• Member Statistics

    • 835,871 Colleagues-to-Date [Sponsored by a generous R&D grant from iMBA, Inc.]
  • David E. Marcinko [Editor-in-Chief]

    As a former Dean and appointed University Professor and Endowed Department Chair, Dr. David Edward Marcinko MBA was a NYSE broker and investment banker for a decade who was respected for his unique perspectives, balanced contrarian thinking and measured judgment to influence key decision makers in strategic education, health economics, finance, investing and public policy management.

    Dr. Marcinko is originally from Loyola University MD, Temple University in Philadelphia and the Milton S. Hershey Medical Center in PA; as well as Oglethorpe University and Emory University in Georgia, the Atlanta Hospital & Medical Center; Kellogg-Keller Graduate School of Business and Management in Chicago, and the Aachen City University Hospital, Koln-Germany. He became one of the most innovative global thought leaders in medical business entrepreneurship today by leveraging and adding value with strategies to grow revenues and EBITDA while reducing non-essential expenditures and improving dated operational in-efficiencies.

    Professor David Marcinko was a board certified surgical fellow, hospital medical staff President, public and population health advocate, and Chief Executive & Education Officer with more than 425 published papers; 5,150 op-ed pieces and over 135+ domestic / international presentations to his credit; including the top ten [10] biggest drug, DME and pharmaceutical companies and financial services firms in the nation. He is also a best-selling Amazon author with 30 published academic text books in four languages [National Institute of Health, Library of Congress and Library of Medicine].

    Dr. David E. Marcinko is past Editor-in-Chief of the prestigious “Journal of Health Care Finance”, and a former Certified Financial Planner® who was named “Health Economist of the Year” in 2010. He is a Federal and State court approved expert witness featured in hundreds of peer reviewed medical, business, economics trade journals and publications [AMA, ADA, APMA, AAOS, Physicians Practice, Investment Advisor, Physician’s Money Digest and MD News] etc.

    Later, Dr. Marcinko was a vital and recruited BOD  member of several innovative companies like Physicians Nexus, First Global Financial Advisors and the Physician Services Group Inc; as well as mentor and coach for Deloitte-Touche and other start-up firms in Silicon Valley, CA.

    As a state licensed life, P&C and health insurance agent; and dual SEC registered investment advisor and representative, Marcinko was Founding Dean of the fiduciary and niche focused CERTIFIED MEDICAL PLANNER® chartered professional designation education program; as well as Chief Editor of the three print format HEALTH DICTIONARY SERIES® and online Wiki Project.

    Dr. David E. Marcinko’s professional memberships included: ASHE, AHIMA, ACHE, ACME, ACPE, MGMA, FMMA, FPA and HIMSS. He was a MSFT Beta tester, Google Scholar, “H” Index favorite and one of LinkedIn’s “Top Cited Voices”.

    Marcinko is “ex-officio” and R&D Scholar-on-Sabbatical for iMBA, Inc. who was recently appointed to the MedBlob® [military encrypted medical data warehouse and health information exchange] Advisory Board.

    entrepreneur

    Frontal_lobe_animation

  • ME-P Information & Content Channels

  • ME-P Archives Silo [2006 – 2020]

  • Ann Miller RN MHA [Managing Editor]

    ME-P SYNDICATIONS:
    WSJ.com,
    CNN.com,
    Forbes.com,
    WashingtonPost.com,
    BusinessWeek.com,
    USNews.com, Reuters.com,
    TimeWarnerCable.com,
    e-How.com,
    News Alloy.com,
    and Congress.org

    Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

    Product Details

    Product Details

    Product Details

  • CERTIFIED MEDICAL PLANNER® program

    New "Self-Directed" Study Option SinceJanuary 1st, 2020
  • Most Recent ME-Ps

  • PodiatryPrep.org


    BOARD CERTIFICATION EXAM STUDY GUIDES
    Lower Extremity Trauma
    [Click on Image to Enlarge]

  • ME-P Free Advertising Consultation

    The “Medical Executive-Post” is about connecting doctors, health care executives and modern consulting advisors. It’s about free-enterprise, business, practice, policy, personal financial planning and wealth building capitalism. We have an attitude that’s independent, outspoken, intelligent and so Next-Gen; often edgy, usually controversial. And, our consultants “got fly”, just like U. Read it! Write it! Post it! “Medical Executive-Post”. Call or email us for your FREE advertising and sales consultation TODAY [770.448.0769]

    Product Details

    Product Details

  • Medical & Surgical e-Consent Forms

    ePodiatryConsentForms.com
  • iMBA R&D Services

    Commission a Subject Matter Expert Report [$2500-$9999]January 1st, 2020
    Medical Clinic Valuations * Endowment Fund Management * Health Capital Formation * Investment Policy Statement Analysis * Provider Contracting & Negotiations * Marketplace Competition * Revenue Cycle Enhancements; and more! HEALTHCARE FINANCIAL INDUSTRIAL COMPLEX
  • iMBA Inc., OFFICES

    Suite #5901 Wilbanks Drive, Norcross, Georgia, 30092 USA [1.770.448.0769]. Our location is real and we are now virtually enabled to assist new long distance clients and out-of-town colleagues.

  • ME-P Publishing

  • SEEKING INDUSTRY INFO PARTNERS?

    If you want the opportunity to work with leading health care industry insiders, innovators and watchers, the “ME-P” may be right for you? We are unbiased and operate at the nexus of theoretical and applied R&D. Collaborate with us and you’ll put your brand in front of a smart & tightly focused demographic; one at the forefront of our emerging healthcare free marketplace of informed and professional “movers and shakers.” Our Ad Rate Card is available upon request [770-448-0769].

  • Reader Comments, Quips, Opinions, News & Updates

  • Start-Up Advice for Businesses, DRs and Entrepreneurs

    ImageProxy “Providing Management, Financial and Business Solutions for Modernity”
  • Up-Trending ME-Ps

  • Capitalism and Free Enterprise Advocacy

    Whether you’re a mature CXO, physician or start-up entrepreneur in need of management, financial, HR or business planning information on free markets and competition, the "Medical Executive-Post” is the online place to meet for Capitalism 2.0 collaboration. Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds. THE ME-P DISCLAIMER: Posts, comments and opinions do not necessarily represent iMBA, Inc., but become our property after submission. Copyright © 2006 to-date. iMBA, Inc allows colleges, universities, medical and financial professionals and related clinics, hospitals and non-profit healthcare organizations to distribute our proprietary essays, photos, videos, audios and other documents; etc. However, please review copyright and usage information for each individual asset before submission to us, and/or placement on your publication or web site. Attestation references, citations and/or back-links are required. All other assets are property of the individual copyright holder.
  • OIG Fraud Warnings

    Beware of health insurance marketplace scams OIG's Most Wanted Fugitives at oig.hhs.gov

Will Retirement Be a Bust for [Doctor] Boomers?

Join Our Mailing List

Are Doctors Different?

By Rick Kahler MS CFP® ChFC CCIM

www.KahlerFinancial.com

If you’re a lay or medical professional Baby Boomer, or your parents are, here’s a ray of sunshine to brighten your day: Boomers have so severely underfunded their retirements that Congress may turn to their children to bail them out.

Dr. Basu Speaks

This is the gist of an article in the April issue of Financial Advisor magazine, by ME-P “thought-leader” Dr. Somnath Basu PhD, professor of finance at California Lutheran University. He notes, “The problem could be as big, if not bigger, than the 2008 financial crisis.”

The Study

A new study by the Center For Retirement Research, Boston College, detailed on CNBC.com, finds the retirement years for Boomers will be much leaner than for their parents. An estimated 51% of them will be unable to maintain their current lifestyles in retirement.

Ironically, one major contributor to this bleak picture is the Boomer generation’s own optimism and positive thinking. Raised in a society of abundance with expectations of prosperity, Boomers have over-spent and under-saved for decades. Many of them assume they will receive ample inheritances. They see increased life expectancy as a wonderful thing, forgetting to factor in the higher medical costs that will come with it. They expect to work well into their 70′s, disregarding statistics that show many of them will be forced to retire sooner due to health problems or job layoffs.

The Numbers

Let’s look at some decidedly pessimistic numbers from the Center For Retirement Research study. The median 401(k) and IRA balance for Boomers nearing retirement is $78,000. Only around half can expect to inherit from their parents, with the median inheritance amount $40,000. That adds up to a total nest egg of $118,000, which at a 4% withdrawal rate provides less than $400 a month for life. Combining that with the average Social Security check of $1,077 means retiring on an income just above the poverty level.

What’s the Solution?

Many Boomers say they plan to never quit working. Unfortunately, this is delusional. According to a new survey by the Society of Actuaries, “The 2011 Risks and Process of Retirement Survey,” over one-third of Boomers think they will never retire and only 10% say they will retire by 60. Statistics show, however, that 50% have actually retired before age 60. The main reasons are health and downsizing, which boomers discount. Well over 90% of them maintain they have a healthy lifestyle and won’t get sick. Boomers are so out of touch with reality I wonder how many, if asked, “Will you ever die?” would answer, “No,” or “Maybe.”

Sadly, only one-third of Boomers have a plan for financing their retirement, other than planning to work until the day they die. What’s the solution for the remaining two-thirds who are unprepared?

Unfortunately, for many older Boomers it is already too late. Their lack of planning for their retirement years may mean forcing their children and grandchildren to decide whether taxpayers can afford to pick up the tab.

Assessment

Younger Boomers can take control of their retirement by radically downsizing their lifestyles and increasing their income. This means selling expensive homes, cars, and toys and living as frugally as possible. The resulting savings should first go to pay off high-interest debt, then to fund to the max every available retirement plan. Another possibility is to consider various employment options, including government jobs which offer pension plans unavailable in most private sector jobs.

Conclusion

Wise Boomers will also encourage their own children to emulate the frugality and money skills of their grandparents. The kids will need those skills for their own futures—especially if they have to help their Boomer parents pay the bills.

But, are doctors the same as the rest of us – or do they differ on this issue?

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

Our Other Print Books and Related Information Sources:

Health Dictionary Series: http://www.springerpub.com/Search/marcinko

Practice Management: http://www.springerpub.com/product/9780826105752

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Hospitals: http://www.crcpress.com/product/isbn/9781439879900

Physician Advisors: www.CertifiedMedicalPlanner.org

Product Details  Product Details

Dr. Somnath Basu on Retirement Happiness [Video Clip]

Join Our Mailing List

By Staff Reporters

A PodCast Clip

This brief podcast clip features Dr. Somnath Basu, director of the California Institute for Finance [CIF].

Dr. Basu, a popular ME-P thought-leader, shares his insights on what makes people happy in retirement.

Assessment: http://www.youtube.com/watch?v=iTrtmW831Xk

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product Details  Product Details

Dr. Somnath Basu on Financial Planning Client Expectations [PodCast]

Join Our Mailing List

By Staff Reporters

On Client Attitudes in the New Economy

In this encore podcast, Somnath Basu PhD examines how the recent economic turmoil has changed financial planning clients’ attitudes and expectations.

Dr. Basu is a popular ME-P contributor and thought-leader.

Assessment: http://www.youtube.com/watch?v=jzAkB8h5v3Q

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product DetailsProduct DetailsProduct Details

Product Details  Product Details

   Product Details 

Why Physicians Need to Deal with Debt

Understanding the Impending Retirement-Planning Crisis

[By Somnath Basu PhD, MBA]

A serious retirement-planning crisis is looming in the US with many Baby Boomer physicians, and others, having already spent a portion of their nest egg and undermining any hope for a comfortable lifestyle unless they continue to work. Notwithstanding medical professionals, look no further than an annual “retirement confidence” survey conducted by the Employee Benefit Research Institute and Mathew Greenwald & Associates in each of the past 17 years. Nearly two in five of working Americans responding to the latest survey indicated that they have taken no action in the face of reductions in their employer-provided retirement benefits.

Consumption Equals Happiness?

The population is constantly told that consumption equals happiness. At the same time they are not being asked to understand about the implications of borrowing to fund for such consumption. Before we can expect to effect a change in the ensuing pattern of a vicious cycle, the population mass must have a clear understanding of the difference between needs (e.g., retiring with peace of mind) and desires (e.g., cruises or living the high life).

Negative Savings Rate

When savings first dipped into negative territory during the Great Depression in 1932 and 1933, people didn’t have enough to eat, whereas there has been no such urgency to raid nest eggs since the repeat of this performance in 2005 when the rate fell to minus 0.5 percent. Our grandparents were shining stars in the way they worked hard to build this country’s infrastructure and manufacturing sector, saved every red cent they could get their hands on and created affluence on a mass scale. Today we’re able to enjoy the fruit of their labor. But, somehow their values were lost on future generations.

Changing American Culture

Many of the nation’s top engineers and scientists now hail from China, India and other Asian countries as American culture has undergone a dramatic change to the point where jocks and cheerleaders are more valued than computer geeks and science nerds in our schools. We inherited so much affluence that it made us lazy as a society. The seeds of our destruction have been sown, but it’s up to our politicians, educators and other leaders, including financial advisors, to help reverse this disturbing pattern before it’s too late.

Many people fall into the trap of rushing through dinner and unwinding in front of the TV where a big part of the problem lies in slick and subtle, and hard to resist, primetime advertising and marketing messages (prime time for subtle messages) that seduce viewers into purchasing luxury cars or flying to far-flung resorts where they can sip umbrella-clad cocktails alongside affluent vacationers.

Americans in Debt

A recent wave of foreclosures has put Americans deeper in debt, with the sub-prime crisis exposing despicable predatory lending practices. But, research has shown the wreckage also could be found strewn across in the mid-prime and prime markets as middle-class borrowers struggled to pay adjustable rate mortgages. High hopes have been pinned on the stock market helping people crawl out from this crisis just like when the real estate market had softened the blow when the tech-bubble burst at the turn of this century. So far, this has happened, to an extent. But, if the stock market starts reeling again, then it will spell even bigger trouble. Add to this the international trade imbalance, which implies foreign governmental funding of our conspicuous consumption, and which comes with high interest rates that need to be paid to the lenders, again to such countries as China, India and other emerging economies, and a bigger, worse picture emerges.

Personal Bankruptcies

Personal bankruptcies have an even more devastating effect on an individual’s ability to plan for the future, particularly since the laws pertaining to this area were toughened to a point where reckless spenders will need to muster fiscal and financial discipline as never before. The doomsday scenario is that children now run the risk of inheriting debt instead of wealth, and it’s unconscionable to think future generations would have a standard of living that’s worse than their parents or grandparents.

Assessment

The true grit associated with being an American is to rise up in the face of adversity – a frontier spirit that drew me this remarkable country. We’ve weathered numerous storms and can do it again. But, it requires a serious commitment to stopping mindless consumption of goods and services, as well as understanding there’s a difference between basic needs and pie-in-the-sky desires.

NOTE: Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. He is also the creator of the innovative AgeBander technology www.agebander.com for planning retirement needs.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product Details  Product Details

Product DetailsProduct Details

To Save or To Spend?

Understanding the Decision

By Somnath Basu PhD, MBA

Should we save or spend? What’s good for me and my family? Is the time right for us to be buoyant and optimistic about the future? How do we decide what fraction of our income to spend and how much to save? Isn’t spending a good thing for the economy as we are constantly being reminded about? If we do not spend now, how are we going to feel about all these unfulfilled wants and needs that we have especially when we see others around us fulfilling? How much should I spend for gifts during this holiday season – is that not a good idea to bring cheer to my family? It is a very perplexing set of questions that constantly sway our mind as we try to grapple with what we feel should otherwise be moderately simple decisions. In arriving at these seemingly easy decisions, consumers are facing some of the toughest issues in their everyday lives. It may be useful to dig a bit deeper into the issues related to spending and saving decisions so that we may understand a bit of their complexities and make prudent choices whose outcomes will clearly validate our reasons for doing so.

The Save or Spend Decision

If the decision to save or spend is problematic, it is because it is neither simple nor anything new. We have coped with these same decisions through many generations, and more. The understanding we have collectively arrived at is, however, worth visiting. When we spend, we receive immediate gratification. This “feel good” feeling is so good that we are willing to sacrifice a lot in order to attain this feeling. Saving, on the other hand, is bereft of any such immediate good feeling. The only good feeling that can accrue to us is that we have this “felt’ promise to ourselves that a moment in the future will feel better than both the loss of satisfaction from immediate gratification of wants and the hurt of having unsatisfied wants. Alternately, we may want to save because we feel threatened that a future situation may arise that may lead to more misery tomorrow than the joy gained today. Thus, the main question in trying to answer whether to save or not is whether it is a promise or a foreboding about the future.

Attitudinal Sea Change

Over the last 25 years, our attitude towards spending has undergone a sea change. Even until the early 1980s we were saving in double digits as a nation. Since then, we have slowly moved away from this psyche and have adapted our lifestyles towards spending and consumption on a scale we have never experienced before, historically. By 2006, we were actually spending about one percent more than what we were earning. This change was stimulated by many factors including the plentiful inflow of cheap products from China, a steady rise in income, a considerable increase in the promotion of mass consumption through enticing advertisements in practically all media, the access to cheap credit sources, increasing house prices and the accompanying ability to borrow from the increase in its equity value, etc. Above all else, this shift from saving to spending was overwhelmingly reinforced by the feeling of empowerment in being able to command goods and services for consumption and the enjoyment from the increase in our standards of living that came from our new found affluence. Whereas every generation before us (baby boomers) had sought to leave more for their kids than what they themselves inherited, we reasoned with ourselves that educating our children was sufficient for them to look after themselves. This attitude allowed us also to spend and consume more not only without guilt, but also with pleasure. More so than ever, we got addicted to spending. Nothing felt better than spending.

The Flash Crash of 2008-09

Then came the great recession of 2008-09! The economy plunged, companies laid off workers by the thousands, people who had bought homes even if they could not afford it, on the promise that house prices would never go down, lost their homes. Moreover, the cheap Chinese goods we got used to were being produced by our own national companies so that the economic rebound was now being hailed as a jobless recovery. We had outsourced away all we had for some corporate bottom line and had impoverished ourselves in the process. Only now, we had no savings for the rainy day that had befallen us.

Americans Saving Again

Perhaps one of the more pleasant surprises from this recession is that we turned the clock around on saving and in the short span of two or three years we have our savings level back at five percent. Why did it happen this way in spite of our government encouraging us to spend our way out of this recession? Primarily, this change has come about from the possibility of losing our jobs or enduring deep cuts in our incomes. This fear today is more real than ever before and it seems to have taught us a “savings” lesson that we have all learned. When deciding on whether and how much to spend, we should take absolutely no chances in first putting away a small nest egg for a rainy day or “emergency” fund, in more technical terms. It is imperative that we defend our families in the event of losses in job and income so that we can bear out whatever future storms come by our way. It is only after we have done so should we consider spending. A six-month contingency fund [even more for medical professionals, according to ME-P Editor Dr. David E. Marcinko] should be perhaps the most staple item in our household budget. It is heartening to see the resiliency that runs through our nation’s citizens as we collectively undo our habit of reckless spending.

Assessment

Once we have our emergency nest egg in place, we should consider our spending pleasure. Going “cold turkey” on spending is not advisable either; maybe a gradual weaning away from this compelling habit. Ask yourselves before you spend whether it is a “need” or a “want”. Healthy food and holiday cheer for the family, basic transportation expenses and healthcare are needs. Starbucks coffee is a want. As we prudently spend on needs and wean away from wants we also save. And saving is not only for our future “feel good” consumption. It is also for the immensely gratifying feeling that we will leave something for our children, through whom we will live in the future.

NOTE: Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. He is also the creator of the innovative AgeBander technology www.agebander.com for planning retirement needs.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Is this portrayal accurate or even applicable to medical professionals?  Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Sponsors Welcomed: And, credible sponsors and like-minded advertisers are always welcomed.

Link: https://healthcarefinancials.wordpress.com/2007/11/11/advertise

 

A New Model for Planing Physician Retirement Needs

Understanding Age Banding

By Ann Miller RN, MHA

[Executive Director]

Join Our Mailing List 

From time to time, our readers send in e-books, files or e-chapters, pamphlets or other material they have created for client, educational or marketing use. Some of it may be worthwhile; some not so. Nevertheless, these publications are often a good place to start the conversation, or thought-process on related topics.

They will be occasionally offered as a complimentary membership feature of the Medical Executive-Post.

  • Age Banding [author]
  • Somnath Basu PhD, MBA  [www.clunet.edu/cif]
  • [Director California Institute of Finance]

Link: AgeBander

 

 

Disclaimer

No advice offered. We make no copyright claim to these works. Veracity and information should be considered time sensitive. Always consult a professional for your situation.

Assessment

Feel free to send in your own material for the benefit of all Medical Executive-Post readers and subscribers.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

 

Product Details  Product Details

Current Retirement Investment Options for Physicians

Understanding Build America Bonds

By Somnath Basu PhD, MBA [www.clunet.edu/cif]

[Director California Institute of Finance]

There is heartening news for those of us in retirement or approaching it. There’s a new type of bond called the Build America Bond or BAB. The BAB, along with an older and often ignored retirement investment, is viewed as positive developments for those saving for retirement. But, before a doctor, or any investor, jumps into these investments, some background information is required.

The Accumulation Phase

When people in their early careers save, their primary objective should be that their money grows healthily. They generally should invest in stocks which provides for longer run growth. This phase of our financial life can be called the “Accumulation Phase.”

The Preservation Phase

However, people in their mid- to end-careers (roughly between the ages of 40 – 65) start switching their objectives towards a more conservative future growth in their current savings, especially those associated with emergencies and retirement. This phase is usually identified as the “Preservation Phase” where individuals should begin switching their investments towards more fixed-income securities, such as bonds and bond funds. This idea of how reasonable people “should” behave is commonly known as the life-cycle hypothesis of investments.

The Decumulation Phase

Finally, people in retirement, those who are in the phase termed as the “Decumulation Phase,” should have a healthy dose of bond-type investments in their retirement portfolios.

Strange as it may be to some, this opinion about the investment life-cycle actually contains a lot of truth. If most people followed this basic rule, we would be better off this way than by any other method and especially in times like the recent financial tsunami that hit us. Those hit especially hard were people between the ages of 55 and older who held unhealthy amounts of stocks in their portfolios. Following this simplified version of retirement investments is both easy and effective.

All we do as we age is reduce our stock investments and increase our bond investments. While such a strategy reduces the growth of our wealth it also protects us from large to calamitous losses.

Unfortunately, the last 10 years or so have not been good for bond investments because bond prices have been at or near all-time highs and their returns near all-time lows. The following picture shows the rates one would earn by investing in the government’s (highest safety) 10-Year Treasury Note. Many bonds and mortgages (and subsequently the respective funds) use the 10-Year rate as the benchmark rate.

Graph: 10 T Year Note

As can easily be seen, these rates have come down steadily. A result has been the difficulty, of late, to find (the safer type) bond funds because they have been so expensive. However, one recent development in this field is worth mentioning: that is the emergence of a class of (stimulus-related) bonds known as the “Build America Bonds” or BABs, which for the first time in many years offers investors a very suitable entry to convert stocks into bonds. BABs, which were introduced in April 2009, are an innovative new tool for municipal financing created by the American Reinvestment and Recovery Act of 2009. BABs are taxable bonds for which the U.S. Treasury Department pays a maximum of 35 percent direct subsidy to the issuer to offset borrowing costs.

The second issue of note is that at this point, it is quite expensive to hold cash in money market type funds because of the dismal rates offered on very short-term products. An alternative that physicians and all investors should contemplate purchasing instead of CDs, and money market deposits, is a class of bonds, issued by the Government and known as Treasury Inflation Protected Securities, or TIPS. These investments sold directly by the government to you (at http://www.TreasuryDirect.gov) are excellent vehicles for holding funds as they guarantee that your money will hold its buying power over time and a bit more. TIPS are a great way to hold the capital you will need in the short term. The following picture shows the stability of the TIPS rate; a much safer and more stable investment opportunity than short term Bank CDs, recent money market funds, etc.

Graph: TIPS Rate

Build America Bonds [BAB]

The Build America Bonds program, created by the American Recovery and Reinvestment Act, allows state and local governments to obtain much-needed financing at lower borrowing costs for new capital projects such as construction of schools and hospitals, development of transportation infrastructure, and water and sewer upgrades, according to a recent U.S. Treasury Department press release. Under the Build America Bonds program, the Treasury Department makes a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the bonds.

Here’s how BABs work according to the Treasury Department:

“The bonds, which allow a new direct federal payment subsidy, are taxable bonds issued by state and local governments that will give them access to the conventional corporate debt markets. At the election of the state and local governments, the Treasury Department will make a direct payment to the state or local governmental issuer in an amount equal to 35 percent of the interest payment on the Build America Bonds. As a result of this federal subsidy payment, state and local governments will have lower net borrowing costs and be able to reach more sources of borrowing than with more traditional tax-exempt or tax credit bonds. For example, if a state or local government were to issue Build America Bonds at a 10 percent taxable interest rate, the Treasury Department would make a payment directly to the government of 3.5 percent of that interest, and the government’s net borrowing cost would thus be only 6.5 percent on a bond that actually pays 10 percent interest.”

Join Our Mailing List

Assessment

According to the Treasury Department, Build America Bonds have had a very strong reception from both issuers and investors.  From the inception of the program in April 2009 to March 31, 2010, there have been 1,066 separate Build America Bonds issuances in 48 states for a total of more than $90 billion. Read more about BABs at this site

http://www.treas.gov/press/releases/docs/BuildAmericaandSchoolConstructionBondsFactsheetFinal.pdf

Now, until the general level of interest rates go back to their normal states, it will be difficult to find another opportunity such as this one. This is especially true of investments that are made to local governments through their taxable investments. Municipal bonds are typically considered less risky. Add to this the partial guarantee of the Govt. and you have the makings of a very safe Bond fund providing an average yield of nearly 6% for medium-term duration. There has been a dearth of such fixed income investments in the Bond markets for quite a while. Thus, for doctors and all of us at or nearing retirement age, an exploration and investigation of BABs is an absolute must.

 

Editor’s Note: Somnath Basu PhD is program director of the California Institute of Finance in the School of Business at California Lutheran University where he’s also a professor of finance. He can be reached at (805) 493 3980 or basu@callutheran.edu. See the agebander at work at www.agebander.com

 

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product Details  Product Details

Preparing Physicians for Financial Emergencies

Join Our Mailing List

Domestic Personal Savings Rate Increasing?

By Somnath Basu PhD, MBA [www.clunet.edu/cif]

[Director California Institute of Finance]

There is a heartening change that we are observing today, an event that is truly national in character. At the bottom of the financial abyss we single-handedly turned around our personal savings for the first time in 12 years.  The chart (Department of Commerce publications data) below expresses this turnaround emphatically.

Graph: Personal Savings Rate

It is the timing of this turnaround that is so heartening. The realization that this crisis may truly be worse than any other enabled us as a nation to halt this decline. We have our emergency “nest eggs’ rebuilt again. Amazing still is that this feat was achieved with a determined effort to curtail our consumption levels to ensure that our emergency funds were rebuilt. Again, a similar chart expresses this aspect much better.

Graph: Change in Consumption

What next then?  With our emergency nest eggs rebuilt, we must now ponder the question as to continue to increase our savings or not. For lay and senior physicians, the object would be to ensure they did not outlive their funds. For those medical professionals, and the rest of us, between the ages of 45-65 in general, retirement must loom somewhere, and retirement is sweet. Similarly, for those between ages 25 to 45, thoughts would turn towards families, home purchase and children’s education; all worthwhile savings objectives.

Assessment

Thus, the central question is whether we should increase our current consumption or postpone consumption to attain our future objectives. Only time will tell whether we continue the trend of increasing savings and moderating consumption or whether we go back to drawing down on our savings to increase current consumption.

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. What is your propensity to save or consume? Is it more or less for medical professionals? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe. It is fast, free and secure.

 

Editor’s Note: Somnath Basu PhD is program director of the California Institute of Finance in the School of Business at California Lutheran University where he’s also a professor of finance. He can be reached at (805) 493 3980 or basu@callutheran.edu. See the agebander at work at www.agebander.com

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product Details  Product Details

The Economics of Stock Market Fear for Physicians

Panic Control and the Possibility of Severe Financial Degradation 

By Somnath Basu PhD, MBA [www.clunet.edu/cif]

[Director California Institute of Finance]

An experiential learning of mammoth proportions occurred several weeks ago in the financial markets. The absolute 10 minute freefall of the prices of stocks and bonds, without any pre-notification froze the hearts of many physicians and lay others both in, and outside, of the investment community. The possibility of a one trillion dollar loss had suddenly and unexpectedly turned real. It happened in a matter of minutes. This experience of panic, of the possibility of a severe economic degradation of life becoming immediately real, is like none other that most of us can ever remember experiencing. Even the 1987 crash happened over a large part of that Monday. Like then, this time too there is no known reason of why it happened, though attempts are being made to understand the cause(s). Whatever the reasons may be, it will not change the experience we had of the realization of the fear of a sudden and unexpectedly large loss.

Event Analogies

Before going deeper into the experienced fear, it is useful to provide some analogies to the event. If the meltdown in the financial markets of 2008 was like an earthquake, then this was like a severe aftershock. It is also similar to going down one of those severe roller coaster freefalls that some may consider very undesirable. Alternately, what makes a 30 year old physician be mostly unconcerned about his/her lack of retirement savings while a 60 year old doctor in the same poor condition is much more concerned. Obviously, the possibility of a lower quality of economic life is much more real for the elder than the younger. In such cases we would expect the fear of an economically degraded life to spur people to take preventive or remedial action.

Understanding Fear

To truly understand our responses to fear, we need to go deeper into our minds. According to behavioral psychologists and neurologists both, there are various segments within our mind. For example, one segments of our mind (the frontal lobe) is understood to process analytical tasks. Similarly, other parts of our brain (the older limbic system composed of mammalian and reptilian brains) react to and affect/control our emotions and fear. When we are faced with an immediate threat, this older system takes over control of our reactions and often drives us towards instinctive responses and will not, in general, make the analytically reasoned response. It is similar to learning about all the different ways we need to behave in the wild if we came across a bear. When people actually are faced by such a situation, they rarely remember all their learning and respond with their instincts. Those are the limbic responses. In other words, when threats are real, our emotional mechanisms will dominate our rational mind and we will react according to our older and longer existing nature.

Shocked Limbic System

Such was the effect of the financial freeform. In those 10 minutes the economic shock to our limbic system was the first of its kind, in terms of magnitude. While discussions are held about sudden unexpected losses, typically the impact of sudden huge losses in a very very short period of time is rarely thought of in very meaningful ways because the probability is so very low. This time, it did actually happen! We will bear some consequences which will begin playing themselves out slowly over this summer. For one, the investing nation will be much more circumspect about stocks and other volatile financial instruments. In a more technical way, our risk aversion as a nation will have suddenly increased. This will have an impact on both trading volume and security market prices and eventually on portfolio values. How younger physicians and other investors will react is less known.

www.CertifiedMedicalPlanner.com

Assessment

Finally, there is one important lesson in behavioral finance for us all – and that is for medical professionals to find competent financial advisors and planners who can safely herald all people in these times. It also is probably an important point to understand why the portfolios of older physicians should consider safety of principal first whilst the younger ones focus on growing their wealth.

Editor’s Note: Somnath Basu PhD is program director of the California Institute of Finance in the School of Business at California Lutheran University where he’s also a professor of finance. He can be reached at (805) 493 3980 or basu@callutheran.edu. See the agebander at work at www.agebander.com

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Would anyone like to discuss neurotransmitters or chime in on the flight or fight response? Are these very human reactions any different for doctors? How about feelings of “fear” or stock-market “panic attacks?”

Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe. It is fast, free and secure.

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Sponsors Welcomed

And, credible sponsors and like-minded advertisers are always welcomed. 

Link: https://healthcarefinancials.wordpress.com/2007/11/11/advertise

Of Wants, Needs, Economic Sustainability and Even Healthcare Reform

A Social Domestic Healthcare Initiative?

By Somnath Basu PhD, MBA [www.clunet.edu/cif]

[Director California Institute of Finance]

Necessities, conveniences and luxuries are an articulation of the hierarchy within wants and needs. The scale and scope of this hierarchy seems quite seamless at the surface. Food, micro waved dinners to gourmet meals. Transportation needs become personal transportation needs and then into Ferraris. Family picnics are replaced by TVs and then by exotic vacations. Home rentals needs change to the wanting of mansions.

As we move up each of the needs totem poles, our monetary requirements stretch endlessly; otherwise if we were all able to bask in everlasting luxury, the end of capitalism and free markets would be in sight. The ideal of everlasting luxury forever too is therefore necessarily unachievable but something that is pursuable, forever. In this vein of reasoning, all of society’s resources and endeavors must go towards attaining this ideal. What then are the limitations of such pursuits?

The above concept of needs and wants also defines layers of society by their consumption abilities. It also defines the pressures imposed upon the growth of GDP from large sections of society to increase their consumption. It is a single-minded pursuit by the upper middle-class of society to strive towards the entering the class of the wealthy, followed by the middle class seeking upper-middle class status, etc. The wealthy comprise a group who are small in number (10% or less) but who account for more than 67% of the ownership and consumption of resources and production, respectively. As large numbers of people start striving to break into the next higher classes of citizenry, pressures increase for GDP to grow. Over time, the wealthy get wealthier, some new entrants appear in each socio-economic group while the general population at large become poorer and more frustrated from this sum-zero game. At some point, the sustainability of the economic system is tested and then broken; societies develop, peak and then wither through strife.

GDP Pressures

For the event of the entire upper-middle class citizenry of joining the class of the wealthy to happen, the GDP would probably need to grow at about a rate of 10 – 12% per year, for each of the next 10 to 20 years! We can easily deduce that for the remaining 80% of the population, the ideal is mostly unachievable. Thus, it may be useful to ask ourselves what is a desirable benchmark for our way of life? “How much money do we need to be happy?” may be another variable approach. Clearly, there are social costs arising from our relentless pursuits of wealth.

To properly assess the cost-benefits of our economic system we need to explore two issues at the heart of the situation. One is the production of wealth. The second is its distribution. Clearly, distributing some wealth inequally is preferred to distributing nothing equally. The question then becomes one of society’s tolerances of inequality. Thought another way, how is enough provided at each level of society such that there is strive and not strife, such that the entire society is better off.

The Elderly

One victim to the current economic system is the elderly. In relentlessly pursuing growth and consumption of luxuries over anything else, we often forget to save for the years where we are no more productive, in a GDP sense.  The retirement woes of the generation of unprepared baby boomers can be seen in articles and papers in many depressing data forms. The main reason we fall victim to being unprepared for retirement is the need to spend every penny we earn on consumption so as not to forget that we are striving to attain the ranks of the upper echelons of society and which demands that our consumption and lifestyles mimic those we aspire to emulate. Using this example, we can take a closer look at some of our spending patterns and understand the pressures we impose upon our savings, GDP growth and the limitations inherent in such growth.

 

What is Enough?

We spend about 17% on transportation, another 15% on food, and about 35% on housing. This is the national average. If collectively we wished to move into the class of the wealthy, we would impose immense pressure on GDP, one that would clearly not be sustainable. That begs the question as to what’s enough. There is somewhere along these lines of reasoning a place of social well being, where the pressures of producing wealth do not dominate our lifestyles.

Global Considerations

On another plane an argument can be made for the prolongation of our imperial life cycle. As with any cycle, micro or macro, our rein at the top of the global economic cycle is waning; the question then becomes as to what course of action can slow down our descent. It is the respite we need where we can also plan for our grandchildren and beyond, rather than be engrossed in current mindless consumption and the bequest of their repercussions for generations to come. Slowing down consumption is one way of prolonging our place near the top; our “apparent” successor, China, depends mostly on us to buy the goods that they produce on our behalf. Developing fully China’s own middle markets for consumption and reducing its dependency on our consumption will take more than one lifetime for the Chinese. On the same note, let us not give away our technological supremacy to India either. In pursuit of the bottom line and exporting many technical and business jobs to India in the name of bottom line economics will also eventually impoverish our own citizens.

American Economics Nobel laureates

A recent study conducted by two American Economics Nobel laureates (Joseph Stiglitz and Amartya Kumar Sen) examined the very issue of GDP focus on behalf of the Government of France. Their findings were of a similar vein where they questioned the government’s fixation with GDP and society’s need for a balanced, sustainable and comfortable lifestyle. They found that using only GDP as the benchmark lead to myopia of sorts amongst government officials that people are happy and satisfied or that their relentless pursuit of GDP growth does not matter to them. The scientists also found that a need exists among people to also have an achievable benchmark of happiness and satisfaction with life without the mires of just GDP alone.

In a sense, if people can be liberated from the necessary requirements of basic living (food, shelter, basic healthcare and retirement), the self-induced pressures to outperform economically, along with the accompanying social malaises, would not be necessary; our lifestyles would also possibly change in very meaningful and simplifying ways as we seek more sustainable allocations of our land, labor and capital.

While the idea above may sound utopian at first, it may be useful to note that there are some societies in the world (primarily Scandinavia) where a much smaller version of such a system exists. First, a visit to any of those countries will persuade any American that their style of life is no less than ours. This is in spite of lesser wages and a staggering (income and sales) tax burden. However, ironically, it is the latter reason (high tax rate) that allows the citizens in Scandinavia to enjoy free education (up to any academic level and including boarding, lodging and international studies!), adequate and free healthcare, subsidized and efficient transportation and a basic pension for all upon retirement. However, this magic is mainly because of a small and highly efficient government giving back probably 90 cents for every dollar worth of taxes collected. Now, that is public good.

Join Our Mailing List

The First Issue

What are the issues for us to scale to such a system? Obviously, the first is not having such a big and unwieldy government. Unfortunately, a lean, mean and highly efficient government is not foreseeable for us either in the near future and neither are higher tax rates. Higher tax rates just drives high income individuals and businesses underground and is not a market solution. Can our society at large demanding such a welfare state, be willing participants in such a system and demand such a government? If it did, we certainly could sail smoother through our busy impersonal lives. Having the GDP monkey off our backs will certainly calm us; consider the intense polarization in political thought around the globe arising from inequities of both consumption and thought. A sustainable solution that creates a safety net for all citizens would indeed be desirable for any society.

The Second Issue

This brings back the second issue, the issue of wealth distribution among society. Even when a non-market system (such as taxes) does not work in making society more egalitarian, a reallocation of wealth is somewhat desirable but no tools exist to make this happen. Possibly, the only market solution is philanthropy where suppliers provide capital for fulfilling social needs.

In the true sense of a long run, the ethical decision of philanthropy is also utilitarian; the value of the family name pays back handsomely to the family over the years. It is well known that where moderately large inheritances are left purely to the children and family inheritors, the family descends into decadence and the wealth is squandered in about three generations.

Of Relentless Pursuits

In a society where economic demarcation lines cannot be drawn but exist, the population at large will go towards a state of constant strife for higher status and eventually self-destruct. In other words, a mass population fed on this idea of relentless pursuit of income or wealth will eventually not be able to sustain itself and disintegrate and decay in its social fabric. In the long run, keeping people distracted by wars, economic woes or other narrow global or domestic events will not keep people placated forever; people have a way of collectively being heard.

Our Global Role

While the above may seem like a commentary on our own social system, it is not. The recent financial disasters have taught us that going into the future, no solution can remain purely domestic in nature. This world, through the unifying effect of the financial disaster, has learnt like never before, that any sustainable solution has to be global in nature. Now, more than at any time before, we must shed any feeling of ethnocentrism and nationalism and prepare to enter and lead the world through global solutions. After all, in relation to the about 5.5 other billion people, our way of life is still grand and we remain the Mecca of all aspiring global citizens.

Politics

As a political nation, we have shown that we are more enlightened than any other nation when we elected the Mr. Barack H. Obama as the President of the country. Ask this simple question: which Caucasian majority country will next vote a non-Caucasian to its highest seat? Nowhere, not in our lifetimes, I think.

Yet by electing President Obama, we sent a clear signal to the rest of the world about our system of meritocracy which very few societies can show and also not brag about.  Through this action we have also shown that we have the political will and dedication to bring around changes in shape to global economic systems as well.

A social domestic healthcare initiative, even if it be a non-market solution, is one in the right vein, though only time will tell if we executed the policy correctly or not.

 

 

Editor’s Note: Somnath Basu PhD is program director of the California Institute of Finance in the School of Business at California Lutheran University where he’s also a professor of finance. He can be reached at (805) 493 3980 or basu@callutheran.edu. See the agebander at work at www.agebander.com

Assessment

As for myself, I would be willing to pay the costs for a social safety net. If I was assured of some basic amenities by way of food, lodging, healthcare and retirement, I would be quite willing to do the requisite work to pay the appropriate cost and spend the rest of my time in a warm sunny beach and eventually experience the liberating feeling of retirement and enjoy each day as the holiday it is.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

***

Understanding the New “Mixed” Economy

Musings of an Informed Thought-Leader

By Somnath Basu PhD, MBA

Brief Excerpt

The recent debacle in the financial markets has opened up a plethora of issues that require serious attention from all market participants. Perhaps the most serious concern is the emergence of a “mixed” economy where both “public” and government-owned enterprises will coexist with “private” enterprises.

Review of Past Performance

Unfortunately, the historical performances of such economies have been fairly dismal. The debacle is also bound to usher in additional regulation of financial markets. The new regulations are likely to focus on ways to control the possibilities of similar failures in the future.

Assessment

However, the structure of regulation should not be constructed on the basis of how the markets failed the people but instead on how people failed the market. The ramifications of the debacle require our attention and understanding, especially the possibilities of the existence of a regime of both high inflation and high market volatility. 

White Paper Link Here:  The New Economy

Conclusion

And so, your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Sponsors Welcomed

And, credible sponsors and like-minded advertisers are always welcomed.

Link: https://healthcarefinancials.wordpress.com/2007/11/11/advertise

Predicting the Economic Recovery

Join Our Mailing List

How Would Life Change – Even if Prescience Possible?

By Somnath Basu PhD, MBA [www.clunet.edu/cif]

All medical professionals and ME-P readers should know that there’s about a 50% chance that someone will predict correctly when and how the domestic economy will recover. The chances of that person failing are the same, at 50%. There is very little chance (probability approaching zero) that nothing will change. Under these circumstances, it’s quite easy for the pundits to take a shot at being right. It is easy to be wrong because it’ll never be held against them, given the circumstances around the global financial crisis. There’s always a way out of being wrong.

Of Rumors, Guesses, Optimism and Pessimism

Of course being right has its rewards of reaping benefits without any downside. In the meantime, a whole nation is being held hostage as to what happens next. Rumors, guesses, optimism, pessimism abound as stock markets rise and fall, employment goes down by less or more than expected, price of oil suddenly becomes a leading economic indicator, China starts showing the way out, interest rates remain low, home (new, used, new construction, commercial vs. residential) sales increase and decrease in tandem, inflation is a problem but not deflation or vice versa and the economy grows as expected or not. The bewilderment at this state of things is taking a toll but the pundits keep going on. Politicians scream and bureaucrats moan. Obviously, this too is a crisis of sorts.

The Two Questions

There are two questions that fall out of this scenario. First, how does one predict the economy and how sound are the methodologies. Second, and more importantly, do we really need a prediction? I will explore these questions in the order presented above but the first one in more detail.

Let’s Begin the Evaluation

To begin with, it’s useful to evaluate the techniques used by our economic gurus who preach lofty sermons from their altars. These folks have a battalion of charts and graphs depicting why something is happening, ably backed up by rigorous mathematical models that have passed the test of their enlightened peers. These people consider economic indicators using complex models of GDP growth, change in unemployment, trade imbalances, flow of goods and services etc. etc. At the end of the day, they still have a 50% chance of being right. Of course they have a theory already explain this possibility (efficient market hypothesis, or EMH) which they use to explain why the market cannot be predicted with any certainty and the odds of predicting correctly are as good as repeatedly calling a coin toss right. However, it seems that this does not dampen their need in any way to keep on predicting.

 

 The Comparisons

Compared to previous recessions, there is a marked difference with the one we just experienced. This difference is that the great recession of 2008-09 can be considered as the first true global recession where even remote countries in Africa experienced mild recessionary conditions.

Hence, one of the first requirements for the predicting community is to truly incorporate global economic conditions in predicting the future. The current emphasis on domestic economic conditions precludes to an extent our ability to comprehend the changes underlying this “one world” which is necessary to get closer to a more realistic prediction. Further, we should include not only the developed economies along with some of the major emerging markets, but literally all economies, in extending our analysis. As we will ponder later, our model for prediction should be much more inclusive of all countries, no matter how small or economically less developed the countries are.  The understanding here is that given the fragile nature of the global economy at present, even a small non-economic ripple in a distant land can turn into something that encompasses the globe in some kind of economic turmoil.

Thus, hopefully, a globally inclusive model of understanding should definitely help us in the business of prediction.

Departure from the Traditional View

At this point I am going to depart from the traditional view that predicting the future of any economy should necessarily be an exclusive economic model. I shall argue that in this world we live in, such a model is inadequate if we realistically expect to beat the odds of a coin toss game. The point I seek to make is that in a world where we are so dependent of each other, how can we exclude factors like political or social conditions, geographic dispositions and historical interrelations, religion, world health, poverty or global climate change. I am going to elaborate upon some of these above contentions with some simple examples to support my view of an all inclusive understanding model before we go about the business of predicting the economy.

War- What is it Good For?

Consider the politics of wars in the world. Does it have an impact on our economy? It sure does. If we are directly involved, it has a huge cost in human suffering besides the direct dollar cost of war. The countries we are engaged in are similarly impacted by their casualties in human lives (and the subsequent economic effect of that) and the real time dollar costs of the real and financial economy being in shambles. If our country is not directly involved in some war overseas, then the whole defense and allied industries stands to gain – we are by far the largest suppliers of weapons in the world. Hence any war has economic consequences from tangible dollar costs to the associated costs of low morale, drops in consumer confidence, etc. An even simpler example would be to look at the wars we are engaged in (in Iraq and Afghanistan) and ask ourselves whether the economic consequences are not sufficient enough to be included in a predictive model.

Global Climate Change

What about global climate change? It is far too late to say it is not real. The main question is whether the economic consequences of global climate change are large enough to be included in any predictive model. What is the impact of climate change on our economy from the increased ravages of floods,   and famines? Costs in crop loss, insurance claims, higher food prices etc. etc. are surely not trivial. Are we willing to say that in the future these extremes of weather will dissipate and not increase so that we do not need to consider their economic impacts? If the climate changes problem is real then we do need to do something about carbon emissions and fossil fuels even as we find larger and larger oil deposits.

However, it is not enough for us to move strongly in this direction. China and India are already crying foul as the world tries to persuade these two countries to slow down carbon emissions. It is a difficult pitch to sell since the retort is that the economic development in the western world is what caused this condition and it is unfair to ask these two countries to slow down their growth ambitions especially since they have waited so long to wait their turn.

Moreover, less consumption of commodities (e.g. of oil, steel, building material) by China and India will trigger economic events of their own since lower production levels in these countries would mean higher costs to us since we are the main consumers of their economic production. The irony of this argument is that if these countries are not halted from their frenetic economic activity and stepped up consumption of commodities, then there is a good chance of inflation creeping through the commodity sector.

However, the point to make is that the effects of global climate change certainly do have serious economic consequences and excluding it would surely denigrate the prediction.

Other Issues

There are other associate issues. What is the impact of global poverty on future economic activities? Should this be an issue at all? What we don’t observe is the staggering scope of this problem. Let me clarify with a simple example. There are roughly 1.2 billion people in India. Another rough estimate would be to state that about 5% of this population are millionaires (in dollar terms), especially when you factor in that for each Indian Rupee that is accounted for (in the economic system) there is at least two Indian Rupees that are unaccounted (money on which tax has not been paid and has not been laundered either (black money) for but that which circulates in the economy.

Another way of expressing the 5% is to say that there are more millionaires (60 million) in India than there are people in France!! Another 400 million can be considered the middle class. No wonder India is an attractive market to developed nations whose internal markets have become tepid.  However, this also means that the rest of the Indians (about 750 million) live in abject poverty, on a dollar a day. Given that this is an average consumption value, there ought to be about 350 million Indians who live on a lot less than $1 a day. And, this entire population is growing.  In China as in Indonesia; in Bangladesh and in Nigeria. In Brazil and Russia. A growing number of people who are hungry and clamoring for food. People who are adding to the others in claiming land to live on, away from agricultural production. Is there a limit of how many people the world can support before it breaks apart. Does this have any significant (other than the usual Malthusian one) economic impact? It does for sure; much more surely than climate change and swine flu. Yet our models and predictions are oblivious to these possibilities.

SAARS

Physicians and ME-P readers may recalls that about 5-6 years ago, we saw the advent of SAARS, a lethal infection in China and Taiwan, beginning to spread in other parts of the world. There was an immediate and sharp economic impact on many of the industrialized nations. Fortunately for us, the spread of the infection was arrested and the global economy quickly got back in track. Surely, we were lucky. A few years ago, the world witnessed bird flu, an even more lethal viral infection. This too was quickly contained. At some point during the financial meltdown of 2008-09 we witnessed the advent of swine flu, a close relative of the bird flu. This time too we were lucky.

Of course, it is important to note that these infections are one step away from being an epidemic of immense proportions where 100s of millions may perish. If the swine flu was not contained when it appeared in late 2008 – early 2009, the financial meltdown we experienced would seem like a tame event. What happens if the next time and next viral mutation around) we are not that lucky? Should we consider the economic consequence of such an event, albeit within a probability framework?

Non-Economic Issues

As we can see, there are many other noteworthy non-economic issues that can have serious economic impacts.  As a matter of fact, we can all conjure up other examples of non-economic issues at will and make a case for their inclusion because we can so easily rationalize their economic impact. But I have made the point to wrap up the answer to my first question – how good are the economic models? Not much, really.

Join Our Mailing List

Educated ME-P Readers

Since my readers possess financial knowledge and acumen, it is worthwhile for me to allude to the various predictions that are flying about in the economy without having to explain them in great detail. This time around, predictions of economic recovery are in the form of shapes. So now the big question is whether the recovery will look like the shape of a V (a sharp recovery) as compared to a U (a prolonged recession followed by a fairly sharp recovery) or a W (a second round of recession followed by another sharp recovery or like a pair of conjoint Vs (V V). The latest one I had the misfortune to hear about was a square root (√, a V-shaped recovery till a point after which the economy changes very little for a considerable period of time). What is also quite obvious that we can make up many other shapes like the above, using economic (and non-economic) arguments as mentioned earlier but at the end of the day, any one of them has a 50% chance of being right. Because our theories say (yes, the very ones we constructed) that markets are efficient and predictions are futile.

Which brings us to the second question: knowing all this, how important are predictions in the way we live. How much better would our lives be, knowing that one or two of these predictions are right and all others are not? Can we identify the ones that are right?  Most likely not, and definitely much harder than finding good or bad stocks.

Assessment

How would our lives change if we could find that handful of people who predicted correctly and consistently more often than not, if there were such people? Surely, armed with this knowledge, we would be able to exploit the predictions for gain. But, given the odds, it is also quite plain and obvious that finding such people is as difficult as winning the lottery. We know the odds. We continue to admonish our clients who stray in these extreme speculative peripheries. Yet, when it comes to reading about predictions, we continue to play the lottery, in hopes of a windfall. The windfall wills make us richer, but will it make us better or happier?

Note: Dr. Somnath Basu is a professor of Finance at California Lutheran University and the President of Financial Health Technology (www.financialhealthtechnology.com), a personal financial software company.

Channel Surfing the ME-P

Have you visited our other topic channels? Established to facilitate idea exchange and link our community together, the value of these topics is dependent upon your input. Please take a minute to visit. And, to prevent that annoying spam, we ask that you register. It is fast, free and secure.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Product Details  Product Details

Introducing Somnath Basu; PhD MBA

Our Newest ME-P Thought-Leader in Finance and Economics

By Ann Miller; RN, MHA

[Executive Director]Dr. Basu

Dr. Somnath Basu is a Professor of Finance at California Lutheran University and the Director of its California Institute of Finance. Dr. Basu is also a Professor of the Helsinki School of Economics Executive MBA Program. He earned his BA in Economics, University of Delhi, MBA (Finance), Marquette University and a PhD (Finance), University of Arizona.

Publications and Experience

Dr. Basu is extensively published in the field of investments and financial planning and is an award winning teacher. He has significant consulting experience with US Fortune 100 companies, advising institutional money managers and in developing proprietary personal investment software. Dr. Basu is actively involved with financial planning organizations including the National Endowment for Financial Education (NEFE), the CFP Board of Standards, International CFP Board and the Financial Planning Association. He coauthored the book (with Block and Hirt), “Investment Planning for Financial Professionals” McGraw Hill, May 2006 which is widely used by financial planning programs nationwide. 

AssessmentCLU

To regular our ME-P readers, Dr. Basu’s opinions are well known and not without controversy. But, whether you agree with him or not, his commitment to the industry and his economics and financial planning students is solid. And, always adhering to the Socratic dialog tradition of candor intelligence and goodwill.

Link: https://healthcarefinancials.wordpress.com/2009/04/09/i-jealously-shake-my-fist-at-somnath-basu/

Link: https://healthcarefinancials.wordpress.com/2009/04/16/dr-somnath-basu-replies-to-the-cfp%c2%ae-mis-trust-controversy/ 

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Pleas give Somnath a warm ME-P welcome and electronic “shout-out”. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos

Get our Widget: Get this widget!

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

%d bloggers like this: