Ms. Morrison Speaks Money

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I’ve found the last couple of days’ Yahoo video interviews of Elizabeth Warren, both informative and infuriating.

Here’s a no-nonsense Harvard Law School Professor who is willing to truth tell; willing to answer tough questions with candor, and unpopular answers. Hers is the voice of common sense, the outlier in this conspiracy of silence of Too-Big-To-Fail financial institutions having their way with “the rest of us”.

I’m astonished that she and the TARP Monitor Congressional Oversight Panel aren’t given any real power. No authority to pass laws, no authority to police activity, just as she says, appealing for business to “do the right thing”…not a theme that big business has adhered to lately, for certain. To her credit, she was able to virtually shame Goldman Sachs and Morgan Stanley into paying closer to 94 cents on the dollar vs. 66 cents on the first 1% of warrant sales!

Would that she could have been in charge at the outset of the Troubled Asset Relief Program–TARP last fall! Perhaps the big banks would have needed to supply answers to the very questions they ask us “mortal” borrowers, when we go hat-in-hand for a loan. No, instead they were handed/forced money, hand over Paulson’s fist, with no accounting mechanism whatsoever!

Well, now we must contact our congresspeople and representatives to fight the huge bank lobbys and urge the passage of a Consumer Financial Protection Agency with sharp teeth! Enough of big banks gouging the taxpayers for bail out monies only to turn around and raise credit card fees and interest rates on these same consumers, all the while doling out massive, groups-of-zero bonuses to themselves!

We can’t stop applying pressure now! Turn your outrage into action, and write and call today! We Can Do It Women! Remember what our foremother Margaret Mead said, “Never underestimate the power of a small group of committed people to change the world. In fact, it is the only thing that ever has.”

Good day!
MsMorrison

Posted by Debra in Investing | 2 Comments

Well the only good thing about a stock market decline is that we owe LESS taxes on the earnings…ahem, I mean on the lack-of-earnings.  In fact, it gets better.  We can (and should) take up to $3,000 of losses over and above those which offset our capital gains, as a tax loss.

For example, that means that if you had $1,000 in capital gains in 2008, and you also happened to have $1,000 in capital losses last year, that loss counterbalanced that gain, resulting in no taxes owed.  If you had that same $1,000 in capital gains and $5,000, for example, in capital losses  (you needed to have sold out your loss positions which in investment speak is “realized losses”, versus just seeing the value go down on paper) you could have offset the $1,000 in capital gains and then taken an additional $3,000 in capital losses against both your Federal and State income tax returns, thereby offsetting even ordinary income.

Currently the annual limit that one can take over and above offsetting equal dollar gains, is $3,000., yet if you had more than that, like $1,000 more in our example above, you can carry those unused losses forward on your Federal Income Tax return for use in future years.  (I don’t know of any states that allow unlimited capital loss carryforward though, so any 2008 unused losses do expire, relative to your state income tax return.)  So, that’s a bit of tax trivia; i.e., salve perhaps on the wounds of recent portfolio losses.

While some of you will as a matter of principle, wait till tonight, and then begrudgingly deliver your income tax returns to the post office that stays open the latest, others of us will file at least one extension, if not two.  Yet, April 15th typically evokes some emotion, not much of it pleasant.

Well, all the more reason to treat yourself to something for nothin’.  Yes, here are some links to a couple sites’ advertisements for today’s freebies:

http://finance.yahoo.com/taxes/article/106920/18-Deals-That-Offer-Some-Tax-Day-Relief

http://www.usatoday.com/money/industries/food/2009-04-13-restaurants-tax-day-discounts_N.htm

What mature woman doesn’t love a deal.  Now we can feel good again, even for a day, right?  No, as you all know, I say we can feel good every day, despite the chaos that swirls around us.  It’s up to us what we focus on.  I’ll leave you today with this Winston Churchhill quote, which I really find fitting:

“We are still masters of our fate.  We are still captains of our souls.”

With so much piracy present today–literally off the coasts of Africa, and metaphorically with our news media preying on our minds–it is indeed incumbent upon us to captain our minds to focus on our well-being, and on the well-being of our family and friends–both those we’ve met and those we have yet to meet.

Let’s all practice random acts of kindness, starting with ourselves.  We Can Do It Women!

Posted by Debra in Investing | No Comments

Warren Buffet was quoted over the weekend saying the economy is in shambles and that it will last for the rest of this year.  Not sure that’s news, yet it’s surely captured headlines.  In fact, Buffett may have needed (he surely wanted) to refocus some of the VERY negative spot light on him, given that his investments, including Berkshire Hathaway suffered the worst year in it’s history, by a VERY large margin.  Don’t get me wrong, I like Warren Buffet, yet I’m NOT sure this is a time for him to be spouting off; perhaps he should stick to his knitting.

Anyway, the Asian and European markets sold off this morning, and then today the US stock markets sold off big time: the DOW closed today at 6763, down 299.64, which is lowest level since May 1, 1997 and the S & P 500 is down 16% in 11 days and 22% in 2009.

Specifically, the S & P 500 ended at 700, which is the lowest close since Nov 1996.  (While some traders have pegged 700 as a critical point level, which if reached would indicate a new low of 600.  While it happens to interest me, I don’t believe anyone knows whether this is the bottom, or, if not, where it is.  They haven’t in previous months, nor have they called the myriad 10-20% gains that various asset classes—including those of DFA—have posted over several weeks during the past months.

There is GREAT NEWS TODAY.  Oddly enough, while neither of these numbers was forecast, consumer spending was up in January as was consumer income.  How long that will last is questionable, given the rapidity of over-projection unemployment claims, granted.  Yet I suspect you may be receptive tonight to GOOD NEWS!  Oil also dropped 10%, so hopefully we’ll continue to see lower gas prices at the pump.

It’s also interesting that we do see emerging markets and tech both up over these past days and weeks, in general, and these don’t typically happen in “normal” bear markets.

We are clearly in a trader’s market, and in a derivatives and shorting market—none of which I participate in as a Certified Financial Planner at Capital Financial Advisors incidentally.

Hey, the new flood of derivative products each time new credit is created makes copulating rabbits look lazy.  Yes, all this betting on gloom and doom, and especially all this continued packaging of non-transparent product is CRAZY!

Yes, we are in what some refer to as a “great” recession; different surely from the Great Depression of 1929.  Yet a great recession will not show immediate promise.   Whether the economy recovers in 2009 is still negotiable, yet the stock market could very well recover before the broader economy does.

I’m praying for the day to come soon where the market’s blood-letting produces transparency.  Once that is restored, and only when that is restored can we expect some positive traction, and consumer confidence and recovering markets.

I am not a trader, let alone a short-term trader.  I have either harvested, or am in the process of harvesting tax losses in my clients’ portfolios in order to “bank” these capital losses that will be used to offset future capital gains.  As you may know, President Obama’s budget plans call for increased capital gains rates from 15-20% beginning in 2011.  So, there is clear value in shielding future capital gains from tax.

I did NOT recommend hedge funds, nor did I receive their fat fees and commission paychecks.  Yes, most hedge funds exacted exhorbitant fees, WITHOUT performance.

I don’t recommend or promote  esoteric financial vehicles that I don’t understand.  My advice particularly to mature women investors is to not invest in anything you can’t understand, or be taught to understand.

While the asset classes in which I invest are down, they ARE able to be defined.  Index-like investing with a Value and Small cap bent principally in Dimensional Fund Advisors, an institutional money management firm.  Real companies, in no-load, razor thin expensed institutional mutual funds.  No Madoff, no Ponzi scheme shenanigans.

Tomorrow Bernanke testifies and Treasury Secretary Timothy Geithner makes his first appearance speaking to the House Ways and Means Committee.  I will be watching and listening, of course, as I have been, low these past months.

The market’s news however didn’t compare to the recent sad news of Paul Harvey’s death at age 90.  What a WONDERFUL man whose rich baritone voice extoled the “the rest of the story” week after week.  May he rest in sweet peace!

As investors, we await the “rest of the story” in the markets.  Yet, my caution is that any short-term myopia about medium and long-term investments is surely misfocused.

Posted by Debra in Investing | No Comments

As much of the nation’s focus is on the soon-to-be-passed Stimulus Bill, and the tragic Buffalo plane crash, there’s other news that bears notice.

This week, corporations have rushed to take advantage of the opportunity to raise capital, in order to pay down their spiraling debts.  They’ve done so by creating a raft of new high yield, low-rated bonds.

While yield-starved investors—including mature women, whom I seek to inform and empower financially–are likely to attack these as would a shark sensing blood in the water, allow me to issue a warning that there will be blood in the proverbial streets if/when these bonds default.

Remember what our mothers taught us.  If it sounds too good to be true, it probably is.

Let’s start with some definitions first.  There are two major bond ranking agencies; Standard & Poor’s and Moody’s.  “Junk bond” is the slang term for Lower Rated/High Yield Bonds.  Technically a bond that is rated a letter rating lower than BBB- by Standard & Poor’s and rated below Baa3 by Moody’s is called High Yield, or Junk.  US Treasury Bonds are rated triple AAA by comparison.

So while the excess “spread” between the yield of US Treasuries and Junk Bonds has narrowed to a whopping 16%, having been almost 22% in mid December, investors need to exercise extreme caution, IF they purchase junk bonds at all.

The rating systems were designed to act as an indicator of credit worthiness, and bond ratings would generally be thought of as welcome information, providing education to bond purchasers.  That is, people who actually research this information before they buy.

However, many commission starved bond dealers and brokerage house registered reps tend to SELL investments to their clients; with nowhere near as much regard for suitability as that of their percentage commission unfortunately.  Yes, it’s true.

Granted, many of us in the fee-only financial advisory business have been sorely disappointed (if not a far stronger word) in the failure of Moody’s and Standard & Poor’s to issue adequate or accurate warnings for many of the world’s companies that have since gone quite South.  However, Moody’s has just revamped their predictions of global bond defaults as soon as this November to over 3 times that of the current rate, an already high 15.1%.

So, don’t be duped by this week’s flood of high yield bonds.   While I hate to be redundant, pigs get fatter, hogs get slaughtered!  You will have long forgotten where you spent that extra short-term yield, once your junk bond defaults and not only is the income lost, but the principal right along with it.

Please invest responsibly!

Posted by Debra in Investing | No Comments

Bloomberg’s morning’s news reported that of 1,300 Wall Street executives canvassed about their 2008 bonuses, or lack thereof, 36% said they were disappointed in the amounts–expected more.  Stop already!

While I certainly know on my pulses that I have worked harder this year than in any other, I am a fee-only Certified Financial Planner; i.e., my compensation is a direct percentage of my clients’ quarter end balances, so my “bonus” is, that I make more money when my clients do; conversely take a compensation haircut when their portfolios drop, as it should be.  No conflicts of interest, no trips to Hawaii or Super Bowl tickets for selling a boatload of a particular company’s annuities.

A bonus in a Wall Street firm however is a compensation component in typical or boom market conditions.  When the entire marketplace–Wall and Main Street–is suffering, and Wall Street firms are either flying the white flag out front or re-organizing their corporate structures to allow them to cut ahead in the TARP–Troubled Asset Relief Program–bread line, HOW can we understand this dis connect?

It was soon explained deeper into the article; 89% of those unhappy respondents had 5 years or less experience.   Aahh yes.

May I suggest to people who are either so young or inexperienced that they have to carry a towel to wipe the wet behind their ears to log onto and re-read the text of Obama’s Inaugural address, or better yet, to some of his or McCain’s campaign speeches.  The words “pitch in” come immediately to mind.  I also remember Obama’s call for all of us to “pick ourselves up and dust ourselves off”.  (I believe that was a historic throwback to exhort people to remake themselves after the great Depression.)

Trained PhDs and accomplished senior executives are taking welding classes and testing for their commercial driving licenses as we speak, since welding and truck driving are more “sure” jobs in economic downturns, while inexperienced Wall Streeters are moping about their “less-than-desired” bonuses.

Having spent the last 30 years in the financial services business, managing money for mostly retired clients (predominantly mature women) I can assure you that markets DO operate in cycles.   Women tend to understand cycles.

Yet to expect a constant stream of reward, reward, reward out of an industry which for the last 5 months has been bleeding risk, risk, risk, is to be blind to the very interconnectedness of the financial and economic systems, for one, and all of society for another.

My parting words for these poor Wall Streeters: These are times for sacrifice and humility, not even more in-your-face greed!  Buck up already.  Read some of your dusty history books for some perspective on entitlements.  Get over yourselves and consider something greater, despite how very much that may stretch your tiny minds.

I know, now you want to know what I really think…

Posted by Debra in Investing | No Comments

Hey all you smart mutual fund investors, listen up!  Check your accounts on line now, or call your broker or investment company,to see if your fund issued any capital gains this month.  That’s right, even though your fund’s value probably took a nose dive, there very well may have been trading in that fund throughout the year that could have resulted in a capital gain.  Mutual funds distribute the bulk of such gains during December to their shareholders, so you COULD owe income tax on capital gains even though your fund is sporting a big fat loss, or even a mild-paunchy loss…

You see, when a lot of novice or nervous investors call 1-800-REDEEM (that’s a joke, not a real number to my knowledge) fund managers have to raise enough capital by 4pm EST each day of trading to satisfy all the redemptions.  Well, quite a few savers sold out of mutual funds when the markets started declining.  (Generally it’s savers, not investors, that panic and sell prematurely incidentally.)  So, quite a few mutual fund managers had to juggle their portfolios, invariably selling out securities that had built-in capital gains.  Yes, I know, a distant memory…over 6 months ago, even…but I digress.

If the mutual fund manager wasn’t able (or interested) to offset those gains with losses, there may have been an excess of gains over losses, resulting in us shareholders having to declare a portion of those gains on our individual income tax returns.

Here’s an example:  Your mutual fund issued a gain to your account in mid December totaling $1,000.  Look through your portfolio (as I mentioned in my earlier blog today) for a security whose value is at least $1,000 less than your basis (fancy term for what you paid for it, including all reinvested dividends, if applicable) and sell that security booking a $1,000 capital loss.  Your losses offset your gains (for the most part it’s that simple, although long-term capital losses-securities held one year and one day–offset long-term capital gains, and short-term capital losses–securities held less than one year and one day–offset short-term capital gains).

Finally, the federal government allows you to deduct an additional $3,000 in excess of all offsetting capital gains and losses each year against ordinary income.  If you have more than $3,000, you get to carry the excess forward to future tax years.  Some states follow the feds in the unlimited carryforward of capital losses, New Jersey, however does not.  Check with your CPA for details on this, to be sure, if you expect heavy losses in 2008.

At the end of the day, its the end of the year.  No sense in paying unnecessary income taxes.  So, while you did not actively sell any securities this year to produce a capital gain, you may be an unsuspecting shareholder who DID receive a capital gain.  There’s still time to avoid paying tax on that by “booking;/realizing” an equal dollar capital loss, or even quite a bit more than the amount of capital gains, and deducting your $3,000 excess on your 2008 return and pushing the balance forward.  Yes, Ms. Dubious, there WILL be capital gains in your future, and they JUST might start in 2009!  You’ll be prepared however, with perhaps an ample supply of carried forward capital losses so you won’t have to pay taxes till they’re all used up.  Now THAT’S planning, and THAT’S effective planning.

Consult your broker and/or CPA for details.  (Most likely your fee-only financial planner has already contacted you and handled this for you.)

Posted by Debra in Investing | 2 Comments

Hey folks,

Don’t miss out on the salve for our investment wounds!  Uncle Sam shares in our investment pain, by allowing us to tax-deduct our investment losses, but you must act in the next two days, you heard it, by 4pm EST on Wed., December 31st.

What’s all this clatter you ask?  Well, let’s say you have held your favorite (or even your not-so-favorite) stock, bond or mutual fund for a while and the value has dropped a lot.  You’ve been licking your wounds, whining to yourself or anyone who would listen, but hanging on “till it recovers”, right?  Well that could take some time so here’s an idea in the meantime.  Sell that investment (or investments) in the next 2 calendar days.  Buy a SIMILAR investment the minute your sale proceeds are available, since you don’t want to be “out of the market” these days…a substantial recovery could happen in 8 hours!  You can’t buy back the exact same security you sold because you would run afoul what’s called the “30-day wash sale rule”, which precludes one from selling a security at a loss, writing off that capital loss from their income tax, then buying back that same security within a period of 30 days.  (You CAN buy back the same security, yet you would forego your income tax deduction, which is the whole point.)

So, the trick is to find what I call a “sister” product/security to that which you’re selling, buy that and otherwise participate in the market’s performance in that substitute/sister security for the next 30 days.  After 30 days, you would have the option of either keeping that sister/substitute security, or selling it, and buying back your original security.

Ok…here’s an example.  You own Pepsi stock.  You sell Pepsi stock today, and in 3 days when it settles, buy Coke stock.  You hold Coke stock for 30 days, and if you really want your Pepsi stock back, sell Coke and buy Pepsi shares back.  (You will settle up with Uncle Sam/IRS on either a short term capital loss or gain on your Coke shares for that time, but generally this is not a deal-breaker.)  Alternatively, you may choose to keep your Coke shares if they seem to give you the exposure you wanted in the soft drink business.

Here’s another example.  You own ABC’s US large cap growth fund.  Sell that fund in the next 2 trading days and buy XYZ’s US large cap growth fund, or buy ABC’s US large cap blend fund…you get the point.  Either the substitute mutual fund can be from the same “family” or a different family.

If your original holding was bought at like $50. per share, and it’s now worth $20. and you owned 100 shares, you effectively sell the 100 shares, and write off the net difference of your purchase price of $5,000 less the current market value of $2,000.  or $3,000.  ($30 per share).  If you are in the 30% federal income tax bracket, you have just saved $900.  ($3,000 x .30)  Meanwhile, you bought the sister/substitute holding, which keeps you in the market to experience the recovery.

Now THAT’S great news!  You will be smiling come April 15th, 2009 when you complete your 2008 income tax return.  We always gripe when we have to fork over a portion of our capital gains to the IRS, now let’s take advantage of the other side of the code–allowing the government to share in our losses to the extent of our effective tax bracket, in the above example, to the tune of 30%.  Even if you are in the 15% tax bracket, it pays to get a break from Uncle Sam for a change, right?

So, DO something with the two trading days left in this year!  Take a look at your portfolio, and see where there are losses–see where the current price is lower than the price at which you bought the investment–and place your sell orders quick.  You’ll have a day or 3 for the proceeds to be available, and you can research your replacement/sister/substitute investments after a New Year’s toast.  I’m NOT advocating selling now and not buying back into the market!  You would be missing the recovery–however long it takes, it will occur.  History tells us that, for goodness sakes.

And for any of you who DID sell out a month or more ago, you’ve now waited the requisite 30-days, you can buy back into your original investments, if you still think they are worthy.  Remember that the smart investors use all angles of the tax code and this is the most obvious home run of all in a depressed market.  Let’s watch our financial dough rising by selling some losers and raking in additional dough, from Uncle Sam already!

Posted by Debra in Investing | 2 Comments

Hey ladies!  Go to the recording of my teleseminar today onwww.blogtalkradio.com for some positive perspective on the markets and advice on staying the course to be eligible to reap the returns that the stock market has historically given.

I congratulate all who have not sold out of their stock mutual funds, realizing that monies invested in the stock markets are there for the medium-to-long term goods and services that we will buy as we age.

Yet I want to invite those who may have sold out of their stock mutual funds or stocks to begin buying back into the markets, perhaps utilizing a strategy called Dollar Cost Averaging, which is fancy language for investing systematically into the market on different days thereby attaining different purchase prices whose average has historically been favorable to simply choosing one particular day in which to invest (or sell, for that matter).

The main point is to think through what cash you will need in the near term, in the medium term and in the long term, and to match those time goals with the most appropriate investment types.  For example if you need to purchase goods or services within the next 2 years, those funds should be set aside in a Money Market, preferably a Government Money Market or a series of short term Certificates of Deposit.  Monies needed in 2-7 years should be invested in diversified no-load bond mutual funds, (or better yet, bond index funds) and monies need to buy goods and services in 7+ years should be invested in diversified stock index funds that historically have returned in excess of inflation.  Let’s invest in our own empowered retirements and provide ourselves more choices that historically stock mutual funds have provided.

Market timing–getting out of the market at high price levels and then getting back into the market at low price levels–has lured many an investor, as well as many a professional money manager over the years.  Yet when Peter Lynch–the single most successful stock picker of our age, and the former manager of Fidelity’s wildly profitable Magellan Fund from 1977-1990 when that fund’s asset base swelled from 20 million to 14 billion, and beat the S & P 500 11 out of 13 yrs, sporting an annual ave return of 29%–is quoted as saying he has never known anyone to be “right” on timing decisions more than once in a row;  that should be fair warning to the amateurs among us not to try this at home.

That said, it has been VERY difficult to maintain our equilibrium amidst the media’s barrage of negativity and Chicken Little admonitions, so if you scurried to the sidelines and into cash out of fear, pull your courage back up and become an investor again, to reap what would certainly be stock market gains over the next 24 months and longer.  We Can Do It Women!™

Posted by Debra in Investing | No Comments

I, for one, have NO interest in zero percent return on my money.  Yet this weeks’ traunch of 4-week US Treasury bills paying ZERO percent sold out!  Yes, you read correctly; people stormed the Treasury to have the US Government hold their money, period, paying out zero (or less, read on) interest.

As a matter of fact, a whole slew of Nervous Nellies and Nells also bought some 3-month Treasury bills and the demand was so prevalent at one point (the prices were pushed up so high)  that the yield actually dropped to LESS THAN ZERO percent interest; i.e., NEGATIVE interest!  (Bond prices and bond yields are on an inverse relationship in that when prices rise, yield drops.)  In other words, some savers lost actual PRINCIPAL in T-bills.  Here’s how that works:  Nervous Nellies/Nells paid $100. for Treasury Bills on which they would only be paid 99.99 or 99.98 at maturity.  WOW!

Now I’ve repeated myself, cause I’m still trying to understand it!  Let me see, Treasury Bills are basically bearer obligations of the United States which are backed by the full faith of the US government.  They are generally sold at a discount and they promise to pay a specified percentage of interest on a specific scheduled date. (FYI, the spread between the purchase price and the maturity value is deemed interest, which is federally taxable, but exempt from State and Local income taxes.)  So, the principal face amount backing/guarantee is generally attractive, and yes, gives some savers a warm and fuzzy feeling.  But when one purchase at the maturity value of the bond, there is no spread, thus no interest.

Real inflation is definitely more than zero currently, so these Treasury bills, while guaranteed in principal to pay their maturity value, don’t fall into my definition of “safe” because their purchasing power is diminished.  If you have a pulse, you are buying stuff.  And the “stuff” you are buying, from heating oil, to gasoline to groceries to hospital beds to prescriptions, costs more because of inflation.

I am aware that in addition to individual Nervous Nellies and Nells, many institutional money managers bought these zero interest Treasury bills to “window dress” their portfolios.  You see, the holdings of most money managers are posted at the end of each quarter, and if a portfolio manager suffered negative volatility, they may counterbalance some of their risky holdings by buying some Treasuries, or they may even sell those riskiest holdings and use the proceeds to buy Treasuries.  This would give a different, and in these times a more “comforting” feeling to their existing or prospective investors, wouldn’t it?  We women investors are smarter than just to look at holdings in the past quarter however.

While I am not rendering professional investment advice here, I am imploring mature women investors to use our hard wired common sense and not over react with our portfolios towards what some in the marketing world would call “safe”.  We STILL need a return ON our investment portfolios, not just a return OF our investment, especially for the long term.  Remember, we still have longer life expectancies than our male counterparts.

So women, if you have your short-term scalpel out, back away from your statement or computer screen or telephone, put the knife down, and allow your portfolio to perform long-term in an array of investment types–some stock mutual funds, some bond mutual funds and some cash/CDs.

Even with many stocks and stock mutual funds having been pummeled in value, many are still paying attractive dividends, albeit some of them reduced.  Bonds and bond mutual funds are still paying interest, and some high grade short term municipal bonds/mutual funds are attractive.  Do some homework and/or consult with your fee-only financial advisor as to your risk tolerance and the relationship to that of your portfolio holdings relative to your goals, but I implore you, do NOT accept zero percent interest, now or ever!

Posted by Debra in Investing | No Comments

Posted by Debra in Investing | No Comments