Tuesday, January 08, 2013

Two things with the equity market

It may really be one.  First, Tim Cook cannot be Steve Jobs and he cannot pretend to be, black shirts and jeans and all.  Jobs had this aura of confidence that few people have, and with all of the hooked devotees of Apple, its growth will slow.  The stock is a bargain now, but do the stupid non-corporate finance thing and break it up, the stupid market will begin to short, long, and trade it more.

It was said one, with Apple being the first.  All of this fiscal cliff wrangling did little or nothing, maybe minus nothing, for our economy.  Ship Eric Cantor and Harry Reid off to Afghanistan for some special mission and we may be better off.  

Staley leaves JPM for good

News that James Staley has finally left JPM is terrific.  He was demoted from Investment Banking head in the summer and now is finally out of the place.

Staley was a predecessor JPM person, not too talented but totally full of entitlement as so many of the JPM folks were.  He craved attention and was a complete embarassment when arranged to talk to securities analysts.  He simply was a walking billboard for himself.  I can't imagine the nice things that the hiring company, Blue Mountain or some unknown hedge fund, are saying about him.

God only knows how much it has cost the firm to maintain this seemingly regally connected, or amazing faker to others, incompetent for so long.  13 years of pretend!  Probably cost $200 million over that time, the ultimate example for Obama's generally overreaching distaste for executive salaries.  This guy is such a megalomanaic type loser, can't hardly believe Dimon fell for him for so long.

YUM drags down market

There is no doubt about it, although market pundits are making up lots of reasons.  The downturn in the market today, which would normally be an up day, is down solely because of YUM's sales slip in China.  Alcoa, the perennial first reporter was fine, but YUM's forecasts were not.  So a service provider and fast food purveyor rules the market.  That's right.

The second recession coming

Title of this post is the point, we will have a second recession.  That's just a point of view, hopefully flawed.  With many types of economic activity picking up a second recession would seem unlikely but, but, this new tax protocol will take some time to drag down consumption.  Any money going to the government until some real rationalization of spending and non-partisan legislation takes place is just money wasted, taken from the consumer consumption panacea of our less than educated and star crossed populace.

Monday, January 07, 2013

Revamping allocations

As year end investment allocations were calculated, it was somewhat of a shock to realize that 74% of the assets in my trading portfolio were in equities.  It was a stealth allocation based on the lack of attractiveness of bonds as we wound down 2012 and the investment performance of equities, in particular some fortunate picks that did exceptionally well.  What to do?

The last few days have been one of investment reallocation.  A few hopeless losers with maybe sentimental attachment were sold a few days ago leaving cover for selling today.  That means selling portions of seriously winning small cap stocks that are not so liquid and buying a few that have, in opinion here, untapped potential.  Sounds easy maybe, but this is just part intuitive guesswork, part common sense.  Despite decent gains, why would one have a stock total which represents more than the daily average volume of an illiquid holding.  That would be stupid, but is where it was.  Just sold a third of that one, decent profit, but moved the stock down 30 cents.  It really just comes down to some discipline, some financial analysis, and some belief in the competitive strengths of a company, based on what has been learned over the years.  Then there is just luck!  Are the buy and sell decisions right, who knows, but part of the idea is to maintain diversification always.

In a few weeks from now investments here should be set for a 2013 baseline.  If you want to know, the belief here is that U.S. equities should/could do well in 2013 despite the headwinds of  impotent governance from D.C.  Despite all of the dysfunction in government and the overhang of stubborn unemployment numbers, 2012 turned out to be a good year in equities that just required being in the game rather than the most brilliant choices.  2013 may continue that trend.

As an aside, I'd promote RGIII for a White House advisor to lift spirits and bring some optimism to our glum and humorless Congress and our insular President.  RGIII's bad knee will not deter his contagious and spontaneous positive attitude that is so needed now.  Heck, he must already have an apartment in D.C.

Saturday, January 05, 2013

The Tax Deal

Let's face it.  The deal that ended the "fiscal cliff" stand-off was not a budget deal or an economic deal.  It was simply a tax deal.  It did nothing about: needed structural change in the economy; a clarification as to what are entitlements as opposed to earned benefits; what to do about reining in health care costs; infrastructure investment that creates jobs and rebuilds the U.S. for a competitive future; making significant cuts in bloated government departments; retooling defense spending and sourcing such that it is independent of politicians totally focused on their districts share rather than what the country needs; Could this list go on and on; Yes.

The tax deal was somewhat of a breakthrough, although almost everyone can find something to dislike about it.  Here are thoughts from this perspective that are significantly influenced by the tax rates in our home state and the cost of living in our home state.

---Moving the top tax rate to those with $400/$450 thousand in taxable income as opposed to Obama's desired $250/$300 thousand was a welcome move even though that has become less of a personal issue.  As often noted here, as long as the IRS refuses to use all of the technology at its disposal to recognize cost of living differences, this higher level was only fair.  $250 thousand in metro New York for a family with children is far from wealthy even if in other areas of the country it would be high cotton.

---While the focus has been on the impact of higher rates on those above that $400/$450 threshold, the high end of the upper middle class got walloped by this tax deal:  First, while not paying the highest rates, those in the $250 thousand to $450 thousand range of taxable income are the most impacted by the still alive Alternative Minimum Tax, which was altered permanently to spare those with much lower incomes.  Those in higher tax states or those with large families in this range will still pay up big time for AMT, which only minimally impacts or does not impact those with much higher incomes, the true really wealthy;  Second, those with incomes above the $250/$300 thousand level get to pay an additional Obamacare 3.9% on capital gains and dividends and an Obamacare payroll tax surcharge of 0.9%(It appears that only those above the $400/$450 level also pay 20%, up from 15%, plus these additions but it's not completely clear here where the 20% base starts);  Third, households with $250/$300 thousand in income will see limitations on how much in deductions can be charged off, meaning the value of Schedule A will be diminished by each extra dollar earned above $300 thousand.

---The estate tax exemption in the bill of $5 million as opposed to Obama's proposed $3.5 million was a welcome concession.  The rate of tax on the amount above that was raised  to 40%, less than Obama wanted.  Again, we get back to the perspective from which one views this.  Everywhere in this country many small business owners would like to pass, as a legacy, the businesses that they have created to their children.  In metro New York, the land that a business sits on could easily be a large number, close to the $5million.  The higher $5 million exemption at least allows a little more leeway, on the margin, for those who inherit assets and may be less likely to need to liquidate or sell the family business to pay taxes.  At the end of the day, one could easily say that the $5 million exemption is far too low, given that for people at that level it is likely that all of the assets earned were fairly taxed over the years, and then to give 40% of that money back to the government in the name of income redistribution is simply unfair.  Nothing the IRS does is inflation adjusted(see AMT for the most egregious example).  Really wealthy folks will use expensive and complex strategies designed by law firms and private bankers to protect their estates in a major way, but for those with more than $5 million earned by their labor, that approach is neither easy nor likely as a possibility, too much up front cost(while $5 million is a lot of money, it should be noted that in most of Manhattan and in all of the suburbs with good school systems, a family that over time has paid off their mortgage and owns their house or apartment is probably 20% to 30% or more on their way to $5 million of net worth, then add in the value of a 401k after 30 years or more of working and that could easily be more than half of the way to eating up the exemption).

---The payroll tax addition of 2% is seen as a tax hike by much of the media, but it is of course going back to the long standing Social Security tax rate of 6.2% for employees, that was reduced by 2% for two years during the wrenching recession.  Whether this incredibly regressive tax is appropriate or should be revamped in some way is another issue.

---There is one tax that has been mentioned but without explanation that has been seen here.  That is the new "medical device tax", 2.3% in 2013 when previously there was no such tax.  Clueless about this one here for the moment.

Not being an accountant, this summary of opinons here is just that, opinions.  They are subject to change.

Thursday, January 03, 2013

"behind the beautiful forevers"

This National Book Award winner for non-fiction has seen plenty of commentary.  It's a brilliant easily flowing narrative detailing the lives of those living in a relatively small Mumbai slum, just 3000 people at the edge of the international airport.

In fact, the story is told in such a way that it could be fiction and it made me wonder.  How can "In Cold Blood", "The Executioner's Song", "What is the What", and even "In the Garden of the Beasts" all be classified as fiction and "behind the beautiful flowers" not so.  The author's note at the end goes to great lengths to describe this as pure journalism, with all events fully documented through first hand knowledge, through many witnessed interviews, through thousands of public records, and underscored by the fact that all names used are the real names of the subjects.  It seems to be an almost unprecedented journalistic effort. 

It really doesn't matter how it is classified.  Katherine Boo describes an almost, more than almost, nightmarish world of blatant never ending corruption by all authorities, extreme poverty, lives overwhelmed by filth and disease, poor exploiting poor rather than feeling any possibility of focusing their resentments elsewhere, and yet with all of this, a certain resiliance by some that seems amazing.

Tuesday, January 01, 2013

Another year? Is 2013 lucky or not?

The years do pass quickly.  I have long had the notion that the personal experience of time is relative to time experienced.  By that I mean that at age 5 a year is 20% of a child's life experience.  Remember those interminable days when it was raining, no playmates around, and parents at work or busy.  Time stood still.

A year in my junior high school was never ending.  The teachers were generally not at all smart and the curriculum was just an exact repeat of everything that had already been learned in elementary school by anyone who even faked paying attention.  It was an exhausting experience, with the exception of basketball season for me.  Those were very long years, representing, 8.4% of relative life experienced.

The interesting thing about this relative experience of time thought is that it means that the majority of one's life as experienced in relative time is spent being young.  The unfortunate or fortunate result of this is that time spent being old is not too long, in fact much more precious.  At age 63, the following year represents a little less that 1.6% of time experienced.  No wonder time flies.

Enough of this gibberish.  2013 looks to be a challenging year with the 13 making one wonder whether to stop on this floor.  Challenging or not, 13 notwithstanding, I aim to enjoy 2013 before it's all of a sudden 2014.  If that's a resolution, it's in the books.