The price tag of disaster

Over the past four weeks, just two hurricanes have cost the country upwards of $300 billion. This has easily surpassed the 2005 hurricane cost of $200 billion, which included Katrina, Wilma and Rita combined. The cumulative cost of weather continues to escalate and with good reason. Before you leap to the conclusion that global warming is the culprit, let me lay out some facts. Coastal storms are no more (or less) frequent an event now than they have been throughout our history. So what gives? The answer lies in population growth and demographics within our own society. A few years ago, a study funded by the National Oceanic and Atmospheric Administration, found that although hurricane intensity varied decade to decade, there has not been a spike in either the number or intensity of hurricanes, nor is there any evidence that global warming is the culprit. The study pinned the blame for the elevated level of property damage and deaths on the growing concentration of people and property in coastal hurricane areas. Today, well over 55% of the nation’s population lives in roughly 673 coastal counties. That’s over a 30% increase since 1980. The Southeast had the largest rate of change, with a 58% increase during that time. The Pacific region and the Northeast are also seeing the same phenomena. At this point, over half of us are crowded together on only 17% of America’s land mass (excluding Alaska). As a result, some catastrophe modeling companies predict that losses due to coastal storms will double every decade or so due to this trend. Where there are people, there is also...

America, the battered

Extreme weather and other climate disasters appear to be occurring far more frequently than we would like. The loss of life and economic damage also seem to be increasing. But does the data support those opinions, and if it does, what price do we pay for all of these perfect storms? Long-time readers may recall my columns of four and five years ago, where I examined the price tag the world (and the U.S.) pays for weather-related disasters. Given the fact that we are between hurricanes (Harvey has departed Texas, while Irma bears down on Florida); it may be a good time to educate new readers on the economic cost; not to mention the loss of life. In 2016, the U.S. suffered twice the amount of weather-related economic damage versus the prior year, according to the National Oceanic and Atmospheric Administration (NOAA). Weather and climate were responsible for 297 deaths and $53.5 billion in damage in 2016. Fifteen of these events cost at least $1 billion and covered 38 states. In 2015, the costs were $21.5 billion. If you look back even further, over the past six years, there were at least 66 extreme weather events in the U.S. with a price tag of $1billion or more. Weather-related events caused 1,628 fatalities and $297.6 billion in economic losses throughout 44 states. And now let’s see what has happened so far in 2017. As of July 7, there have been 9 weather events of $1 billion or more across the country, which caused 57 people’s lives. And then came Harvey. Estimates so far put the price tag at $190 billion...

How real is tax reform?

Amid hurricanes, floods and missiles, President Trump is trying to ramp up public support for a massive overhaul of the American tax system. However, it is not the public that needs convincing, it is Congress. The president is right about one thing; it has been over thirty years since the last tinkering with our tax system occurred. Back then, it took President Ronald Reagan and Tip O’Neil, the then Democratic Speaker of the House, over two years to implement the first changes. The most substantial change was in the tax code, where the top marginal individual income tax rate fell from 70.1% to 28.4%. There was also a major reversal in the tax treatment of business income. Over the Reagan’ years, the composition of federal tax receipts changed from higher income earners and capital gains to more payroll taxes and new investment taxes. What many conveniently ignore is that while taxes were cut for some, they were raised for others. In any event, nothing happened to taxes until August of Reagan’s second year (1981) when he lowered the windfall profits tax. It took two years before he rolled back corporate taxes and cut individual rates modestly. Later in the year, he also increased payroll taxes for Social Security and Medicare (undoing about a third of the former tax cut). It took even more time (the Tax Reform Act of 1986) before the substantive work of eliminating deductions, changing tax brackets, etc. actually occurred. That was in Reagan’s second term. Readers should take away two key points: the political horse-trading took time and was a bi-partisan effort. Do we really...

Housing or the lack thereof

Inventory, inventory, inventory! They say there’s not enough to fill buyers’ demand. As a result, prices continue to soar, and as they do, the numbers of new sales flatten out. How long will this continue? At the beginning of 2017, housing experts were unified in their forecast that prices would slow, inventory would bottom out and mortgage rates would climb. None of that happened. This year the existing home sales are expected to rise 3.5% to 5.64 million. About the only thing that is slowing that growth is the existing supply of new houses. The combination of record high stock prices, rising consumer confidence, the pent-up demand for new household formation and the record low unemployment rate are fueling the demand for housing. However, with all that good news, the current number of homes for sale is about equal to the housing supply of 1994. In some sense, this inventory problem is largely short-term. We, the Baby Boomers, are the key to finding equilibrium in the real estate market. Since the Baby Boomer generation owns the majority of existing housing stock in the country, it is simply a matter of time before that stored-up inventory hits the real estate market. Of course, the key to that equation is time, since the youngest Baby Boomers are still only 53. Another problem with the Boomers’ share of the market is their reluctance to sell. It appears that Baby Boomers are holding on to their houses far longer than previous generations. There are a lot of empty nesters in this country who are still living in their four and five-bedroom homes with...

The market may not be the greatest risk to your retirement portfolio

Most investors think the greatest risk to their retirement portfolio is the stock market. As such, many of us have a myopic focus on returns, performance and investment risk. But are we ignoring a far greater risk—our health care burden? Let’s say you have amassed $1 million in savings toward your retirement. If faced with another stock market decline similar to 2008-2009 (year-over-year decline of 38% on the S&P 500 Index) or the cost of meeting your lifetime Medicare premiums, which has more risk? The 2017 Retirement Health Care Costs Data Report, put together by Health View Services, a data resource for financial advisors, reveals that the total retirement health care costs for a 65-year-old-couple retiring this year is $404,253. And that is in today’s dollars, which does not account for the medical inflation rate of 6%. These lifetime premiums include Medicare Parts B, D, supplanted insurance, dental, vision, hearing, plus deductibles, copays and any other out-of-pocket costs. It is a conservative number because the 6% medical inflation rate does not include a variety of additional medical costs that the typical person would pay. Just to be sure, I asked my partner Zack Marcotte, who just loves to crunch numbers, to figure out my health costs. My lifetime bill tallies up to be $420, 696.   Now, let’s look at market risk. You would have incurred a $380,000 stock market loss in the financial crisis, if you were fully invested in equities and took no action. Remember, too, that the 2008-2009 periods was the worst stock market loss since the 1929 crash. Many believe that the risk of another financial...

The death of the gas guzzler may take longer than you think

There is a gathering consensus among certain countries and companies that gas and diesel engine cars could be relegated to the dustbin by 2040. How much of that is hype largely depends on who you talk to. This week the U.K. joined France in banning the sale of internal-combustion engines by 2040. Their ban follows on the heels of similar initiatives in several cities throughout Europe.  The main impetus for these moves has been Europe’s efforts to curb auto pollution dating back to the mid-Nineties’ emission controls. Although the UK and France represent only about one-third of autos sold in the EU, most European countries are sympathetic to regulations and deadlines that will reduce pollution, especially in an era where electric and fuel-cell vehicles are becoming a feasible alternative. However, U.K. and French auto production is a drop in the bucket compared to both U.S. and Chinese production. The two account for nearly half of all light vehicles sold in the world. The fact that in China, the central government has been working to discourage consumers to purchase gas guzzlers, while promoting the manufacture and purchase of electric vehicles, lends increasing pressure to end fossil fuel vehicle production sooner than later. Actually, it is only here in the U.S. where the government (thanks to the Trump Administration) is rolling back emission standards. Part of the reason governments are now feeling confident that they can dictate an end to fossil fuel vehicles is the increasing number of studies that forecast electric vehicles (EV) will be both affordable and readily available no later than 2020. Some analysts on Wall Street expect...