It’s nice to have options. Before knowing the fiscal cliff outcome and before taking a trip to North Korea, Google Chairman Eric Schmidt sold 153,000 shares of company stock for $108 million, according to a Wall Street Journal review of securities filings. Starbucks Chairman Howard Schultz exercised two million stock options for $107 million. Robert Kauffman, co-founder of hedge fund Fortress Investment Group, sold $180 million in stock back to the firm partly because of concerns about higher tax rates, saying, “It was more that the current certainty, with rates relatively attractive, was a … [Read more...]
The Illegitimate Tax Mandate
Following last week’s election, the President and his allies in congress are claiming the outcome of the election (and exit polls) indicates a mandate to raise taxes on the “rich.” Why? Because the President campaigned on a higher tax message. Actually, he campaigned on raising taxes on millionaires and billionaires, not the “thousand-iares” that will see a higher tax bill if he gets his way. But the more dominant message during President Obama’s campaign was not one of higher taxes, but that he isn’t Mitt Romney. If there is any clear mandate from this election, it is not to be Mitt Romney. … [Read more...]
Investing in a Global Recession
World trade volumes declined for the third month in a row according to the CPB World Trade Monitor Index released today. The index grew only 0.29% on a year over year basis (Chart 1). Every time the index has grown so slowly, the United States was already in recession. The report, put together by the Netherlands Bureau for Economic Policy Analysis, also indicated that world industrial production has also decreased, with the bulk of the decreases coming from the U.S., Japan, and Central and Eastern Europe. Evidence of the trade contraction is showing up on U.S. shores as declines in … [Read more...]
Income Investors Beware: This Asset Class is a Guaranteed Loser
Yesterday, Bloomberg reported that the U.S. Treasury sold $24 billion of 10-year notes at a record low auction yield. The bonds were sold at a yield of 1.85% which is lower than the 1.9% yield on 10-year notes sold in January. What investor would willingly lend the federal government money for ten years at a 1.85% interest rate? Aren’t these folks aware that this is the same federal government that has racked up trillion dollar deficits for three consecutive years and promises at least one more year of the same? On a fundamental basis, long treasury bonds are one of the world’s most … [Read more...]
Fear and Greed: Read the Market like Warren Buffet
If you tune into to CNBC regularly, you’ve likely come across a segment where the commentators are talking about the VIX Index. You may have wondered what the significance of the VIX was and what its implications are for your portfolio. The VIX isn’t like the Dow Jones or the S&P 500—it doesn’t track the movement of stock prices. The VIX is a measure of risk. Some call it the “fear gauge.” According to the Chicago Board of Options Exchange, the organization that publishes the index, the VIX is a “key measure of market expectations of near-term volatility conveyed by S&P 500 stock … [Read more...]
A Dubious Tax Proposal
President Obama is on the campaign trail promoting the Buffett Rule that the Senate will likely vote on in coming days. The Buffett Rule would slap a minimum tax rate of 30% on anyone who makes more than $1 million per year. Billionaire Warren Buffett came up with the idea. Apparently, he was disturbed by the fact that he pays a lower tax rate than his secretary. Why Buffett is focused on his rate rather than the $7 million he forked over to Uncle Sam is, well, confounding, but I’ll come back to that. If implemented, the Buffett Rule wouldn’t even begin to make a dent in the budget deficit. … [Read more...]
Economic Mirages
Yesterday the markets were looking for the Durable Goods report to show an increase of 3% in new orders. The numbers disappointed however, with growth of only 2.2% reported. You can see an odd pattern for the last seven months on our chart—lackluster growth sandwiching two optimistic months of 3% plus growth in November and December of 2011. At the end of 2011 companies rushed to take advantage of an accounting gimmick that allowed them to expense their purchases for 2011 immediately, saving them on taxes. But before and after the rush, growth in Durable Goods orders was anemic. This is … [Read more...]
Who’s Custodian for Your Money?
You can see the hubris. As the bankruptcy of MF Global unfolds, customers are still looking for their money. That money should have been segregated and not part of the bets the firm was making with its own money. So far, $1.2 billion in client funds is missing. Where did it go? From Vanity Fair’s “Jon Corzine’s Riskiest Business”: That’s what U.S. congressmen mainly wanted to know when Corzine testified before the House Agriculture Committee on December 8. An informal survey of customers suggests that most think Corzine belongs in jail. Those who know him well, on the other hand, still … [Read more...]
Don’t Let This Mutual Fund Mistake Cost You Thousands
What mutual fund mistake am I talking about? This mistake is so common, chances are you have committed it yourself—before you became a savvy, successful investor, of course. If you have ever purchased a mutual fund solely on the basis of past performance, you have made this mistake. Buying yesterday’s winners—also known as performance chasing—is a time-honored tradition for many investors. No matter how many warnings they hear on the pitfalls of performance chasing, many novice investors continue to engage in this practice. Poll your friends and family who have 401(k) accounts. Ask them how … [Read more...]
Netflix: The Risk of High Expectations
Most of you are no doubt familiar with Netflix—the leading DVD and video-streaming rental business in America. Up until recently, Netflix was a high flyer—a momentum stock. From year-end 2009 to June 2011, the shares rose over 375%—the highest return in the S&P 500. During the company’s 18-month price vault, revenue growth accelerated from 23% to 52%, and EPS growth averaged more than 57%. Those are impressive numbers for a company operating in the throes of a lackluster economy. Investors were so impressed with Netflix’s business prospects that after paying 30X earnings in December of … [Read more...]