This update is focused more on governmental policy than previous D3 updates. This is because politics is creating noise that is masking and may potentially have an impact on U.S. economics. Economics drives the markets in the long run, while politics can create noise that can confuse the markets in the short run.
Health Care Update:
Some of the noise you have been hearing is about the Affordable Care Act (ACA), i.e. “Obamacare”. We decided to distill the information down into information that is important to our clients. Please review the attached document to see if ACA will affect you.
Government Shut Down and Funding:
Assuming the government shutdown is less than 30 days, the impact on the economy should be a minor inconvenience. The last time the federal government shutdown was in 1995 and 1996 and the markets barely noticed. This was also due to democratic and republican disagreements over public health care issues.
From Wikipedia: “The United States federal government shutdown of 1995 and 1996 was the result of conflicts between Democratic President Bill Clinton and the Republican Congress over funding for Medicare, education, the environment, and public health in the 1996 federal budget. The government shut down after Clinton vetoed the spending bill the Republican Party-controlled Congress sent him. The federal government of the United States put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days. “
The bigger issue will be the show down for raising the debt ceiling. Besides the “fiscal cliff” in December of 2012, the last major game of Russian roulette with the debt ceiling was in August 2011. This Congressional, self-imposed crisis, in conjunction with an escalation of the European debt crisis, resulted in a 16% drop in the S&P 500; but, within 5 months all of the paper losses were 100% recouped by the S&P 500.
It appears that the Republican controlled Congress is posturing around government funding versus the debt ceiling. This is because they believe less damage will be inflicted on the markets and a large percentage of their voting base has exposure to financial markets. Assuming these two issues are temporary, political issues, we will not try to time the markets. If we see some economic impact, we will take action.
September, which has historically been the worst performing month for U.S. equities (averaging -1.1% since 1929), has bucked the trend, and seen the S&P 500 return about 3% month-to-date. International equities are also up over 7% month-to-date, and the bond market which has recently been trading sideways, is up less than 1% for the month. The rally in all asset classes has been strengthened by the Federal Reserve (Fed) announcing on September 18th that it will not begin to “taper” back the quantitate easing it has been conducting through the bond purchase program. The decision not to “taper” was due to uncertainty of the strength of U.S. economic growth. Encouragement that the Syrian conflict can be resolved without military action has also been a tailwind to market performance.
Looking forward, we see 3 main drivers of market performance in October:
- The United States Treasury secretary Jack Lew has projected that the U.S. will be unable to fulfill its obligations after October 17th without raising the debt limit. The closer to October 17th without a “debt ceiling” resolution, the more volatility we should expect to see in markets.
- October 8th will kick off the 3rd quarter’s earnings season. The uncertainty in the strength of economic growth (referenced by the fed in its decision to not taper), has resulted in negative revenue and earnings guidance from analysts. Any positive (or negative) surprise in revenue and profit growth will have a positive (or negative) effect on the equity markets.
- On October 30th, the Federal reserve will make another announcement regarding its quantitate easing program. A decision to significantly reduce bond purchases could potentially “spook” the markets just in time for Halloween.
We are now focused on minimizing the tax consequences of capital gains on your portfolios. We will be executing these trades over the next week in all taxable accounts that will benefit from realizing capital losses. We will also be performing our quarterly fund review in October, potentially replacing any funds that do not meet our risk/reward characteristics.
D3 Dates to Remember:
October 27th, 12-3pm, Family and Friends get together at Pinstripes, adjacent to Oakbrook Mall. Purpose: Bring family and/or friends to enjoy lunch and networking with D3 staff and clients. Please RSVP to Patty by October 14th.
November 15th, Shredder service pick up day. Purpose: We have identified a local non-profit organization, Shred Docs which is staffed by Transitions 99 school children (handicap enabled). As a service to you and to help some less fortunate young adults, feel free to drop off documents you would like shredded at our Downers Grove office. You can do this any time before November 15th.
December 7th, 6-9pm, D3 Financial Counselors annual client appreciation dinner at the University Club in Chicago. Purpose: To thank you for your confidence in D3. More details coming in October.
As always, we thank you for your confidence in D3 Financial Counselors and we ask that you to keep us in mind when your friends or relatives have financial questions or face some financial uncertainty.
Don Duncan MBA CPA CFA™ CFP® Michael Meyers MBA CFP®
Adam Glassberg CFP® CIMA® Patty Shipinski, Office Manager
Ryan Pace CFP®
We serve our clients by providing Integrity, Trust, Wisdom and Confidence
Does the Affordable Care Act Affect Me
A major portion of the Affordable Care Act, signed into law in March of 2010, will begin this Tuesday, when health care exchanges or “marketplaces” open for enrollment. The new exchange markets will make comparison-shopping for health insurance more transparent (regarding price and coverage differences among plans). The enrollment period for 2014 is October 1, 2013-March 31, 2014. In order for coverage to be effective January 1, 2014, you must enroll by December 15, 2013. Instead of getting into the details about the new exchange markets, our goal is to explain how the new exchange markets will directly impact you.
Currently Paying for Individual Health Insurance
If you are currently paying for individual health insurance, we recommend using your state’s health insurance exchange to compare the cost and coverage of your current plan to what is available through the new exchange. Although some individuals may find better coverage through the exchange, many will be better off keeping their current plan. Using exchanges are the only way to receive subsidy if your income is under 4x the poverty level. We encourage our Family Office clients to provide us with information about their current coverage because we will do this comparison for you and provide you with the results. For our Portfolio Management clients, we can provide you with the resources you need to do this comparison on your own, or we can do this provide this service for you on an hourly basis.
Currently Covered Through Your Employer’s Group Health Insurance Plan
The majority of individuals will receive more cost-effective coverage through their current employer’s plan versus going through the new exchange. If you are a Family Office client, please provide us with your current health insurance cost and coverage if you would like us to compare your current plan with what will be available through the new exchange.
Covered by Medicare
Medicare enrollment begins on October 15th and runs through December 7th. If you are eligible to enroll in Medicare, the new exchange markets should have no impact on your decision about coverage. Please provide us with your current Medicare (and Medicare supplement) cost and coverage information if you would like us to analyze if your current coverage is adequate. Note that there has been an increasing amount of scams and fraud related to the Affordable Care Act, many targeted towards seniors on Medicare. These criminals are trying to take advantage of people’s confusion about the new health care exchange in order to obtain your personal information. Please be cautious about who you give your personal information to and know that if you are covered by Medicare, you do not need any additional insurance in order to comply with the Affordable Care Act. If you are unsure if a letter/email/telephone call is a scam, call D3 for a second opinion before giving out any personal information.
Business Owners with W-2 Employees
The new Small Business Health Options Program (SHOP) is a marketplace that allows employers to compare various health care plans, and apply for a small-business health care credit that could pay up to 50% of their premium costs. The tax credit is available only for plans bought through the SHOP exchanges. This small-business equivalent of the individual exchanges also opens this Tuesday, October 1st. However, you will be unable to enroll online until November 1st.