Saturday, December 31, 2005

A toast to Champagne...and the New Year!

Before you pop that cork at twelve bells tonight, take a moment to appreciate the history of Champagne.

The name "Champagne" is derived from the Latin word campagna, originally used to describe the rolling countryside north of Rome. Since the Middle Ages it has referred to the province in northeast France which is known for its production of the bubbly beverage.

The seventeenth century Benedictine monk, Dom Perignon is frequently credited with inventing the process with which the best Champagnes are made, methode champenoise, a unique process where each bottle becomes its own fermentation tank. While how much credit for the invention of champagne should be given to Dom Perignon is still debated, there is little doubt that he was responsible for the concept of cuvee, where different grapes from different vineyards are blended to create a harmonious whole.

The elaborate and time consuming fermentation process, while automated for efficiency, is still used today. So, when you greet the new year, you're toasting with the product of centuries of tradition. Cheers!

Friday, December 30, 2005

Not so fast, Jane

A copy of Jane Bryant Quinn's new book, Smart and Simple Financial Strategies for Busy People showed up in the mail while I was in the Midwest for Christmas. You have to give these media relations folks credit for recognizing the power of blogging. They send a bunch of advance copies to bloggers for review and the resulting exposure a few blogs can give a new book is priceless.

Along with the book were several pages of press material prepared by Meryl L. Moss Media Relations including a list of "Six Automatic Savings Ideas" presumably from Quinn's book. The very first of these ideas is:
  • An Employer Retirement Plan. Diverting a percentage of your pay into a personal retirement account (e.g., a 401(k), 403(b), 457, Federal Thrift Savings Plan, etc.) has two advantages: first, there's no income or Social Security tax on your contribution and second, most employers match at least part of the money you put up.
Hold on just a minute. There is Social Security tax on your contributions to retirement plans. I wonder if Jane's book is full of such fallacies.

Tuesday, December 27, 2005

Headlights and windshield wipers

The weather here in the Great Midwest is 60 degrees and sunny while it's been raining non-stop back home in the Bay Area. Hopefully, all of the California drivers are heeding the new headlight/windshield wiper law that went into effect in July.

From the California Driver Handbook:
You must turn on your headlights if snow, rain, fog, or low-visibility (1000 feet or less) require the use of windshield wipers.
The idea that the legislature felt it is necessary to tell drivers to turn on their lights in the rain and fog raises an interesting question. Are California drivers really that dumb or do the lawmakers just think they are?

Wednesday, December 21, 2005

Merry Christmas!

The Happy Capitalist will be jetting back to the Midwest to celebrate Christmas with family and friends and blogging will have to take a backseat to holiday gatherings. But the laptop is along for the ride and I'll try to check in from time to time.

In case I don't have an opportunity later, let me wish everyone a very Merry Christmas and a Happy New Year!

Sunday, December 18, 2005

Money can buy happiness but...

Money actually can buy happiness but only if you have more of it than your peers. A recent study by Glenn Firebaugh, Pennsylvania State University and Laura Tach, a graduate student at Harvard, concludes that happiness is derived by the things money can buy (absolute income effect) or from comparing one's income to the income of others (relative income effect).
Firebaugh argues that, in evaluating their own incomes, individuals compare themselves to their peers of the same age. Therefore a person's reported level of happiness depends on how his or her income compares to others in the same age group. Using comparison groups on the basis of age, the researchers find evidence of both relative and absolute effects, but relative income is more important than absolute income in determining the happiness of individuals in the United States. This may result in a self-indulgent treadmill, because incomes in the United States rise over most of the adult lifespan.
The research puts an interesting spin on "keeping up with the Joneses". Firebaugh tested what he calls the "hedonic treadmill hypothesis" where "keeping up" means continually increasing one's own income because you can be sure the Joneses are increasing theirs.

Also, continued income growth in wealthy countries is irrelevant to the people's happiness because it could cause a consumption race just to maintain a constant level of happiness.

I say, give me the money and let me take my chances.

Friday, December 16, 2005

Cramer's Mad Money

CNBC seems to have a big hit on it's hands with Jim Cramer's "Mad Money". On the evening investment program Cramer runs wild on the set ranting about stocks and taking questions from callers. It's worth seeing...once.

OK, maybe there's some entertainment value to it, but the interesting thing is its impact on trading.

For example, last night's program featured Cramer raving about Sara Lee (SLE) while tossing frozen cheesecake around the stage. In today's trading SLE was up 3.5% on about five times its average daily volume. Apparently, some folks think he's worth watching.

Wednesday, December 14, 2005

Getting smarter...?

Americans seem to be getting a little smarter about handling their retirement savings, but we still have a ways to go according to a new report by the Employee Benefit Research Institute.

Slightly more than 43% of those who received a distribution from an employer's qualified plan in 2003 rolled the money into an IRA or another employer's plan, thus avoiding the immediate tax bite and penalty. This is way up from the 19% who did so ten years earlier in 1993.

It's likely that people understand the rules better now than in the past or perhaps financial institutions have done a better job marketing rollover products.

It's a big improvement but it's still pretty dismal. Too many people are cashing out lump sums and paying unnecessary taxes.

Monday, December 12, 2005

Vocabulary change for the Fed?

At long last, a Fed meeting to get excited about.

OK, maybe that's a bit extreme but seriously, tomorrow's meeting of the FOMC is the first in a long time that might be a little bit different. Sure, they're going to give rates a 25bp bump, just like the last twelve meetings, but it's the vocabulary that the media will be yammering about tomorrow afternoon. Will the words "accommodative" and "measured" be part of the policy statement?

Many analysts believe that, starting Tuesday, interest rate policy will no longer be referred to as "accommodative", signaling an approaching end to the tightening cycle. Then, after Alan Greenspan's final meeting on January 31st, the phrase "measured pace" will be lifted.

Gosh, the suspense is killing me.

Sunday, December 11, 2005

Vote your proxy

In the mid-eighties, when I first started investing in mutual funds, I would usually take the time to vote the annual proxies for the various fund families that I had invested with. But over the years, and since I get so much investment "stuff" in the mail, I've taken a much less active role...actually I pretty much ignore the proxies when they come.

So this fall, when a proxy from Janus showed up in the mailbox, it promptly hit the shredder. But a few weeks later, a second proxy showed up. That's unusual, I thought, but it too hit the shredder. Then a third proxy came. OK, what's the deal?

From InvestmentNews
Shareholders in Janus mutual funds are set to vote at a Dec. 29 meeting on a proposal that would attach performance fees to 13 of its 59 stock and bond funds.

Janus Capital Group Inc. originally had intended to put the proposal to a shareholder vote last month but postponed those plans after failing to get enough shareholders to cast a vote one way or the other.

If the proposal is approved, about $25 billion of the Denver-based company's $139 billion in assets will be linked to performance.
Most hedge funds are set up in a similar manner, where the management fees tick up if performance is above a specified benchmark but this is new for the mutual fund industry. Only about 4% of all mutual funds are set up this way, according to Lipper.

Proponents believe that this kind of structure more effectively aligns the objectives of the fund management with investors. I think we'll be hearing a lot more about it.

Saturday, December 10, 2005

KU wallops Cal

As a University of Kansas graduate currently living spittin' distance from the University of California at Berkeley, there's no way I could pass up posting on the thrashing KU gave Cal in basketball today.

The young and struggling Jayhawks trailed by three at the half but poured it on in the second period to beat the Cal Golden Bears 69-56.

Cal was probably fortunate that this game was played at Kemper Arena in Kansas City where the crowds and the noise are a little less intimidating to visitors than at Allen Fieldhouse in Lawrence.

Photo courtesy of the KU Athletics website.

Friday, December 09, 2005

Trademarking "Dykes on Bikes"

Dykes on Bikes are perennial favorites in San Francisco's Gay Pride Parade and I had no idea they were embroiled in such a legal battle over their identity.
A lesbian motorcycle group in San Francisco declared victory Thursday in their fight for a federal trademark for the name "Dykes on Bikes."

The U.S. Patent and Trademark office twice rejected the group's application on the grounds the term "dyke" was offensive and derogatory. The office reversed itself after the group's lawyers appealed, submitting hundreds of pages of additional material that they said showed the slang word does not disparage lesbians.
I'm so happy for them. After all, what could be more fun than hundreds of half-naked lesbians on motorcycles?

Wednesday, December 07, 2005

Neutral is "of little use"?

Through monetary policy, the Federal Reserve stimulates economic growth or restricts it, based upon its belief about what is in the best interest of the U.S. economy.

The idea of "neutral" refers to a rate that is neither so low that it stimulates excess spending, nor is it so high that it restricts spending and price increases. Most economists agree that neutral is between 3 and 5 percent. Since June, 2004 the Fed has raised its funds rate target from 1% to 4% and is expected to raise the target to 4.25% next week.

Since the Fed has a history of overshooting neutral, Rep. Jim Saxton (R, N.J.), chairman of the Joint Economic Committee of Congress asked Greenspan how he would know when neutral had been reached and whether the Fed might go past neutral.
While neutral "is a useful theoretical construct," practical difficulties "limit its usefulness," Mr. Greenspan wrote in a response released by the committee. Definitions of neutral vary, as do the methods for calculating it, and its level may change with economic conditions, he added.

"It is impossible to know with any certainty when the neutral rate has been reached." Moreover, at times, "when inflation is too high or too low -- aiming for a neutral funds rate in the near term would not be appropriate," Mr. Greenspan wrote.
Sorry Alan, but it is important to have an idea where neutral is, it's not just a "theoretical construct".

It's time for Alan to be done. He's done a respectable job, but we can do better.

Bigger butts, bigger needles

Apparently our butts have become so large that longer needles are needed to deliver the appropriate dose of medicine in some injections.
Standard-sized needles failed to reach the buttock muscle in 23 out of 25 women whose rears were examined after what was supposed to be an intramuscular injection of a drug.

Two-thirds of the 50 patients in the study did not receive the full dosage of the drug, which instead lodged in the fat tissue of their buttocks, researchers from The Adelaide and Meath Hospital in Dublin said in a presentation to the annual meeting of the Radiological Society of North America.
That's enough to get me back to the gym.

Tuesday, December 06, 2005

Choppiness defined

When I wrote only yesterday that we should expect a choppy market through year-end, I had no idea that today would prove to be such a great example.

The trading day began with a U.S. productivity report that was very positive and stocks responded as one might typically expect with such a good economic report. By around 3:00 est the Dow was up 101 points and the S&P 500 had risen eleven. Then the computerized sell programs kicked in and investors followed giving up nearly all the the day's gains. The Dow finished up 21.85 and the S&P 500 up only 1.61.

And while many positive economic reports can be interpreted as inflationary, positive productivity reports are much different. Productivity is total output divided by hours worked, so a strong number implies that inflation is pretty much in check. The same number of workers are producing more goods in the same amount of time. But after a few hours to digest the info, the market sold off anyway.

Expect more of the same as the month winds down.

Monday, December 05, 2005

Expect a choppy December

November's strong performance for equities has moved the Dow to just about even for the year and we're up about four points on both the Nasdaq and S&P 500. So, what factors moved the market last month and what should we expect from December?

In my view, the recent upturn was driven by the following factors:
  • Solid third quarter earnings reports.
  • Oil dropped from $70 per barrel and has stayed below $60 for weeks.
  • Solid consumer confidence numbers suggesting a strong retail holiday season.
  • Lower inflation expectations.
  • The expectation that the Fed is near the end of its tightening cycle.
Regarding the Fed, we'll most likely see two more 25bp hikes, which is probably two more than necessary given the Fed's history of overshooting neutral. The result will be a sluggish 2006 economy with the chance of a negative GDP growth rate in at least one quarter. By the end of the new year the Fed may have to contemplate a reversal in interest rates.

With this remaining uncertainty about the Fed in the near term, any good economic news will cause worries that the Fed's tightening is unfinished and drive stocks down while negative economic news would trigger the opposite.

My forecast is for a choppy market through the end of the year. A Dow above 11,000 this year is looking about as likely as a white Christmas in San Francisco. Oh well.

Sunday, December 04, 2005

Smart money?

Registered Investment Advisors polled last month by Rydex had a slightly upbeat outlook on the economy and the stock market. Now you just have to ask yourself if you should follow the "smart money" or if this is actually a conta-indicator?

(Click on the graphic for a larger image).

Friday, December 02, 2005

The Happy Capitalist Turns One

Tomorrow, December 3rd, The Happy Capitalist will turn one year-old. It's hard to believe that a year can go by so quickly.

I won't be around to help celebrate as I'll be in San Francisco taking "The Big Exam" all day. The blog will just have to celebrate by itself...I hope it throws itself a nice party.

More importantly, tomorrow is my mother's 80th birthday. Happy birthday, Mom!