Sunday, August 26, 2007

The week in review

  • The DJIA shot up 299.79 points, 2.29% to close Friday at 13,378.87
  • Crude oil fell $0.73, 1.02% to $71.09

Wednesday, August 22, 2007

Financial Planning Question of the Week

Feel like testing your financial planning expertise? Here's a real-life question I had recently...give it a shot.

A client is buying a new vacation home and selling an existing second home. She will need about $200k for the down payment next month and should be able to pay it back in 3-4 months when her existing second home sells. She is in the 35% federal tax bracket, 9.3% state and not subject to AMT. What's the best way to raise the money?

a) A home equity line of credit on her primary residence at 8.25%
b) Liquidate investments and pay capital gain taxes of $8k-10k
c) Take a $200k margin loan at 9.125%
d) Take a swing loan at 7% on the present second home

Take your best shot!

Tuesday, August 21, 2007

Cartoon Tuesday

By Bob Englehart, The Hartford Courant

Thursday, August 16, 2007

Baby I'm amazed

I've been an investment professional for almost thirteen years and I am still amazed at the extent to which the market will overreact to information that shouldn't even be news. This morning's non-news is a great example.
WASHINGTON (AP) -- Construction of new homes fell in July to the lowest level in 10 1/2 years, and analysts said there is no end in sight to the deepening housing slump.

The Commerce Department reported Thursday that construction of new homes and apartments dropped by 6.1 percent in July from the June pace to an annual rate of 1.38 million units.
For years mortgage pimps have been lending gazillions of dollars to people with credit scores of 425. Now that it's come back to bite them in the ass in the form of defaults and foreclosures, these Einsteins have quit lending the un-creditworthy any more money. And we're supposed to be surprised that new home starts are falling?

It's even more amazinging that it actually did suprise a lot of folks as the Dow slid 340 points (intraday) on the news. What will tomorrow bring?

Saturday, August 11, 2007

Sell! Sell now!

It's definitely time to sell. No, not your stocks. Invest for the long haul.

It's time for Matt Murphy, the young New Yorker who caught Barry Bonds record-setting home run ball, to unload the thing.

While most sports memorabilia appreciates with age, we don't see any upside to hanging onto this used Spalding, only downside. Barry's image will likely become even more tarnished as the steroids scandal continues to unfold. Then there could be surprises that come out of left field. Perhaps it's revealed that Bonds has been spending the off season at Michael Vicks's little dog park. Or maybe he's been betting on basketball games with Tim Donaghy. Any revelations like those would devastate the value of the ball and Murphy's tax liability has already been sealed.

The ball is considered by the IRS as a "treasure trove" and will be taxed as ordinary income based on its value when acquired. Most estimates put the ball's value around $500,000 which throws Mr. Murphy into the top tax bracket. Tack on another 7% or so for the state of New York and the total tax bill is around $210,000. That leaves about $290,000; not a bad day's work, but I certainly wouldn't risk the ball's value falling below that tax liability by holding it too long. That's worse than striking out in the bottom of the ninth, bases loaded.