Ascend Capital Management
Senior Investment Strategist & Junior PM
Emma Muhleman, CFA, CPA, CIRA, is a Junior Portfolio Manager and Macroeconomic Strategist at Ascend (Cayman). Emma and her team specialize in understanding the dynamics that underlie and drive investment performance in today’s global financial markets. Following the global financial crisis, expansionary monetary policies of unprecedented scale implemented by major central banks across the globe (primarily those of the so-called “core economies”) have completely redefined the ways in which the global markets operate. At Ascend, it is precisely Emma and her colleagues' unique expertise in the “macroeconomics of today” that enables them to evaluate the domestic and global landscape through a lens misunderstood by the masses, leading to abundant investment opportunity.
Emma's professional experience to date includes working for several years picking stocks (long and short) according to a global macro, event-driven long/short equity strategy. She began her career performing business valuations for Deloitte's valuation consulting group, and thereafter worked as a stock picker for Allianz SE, one of the largest global investment managers with total AUM exceeding $1.7 trillion. She has also developed several client relationships of her own within the private equity (PE) and venture capital (VC) investment realm ranging from Roth Capital's Venture Group to KKR and several others, and has extensive experience performing investment analysis and due diligence, negotiation and deal structuring as part of the evaluation process associated with Leveraged Buyouts (LBOs), Early- and Growth-Equity Stage Venture investments, and potential buyouts of distressed loan portfolios and/or turnarounds of businesses under duress.
MS, Accounting & Finance, University of Notre Dame
MS, Taxation, University of Notre Dame
The opinion expressed represents the views of the author and should not be seen as the opinion or views of Ascend Capital. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Past performance is not necessarily a guide to future performance.
If you knew without a drop of uncertainty that Yellen and her cohorts at the FOMC will announce a rate hike at the coming Fed meeting (and the market did not possess such knowledge), it would be wise to wait and invest in bonds after the rate hike. Why? Rising interest rates, no matter how small the coupon or how short the bond's duration, hurt the value of fixed rate bonds - when the prevailing market rate rises, it makes the coupon on fixed rate bonds inherently less valuable. For example, suppose the Fed meeting is tomorrow, and I buy a 5% semi-annual bond at par ($100). Tomorrow the Fed comes out and says they're hiking rates from 25-50bps to 50-75bps, with subtle hints at a more rapid upward interest rate trajectory. The market may very well take these hints as if they were set in stone, causing a sell-off in fixed rate bonds as investors overreact to the news (standard procedure, especially when it comes to the Fed). In this case, the bond I bought yesterday for $100 may decline to $98 in value, in which case I would have been better off buying the debt on the cheap after the Fed's announcement.
What's important to note though is that the Fed, under Chair Yellen, is infamous for acting as though they plan to raise rates but coming up with consistent excuses to do nothing. For almost the entirety of 2014, Chair Yellen had the market believing at each successive meeting the FOMC would hike rates, but it wasn't until the end of 2015 when they finally did something, marked by a measly 25 basis point hike to the Fed Funds Rate. Despite all the empty promises, the market continued to overestimate the likelihood of a rate hike throughout 2014 and 2015, time and time again. As a result, I would be remiss if I didn't mention the likelihood the Fed comes up with another excuse to do nothing, leaving you wishing you would've bought those bonds before the meeting - fixed rate bonds would likely rise in value after a no-action announcement as the market resets its expectations for the interest rate trajectory.
The Fed will continue to tinker with market expectations, but I expect they will keep a tight lid on interest rates accompanied by a loose policy stance over the coming years. During recent testimony after the last Fed meeting, Chair Yellen even suggested the Fed may eventually considering going out and buying up stocks in the open market. Monetary policy doesn't get more accommodative, with the exception of negative interest rates (which FOMC members have also suggested they would consider). Accommodative monetary policy is bad for the value of fixed payments to be received in the future, as it typically results in dollar devaluation, making future dollars inherently less valuable than those held today. This makes sense, logically. If you flood the market with newly printed dollars created from thin air, the supply of dollars in circulation goes up while demand for it stays flat. As a result, this increase on the supply side should lead to a lower overall value, provided other countries aren't also printing equivalent amounts (or more) of their respective currencies.
Considering the composition of the Fed today, it's not going to change its stance - we're likely to see continued accommodation for some time, which should support equity markets but won't help fixed income. If you're looking for a hedge against equity exposure, there are alternatives that work better than fixed income. For instance, the VIX, or the volatility index, which is considered the equity market's "fear guage," has a large, inverse correlation with equities. It went through the roof in 2008/09, and call options on the index (which can be purchased on the CBOE) made their holders rich (or very, very high returns at the time). Investing in options is risky, however, as you face the potential to lose your investment in the option premium, so please make sure you understand what you're investing in before considering investing in options (and I'd recommend longer-dated expires when it comes to VIX).
Generally speaking, at the time a publicly traded company announces it will undergo a Chapter 7 or Chapter 11 Liquidation process, its stock price would decline materially unless investors already expected the announcement. If the market was already aware of the company's financial struggles, its stock price prior to the liquidation announcement may incorporate the coming liquidation, but a more likely scenario is that the stock price prior to the announcement reflects only doubts about the company's ability to continue as a going concern and not a full-on liquidation. Why? Because companies undergoing a liquidation process are generally insolvent, meaning the value of their assets is less than the value of their liabilities. Said differently, after all assets are liquidated, cash received from the sale of company assets goes to pay off the company's creditors (the bank, trade vendors, property lessors, taxing authorities, etc.), who are unable to recover their claims in full. Creditors are always fully paid-off before equity-holders receive anything and as a result, the publicly traded equity/stock of companies undergoing liquidation proceedings generally isn't worth much (if anything). Equity-holders often receive nothing when a company liquidates, as creditor claims exceed the total cash recoverable by selling off company assets. In situations where the value of a company's assets is sufficient to pay creditors in full and still have money left over, liquidation usually isn't the optimal route (reorganization under Ch 11 is generally preferable).
So to answer your question directly, yes, the stock price should decrease substantially after a company announces plans to liquidate.
If the company announced for the first time it would be liquidating after the market close today and you want to know what to do with the stock, you can go onto YahooFinance anytime today/tonight (before trading opens tomorrow morning) and look just to the right of the stock price denoted "at Close 4pm EDT." If the stock is selling off in the aftermarket, you'll see another price (and % change) with a notation below it that says "After Hours" - if the stock is relatively liquid (a large company or a company whose shares are frequently traded, generally on a major exchange), trading in the after-market can give you a good indication of how severe the sell-off may be and where you should expect the stock to open tomorrow morning. This can serve as a guide if you plan on placing a limit order to sell the stock at tomorrow's open, or if you just want to know how bad things may be. If you do intend to sell the stock with a limit order in the morning, place the limit below the stock's price in the after hours as you'll likely be competing with other sellers at the open; if your limit price is too high, you won't get anything sold.
Since you were approved by the Department of Veteran Affairs (VA) to receive these disability payments, all monies received in connection with your disability are exempt from taxation.
Do you or your husband have any jobs or other sources of income aside from VA disability or SSDI benefits? If this is the only source of income between the two of you (disability-related benefit payments), you are exempt from taxation on all of it. While some SSDI benefits can be subject to taxation, most recipients do not end up paying any tax on these benefits as it is their only source of income, however, about a third of SSDI recipients do pay tax on benefits received - but this is only in situations where their spouse has a job and generates regular income, or if you or your husband generates income from any other sources (which would be considered other household income and could trigger a requirement for you to pay taxes on disability payments received).
Assuming that, since both you and your husband are disabled and will be receiving SSDI, neither of you generate regular income from another job and you don't have any material other income streams, you are not required to pay tax on SSDI payments received.
Most states do not tax social security disability benefits, with the exception of 1) CT, 2) CO, 3) IO, 4) Kansas, 5) Montana, 6) MN, 7) Nebraska, 8) ND, 9) RI, 10) Utah, 11) Vermont, and 12) West Virginia. So if you don't live in any of these statements, you do not need to worry - none of the SSDI paid to your or your husband will be subject to taxation, and you are not required to file a tax return with the IRS.
For those states that do tax SSDI benefits, here's the exact breakdown of limits on "other (non-disability) income" that could trigger a requirement to pay taxes on SSDI payments received:
If you're married filing jointly, and together your monthly income (not including SSDI or other disability payments received):
- Is between $0 and $2,666: 0% of SSDI received will be taxed
- Ranges from $2,667-$3,666: 50% of SSDI benefits are subject to taxation at your ordinary income tax rate (which is likely low, between 10-15%)
- Ranges from $3,667 and up: 85% of SSDI benefits received are subject to taxation at your ordinary income tax rate
Hope this answers your questions.
According to my calculations and ASSUMING the $1800/month is what you TAKE HOME POST-TAX, the most you should even consider spending on rent is $700/month. You have $525 in monthly expenses, should keep $400/month for general spending requirements, and save at least $100/month as a starting point. That's a total of $1,025 already spoken for. If the $1800 monthly income figure is pre-tax, your take home pay is likely $1500-1600/month. Unfortunately, this does not leave you with much for rent, not to mention renter's insurance, gas, water & electric bills of your own, food to stock your own place (rather than free food from your parents), furniture if needed to furnish the apartment, etc.
Unfortunately, $1800/month is a tight budget to make the move out and live on your own. It certainly can be done, but to be frank, if your parents will allow you to continue to live with them for a while until you build some savings and have $5-$10K in the bank, you should take the offer so you can set yourself up for a solid financial foundation without ever having to worry about living paycheck to paycheck.
If you insist on moving out, the most I would allocate to rent is $400-$500/month, preferably less. But I can't stress it enough, you only get the opportunity to live and eat for free once and when your parents decide its time for you to go, you won't be able to take advantage of the opportunity to live with them again. There's no better time than now to stay where you are, save $1000-$1200 each month and before long, you'll have a nice cushion built up so you can move out and feel comfortable from a financial standpoint. There's nothing worse than living paycheck to paycheck, especially when you could otherwise avoid doing so by saving while you can, and spending your income on rent only when you need to! I hope this helps, best of luck.
There are different ways to get your Medicare coverage. Many people are automatically enrolled in Original Medicare, Part A and Part B, when they turn 65. Original Medicare doesn’t include prescription drug coverage or routine dental care, but some Medicare Advantage plans may include these benefits, and more.
Unlike Medigap insurance, Medicare Advantage (Medicare Part C) plans don’t offer coverage to supplement Original Medicare. Instead, Medicare Part C plans are a private insurance alternative to the government program. With this option, you get all your Medicare Part A (hospital insurance) and Medicare Part B (medical insurance) coverage through the insurance company instead of directly through the government. Medicare Advantage plans that include drug coverage can give you all your Medicare benefits in one policy; these are known as Medicare Advantage Prescription plans.
When you join a Medicare Advantage plan, you’re still in the Medicare program, and you’re still required to pay your monthly Medicare Part B premium; however, your Medicare services are covered and administered through a single policy.
There are four main types of Medicare Advantage plans: Health Maintenance Organization (HMO) plans, Preferred Provider Organization (PPO) plans, Private Fee-For-Service (PFFS) plans, and Special Needs Plans (SNPs). Less common Medicare Part Advantage plan options include HMO Point-Of-Service (HMO POS) plans and Medical Savings Account (MSA) plans.
What does a Medicare Advantage plan cover?
- Medicare Advantage plans must cover all of the medical and hospital services that Original Medicare covers, except hospice care (Original Medicare covers hospice care even if you’re enrolled in a Medicare Advantage plan).
- All types of Medicare Advantage plan options cover emergency and urgent care.
- Medicare Advantage plans may offer extra coverage, such as routine vision and dental, hearing benefits, or memberships to health and wellness programs.
- Many plans include Medicare prescription drug coverage, as mentioned above.
As it relates specifically to your friend, she likely does pay extra for Medicare Part C (otherwise called a Medicare Advantage plan). But, this extra cost is offset by the Advantage Plan's coverage of all Medicare Part A (hospital insurance) and Part B (medical insurance) coverage, and often comes with prescription drug coverage and other benefits. Medicare Part C can vary widely in terms of cost and level of service.
There are certain circumstances where your friend might have been able to get a Medicare Part C plan offered by a private insurance company at no additional cost in the form of premiums ($0 premium) over the standard cost of Part B.
Under Medicare law, private insurance companies contracted with Medicare to provide Medicare Advantage (also called Medicare Part C) plans must offer the same benefits as Original Medicare, Part A and Part B. All beneficiaries with Medicare Part B need to pay the Part B premium, even if they obtain their benefits through a Medicare Advantage plan. Because the federal government pays insurance companies a certain amount, or premium, for each beneficiary that the plans cover, some Medicare Advantage Organizations may provide Medicare Advantage plans with $0 premiums. However, $0 -premium Medicare Advantage plans might not always be the most affordable option. Even if you enroll in a plan with a $0 premium, you could have other out-of-pocket expenses that might add up over the year. It’s a good idea to compare a Medicare Advantage plan’s deductible, out-of-pocket maximum and copayments, as well as the monthly plan premium.
Key Considerations when Selecting a Medicare Part C Plan Include:
- Does the plan charge a monthly premium in addition to your Medicare Part B premium?
- Does the plan have an annual deductible?
- Is there a maximum out-of-pocket limit?
- What type of health services do you need? How often?
- Does this plan have network restrictions? Will you be using network providers or out-of-network providers?
- If the plan covers prescription drugs, are all your medications covered?
- How much will you pay for each service or visit (copayments or coinsurance), both in-network and out-of-network?
- Are there any additional benefits in the plan, such as routine vision or dental coverage? Do you need them? What do these benefits cost?
Since private insurance companies offer Medicare Advantage plans, costs and benefits will vary.
As to why your friend has been receiving periodic deposits into her savings account from this Part C Coverage - perhaps it is to reimburse her for benefits she has available to her under the Part C plan (for prescription drug coverage, dental, vision, or hearing costs, for instance), but unknowingly has been paying for. It sounds like she is only aware of how Medicare Parts A and B work, thus she's likely unaware of the benefits at her disposal through Part C. She must have provided the insurance company through which she is entitled to Part C coverage with her savings account information, otherwise there would be no way they could access the account to make recurring or periodic deposits.
Hope this helps.