Tuesday, February 28, 2006

If the opposite of pro is con...

In an effort to simplify the tax code, Congress has redefined "child".

From the Wall Street Journal:
Under the new law, there are several tests to qualify as a child. The child must be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister or a descendant of any of them. The child must be under age 19 at the end of the year, or under 24 at the end of the year and a full-time student -- or any age if permanently and totally disabled. The child must have lived with you more than half the year (although there are some exceptions, such as children who were born or died during the year). The child must not have provided more than half of his or her own support for the year. For more details, see Chapter Three of IRS Publication 17 (www.irs.gov).
What, you thought it should be simpler than that?

Congress was actually trying to streamline the Code, but we're talking about Congress, after all. Previously there were at least five different tests for what a child is, one for each of the different tax breaks tied to children. So, this is an improvement, right?

Cartoon Tuesday

The People's Republic of California

After the dot-com bubble burst, we joked about all of the east-bound U-Hauls, but apparently the exodus continues five years later.

According to 2005 Census Bureau figures, 239,416 more native-born Americans moved out of California than moved into the Golden State. So many folks are checking out that the cost to rent a U-Haul trailer to move from Los Angeles to Boise, Idaho is $2,090. That's eight times more than moving the other direction.

From the editorial page of the WSJ:
What's gone wrong? A big part of the story is a tax and regulatory culture that treats the most productive businesses and workers as if they were ATMs. The cost to businesses of complying with California's rules, regulations and paperwork is more than twice as high as in other Western states.
To make matters worse, Rob "Meathead" Reiner and his Hollywood buddies have put an initiative on California's June ballot to add a 1.7% "millionaire" surcharge on folks earning over $400,000.

Real estate values in Nevada and Idaho are on the way up!

Sunday, February 26, 2006

Foolish commodities


Selena Maranjian, a contributor for the Motley Fool, takes a shot at explaining the attraction of commodities but, unfortunately, she just ends up looking foolish by taking the position that commodities are just too risky for most investors.
Investors are drawn to commodities because of the great leverage available. You can sometimes buy items by paying only about 10 percent of their value. In an extreme example, if you buy $50,000 of pork bellies for $5,000 and they double in value, you've made a lot of money by investing just a little. Of course, if pork bellies fall in value, you can lose your entire invested amount -- and then some! You can lose much more than you invest with commodities and futures. Smart people have lost a lot of moola this way.
Leverage is an important feature of commodities investing, but not the primary attraction. The cool thing about frozen orange juice and pork bellies is that they have little or no correlation to the other asset classes that you own like stocks, bonds, cash and real estate. The central tenet of asset allocation is that, if you combine a bunch of risky assets that have low correlations to one another, then you have actually reduced risk. That's not so foolish now, is it?

Commodities have been long been available to average investors through managed futures which are kind of like mutual funds of futures contracts. But it just got easier to get exposure to commodities with the recent launch of a new ETF, the Deutsche Bank Commodity Index Tracking Fund (DBC). Check it out but remember, this is just the first commodities-based ETF, there will be others soon.

College kids thrash the S&P

A portfolio run by students at Villanova, though less than two years old, has smacked the S&P 500 around pretty nicely.

From Financial-Planning.com:
Villanova's Arnone-Lehrer SRI Fund runs real money and has significantly outperformed the S&P 500 since it was launched in March 2004. Overseen by Professor David Nawrocki, the fund is up a total of 25.35 percent since inception, using data through November 25, 2005, with the S&P returning 16.21 percent over the same period. The Domini Index, often used as a proxy for SRI, was up 14.17 percent during that time. The Arnone-Lehrer SRI Fund is run by a team of 16 undergraduate students, with input from three additional students in the university's MBA program, using business cycle and portfolio theory work pioneered by Nawrocki and suitability screening software from IW Financial.
The students are using a top-down value approach with a sector rotation, social responsibility combo. The professor thinks that the social and governance screens add as much as 100 basis points per year.

The article does not say how much money the students manage in this portfolio of 50-70 stocks and it would be interesting to see if there methodology holds up when scaled. Nonetheless, way to go!

Saturday, February 25, 2006

No pixel-stained wretch anymore


Well, it's not exactly a ringing endorsement of this blog, just a very nice mention. It's appreciated just the same.

This little item wrapped up a piece in Barron's (paid subscription) today about ETF websites:
Finally, here's an interesting little blog for readers too exhausted to troll the increasingly ubiquitous financial blogs themselves. Pfblogs.org (www.pfblogs.org) aggregates notable posts from roughly 200 blogs that follow personal finance, real estate and investing. And it's ad-free. You can read by day, or head straight to the categorized blog contributors that most interest you, like Stop Buying Crap (www.stopbuyingcrap.com), Frugal for Life (frugalforlife.blogspot.com), Seeking Alpha (seekingalpha.com) and the Happy Capitalist (happycapitalist.blogspot.com).
At any rate, it's a far cry better than being called a "pixel-stained wretch" as MarketWatch did earlier this month. Thanks, Barron's.

Thanks also to Rarely Right for the heads-up.

Maybe they should try Turbotax


The folks over at H&R Block apparently had a few problems figuring their own taxes for the last couple of fiscal years and now they've had to go back and restate earnings.

From MarketWatch:
The Kansas City, Mo.-based company said it will restate results for fiscal years 2004 and 2005, plus previous 2006 quarters, mainly because of errors in calculating its state effective income tax rate. The mistakes resulted in H&R Block understating its state income tax liability by about $32 million as of the end of April, 2005, the company added.

The restatements will knock 7 cents a share off 2005 fiscal-year earnings and 2 cents a share of fiscal 2004 results, the company said.
While H&R Block sells their own tax prep software, maybe they should check out TurboTax or TaxACT. Ya think?

Wednesday, February 22, 2006

The bull lives?

A strong performance Wednesday for U.S. markets and falling oil prices stimulated activity around the globe.
Asian markets were up sharply Thursday morning, lifted by strong gains on Wall Street, new multi-year highs in Europe and a slide in energy prices.

Trading was active in Japan, where the Nikkei led the region, as investors snapped up recently battered shares and others geared to what many see as a full-scale economic recovery.

In Tokyo, the Nikkei 225 Average briefly rose above the 16,000 level, before settling back late morning, rising as much as 1.18%.
It's getting interesting. Could we be in the midst of a nice little run?

Sunday, February 19, 2006

Third-party research? Yeah, we've got that.

In TD Waterhouse's most recent advertising campaign, Sam Waterston poses this question:
"Objective, independent, third-party research. Can your broker say that?"
Hold on just a second there, Sammy. Are you suggesting that most brokerage firms don't offer objective, independent, third-party research? Because the ten largest firms on Wall Street each contract with no fewer than three independent research firms and make that research available to their clients. Ok, so they're required to, pursuant to a 2003 settlement with the SEC and NASD, brought about because of a few liberties some analysts might have taken back in the dot-com days. You know, like issuing a "buy" recommendation on a stock and then slamming it privately in inter-departmental emails.

Anyway, the point is, if TD Waterhouse and its ad agency believe that they have some kind of lock on third-party research, then they need to go back to their thumbnails and storyboards, because everybody is offering "objective, independent, third-party research." It just wasn't their idea.

Candidate's questionable trades

California State Controller and Democratic candidate for governor, Steve Westly, may have participated in an illegal trading scheme called laddering with which he bagged $286,000 in profits in 1999, according to the SF Chronicle.
His tax returns show that on 33 occasions between April and October 1999, Westly -- then an executive at the online auction house eBay and today a Democratic candidate for governor -- bought blocks of hot new dot-com stocks at the initial public offering price, a lucrative investment opportunity that underwriters steered to wealthy clients and other insiders.

Then, after the market opened and public trading began, Westly bought more of the same stocks -- almost always an identical number of shares. He paid premium prices, sometimes as much as triple what he paid for the IPO.
Westly lost money on all of the purchases he made on the open market, to the tune of $71,000, but those trades were more than offset by the profits on the IPOs.

In a laddering scheme, investors are offered shares of hot IPOs with the condition that they buy more stock as soon as it starts trading on the open market, creating the illusion that the stock is in heavy demand. Ordinary investors who are unaware of what's happening, often take large losses when the insiders start dumping their shares.

Westly's broker was Robertson Stephens who went out of business in 2002 and is one of 22 investment banks accused in class-action lawsuits of defrauding investors through laddering and other illegal schemes during the dot-com days.

Oh, the go-go days of the dot-com era...it was quite a time to be in San Francisco and working for a big Wall Street firm. Glad it's over.

Saturday, February 18, 2006

Maybe they read the articles...

Both of your U.S. Senators receive Hustler magazine at their offices. So does your Representative in the U.S. House. Actually, all 535 members of Congress receive the porn magazine every single month, free of charge, compliments of publisher Larry Flint.

From The Salt Lake Tribune:
The magazines have been coming for more than a decade at least. Publisher Larry Flynt says he started sending them as soon as his magazine began publication in 1974, but an Associated Press story from 1983 has Flynt initiating the mailings that year.

Either way, he's not going to stop mailing Congress.

“"I felt that they should be informed with what's going on in the rest of the world,"” Flynt says, deadpanning during an interview: "“Some of them didn't appreciate it much. But, I haven't had any plans to quit."”
Lawsuits have been filed to get Flynt to stop the mailings but, apparently there's nothing illegal about it.

It sounds like most issues hit the circular file as soon as they are delivered, but surely a few copies find their way into lawmakers' briefcases.

Click "I agree" or else

Online banking customers of Wells Fargo were greeted this week by a pop-up ultimatum: if you want to bank on the web, agree to our terms. Those terms were spelled out in 11,000 words of thick legalese.

From the SF Chronicle:
The document, Wells' "online access agreement," must also be accepted before a customer is once again permitted to bank via the Net. There's no summary of the voluminous contract's contents or any indication of what might be new.
The document also made it seem that, by agreeing to online banking terms, customers would no longer receive paper statements. This apparently is not the case, but Wells Fargo call centers were bombarded by calls from confused customers. Serves 'em right.

Friday, February 17, 2006

The Series 7 exam--it's tough enough even when it's not rigged

The NASD announced last month that it mistakenly flunked nearly 2,000 people who had taken the Series 7 exam in recent months. The details are in this post.You just knew that it would only be a matter of time before someone sued the NASD for ruining their career.

From MarketWatch.com:
Andrew Crabbe, a Lehman Brothers (LEH) employee since May 2005, filed a lawsuit seeking class-action status against the private-sector regulatory group in federal court in Manhattan on Tuesday.
In the lawsuit, Crabbe claims he took the Series 7 exam in October and was told he had received a failing grade of 68%, short of the 70% passing grade. As a result, his job at Lehman was in jeopardy, he received a small year-end bonus and his reputation was damaged, the lawsuit claims.
This will undoubtedly become a class-action suit and, I would assume, many of the nearly 2,000 wronged test-takers will join in.

Thursday, February 16, 2006

2010: A 529 Odyssey

The sunset provision of the tax-exempt status of 529 plans has always been expected to be repealed by congress. But not so fast.
The exemption from federal tax has been one of the plans' biggest selling points and undoubtedly has spurred their phenomenal growth - to nearly $70 billion in assets last year from approximately $12 billion in 2001, when the tax-exempt status was granted.

But prominent Washington attorney Helen Hubbard, partner at Baker & McKenzie LLP of Chicago and former tax legislative counsel at the Department of the Treasury, warned state administrators and financial services executives attending the opening general session of the recent College Savings Foundation Forum in Miami not to expect Congress to pass any major 529 legislation this year.
This is exactly the kind of thing that keeps well-informed financial advisors in business. Laws change pretty fast, if you don't have a good advisor, you could miss something.

Wednesday, February 15, 2006

Merrill and BlackRock, a done deal

Announced early this morning, Merrill Lynch Investment Management and BlackRock will join forces.

In an email to employees of BlackRock:
The merger is expected to close in the third quarter of 2006 and will add considerably to our product offerings. BlackRock and MLIM have highly complementary franchises across asset classes, products, distribution channels, and geographic locations. On a combined basis, the new company will manage $286 billion in equity/balanced, $415 billion in fixed income, $208 billion in liquidity, $38 billion in alternative and real estate investments, and $44 billion in retail separately managed accounts. The combined company will offer a broad suite of investment products and solutions designed to meet the needs of both retail and institutional clients in the U.S. and in non-U.S. markets. In addition, through BlackRock Solutions, BlackRock├é’s proprietary trading and risk systems are used by clients to manage portfolios valued at over $3 trillion and to provide investment accounting services for over $50 billion in assets.
Don't expect this combo team to rock the investment world, though. Merrill sheds itself of an organization with marketing problems so severe that even a name change couldn't fix. And BlackRock gains a healthy chunk of assets to manage. But for the investing public, it's just an interesting story.

Tuesday, February 14, 2006

Happy Valentine's Day


From the SF Chronicle:
(02-14) 08:31 PST San Rafael, Calif. (AP) --A refrigerated delivery truck packed with more than $20,000 in red roses and other flowers for Valentine's Day delivery was stolen from a wholesaler's parking lot, police said.
Oh hey, did I mention that I am filling the whole house with roses for Mrs. THC for Valentine's Day?

Monday, February 13, 2006

Merrill and BlackRock deal?

The big buzz on the street today was the possible acquisition by Merrill Lynch of a minority stake in the asset management firm BlackRock. While there's no official word from either company, the deal is said to be in "advanced talks."

David Weidner at MarketWatch writes:
A deal between Merrill Lynch (MER) and BlackRock (BLK) would create a $1 trillion fund-management colossus and transform the country's biggest retail brokerage firm. Talks have reached advanced stages, and a deal could be reached and announced as early as Tuesday.
"Transform" Merrill Lynch? Probably not. A fifty percent stake in a firm with around 1,000 employees and $450 billion under management is an interesting move on Merrill's part but won't have any significant impact on the $1.6 trillion brokerage firm or its 55,000 employees. It won't "transform" Merrill any more than Morgan Stanley's acquisition of Van Kampen transformed Morgan ten years ago.

There are a couple of big pluses for Merrill though. Ever since the scandals that have rocked the street in recent years, brokerages have looked for ways to separate themselves from the asset management business to reduce any possible conflicts of interest. BlackRock would provide that distance while also contributing some world-class expertise in fixed income management, a talent that is in big demand these days (kind of like internet analysts were in the late 90s) .

It could, however, transform BlackRock. Access to a sales force of over 15,000 financial advisors could be a very good thing. Time will tell.

Saturday, February 11, 2006

Field of Dreams

When the President speaks...
We must also change how we power our automobiles. We will increase our research in better batteries for hybrid and electric cars, and in pollution-free cars that run on hydrogen. We'll also fund additional research in cutting-edge methods of producing ethanol, not just from corn, but from wood chips and stalks, or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years. (State of the Union Address, 01/31/06)
...clients call to ask how to invest in corn and ethanol.

The pure play on corn is in trading futures. This requires a commodities account and a commodities broker who knows what he/she is doing. Correlations to U.S. stocks and bonds are low but risks are high and not something for the average investor. Think "Trading Places."

Managed futures, which are actively managed, diversified portfolios of commodities contracts, are geared for investors with large portfolios, usually require a financial advisor with a Series 31 registration and are more accessible to individual investors. But if you just want to play corn, managed futures are not the best solution because you're also getting futures contracts on gold, aluminum, orange juice, etc.

As for individual stocks, the big companies in the ethanol game are Archer-Daniels-Midland (ADM) and Monsanto (MON). And, if you're feeling adventurous, Pacific Ethanol (PEIX) is the purest play but the stock has nearly tripled since last fall. It might be a little overbought at $18.00.

My best advice, if you already have a few hundred acres in corn, don't plow it up for a baseball field.

Friday, February 10, 2006

Defending Wall St. Bloggers

CJR Daily came to the defense of Rarely Right, The Stalwart, All Things Financial, et al today after David Weidner's gratuitous tirade in MarketWatch yesterday.

Weidner, it seems doesn't hold Wall Street bloggers in very high regard:
When someone creates editing software that keeps bloggers from spewing what you wouldn't bother telling your dog, that, folks, is going to be a revolution.
CJR Daily:
To which we respond: when someone creates editors who keep columnists from bloviating on subjects they spend little time exploring, we will help lead that revolution.
As for me, I'm just bloggin' away in my jammies from my parents' basement.

Thursday, February 09, 2006

Baby SPDRs

Three new SPDRs from State Street Global Advisors started trading this week. These new Standard and Poors Depository receipts are designed to track the performance of the home construction, biotech and semiconductor industries.

These new issues are the SPDR Biotech ETF (XBI), the SPDR Homebuilders ETF (XHB) and the SPDR Semiconductor ETF (XSD).

Pixel-stained wretches?

I was in my jammies, bloggin' away from my parents' basement when I came across this column by David Weidner in Market Watch about Wall Street bloggers.

Geez, who put the bug up his butt?

Wednesday, February 08, 2006

Plastic shoes are hot


A few short years ago, for a successful initial public offering, a company's name had to be followed by "dot com". So who would have thought that one of the hottest IPOs of 2006 would be a manufacturer of funky plastic shoes?

Crocs Inc. (CROX) began trading today at $30, 43% above its IPO price of $21. It's expected range was raised by the underwriters, Piper Jaffray and Thomas Weisel, on Monday to $19-20 from a prior level of $13-15. Crocs closed its first day of trading at $28.55.

Of nineteen IPOs so far in 2006, Crocs ranks second in performance behind Chipotle Mexican Grill which went public on January 26th at $22 and closed today at $45.74.

Tuesday, February 07, 2006

Lockdown!

This morning the following email was distributed to all of the tenants of my building by the management:

***Possible Building Lockdown***

Please be advised due to the pending protest regarding Hurricane Katrina victims, (my building) may be locked down. This protest is supposed to be contained to the sidewalk of the building between noon and 1:00 pm. If for any reason the protesters attempt to enter the building, it will be locked down.

Please advise all of your employees if they leave the building during this time to please carry their building access cards. A building wide announcement will be made at 11:30 a.m. today.

Thank you in advance for your cooperation.

Property Management

Feb. 7, 2006
The protesters did, in fact, leave the sidewalk and rush the front doors. Building security guards and police did lock it down and later threaten to have them arrested for trespassing. Fun stuff!

Sunday, February 05, 2006

You get what you pay for...


So, not only was Blogger completely out of commission for hours yesterday, but now it seems to have eaten my last post. It's gone, slipped into a black hole, devoured by Blogger.

Oh well. It's like my mother always said, "You get what you pay for." Blogger's certainly not perfect but you can't beat the price.

Thursday, February 02, 2006

State of the Union

"In the coming year, I will continue to reach out and seek your good advice. Yet there is a difference between responsible criticism that aims for success and defeatism that refuses to acknowledge anything but failure. Hindsight alone is not wisdom. And second-guessing is not a strategy."

--George W. Bush

"The president sounded to me like someone who has lost touch with middle-class families. They are concerned about gas prices, medical costs, the cost of student loans and a Medicare drug benefit that is a mess. ... This speech had no glue.''

-- Sen. Barbara Boxer, D-Calif.

"The president is an oil man. There is no way he can reduce our nation's reliance on foreign oil. ... He's stuck by who he is and what these Republicans are. They're captives of the oil industry, just as they're captives of the health care and pharmaceutical industries."

--Nancy Pelosi of San Francisco

"The sad part about the health savings account proposal is that it is part of George Bush's Orwellian world. ... He says one thing and means another. This does nothing to solve the medical crisis in America.''

--Harry Reid of Nevada

Any questions?