instead of 3.8% or 4.6% or 5%, most people do not derive any reinvestment value from their Social Security benefits because they need that money to live on.

Another problem that I have is that if one is healthy and able to work during their Age 62 to 67 years (or at least for a portion of that time), they should continue to do so because those years could be prime earning years. Instead of a time value of money discussion, it would be an opportunity cost discussion of foregoing years of earning the highest salary of a lifetime vs. filing early for Social Security. Which do you think will net you out with the most money over time? If you guessed that you would take in more by staying at work, you are correct.

Lastly, there are spousal benefits to consider. The dissertation on ssa.gov states that their analysis works for single filers but not as well for married filers. The SSA has tightened up on spousal benefits (no more File and Delay), but the decision is not black or white for most people due to their spouses.

IMO

I still advocate waiting to file until at least FRA if one is able to do so and is in relatively good health. It would require an unordinary amount of discipline to receive a monthly Social Security check and invest it and not just spend it.