What is the Economic CONSUMPTION FUNCTION Theory?

Posted on January 18, 2022 by Dr. Marcinko

WE ARE NOT CONSUMING AND THE MARKETS ARE DOWN

By Staff Reporters

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A Theory of the Consumption Function

One of Milton Friedman’s most popular works, A Theory of the Consumption Function, challenged traditional Keynesian viewpoints about the household. This work was originally published in 1957 by Princeton University Press, and it reanalyzed the relationship displayed “between aggregate consumption or aggregate savings and aggregate income.”

CITE: https://www.r2library.com/Resource/Title/082610254

Keynes: https://medicalexecutivepost.com/2016/05/25/keynesian-versus-austrian-economics/

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Consumption Function Definition

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Now, according to Wikipedia, Friedman’s counterpart Keynes believed people would modify their household consumption expenditures to relate to their existing income levels. Friedman’s research introduced the term “permanent income” to the world, which was the average of a household’s expected income over several years, and he also developed the permanent income hypothesis. Friedman thought income consisted of several components, namely transitory and permanent. He established the formula y = y p + y t {\displaystyle y=y_{p}+y_{t}} {\displaystyle y=y_{p}+y_{t}} in order to calculate income, with p representing the permanent component, and t representing the transitory component.

A model of the Permanent Income Hypothesis

Milton Friedman’s research changed how economists interpreted the consumption function, and his work pushed the idea that current income was not the only factor affecting people’s adjustment household consumption expenditures. Instead, expected income levels also affected how households would change their consumption expenditures. Friedman’s contributions strongly influenced research on consumer behavior, and he further defined how to predict consumption smoothing, which contradicts Keynes’ marginal propensity to consume. Although this work presented many controversial points of view which differed from existing viewpoints established by Keynes, A Theory of the Consumption Function helped Friedman gain respect in the field of economics. His work on the Permanent Income Hypothesis is among the many contributions which were listed as reasons for his Sveriges-Riskbank Prize in Economic Sciences. His work was later expanded on by Christopher D. Carroll, especially in regards to the absence of liquidity constraints.

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Of course, the Permanent Income Hypothesis faced some criticism, mainly from Keynesian economists. The primary criticism of the hypothesis is based on a lack of liquidity constraints.

HAYEK: https://medicalexecutivepost.com/2011/05/06/john-maynard-keynes-v-s-fa-hayek/

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QUERY: What is the CF for Healthcare?

MORE: https://medicalexecutivepost.com/2018/09/18/are-doctors-practitioners-of-conspicuous-consumption/

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MARKET UPDATE: Five Items to Watch this Upcoming Week

Posted on January 18, 2022 by Dr. Marcinko

By Staff Reporters

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Markets: The stock market was closed for Martin Luther King Jr. Day. Maybe a day off is just what the market needs to score its first winning week of 2022. But … For many stocks, 2022 was a real bear of a year. More than 220 US-listed companies with a market cap of $10+ billion are down at least 20% from their peaks. And things are even worse in the tech-heavy NASDAQ, where 39% of companies have dropped at least half from their all-time highs.

Economy: A combo of Omicron disruptions, higher inflation, and shortages of everything has caused forecasters to lower their projections for economic growth this quarter. Analysts surveyed by the WSJ dropped their Q1 forecast to 3% annual growth from 4.2% back in October.

Banks and Bitcoin: Big Bank earnings underwhelm; retail sales fell; Bitcoin has significant outflows. https://www.msn.com/en-us/video/peopleandplaces/brn-sunday-big-bank-earnings-underwhelm-retail-sales-fell-bitcoin-has-significant-outflows/vi-AASPR74

China: World shares were mixed after China reported that its economy expanded at an 8.1% annual pace in 2021, though growth slowed to half that level in the last quarter. And, Paris, Frankfurt, Tokyo and Shanghai advanced while Hong Kong and Seoul declined.

5 ITEMS TO WATCH: https://www.msn.com/en-us/money/markets/top-5-things-to-watch-in-markets-in-the-week-ahead/ar-AASPAb5?li=BBnb7Kz

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TELE-MEDICINE Fraud, Abuse and New Barriers!

Posted on January 18, 2022 by Dr. Marcinko

Telemedicine: Fraud and Abuse During the COVID Pandemic

By Susan Walberg

The COVID-19 pandemic has brought with it huge challenges for people all over the world; not only the obvious health-related concerns but also shutdowns, unemployment, financial difficulties, and a variety of lifestyle changes as a result.

When the COVID pandemic struck, CMS quickly recognized that access to care would be an issue, with healthcare resources strained and many providers or suppliers shutting down their offices or drastically limiting availability. Patients who needed routine care or follow-up visits were at risk for not receiving services during a time when healthcare providers were scrambling to enhance infection control measures and implement other new safety standards to protect patients and healthcare workers.

The Centers for Medicare and Medicaid Services (CMS) has responded by easing restrictions and regulatory burdens in order to allow patients to receive the healthcare services they need without undue access challenges. One key area that has changed is the restrictions related to telehealth services, which were previously only paid by Medicare under certain circumstances, such as patients living in remote areas.

Among the changes and waivers CMS has offered, telemedicine reimbursement is among the more significant. Telemedicine services, which includes office visits and ‘check ins’ are now allowed and reimbursed by Medicare. In addition to reimbursement changes, CMS has also relaxed the HIPAA privacy and information security enforcement standards, paving the way for providers to adopt a new model of providing services electronically.

TELE-HEALTH BARRIERS: https://www.statnews.com/2021/07/13/telehealth-provisions-emergency-patients/

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MORE:  https://medicalexecutivepost.com/2021/05/18/fraud-schemes-of-few-medical-providers/

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Will Mr. Market Eat Too Much Pi?

Posted on January 18, 2022 by Dr. Marcinko

By Vitaliy Katsenelson CFA

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This Holiday, Will Mr. Market Eat Too Much Pi?
You can also listen to a professional narration of this article on iTunes, Google & online.

Mr. Market was less than kind to our portfolio over the last few months, and especially the last few weeks. I cannot tell you how little it worries us what Mr. Market thinks about our stocks at any particular point in time. We love* our portfolio even if the Mr. Market doesn’t fancy it today.

Also, before we take Mr. Market seriously, let us tell you about the rationality of Mr. Market lately. The World Health Organization (WHO) names each variant of the Covid virus by going to the next letter of the Greek alphabet. After Delta, which is currently the most predominant variant of the virus ravaging the world, there must have been nine others that were not important enough because we never heard of them. Why nine? Because when the latest variant of concern was found in South Africa, it emerged that the letter Nu was supposed to be applied to it. But Nu sounds a lot like new. WHO didn’t want to confuse people, so it skipped to the next letter in the Greek Alphabet, which is Xi – oops, that’s the Chinese supreme dictator. So, for the sake of global political stability, that letter was skipped, too.
This brings us to Omicron, the name of the latest variant.

This is where this story gets a bit more interesting.

The one disruption that really puzzles me is the labor shortage. There are millions of jobs going unfilled today. I hear stories of Starbucks stores being closed due to a lack of workers. Every service that has a heavy labor component has gotten worse – be it restaurants, ride-sharing, or pharmacies. There happens to be a cryptocurrency, one of thousands, that is also named Omicron. I still cannot grasp the logic behind it, but that cryptocurrency was up 900% on the day the South African variant was christened. There must have been a trading algorithm or a lot of bored investors looking for the next gamble, to drive something seemingly worthless up 900%.

That is the drunken Mr. Market that is pricing our stocks today.

I am going to repeat what you will find me saying several times in the letter: We own businesses that are priced, not valued, by Mr. Market thousands of times a day. We have done a lot of work on each company in the portfolio, and through diligent research we have reached the conclusion that each is worth more than the price it is changing hands at today. Are we going to be right about each and every stock? Of course not. This is a numbers game. But we use a time-tested methodology centered on common sense and the cash flows these businesses generate. Also, this is not our first rodeo. We’ll go on making small tweaks, taking advantage of Mr. Market’s manic-depressive moods, at least when it comes to anything that generates cash flows.

Of course, we could change our investment process and load up on the cryptocurrency called Pi Coin, which happens to take its name from the letter in the Greek alphabet that follows Omicron. But I think we all agree we should stick to our knitting, buying high-quality businesses that are significantly undervalued. (Anyway we already loaded up on pie during Thanksgiving.)

Our advice – enjoy this holiday season. Spend time with your loved ones; don’t look at your portfolio. Let us worry about it – after all, we own the same stocks you do.

We wish you joyful and safe holidays.

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On Financial Futures for Physicians

Posted on January 18, 2022 by Dr. Marcinko

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What it is – How it works?

By Tim McIntosh MBA CFP CMP® MPH www.SIPLLC.com

Courtesy: http://www.CertifiedMedicalPlanner.org

TMA future is a financial derivative that represents the purchase of a particular investment at a predetermined date. Futures are traded on a wide range of investments (e.g., baskets of stocks, interest rates, currencies and commodities) and are useful tools for controlling the risk of cash flow timing for those that wish to lock in a particular price for a security.

Futures versus Options

Likewise, they also provide some insight as to the expected future price in the market of the security.

The key difference between futures and options is that futures obligate both parties to make the agreed upon transaction, whereas options give the option holder the right, but not the requirement, to make the transaction.

Trades

Futures are typically traded on an organized exchange, such as the Chicago Board of Trade (e.g., interest rate and stock index futures) or the Chicago Mercantile Exchange (e.g., foreign exchange and stock futures). The design of the contract traded on an exchange typically includes a pre-defined contract size and delivery month.

Margin Maintenance

Also, futures transactions generally require maintaining a margin deposit (i.e., a fraction of the trade value held in reserve to help ensure the final settlement at the contract settlement date) and the recognition of gains and losses on a daily basis with movements in contract prices.

Japan and world markets tumbling - dollar stronger

Assessment

The pricing of a futures contract is based upon the price of the underlying security (e.g., the S&P 500 Index price), the opportunity cost of cash (e.g., current borrowing rates) and any distributions expected from the security over the period (e.g., dividends).

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MORE: Futures

About the Author

Timothy J. McIntosh is Chief Investment Officer and founder of SIPCO.  As chairman of the firm’s investment committee, he oversees all aspects of major client accounts and serves as lead portfolio manager for the firm’s equity and bond portfolios. Mr. McIntosh was a Professor of Finance at Eckerd College from 1998 to 2008. He is the author of The Bear Market Survival Guide and the The Sector Strategist. 

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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