Free Hindsight – THIS LOOPHOLE HAS BEEN CLOSED January 14, 2009January 3, 2017 [December 2010 update: Appropriately, this loophole has now been closed.] WHAT SHOULD YOU TELL YOUR PARENTS ABOUT SOCIAL SECURITY? Should they start taking benefits early, at age 62? The downside: the monthly payout is only 70% or 80% of what they’d get if they waited until full retirement age (roughly 66, depending on the year they were born). Should they wait all the way to age 70? They’re rewarded with an even higher monthly pay-out. But what if they die three weeks later? How dumb will they feel then? (Though dead, I’m telling you: they will feel like idiots.) If they’ve already begun taking benefits, should they give them back? It turns out you can do that – and should seriously consider it. (I’m framing this in terms of your parents, but if you’re 85, you might want to forward this to your kids. And if you’re 62 or so yourself – well, I just don’t believe it. You look much younger.) I always used to assume it was best, if you could afford it – and had no serious health issues you knew of (like, say, smoking) – to wait as long as you could, thereby to get a much higher monthly pay-out for the next 30 years. But it turns out there’s a strong case to begin taking the dough at 62, because you’re allowed to give it back, if you choose, and ‘reapply’ at a later age for then then-prevailing benefit. So say you start taking the payments at 62 and, come age 70, you’re dead. Aren’t you glad you didn’t wait? Or say you’re alive and kicking, but – how to put this nicely? – you’re not getting any younger. (Benjamin Button you are not.*) So it may still be a pretty good bet that, with hindsight, your grieving heirs will say, graveside, ‘He was a heck of a golfer, a terrific husband – and was he ever smart to start taking his Social Security at 62!’ *I can suspend disbelief to allow for his having been born a ninety-year-old who grows progressively younger. But it is simply beyond imagining that he would not have been besieged by newspapers and medical researchers probing him every which way to discover the secret of reverse aging, don’t you think? But what if, at 70, you’re feeling terrific and might even outdo your own mother, who lived to 97, and your own dad, who only just barely predeceased her? It could well make sense to pay back all the benefits you received and start taking a much higher monthly benefit instead. Long before your 97th year, you will have come out ahead. And if we do wind up living forever (click here) . . . well, you get the idea. This strategy is complicated by taxes and other factors discussed in Forbes (you may have to click the link more than once to push past the advertising). But the basic idea is pretty simple: Imagine you take the checks every month for eight years, deposit them in a savings account, and then at 70 (having kept the interest), you get that rarest of all things – the benefit of hindsight. If you say to yourself, ‘Gee, I wish I hadn’t settled for that puny early-benefit option at 62. I should have waited to 70’ – then you can change your mind! Just fill out Social Security Form 521. You have to pay back all the benefits you received, but no penalty or interest. And yes, some of those benefits were taxed along the way; but you get a tax deduction for the benefits you return. The Social Security Administration is aware that this strategy is catching on, and recently studied it – quite thoughtfully – here. It’s always possible they will shut it down; but even if they did, they might well grandfather in those who had already begun taking benefits. And even if they didn’t grandfather those grandfathers, isn’t the real risk then simply that they will live a very long time (and thus have been better off not taking checks at 62)? I can think of worse things. Note: I’ve been using age 62 and 70 in my examples, but you might also decide to reset your application at age 66 or 67 or 68 or whenever. All the checks, whenever you decide to start taking them, are slated to increase with inflation. If you’re married, another strategy to consider: The lesser-earning spouse starts taking checks early, at 62. Then, when the higher-earning spouse applies at full-retirement age (or even waits to 70), the lesser-earning spouse can opt to take a check equal to 50% of the higher-earning spouse’s benefit – i.e., for a combined total of 150% of the higher earning spouse’s benefit. To play with Social Security benefit calculators, click here.
You Have an Important Call Coming In January 13, 2009March 25, 2012 Do you have a one of the new iPhones? Here are some of the free applications a friend showed me that I recently added: SHOWTIMES tells you what’s playing at the movie theaters nearest your current location (your phones uses GPS to know where you are), along with showtimes, trailers, and directions for getting to the theater – walking, driving, or taking the bus. iHANDY LEVEL turns your iPhone into a level (need to hang a picture?). CHESS lets you play multiple games simultaneously with specific friends and/or strangers from around the world. FAKE-A-CALL rings you at whatever time you specify, so you can interrupt your conversation and pretend to take an important call. (‘You what? Omigod. Are you at the hospital? I’ll be right there!’) And here’s something else I learned: if you’re looking at a screen – perhaps the chess board you are playing – you can ‘photograph it’ by simultaneously holding the top button and the home button until you hear the click of the shutter. Then release, because if you hold those two too long, the iPhone reboots. (Which can also be handy, if some odd problem has begun to occur. Often, rebooting solves the problem.)
Barbells for our Banker He Should Have Our Head Examined January 12, 2009March 12, 2017 BARBELLS FOR YOUR BRAIN Getting stupider by the year? I’m getting stupider by the minute. (Seriously: I find my web boggle showing declines very rapidly after the start of each new session.) Regular readers will know I periodically plug Brain Posit Science, partly because it may actually sharpen mental acuity (they have testimonial after testimonial, and all manner of peer-reviewed studies showing that it does); but mainly because I own some tiny fraction of a sliver of it. Humana and Allstate are among the companies that have promoted it (on the theory that sharper people are less likely to forget their meds or crash their cars). PBS has used it widely as a fundraising premium. But now comes the big time – and the low price. (Well, relatively low; a buff brain does not come cheap.) Namely, this Friday from 7pm-8pm EST on QVC: You may have seen this popular program on public television. Now, QVC® is pleased to bring you revolutionary computer software that helps you think faster, focus better and improves the quality and quantity of the information your brain processes. Through five engaging exercises, Brain Fitness continually adapts to individual performances so that every person trains at the right level. These exercises are carefully designed to improve the visual system in multiple ways by speeding up visual processing, sharpening visual precision, expanding useful field of view, and improving visual working memory. See how it can work for you when you experience Brain Fitness by Posit Science. OUR CHINESE BANKER It’s tempting not to think about it, but that doesn’t make it less true: we owe the Chinese a great deal of money. Accordingly, it’s interesting to hear what their bankers are thinking about us – especially when one of them has a law degree from Duke and knows us very well. His thoughts are worth considering as we ponder how best to change economic course.
Somewhere . . . January 9, 2009March 25, 2012 . . . in the world it is a holiday, and I am celebrating it. Have a great weekend.
Two Can Live Cheaper Than One – And May Have To January 8, 2009March 12, 2017 MARRIAGE What makes former Congressman Bob Barr’s call for the repeal of the Defense of Marriage Act noteworthy is not that Barr is a Southern conservative – but that he wrote it. CARNAGE It’s hard to imagine the economy will bottom in the middle of this year, as many are anticipating – though naturally I hope I’m wrong. We’ve lived beyond our means for decades now. (How we’ve laughed at the French in their tiny four-cylinder cars – the French! They barely use credit cards at all, preferring debit cards – sad, no? They lacked the sense, or perhaps the cojones, to see the wisdom of the Iraq war when even Tonga sent troops – the French! And their health care? Never mind that it’s been rated first in the world – it’s socialist!) Not to say there isn’t more than enough good about our wonderful country to brim with pride. But it still can set one’s teeth to gnashing thinking how dumb we’ve been about so much these past few decades. And now the chickens really are coming home to roost, with a lot left to come. Tom Anthony: ‘This month’s US Financial Data is very interesting. As you can see from the charts beginning on page 3, there is a tremendous monetary inflation taking place right now to try to prevent a deflationary depression. Unfortunately, this will ultimately cause a parallel price inflation and large drop in the purchasing power of the dollar and fixed income securities sometime in our future. The charts on our ongoing Zimbabwe-like monetary inflation as well as the charts on energy prices and stock prices are examples of the extreme and unprecedented swings going on right now.’ ☞ Getting back onto an even keel, with a strong currency, a vibrant economy, and a healthy national balance sheet (not to mention generally adequate retirement savings . . . and adequately dredged waterways), could take a decade or more. One important thing to remember, though, is that for most of us, those years can be filled with purpose (nothing like a good challenge!), good cheer, and – for all the belt tightening – a level of comfort and possibility undreamed of until virtual moments ago. Air conditioning! Gore-Tex! Cell phones! Google!
Huck Finn Converts to a Roth IRA January 7, 2009March 12, 2017 ROTH Paul Ward, CPA: ‘Several important tax law changes went into effect Jan. 1. Many of your readers would like to know or be reminded of these: 1. The annual gift tax exclusion is now $13,000 per donee. [So you could now give each of your five ne’er-do-will sons and daughters-in-law – and your message therapist – $13,000 apiece each year – without exposing either yourself or any of them to income tax or gift tax or any paperwork at all, thereby lowering the value of your taxable estate if you had planned to give it to them anyway.] 2. The estate tax exemption is now $3.5 million, up from $2 million. I’m surprised you haven’t discussed Roth IRA conversions. With the decline in the market Roth IRA conversions seem to make a lot of sense now.’ ☞ They do. If your ‘modified adjusted gross income’ is low enough to qualify – basically, under $100,000 – and you have a traditional IRA, or 401k money you can roll into an IRA, you should look into this. The first reason, as Paul suggests: if your IRA is worth half what it was a year ago (say), you’ll incur half as much tax, or less, converting it to a Roth IRA. And then, when it grows back and far beyond – whoop-de-doo! – there will be NO tax to pay, ever, on any portion of it. The Roth IRA has other advantages: No mandatory withdrawal age. Less complication at tax time (both as you make contributions and, later, when you make withdrawals). The right not to make withdrawals, passing the Roth on to your heirs instead. And, mainly, the right to amass more after-tax dollars for retirement. The contribution limits are the same, but you are in effect allowed to contribute more to the Roth . . . because they are after-tax dollars . . . in return for which the $1 million you accumulate (say) will be tax-free, where with a traditional IRA every penny of it would be taxed as ordinary income at withdrawal. But here is another reason Roth IRA conversions could make sense this year and next: The lower that tax brackets are (and they may be going even lower this year), the less advantage you get from the tax-deductibility of contributions to a traditional IRA (and the less tax you would incur converting to a Roth IRA). The higher that tax brackets are in the distant future (and they are likely to rise in the future, when as a nation we finally begin to pay for our Federal expenditures rather than borrow them from our children), the more advantage there will be in the tax-free status of Roth IRA withdrawals. Fairmark gives you the rules and a thoughtful discussion here. Vanguard gives you a calculator here. There are certainly situations in which a conversion may not make sense – not having the cash to pay the tax being the most obvious. But if your adjusted gross income is below $100,000 and you have a traditional retirement plan, it’s worth learning more and thinking through your options. FROTH Joel Grow: “I re-read Huck Finn every five years or so, along with To Kill a Mockingbird, Grapes of Wrath, and A River Runs Through It. Important, timeless messages in abundance reside within those covers.” Vincent DeHart: “I’m pleased to see you’ve been reading my favorite author. The man was truly amazing, an independent thinker way ahead of his time (and probably ours as well, at least compared to the majority of the populace). Since I’m currently an economic statistic and so have extra time on my hands, I dug out the following, one of my favorite Twain pieces, for which I feel certain you’ll have an appreciation.” Corn-pone Opinions By Mark Twain [Written in 1901, this essay was first published in 1923, 13 years after his death.] FIFTY YEARS AGO, when I was a boy of fifteen and helping to inhabit a Missourian village on the banks of the Mississippi, I had a friend whose society was very dear to me because I was forbidden by my mother to partake of it. He was a gay and impudent and satirical and delightful young black man – a slave – who daily preached sermons from the top of his master’s woodpile, with me for sole audience. He imitated the pulpit style of the several clergymen of the village, and did it well, and with fine passion and energy. To me he was a wonder. I believed he was the greatest orator in the United States and would some day be heard from. But it did not happen; in the distribution of rewards he was overlooked. It is the way, in this world. He interrupted his preaching, now and then, to saw a stick of wood; but the sawing was a pretense – he did it with his mouth; exactly imitating the sound the bucksaw makes in shrieking its way through the wood. But it served its purpose; it kept his master from coming out to see how the work was getting along. I listened to the sermons from the open window of a lumber room at the back of the house. One of his texts was this: “You tell me whar a man gits his corn pone, en I’ll tell you what his ‘pinions is.” I can never forget it. It was deeply impressed upon me. By my mother. Not upon my memory, but elsewhere. She had slipped in upon me while I was absorbed and not watching. The black philosopher’s idea was that a man is not independent, and cannot afford views which might interfere with his bread and butter. If he would prosper, he must train with the majority; in matters of large moment, like politics and religion, he must think and feel with the bulk of his neighbors, or suffer damage in his social standing and in his business prosperities. He must restrict himself to corn-pone opinions – at least on the surface. He must get his opinions from other people; he must reason out none for himself; he must have no first-hand views. I think Jerry was right, in the main, but I think he did not go far enough. 1. It was his idea that a man conforms to the majority view of his locality by calculation and intention. This happens, but I think it is not the rule. 2. It was his idea that there is such a thing as a first-hand opinion; an original opinion; an opinion which is coldly reasoned out in a man’s head, by a searching analysis of the facts involved, with the heart unconsulted, and the jury room closed against outside influences. It may be that such an opinion has been born somewhere, at some time or other, but I suppose it got away before they could catch it and stuff it and put it in the museum. I am persuaded that a coldly-thought-out and independent verdict upon a fashion in clothes, or manners, or literature, or politics, or religion, or any other matter that is projected into the field of our notice and interest, is a most rare thing – if it has indeed ever existed. A new thing in costume appears – the flaring hoopskirt, for example – and the passers-by are shocked, and the irreverent laugh. Six months later everybody is reconciled; the fashion has established itself; it is admired, now, and no one laughs. Public opinion resented it before, public opinion accepts it now, and is happy in it. Why? Was the resentment reasoned out? Was the acceptance reasoned out? No. The instinct that moves to conformity did the work. It is our nature to conform; it is a force which not many can successfully resist. What is its seat? The inborn requirement of self-approval. We all have to bow to that; there are no exceptions. Even the woman who refuses from first to last to wear the hoop skirt comes under that law and is its slave; she could not wear the skirt and have her own approval; and that she must have, she cannot help herself. But as a rule our self-approval has its source in but one place and not elsewhere – the approval of other people. A person of vast consequences can introduce any kind of novelty in dress and the general world will presently adopt it – moved to do it, in the first place, by the natural instinct to passively yield to that vague something recognized as authority, and in the second place by the human instinct to train with the multitude and have its approval. An empress introduced the hoopskirt, and we know the result. A nobody introduced the bloomer, and we know the result. If Eve should come again, in her ripe renown, and reintroduce her quaint styles – well, we know what would happen. And we should be cruelly embarrassed, along at first. The hoopskirt runs its course and disappears. Nobody reasons about it. One woman abandons the fashion; her neighbor notices this and follows her lead; this influences the next woman; and so on and so on, and presently the skirt has vanished out of the world, no one knows how nor why, nor cares, for that matter. It will come again, by and by and in due course will go again. Twenty-five years ago, in England, six or eight wine glasses stood grouped by each person’s plate at a dinner party, and they were used, not left idle and empty; to-day there are but three or four in the group, and the average guest sparingly uses about two of them. We have not adopted this new fashion yet, but we shall do it presently. We shall not think it out; we shall merely conform, and let it go at that. We get our notions and habits and opinions from outside influences; we do not have to study them out. Our table manners, and company manners, and street manners change from time to time, but the changes are not reasoned out; we merely notice and conform. We are creatures of outside influences; as a rule we do not think, we only imitate. We cannot invent standards that will stick; what we mistake for standards are only fashions, and perishable. We may continue to admire them, but we drop the use of them. We notice this in literature. Shakespeare is a standard, and fifty years ago we used to write tragedies which we couldn’t tell from – from somebody else’s; but we don’t do it any more, now. Our prose standard, three quarters of a century ago, was ornate and diffuse; some authority or other changed it in the direction of compactness and simplicity, and conformity followed, without argument. The historical novel starts up suddenly, and sweeps the land. Everybody writes one, and the nation is glad. We had historical novels before; but nobody read them, and the rest of us conformed – without reasoning it out. We are conforming in the other way, now, because it is another case of everybody. The outside influences are always pouring in upon us, and we are always obeying their orders and accepting their verdicts. The Smiths like the new play; the Joneses go to see it, and they copy the Smith verdict. Morals, religions, politics, get their following from surrounding influences and atmospheres, almost entirely; not from study, not from thinking. A man must and will have his own approval first of all, in each and every moment and circumstance of his life – even if he must repent of a self-approved act the moment after its commission, in order to get his self-approval again: but, speaking in general terms, a man’s self-approval in the large concerns of life has its source in the approval of the peoples about him, and not in a searching personal examination of the matter. Mohammedans are Mohammedans because they are born and reared among that sect, not because they have thought it out and can furnish sound reasons for being Mohammedans; we know why Catholics are Catholics; why Presbyterians are Presbyterians; why Baptists are Baptists; why Mormons are Mormons; why thieves are thieves; why monarchists are monarchists; why Republicans are Republicans and Democrats, Democrats. We know it is a matter of association and sympathy, not reasoning and examination; that hardly a man in the world has an opinion upon morals, politics, or religion which he got otherwise than through his associations and sympathies. Broadly speaking, there are none but corn-pone opinions. And broadly speaking, corn-pone stands for self-approval. Self-approval is acquired mainly from the approval of other people. The result is conformity. Sometimes conformity has a sordid business interest – the bread-and-butter interest – but not in most cases, I think. I think that in the majority of cases it is unconscious and not calculated; that it is born of the human being’s natural yearning to stand well with his fellows and have their inspiring approval and praise – a yearning which is commonly so strong and so insistent that it cannot be effectually resisted, and must have its way. A political emergency brings out the corn-pone opinion in fine force in its two chief varieties – the pocketbook variety, which has its origin in self-interest, and the bigger variety, the sentimental variety – the one which can’t bear to be outside the pale; can’t bear to be in disfavor; can’t endure the averted face and the cold shoulder; wants to stand well with his friends, wants to be smiled upon, wants to be welcome, wants to hear the precious words, “He’s on the right track!” Uttered, perhaps by an ass, but still an ass of high degree, an ass whose approval is gold and diamonds to a smaller ass, and confers glory and honor and happiness, and membership in the herd. For these gauds many a man will dump his life-long principles into the street, and his conscience along with them. We have seen it happen. In some millions of instances. Men think they think upon great political questions, and they do; but they think with their party, not independently; they read its literature, but not that of the other side; they arrive at convictions, but they are drawn from a partial view of the matter in hand and are of no particular value. They swarm with their party, they feel with their party, they are happy in their party’s approval; and where the party leads they will follow, whether for right and honor, or through blood and dirt and a mush of mutilated morals. In our late canvass half of the nation passionately believed that in silver lay salvation, the other half as passionately believed that that way lay destruction. Do you believe that a tenth part of the people, on either side, had any rational excuse for having an opinion about the matter at all? I studied that mighty question to the bottom – came out empty. Half of our people passionately believe in high tariff, the other half believe otherwise. Does this mean study and examination, or only feeling? The latter, I think. I have deeply studied that question, too – and didn’t arrive. We all do no end of feeling, and we mistake it for thinking. And out of it we get an aggregation which we consider a boon. Its name is Public Opinion. It is held in reverence. It settles everything. Some think it the Voice of God.
Huck Finn January 6, 2009March 12, 2017 MADOFF Will someone please put this creep in jail? He’s violated bail, which should now be set at $50 billion. THE $300 BILLION TAX CUT Apparently, this had to be done to get likely Senate approval. But as noted last week, consumers will most likely use their $500 and $1,000 cuts to pay down debt or build up savings – as they should. And if they do use it to buy another imported flat screen TV or take a vacation, what would they or we really have to show for it in 10 years? No, the resources we throw at our problems should go mainly to putting people to work doing things that need doing, like retro-greening our residential and commercial building stock; digitizing our medical records; modernizing our schools; rebuilding our roads and bridges; deploying windmills; constructing a modern electric grid; dredging our waterways. Not to say the President-elect should go back on his tax-cut pledge – or that it can be this easy and neat. Not every laid-off store clerk and starving real estate agent can be effectively or swiftly employed building windmills. But this is the overall theme. Tax cuts are not a good answer because in our current circumstances they are not really tax cuts at all, they are tax shifts – onto our future selves and our children. MUD So how many infrastructure billions will go to dredging, if any? I have no clue. But a fellow GLDD shareholder makes this case: Hopefully, a meaningful allocation of these funds will go to projects focused on our waterways. Despite the fact that ports, harbors and inland waterways are very much the backbone of our economy – almost all our imports and exports move by ship – our ports are woefully outdated. In fact, forgetting new projects, The Army Corps of Engineers has a backlog of $35 billion in maintenance projects. Many of the projects in The Corps’ backlog are ‘shovel-ready.’ And because The Jones Act mandates that any work such as dredging, shoreline reclamation, and port construction that is done on a US harbor or inland waterway must be done using vessels that were built in the US, are sailed and operated by US citizens, and owned by US companies, funding for ports and waterways should have broad political support since virtually 100% of any amounts spent would benefit US citizens. The Corps estimates that spending as little as $5 billion of the stimulus package on these programs would create approximately 139,000 jobs and boost US economic prosperity both in the short-term and long-term. SILT And speaking of dredging, did you know that – per the February 1863 issue of Harper’s (I’m a little behind), the Mississippi basin ‘is the second great valley of the world, being exceeded only by that of the Amazon’ and that – per Mark Twain’s Life on the Mississippi, whence that Harper’s reference comes – ‘the river annually empties four hundred and six million tons of mud into the Gulf of Mexico.’ I could tell you lots more about the Mississippi, at least as Twain knew it 130 years ago, but I am steaming toward a different point. I have been reading Life on the Mississippi – aloud, to Charles – having already finished Tom Sawyer and Huckleberry Finn. And it is that latter tale of Mississippi raft riding that I commend to you to read, perhaps aloud to a friend, between now and January 20. It’s a wonderful book by any measure; but reading this 1884 portrait of mid-1830’s America, now, as we are about to Inaugurate Barack Obama President of the United States of America . . . well, it’s just hard not to nod one’s head up and down imperceptibly and say . . . wow.
Sell RSW, SDS, and Maybe Even TBT January 5, 2009March 12, 2017 COLD Steve Baker: ‘To your point . . . ‘do not complain about the weather it is all relative’ . . . as I type this (in Winnipeg, Manitoba Canada – sadly where I am right now) it is minus 32 degrees Celsius with a 15 km wind making it with wind chill minus 42 (which is minus 43.6 Fahrenheit). Yes dressing in layers does keep you warmer but in this weather it helps if the outer layer is a house!‘ MORE FREE MUSIC Vince: ‘Since you like pandora, you will also enjoy theradio. ☞ Pandora really works on my iPhone! Not sure theradio is quite as far along. EXPENSIVE MUSIC Roger Booth: ‘I’m with you regarding a class action suit against Sirius Radio. I have been trying to cancel for a couple of days, I keep getting different numbers to call. The last one wanted me to pay for something!’ ☞ It’s not possible to cancel a Sirius subscription unless you have your account number. And somehow, they are even able to keep the charges going after your credit card expiration resets. (American Express tried to help me, too, but so far, no luck.) Peggy V.: ‘I have been trying since 4:00 pm today (Jan 2 2009) to cancel my subscription…it is now 7:14 pm. My son gave me Sirius last year (2007) for Christmas and I don’t want to renew. I got a statement in the mail today, statement date is 11/23/08, due date 11/23/08. Sirius was activated 12/23/07. I’ve been trying since I brought the mail in to cancel, hold for 15-20 minutes, then get busy signal and have to start over. I have other people living in the house with me and can’t tie up the phone that much…don’t have that many minutes on my cell phone, can’t cancel online. I was told if I don’t pay it will go to collections, I don’t want this on my credit report and I don’t want extra charges.’ ☞ Tough. You’re just going to have to listen to Sirius Satellite Radio. SHOE THROWING Peter Kaczowka: ‘Even if (like me) you don’t support Iraqi journalist Muntadhar al-Zaidi’s act of throwing his shoes at President Bush, you must admit it is an example to would-be terrorists of a more effective way to both express their views and gain public support. I say ‘shoe-throwers, not shoe-bombers.’ ‘ ☞ Hear, hear! SELL RSW, SDS – AND MAYBE EVEN TBT We did okay, but there are two reasons to sell these ‘double-inverse’ ETFs that profit from a decline in the S&P 500 (RSW and SDS). The first reason, as noted last week, is that the index could rise further. The second less obvious reason – as explained in detail here – is that these funds (as well as TBT, designed to rise twice as fast the 20-year Treasury bond falls) are ‘reset daily.’ Which means that if the index they’re short goes up 10% one day, they go down 20% that day. And then if the index goes down 10% the next day, they go up 20% the next day. Which means (in this example) after two days, your $1 million (let’s say, just to make it fun) has gone down 20% the first day to $800,000 and then up 20% the next day to $960,000 – and you are out $40,000 in two days. That mathematical quirk can dwarf the 1% or so annual expense fee, and means you not only have to be right about the direction of the market you are betting against, but it also has to decline fairly steadily, without too much choppiness along the way. So – nicely as RSW did for us – and confident as I am that long-term U.S. Treasury bonds are overpriced, discretion in the face of frictional costs like these may be the better part of valor. (Being not all that discreet, I can’t resist holding on to my TBT for a while – but that’s me.)
Mud, Wind, and Irony January 2, 2009March 12, 2017 What a great year, this 2009 is shaping up to be. Have you noticed that the days are getting longer? And there’s a nice breeze. Wind chill here in New York must be 10-below.* And speaking of breezes . . . WIND Bob Fyfe: ‘You wrote Monday about a massive government stimulus package aimed at building windmills. For your readers who want to act right now to increase the demand for wind-generated power, it is already possible to sign up to purchase wind power here. In the last six months, our township has signed up more people to purchase wind energy than any other community in Southeastern Pennsylvania other than Philadelphia.’ MUD Doug Mohn: ‘I was searching for some GMAC bonds today when I stumbled across a Great Lakes Dredge and Dock bond (CUSIP 390606AG6) with a 7.75% coupon due in 2013 yielding 14.3% to maturity [because the bonds are trading at around $770 and will be redeemed for $1,000 when they come due]. While I agree with the thesis that infrastructure plays are interesting in our current climate, I didn’t realize the GLDD bonds were so junky. What is the likelihood that GLDD will be able to refinance its bonds at rates closer to 7.75% in five years?’ ☞ I like these. Five years is a long time, and GLDD – which is already profitable after paying the interest on these bonds – may grow steadily stronger if and as dredging is restored to pre-Iraq levels. (You can put off routine maintenance only so long, goes the theory.) If for some reason the bonds defaulted, the bondholders would wind up owning the company. It’s been around for 118 years and estimates the replacement cost of its fleet at $1.5 billion. Not that it would ever fetch so much in a bankruptcy sale, but it might well fetch enough to cover the outstanding $200+ million in debt. RAIN Click here: Ronald Reagan for four minutes 60 years ago. He was right as rain. *But that’s 250 degrees Kelvin, which makes it seem warmer. I met a physicist this week who says the temperature of deep space is just 3 degrees Kelvin – and won a Nobel prize for cooling a gas down to one billionth of one degree Kelvin. So everything is relative. The real trick may be to wear layers.