Union 401(K) Plans Need Safer Target Date Funds

The truth is rarely pure and never simple

Oscar Wilde

The main purpose of labor unions is empowering workers through collective bargaining to secure favorable working conditions and employee benefits. That includes a retirement with dignity, which means building a sufficient level of savings in a 401(K) defined contribution retirement plan. Unfortunately, that critical objective is at risk due to the wide use of poorly designed retirement target date fund (TDFs) – products that are the default retirement-savings-plan option for most workers.

Investing in one of the many subpar TDFs on the market needlessly introduces substantial hazards for investors who are approaching retirement or newly retired. The news will likely come as a shock for the average investor, who’s looking for peace of mind in a TDF investment. Instead of assuming unnecessarily high risk, (S)he wants to be protected from investment losses.

Most investors believe they are being protected through their TDF investments. Many even think their TDF is guaranteed to not lose money. The reality, unfortunately, is quite different because many of these products are managed with a higher level of risk than retirees expect and (more importantly) need.

The good news: prudently managed TDFs exist. The bad news: these products are the exception to the rule in this corner of the investment-product marketplace.

The Risk Of Mismanaged TDFs

Most retirees reason that they have saved their money in their 401(K) account and as retirement approaches they should be able to depend on their plans to manage their savings wisely. That starts by avoiding the key risk for new retirees: suffering investment losses at, near or just after retirement – a risk that can bring painful and unexpected reductions in savings, which in turn may lead to a major downgrade of lifestyle in the years ahead.

In other words, poorly designed TDFs threaten to break the promise of a retirement with dignity.

Fiduciaries also want to be protected from poorly managed TDFs, mainly from lawsuits. At the same time, they have an obligation to do what is best for beneficiaries – an obligation that starts by avoiding mistakes.

Plan trustees are charged with protecting all beneficiaries, especially those who are 5-10 years from retirement – a group that’s especially vulnerable to poorly designed TDFs.

A PIMCO survey of pension advisors reports that a loss of 10% or more is considered “excessive” in the accounts of those near retirement. The bad news: most TDFs recently lost more than 10% and they lost far more than 10% in 2008. That’s an appalling record: abject failure in 2 years out of the past 13.

Unfortunately, old habits die hard for most TDF strategies. As discussed below, the typical TDF is expected to lose more than 10% in 3 years out of 20.

Protecting Beneficiaries Near Retirement Is The Top Priority

In “Prudent Target-Date Fund Decisions for Fiduciaries,” published in the July 2015 issue of the International Foundation of Employee Benefit Plans Benefits Magazine, I detail the meaning of “prudence” in TDFs. In a nutshell, there are three priorities for a prudently managed TDF:

* protect older beneficiaries as they near retirement

* diversify the investment portfolio

* maintain low fees

Protecting older beneficiaries approaching retirement is the primary goal because these investors are about to leave the workforce and cannot afford to lose savings that have been accumulated over a lifetime of working.

There are only a few TDFs that meet the prudence standards — standards that union trustees need and want and, perhaps most importantly, that beneficiaries deserve. This elite group of prudent TDFs are safe at the target date with less than 30% of assets at risk.

Risky assets are typically defined as equities (stocks, real estate, alternatives, etc.) plus risky long-term bonds. Losses greater than 10% at the target date are highly unlikely for prudent TDFs.

By contrast, most TDFs hold more than 75% in risky assets at the target date, which means that they are not prudently managed because the risk of large losses (10% decline or deeper) is unacceptably high. The probability of losing more than 10% at the target date in risky TDFs is about 15%; losses greater than 10% are expected to occur in 3 years out of 20 for these poorly designed funds. I estimate a 10% loss to be one standard deviation below the mean, at the 15% probability mark.

These are not good odds for anyone who is about to retire because each of us only get one chance to invest and navigate retirement successfully. There are no do-overs and so the stakes are high.

Failure, in other words, isn’t an option—or at least it doesn’t have to be with a prudently run TDF.

Providers defend high-risk at the target date with the pretense that people have not saved enough, and they are living longer so beneficiaries need to strive for higher returns. The facts are (1) whatever you’ve saved throughout your life has to be “enough” because that’s all there is – risking it as you enter retirement is not a good gamble – and (2) most retirees withdraw assets from their TDF accounts soon after retirement, which makes the longevity argument for these products moot while raising the potential that investors may lock in investment losses.

Lifespans are not the issue — safety is. Retirees who remain in the plan are best served by annuities and guaranteed withdrawal plans rather than high-risk TDFs.

Union trustees succeed by shepherding beneficiaries safely to their retirement date with their accumulated savings intact. Furthermore, the Department of Labor advises fiduciaries to choose their TDF on the basis of demographics. This advice favors prudence since the only demographic that virtually all defaulted participants have in common is lack of financial literacy – they are financially naïve and therefore in need of protection. The Duty of Care fiduciary responsibility is akin to the obligation to protect young children. Accordingly, the best fiduciary protection is beneficiary protection. Everyone wins with prudent decisions, both trustees and beneficiaries.

The Pandemic and Prudence

Prudence is not rewarded with better performance… until it is. In fact, prior to the pandemic, the last time prudence was rewarded was in 2008-09, when prudent TDFs lost less than 10% while imprudent funds suffered losses of 30%-plus. Indeed, the long run suggests that prudence wins by not losing. There will be more market crashes.

After 2008, however, there was a decade when imprudent TDFs performed best – the greater the US stock allocation, the higher the return. But counting on a repeat performance, decade after decade, is probably naïve. The Roaring Twenties set the stage for the Great Depression. As discussed below, it could be that the recent Roaring Twenty-Tens have set the stage for the Next Great Depression. According to a recent Forbes article In the Great Depression it was “stock market crash” followed by “banking crisis.” Here it will be “lockdown” followed by “stock market crash.”

These days there’s an added complication: COVID-19, which threatens our health and wealth, especially for seniors. Its ultimate effects remain to be seen, but the pandemic awoke a prudence concern in March 2020, when the US stock market at one point fell more than 30%. Morningstar reports the steep decline that spilled over to TDFs as follows:

We have had a V-shaped recovery since the market low in late-March, but this V is likely to be the beginning of a string of Ws yet to come. The Great Depression lasted a decade and included ten Ws – recoveries followed by crashes.

Today, the global economy is in shambles. Many believe that central banks can bail the world out with paper by ramping up money printing in the extreme. Yet the consequences of these “Quantitative Easings” (QE) are dire and merely defer the pain… maybe. QE is likely to lead to serious inflation.

Sure, it’s nice to get a check in the mail for doing nothing. But there are no free lunches. When things simply do not feel right, there is usually a good reason.

Plus, there is a wide range of at least ten threats to the securities markets that we address in this video. COVID-19 is just one of many reasons that stock markets will fall sometime in this decade — a decade that will see 78 million American baby boomers passing through the Risk Zone that spans the five years before and after retirement.

The ultimate impact of COVID and other threats to the economy aren’t fully known at this time. But many will continue to lose jobs and businesses and stocks are at risk of suffering from dwindling demand. As shown in the following indicators, the stock market was detached from the economy at the end of July, but this incongruity will likely not last. Wishing for the best doesn’t always work.

There’s never a good time for imprudent risk taking in target date funds, but the current climate is unusually dangerous.


Unions are by their very nature paternalistic, protecting their members. This protection can and should extend to retirement benefits, and into the investments of the most vulnerable, namely, those near retirement in target date funds. There are five ways that TDFs can be safer, smarter and better for union 401(K) plans. Only a few TDFs provide these union benefits.

One of the major benefits/promises of being a union member is a comfortable retirement. Saving and protecting assets are the keys to achieve this goal.

Union trustees encourage savings through education and plan design. Protecting those savings is the critical next step to delivering on the promise. Some members make their own investment decisions and should be smart enough to protect their savings. Others rely on the plan’s trustees to choose a target date fund that protects their lifetime savings.

Everyone wants to be protected. Fortunately, there’s no reason why that protection can’t be offered. The key is using prudently designed and managed TDFs. Union baby boomers will be passing through the investment Risk Zone for the next decade. There has never before been so many seniors at risk at the same time. These dedicated workers cannot afford investment risk at this critical time in their lives.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the sub-advisor of the SMART Target Date Fund Index, a suite of collective investment funds provided by Hand Benefits & Trust, a BPAS company

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Philip Morris says cigarette sales in many places could end in a decade and they’ve got a ‘safer’ product to replace them

Philip Morris International Inc. thinks the sale of cigarettes could come to an end in countries around the world in the coming years, but have no fear, because they’ve got another product ready to sell that offers a “safer” nicotine fix.

Philip Morris

and the Food and Drug Administration announced this week that the company’s IQOS “electrically heated tobacco system” has been given the green light to market as a safer alternative to cigarettes.

Now designated as a “modified risk” product, the company can promote these items “as containing a reduced level of or presenting a reduced exposure to a substance,” according to the FDA statement.

Philip Morris, the company behind Marlboro cigarettes, describes these alternative products as heating rather than burning tobacco, which a cigarette does. Burning tobacco, which reaches 600 degrees Celsius, “contains high levels of harmful chemicals,” according to the company’s website. The tobacco heating system (THS) heats tobacco to 350 degrees Celsius.

Read: After his latest firing, this cannabis entrepreneur raised $150 million, for a hemp venture — during a pandemic

“However, THS is not risk-free and delivers nicotine which is addictive,” the site says. Philip Morris has turned its focus to the IQOS product, with Philip Morris’ Chief Operating Officer Jacek Olczak saying at the Deutsche Bank dbAccess Global Consumer Conference last month that the company is committed to “working towards realizing [the] potential of this opportunity,” according to a FactSet transcript.

The development comes at a time when Philip Morris is preparing for the end of cigarette sales.

“I am convinced that it is possible to completely end cigarette sales in many countries within 10 to 15 years, but for that to happen, manufacturers and governments need to work in the same direction,” said André Calantzopoulos, chief executive of Philip Morris, in a letter to stakeholders published with the company’s report on its environmental, social and governance (ESG) efforts.

Calantzopoulos notes the “skeptical stakeholders” like international organizations and the media that “doubt that harm reduction through smoke-free alternatives is sound public health policy or argue that our purpose-driven strategy is nothing more than window dressing.”

He highlights other areas where advice to reduce a hazardous activity is accepted, such as lowering sugar intake for better health.

“I feel strongly that people who smoke cigarettes, the most harmful nicotine-containing product, should not be denied the opportunity to switch to better alternatives,” Calantzopoulos wrote.

In 2019, Philip Morris sold 706.7 billion cigarettes, down 4.5% from 2018, according to a June CFRA report. Over the next few years, CFRA forecasts that cigarette consumption will fall 3% each year.

Shipments of heated tobacco products, on the other hand, soared 44.2% to 59.7 billion units in 2019.

Watch:How to keep emotions out of your portfolio with systematic investing

There had been discussions about merging Philip Morris and Altria Group Inc.

, however those talks ended without a deal. This is a good thing for Philip Morris “given heightened regulatory and legal headwinds surrounding e-cigarettes in the U.S., as Philip Morris’ IQOS product underwent a lengthy FDA review process before getting the green light for sale in the U.S. in April 2019,” CFRA said.

CFRA rates Philip Morris stock buy with a 12-month price target of $95.

“Despite declining cigarette consumption in developed markets, we look for pricing gains and growth in emerging markets to support revenues,” CFRA said. “We think the launch of Philip Morris’ heated tobacco product, IQOS, will lead to market share gains and help offset cigarette volume weakness.”

The company reported earnings and revenue that beat expectations in the most recent quarter. The stock is down 15.1% for the year to date while the Dow Jones Industrial Average

has fallen 9.3% for the period.

See:This California legislator is taking on SmileDirectClub

While the cigarette business was hurt by restrictions imposed by coronavirus-related lockdowns and plummeting duty-free demand at global travel hubs, Olczak said on the April earnings call that device and heated tobacco sales were showing the potential to regain pre-COVID momentum.

Philip Morris’ goal now is to move into a “smoke-free future,” said Huub Savelkouls, the company’s chief sustainability officer, in a post on LinkedIn. Philip Morris has cut its cigarette portfolio by more than 700 SKUs (stock-keeping units) over the last four years and aims to move 40 million smokers of its cigarettes over to smoke-free products.

Savelkouls says engagement, including between the company and the investment community, is needed to achieve change.

“Making cigarettes obsolete can be achieved much more rapidly through inclusivity and openness,” Savelkouls wrote. “Our goals are really not that different and that is where the potential for creating impactful change lies: working together towards making the world smoke-free.”

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Hiring and promoting women police officers could bring real justice reform and make communities safer

As my brain tried processing the incompressible death of George Floyd, I filtered it through the lens of my 25 years of urban policing, and the recurring theme I continued circling to, was that of police culture.  

I wasn’t the only cop grappling with what I saw. My social media pages were filled with memes from cops declaring “There’s nothing more that a good cop hates, than a bad cop.” Cops overwhelmingly view Floyd’s death as indefensible, but what do good cops actually do about bad cops? Many U.S. cities have policies that require police officers to intervene when someone is using excessive force; other policies mandate that officers report misconduct. How often do cops take action based on those policies?

Reform vs. reality

There are 18,000 police agencies in the United States but there is no national standard governing them. I have first-hand experience with the conflict between policy and culture in a large police agency. The Newark, N.J. police department has been operating under a federal consent decree since 2016, after the Department of Justice found it had engaged in a pattern of unconstitutional policing.  Among the many policies implemented was the requirement to report misconduct. As a police captain in Newark, handling discipline was among my responsibilities. 

There were occasions where police misconduct was brought to my attention and charges brought against the officer. Yet all too often, the outcome of investigations depended on who the officer was, and their relationship with members of senior administration. In one such matter, the charges I filed were dropped without a hearing, despite audio evidence and even witnesses. The blowback I experienced for charging one of these “good ol’ boys” was pervasive, public and ruinous — but that was the point. The public attacks and humiliation served as a warning to the group that they, too, would be crushed if they strayed from the group norms that define the culture of the organization.   

A total of 101 sergeants, lieutenants and captains were promoted in the year I charged “one of their own,” but no promotions were made from the deputy chiefs’ list, where I ranked No. 1.  The message was clear: there were consequences to my actions, not the least of which were negative professional consequences.  

While lessons on group norms were being given at my expense, leadership had the cameras removed from the meetings I later learned. Keep in mind, this was occurring in the midst of a federal consent decree. Policy has a steep cultural mountain to climb. All police managers in those meetings received the message loud and clear: the group norms supersede any policy, consent decree be damned.

Benefits of a female style of policing

These types of messages are transmitted in organizations, sometimes discreetly or in my case, with a sledgehammer, creating the cultural norms for the group. Surveys find that officers cite the organization as the most stressful aspect of their work and often rate organizational legitimacy and procedural justice low. In work environments like mine, culture eats policy for breakfast.  

Sadly, my story isn’t unique. I am currently earning a PhD, studying policewomen, organizational legitimacy and procedural justice, which led to a fellowship and a TED Talk.  I’ve been interviewing officers since 2016. What I’ve found from my talks with female police executives from across the country, was that many could recount harrowing stories I could relate to. In their ascension of the career ladder, they all had some story of navigating toxicity, surviving but not always thriving.  

Read: John Oliver explains ‘defund the police’ — and why it doesn’t mean ‘no police’

More: Defund the police for safer, healthier and sustainable black communities

Why should we want more women in policing? There is a body of research showing there are benefits associated with a female style of policing.  Research also finds that the minority groups and women who are organizationally under-represented cannot effectuate cultural change until they reach a critical mass of at least 30%. Fewer than 4% of police commanders in the U.S. are female. In my situation, I was always the only female commander in the room.  Sure, there are policies that clearly prohibit what happened to me, but we know policies alone don’t change culture.  Research finds  “a chasm between what officers say and what they do”.

I helped organize a summit on women in policing in December 2018 that culminated in a report published by the National Institute of Justice, Women in Policing: Breaking Barriers and Blazing a Path.The summit included global police leader. From our counterparts in New Zealand, Australia, Canada and the U.K., we learned that many of the barriers women experience in the U.S. have been ameliorated in other countries, resulting in more than twice the number of policewomen than we currently have in the U.S.

For example, this New Zealand recruiting video portrays a different type of policing than the American context, and this was intentional. New Zealand has a police service, not a police force.  New Zealand is making steady progress towards a goal of gender parity in recruiting by 2021.  The U.S. must strive for the same gender parity to reap the same results. 

Women police officers are less likely to react negatively to factors like race and are less likely to be named in a lawsuit or citizen complaint.

Research shows women police officers are less likely to react negatively to factors like race and are less likely to be named in a lawsuit or citizen complaint. Furthermore, not only are women officers less likely to use force and excessive force, preliminary research indicates that the presence of women officers in a group reduces the chances that anyone in the group — men and women — will receive complaints of excessive force. Recently, the research on women in policing was embodied in Fort Lauderdale, Fla. where a female officer physically intervened when a male officer knocked a kneeling female protester to the ground.  I was both proud, and fearful, for her. Will there be blowback?  

Maureen McGough, chief of staff for the Policing Project at NYU Law was recently featured in a Reducing Crime podcast discussing the underrepresentation of women in policing.  McGough explained how this disparity deprives communities of the vast benefits identified through scientific research. Policewomen are critical in overcoming policing’s greatest challenges. They are better able to interact with diverse cultural groups, perceived as more honest and compassionate, and are associated with better outcomes for crime victims. 

McGough and I have begun laying the groundwork for a project we’re calling the 30X30 initiative. Our goal is to reach 30% representation of policewomen in the U.S. by 2030. We’re not just taking on recruitment practices; we’re seeking to support a monumental shift in culture to create and support departments where women don’t just survive, they thrive. We will be bringing together law enforcement, professional associations, researchers, policymakers and community stakeholders to build a better, more equitable police profession.    

Preliminary research clearly indicates that the meaningful integration of women officers in law enforcement agencies will advance the profession and improve relationships between law enforcement and communities they serve. We will be measuring not only changes in representation of women, but also use of force incidents, community relationships, internal and external perceptions of procedural justice, and outcomes for victims of sexual assault and domestic violence. We predict that increasing the representation of women officers will generate statistically significant improvements in each metric.

Policing has a moral imperative to change. In most cities, a lot of what happens in public safety is controlled by city leadership. The mayor or business administrator appoints the chief, and the council sets the budget. Prioritizing increasing gender diversity in policing begins with the mayor or business administrator and is reinforced by what the council decides to fund within the police department.

Your public servants need to hear your voice about prioritizing the hiring and promoting of women in your police force. They probably don’t know the research about women police or realize just how bad underrepresentation is and how that impacts the quality of service delivered to communities.

Yet policies alone will not change a police culture that excludes or dissuades women from applying. Most police chiefs have substantial autonomy around recruitment, assessment, and promotion requirements. They set the tone and culture of the agency. If a chief does not address the culture, the number of women in policing will continue to stagnate. Keep in mind that female chiefs will get more pushback from a predominantly male workforce, as research on female leadership indicates. Appointed women have to be ready to tackle the protective culture in police departments that allows corruption to fester.

Ivonne Roman is the founder of the Women’s Leadership Academy, which seeks to increase the representation of women in law enforcement. Roman has 25 years of experience in policing, having served in every rank, from police officer to police chief, in the Newark, N.J. police department.

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Plus: George Floyd, white supremacy — and the ‘otherization’ of African-American men

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Is it safer to stay at a hotel or an Airbnb during your summer vacation? ‘We need to balance sanity and risk’

When shelter-in-place orders went into effect across the country in March, many Americans quickly sought refunds for hotel bookings, airfare and travel expenses. But now that states have relaxed some social-distancing measures, Americans have gone full-circle and are planning road trips.

But when it comes to lodging you might be faced with this question: Is it safer to stay at an Airbnb or a hotel?

Leaving your home for any reason increases your chances of getting infected and spreading COVID-19, and travel is certainly no exception. That’s why the U.S. Centers for Disease Control and Prevention holds that “staying home is the best way to protect yourself and others from getting sick.”

But if appropriate precautions and considerations are taken into account in advance, you shouldn’t write off a summer getaway entirely, said Thomas Russo, chief of the division of infectious disease at the University at Buffalo.

“We need to balance sanity and risk,” Russo said. “It’s important for us to get out and reemerge from our caves but we need to do so safely.”

The CDC encourages you to consider some of these questions if you are planning a trip.

Before embarking on a trip, “travelers should research the local effects in any area they are planning to visit,” said Scott Pauley, a spokesman for the CDC. “The best source for those localized reports are the local health departments for the area they are traveling.”

‘We need to balance sanity and risk.’

— Thomas Russo, University at Buffalo

If you do travel, the CDC recommends you “pick up food at drive-throughs, curb-side restaurant service, or stores,” and practice regular social-distancing protocols, including wearing face coverings in public places.

Traveling with the people you’ve been sheltering in place with, be it family or roommates, Russo referred to as a “fixed risk.” Simply getting in a car with them won’t increase your chances of contracting coronavirus anymore than watching TV at home.

Traveling with people from outside your household, however, increases the risk of spreading the virus, he said. Consider whether you’ll be interacting with someone who is more at risk of contracting coronavirus after your vacation, he added, including older adults and people with underlying health conditions.

The case for staying at an Airbnb over a hotel

Given that person-to-person contact is believed to be the main way coronavirus spreads, experts recommend driving yourself as opposed to traveling by bus, train or airplane. “You’re bound to have fewer interactions with people than you would if you were flying,” Russo said.

For the same reason, Russo recommends staying at an Airbnb or Airbnb equivalent over a hotel. “In a hotel, it’s inevitable that you’ll have more interactions than at an Airbnb,” he said.

Related: Redfin CEO: Vacation real-estate markets are ‘toast’ because of the pandemic as Airbnb owners rush to offload their homes

Hotels are offering contactless check-ins, but elevators, narrow hallways and the risk of coming into contact with cleaning and administrative staff can make it hard to keep six feet apart from other people.

If travel from the U.S. into Canada wasn’t currently restricted he said he would have taken the vacation he booked to British Columbia where he planned to stay at a home he rented through VRBO, a home rental site owned by Expedia

In late April, Airbnb rolled out an “Enhanced Cleaning Initiative”, a set of protocols for hosts to follow which were designed by former U.S. Surgeon General Vivek Murthy.

‘The beauty of Airbnb is that each property is unique and each host has a lot of discretion.’

— Sheryl Kline, University of Delaware

Airbnb said that these protocols would be publicly available in May. A spokesman for the company told MarketWatch that the protocol is ready but in light of recent unrest over the death of George Floyd in police custody in Minneapolis, they have been postponed.

Hosts are not required to follow the protocols, but those who do “will get a special call-out on their listing page, so guests will know they’ve committed to following more rigorous cleaning and sanitization practices,” an Airbnb post states.

That’s in line with Airbnb’s business model, said Sheryl Kline, a professor at the University of Delaware who has researched hotel hygiene.

“The beauty of Airbnb is that each property is unique and each host has a lot of discretion when it comes to creating the guest experience when renting their properties.” That may come with a downside, however. “This flexibility means they do not have the same set of standards as large hotel companies,” she added.

Given that Airbnb doesn’t inspect rental properties, it will have to “rely on the word of the hosts to determine if these new cleaning protocols are followed.”

“I would consider staying at an Airbnb if it had a four-day buffer between guests, was cleaned using their new protocols and if I rented the entire space and did not share it with the host,” she said.

The case for staying at a hotel

Hotels have less discretion when it comes to cleaning rooms, said Chip Rogers, CEO of the American Hotel and Lodging Association.

In early May the association introduced industrywide cleaning standards, which Rogers said were reviewed by the CDC. These guidelines are meant to be “baseline standards that can be applied to every hotel across the country.”

The 16 largest hotel groups in the country including Marriott

and Hyatt

have all signed off on these standards and were involved in setting them.

Also see: ‘Opening up does not mean social activities’: Your coronavirus guide to safely commuting, shopping, traveling and visiting the doctor as states reopen

Kline said that these hotels “have dramatically improved their cleaning protocols,” compared to pre-coronavirus days. “They have implemented housekeeping training programs and use the CDC and the Environmental Protection Agency’s recommended cleaners and disinfectants.”

“I would feel comfortable staying at a major chain hotel because of the standardization of hotel operating procedures,” she said.

Best practices to follow no matter where you decide to stay

Regardless of whether you choose to stay at a hotel or an Airbnb, “it is a good idea to take your own cleaning and sanitizing products and re-clean those areas that are high-touch areas,” Kline said.

High-touch areas she said include doorknobs, light switches, telephones, remote-control devices, tabletops and bathroom fixtures.

It’s not necessary to bring your own linens and towels “if you are staying at a reputable hotel or home rental.” In fact, bed linens are “most likely the cleanest item in the guest room because they are washed [after] each guest and most likely washed and changed daily,” Kline said.

However, she said she wouldn’t use the bedspread, bed scarf or decorative pillows since “they may not be washed as frequently.” Alternatively, you could always ask for them to be replaced.

And when checking in? Experts recommending bringing your own pen.

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How Gold Mining Stocks Are Safer Than Gold ETFs

After what happened to the oil market on 4/20, 2020, there’s no investment thesis that sounds crazy anymore. What keeps going through my mind is a 4/20 scene in 2019 of a bunch of stoners discussing oil. One of them, a real deep philosophical thought percolating in his mind, has an epiphany. He says, “Dude, I think that on 4/20, like, oil is going to be negative man! Like, negative $36 a barrel.”

If one oil contract for delivery can go from $15 to negative $36 in a few hours because longs can’t store any, then one gold contract for delivery can go from $1,700 to $20,000 in a few hours because shorts can’t find any. If that happens, what happens to gold metal ETFs? I honestly do not know. That unknown in mind, I’d like to reframe the concept of investing in gold mining stocks to keep gold bugs focused on what really matters here.

COMEX Futures are Dangerous

The COMEX is a fractional reserve contract system, and it operates a fractional reserve gold trading pit where the amount of notional gold represented by contracts outstanding vastly outnumbers the amount of gold actually stored in its vaults. Unlike other gold bugs, I don’t call this fraud or cheating or anything like that. I just call it dangerous. Commercials who sell a gold contract wanting to lock in a price based on expected future production are using the system as it was meant to be used. Speculators who sell gold contracts not having any gold to satisfy them with are asking for trouble and endangering the entire system. If COMEX were 100% reserve, it would require proof of ownership of a given commodity before selling contractual rights to it. It does not, obviously – that’s what makes the system inherently unstable.

A blow up on the short side of the futures markets and the price of oil going negative is one thing. The oil at least exists and there’s a price to be paid to suppliers at which point they will keep it. That price discovery for keeping oil was made at about $36 a barrel on 4/20. But a blow up on the long side carries with it the real danger of bankrupting the entire COMEX itself and contracts going, in theory, to infinity. If speculators try to get their hands on physical gold by buying contracts and draining the vaults, this can be done. It’s no technical feat. What would happen is that gold shorts who have no gold would be forced to go into the market and buy gold at any price. If they can’t find any, the COMEX is toast, so are all the shorts, and so are all the longs who are left with no gold.

And so gold futures are an unknown in this situation. Gold ETFs may be more secure, but who really knows? I believe the safest gold ETF to hold in lieu of physical ownership is the Perth Mint ETF (AAAU). As for the others, they probably have the gold they say they do, but who knows what happens to them if the COMEX blows up? I really don’t know. So aside from hedging, what kind of end-of-the-monetary-system protection do they really offer? All these ETFs really are ways to store dollars and count your dollar gains or losses, on the assumption that the dollar retains at least some value. Yes, I own options on (GLD) as I use this as dollar storage for leverage on the gold price. But I understand that it’s not gold.

Mining Stocks Are Safer

Now, switch gears. This is not the case for gold mining stocks or ETFs that invest directly in them. Sure, people can use gold equities for dollar storage. Buy low, sell high, that’s the point, usually. But unlike gold ETFs, gold stocks don’t have to be merely dollar storage vehicles. What they are, in essence, are claims on a piece of a company that actually produces gold. Unlike gold commodity ETFs which are mostly excepting (AAAU) and (OUNZ) claims to a pile of gold you can never get your hands on, gold companies really are owned by shareholders. Shareholders can decide what happens to the gold that the company produces.

In the event of a real worst case scenario of gold going to infinity and the dollar to zero, the COMEX crashes, gold metal ETFs may become useless, but gold equities, no matter what their dollar price may be even if it cannot be calculated, are still real pieces of real companies that produce real gold. Whatever dollar number is quoted on a computer or even if it isn’t at all, won’t really matter. What will actually matter is how and whether the gold mining company can pay its shareholders. If the dollar really does crash to zero and hyperinflation really does happen, then gold will be money without a dollar intermediary, and gold stocks, no matter what their nominal dollar value may be, will be the only companies able to pay real dividends to their shareholders in real money. They can pay in actual gold.

They could store a fraction of gold produced for their shareholders in a vault. They could mail it out at certain thresholds. They could do any number of things that would be effectively paying their shareholders in gold. They also would be among a select group of companies that could continue actually operating if the dollar ceases to function as a currency. They could theoretically pay their overhead in gold. Other companies with no gold would have no immediate capital. They would have to trade with gold miners to acquire it.

Gold Miners Are the Central Banks

Put another way, gold mining companies would effectively be the new decentralized central banks of the world. They are in the business of producing money, just like the Fed, except they actually have to work and put in real effort in doing so.

If hyperinflation happens, it will most likely be triggered by a blow-up at the COMEX just like we saw in oil on 4/20, but in reverse, on the long side, in the gold market. Such a scene on gold futures markets would cement the death of the dollar. It would be the final act in its status as reserve currency of the world, and gold would retake its place with that title.

If you believe that this is a real possibility, then you need to own gold stocks. Not primarily as hedges, not as speculative vehicles, and not as leveraged plays on the gold price. I own gold stocks for all these reasons, but none of them are the primary reason. I own gold stocks primarily because if the dollar really does crash can dollars are no longer money, then the only companies with any real money will be gold (and silver) mining companies. I want the security not of knowing that I will earn more dollars if the dollar falls in value against gold. I want the security of knowing I own real money-producing capital if the dollar completely implodes to zero.

Disclosure: I am/we are long GDXJ, GDX, GFI, NEM, GOLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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