Mar 28 2010

Ultimate Tax Refund

“Complex societies are focused on a center, which may not be located physically where it is literally implied, but which is a symbolic source of the framework of society.  It is not only the location of legal and governmental institutions, but is the source of order and the symbol of moral authority and social continuity.  The center partakes of the nature of the sacred.”  – Joseph A. Tainter, The Collapse of Complex Societies


It was a rather frantic month for me and most of the headlines missed my attention.  I did notice one rather curious article about JP Morgan Chase’s $1.4 billion tax refund.  Apparently JP Morgan Chase is capitalizing on a provision in the American Recovery and Reinvestment Act which allows the mega bank to take losses from 2008 and 2009 and apply them against taxes paid during the previous five years instead of the previous two.


And the train has departed from the station because according to an analysis of security filings by Wall Street Journal, more than 250 companies expect $12 billion worth of federal tax refunds under the provision.


Maybe I am foolish to be concerned that the provision (…gift, whatever) is expected to cost taxpayers $33 billion during its first year.  I suppose everything is relative and we are playing with trillions now – right?

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Apr 07 2009

Our Two Favorite Investment Geniuses

“I will die and go to hell if it’s a Ponzi scheme – it’s no Ponzi scheme…if it is a Ponzi scheme, why are they finding billions and billions of dollars all over the place?” – R. Allen Stanford


Well, I didn’t do very well last month with only one post, so I will try to do better in April.  I thought it was about time we revisited the status of Messrs. Madoff and Stanford.  As most of you probably noticed, there has been a good deal of continuing coverage on Mr. Madoff, but Mr. Stanford hasn’t received much national coverage since the initial story broke.  I say lucky Mr. Stanford – right?  Unfortunately for him and his business associates, just because the media has other fish to fry doesn’t mean the SEC does – but more on that in a minute.


It shouldn’t be such a surprise to Mr. Bernard Madoff or his family and business associates that when you deceive a whole slew of powerful people and institutions and oh, by the way, burn through $50 billion of other peoples’ money – you might just be sued by some of the victims.  This of course is exactly what is happening and let me just add that those doing the suing are going after every penny or any asset with tangible value.  Madoff started transferring assets and sending money to family members almost immediately, but he has clearly been found out – so the lawsuits will ensure that what remains will probably mostly end up with the lawyers – but better than Madoff or anyone he wants to have it.  Bernard’s brother Peter recently received some bad news when he learned that he had to return the vintage Aston Martin that was purchased for him last year – if this was only his biggest problem.


As for Mr. Stanford, he vehemently denies any wrongdoing and maintains that the SEC decided to make his company the scapegoat after completely missing the Madoff scam for two decades or longer.  Apparently, while there are some shady things that went on at Stanford Financial, they hadn’t yet spent the entire $8 billion that they brought in with high-yield CDs and there is some indication that significant assets are still held by the firm.  This hasn’t discouraged the SEC and according to spokesman John Nester, “We stand by our allegations.”  And there you have it.  I bet James M. Davis and Laura Pendergest-Holt are hoping all the money can be accounted for – or they will be joining R. Allen in the pokey for a long time!



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Feb 28 2009

The Wizard Speaketh

“The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors.  These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible.  They then made this experience a yardstick for evaluating future losses.  They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn’t afford…Investors should be skeptical of history-based models.  Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive.  Too often, though, investors forget to examine the assumptions behind the symbols.  Our advice: beware of geeks bearing formulas.” – Warren Buffett, February 2009


I for one have the utmost respect and admiration for Mr. Buffett and although even “The Wizard of Omaha” isn’t always right, he certainly hits the nail on the head more often than not.  So while I have about given up on offering insight at the moment (at least until we hit bottom), I won’t hesitate to direct you to the annual Berkshire Hathaway shareholders letter that just hit the web.  I strongly suggest you read Mr. Buffett’s commentary and carefully consider what he has to say.  You never know, your future prosperity might just depend upon it.  To the Shareholders of Berkshire Hathaway, Inc.:

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Feb 22 2009

Stanford on the Rocks

“As a company founded in the midst of the Great Depression – an environment of despair and negativity – we have a long-proven understanding of how even the most severe down cycles can bring opportunities that yield significant benefits in the long run.  This well-grounded approach when making investment decisions and giving investment advice will benefit our clients in these tumultuous times as never before.” – R. Allen Stanford, 2008


Long before the Madoff scandal could fade into history (and we still haven’t a clue how he pulled it all off for so long), it would appear there is yet another “brilliant” financier that lived like a king by scamming others.  Fortunately I didn’t give my money to either of these jokers – at least that I know about, but I probably could have been sucked in like so many others given the right set of circumstances.  I feel as though my posts of late read like a bad Hollywood movie blog but they capture real life events and hopefully they will help us all be better investors with a nose for a scam.


For those of you that don’t know anything about R. Allen Stanford, I suggest you take a look by following the link.  He is truly an interesting cat.  My first exposure to Mr. Stanford was back in 2004.  My wife and I found ourselves on the lovely Caribbean island of Antigua for vacation.  While walking around St. Johns, the largest town/city, I quickly noticed that Stanford Financial and the Bank of Antigua seemed to be quite prominent.  Just by happenstance, I picked up the local paper and there was an article that mentioned Mr. Stanford.  I recall it suggested that he had been accused of questionable practices involving investment and improper influence of local politicians.  I was rather intrigued and so when I returned to the States, I researched Mr. Stanford a bit and it became apparent that he was quite the player indeed.  In addition to his investment firm and the banks he operated, I was somewhat interested with his plans for development in the Caribbean so when we were planning a trip to Antigua again in 2006 I attempted to set up a meeting with Mr. Stanford.  At one point I thought I would get the chance to meet with him, but he ultimately blew me off and now I am quite confident this was actually a very good thing.


Upon our return to Antigua, it was quite obvious that Mr. Stanford had continued to expand his presence on the island.  He had built a new cricket field next to the airport and it seemed that Stanford was displayed everywhere.  It all seemed just a bit overdone – but very few would have known what was actually going on.  I thought at the time that possibly he was involved in some money laundering for wealthy South Americans – but on the surface he seemed to be doing some good things for Antigua so I forgot about it all once the vacation was over.


Fast forward to February 2009 and out of the blue it is reported on the news that R. Allen Stanford and two of his top executives are being sought in connection with some kind of Ponzi scheme involving high-yield CDs and the Bank of Antigua.  While I was floored at first, it didn’t take long for me to decide that I really wasn’t all that surprised.  As we all realize sooner or later, making money takes a lot of effort and Mr. Stanford made it look far too easy.  One of the best articles that gives more detail on the whole ordeal is Allen Stanford: The Antigua Triangle published February 22 in Times Online.


So it would appear that once again, some smuck and his possibly not-so-clueless employees have duped thousands of people out of huge sums of money.  Many thought they were protecting themselves from the tumultuous equity markets only to apparently lose everything so that Mr. Stanford could live the high life jetting around the globe, sponsoring cricket tournaments and yacht races, not to mention building opulent palaces and office buildings.  I just heard that of the roughly $8 billion that was supposedly deposited in his banks, the authorities are now only able to account for $250 million.  All I can say is that while it is doubtful I will ever experience the grand lifestyle that Mr. Stanford has enjoyed for so long – I wouldn’t trade places with him for all the money that evaporated in the banks of Antigua…

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Nov 24 2008

Never too late to make it right

“In their heyday, fund managers would go to ideas dinners at the best restaurants in New York and London and persuade one another to make the same investments.  Those excluded from the dinners would peer at the SEC filings of the smarter among them and copy their trades, eliminating the advantages the more intelligent investors had in the first place.” – Jesse Eisinger


Halleluiah!!!  The U.S. presidential election is over and whether or not you like the outcome at least maybe now we can get on with other pressing matters.  Let us hope and pray that our new president will be up to the task because there isn’t much that doesn’t need to be repaired!  When I first decided to start my own blog, my intention was to focus on financial and economic information that readers committed to prudent personal finance would find useful.  Unfortunately, recent developments have forced me to recognize that much of what we were taught or innately believed about the global financial markets and the economy in general was incomplete – at best.  In fact, even Alan Greenspan acknowledged under questioning that he was mistaken in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions (see Greenspan Denies Blame for US Crisis, Admits Flaw).  So for the time being I will mostly limit my recommendations on how to invest.  It is certainly a good time to spend less than you bring in and build a significant cash position.  There are most definitely great investment opportunities out there, but it is still a better idea to have an adequate cushion and then to pay down any debt before you invest in such an unstable and uncertain environment.


Now for my soapbox.  We have all been a little too enamored with the financal wizards that make shiploads of money without producing anything of tangible value for many decades now.  I suppose this is largely because we believed the system was working for the most part and we were benefitting from it as our investments increased in value.  Now it is apparent that many of these same wizards actually contributed to the current crisis and now suddenly we don’t like them so much.


If we look at this situation from a sanguine perspective it could just be the the wake-up call we all needed.  Too many people around the globe have been caught up in taking whatever they could get regardless of the financial smoke and mirrors involved in getting it.  If you want to gamble, go to Las Vegas, but for those of us that wish to earn a decent living by providing a valuable product or service and then invest in other companies or enterprises that do the same in order to profit long term from the value being generated, we should be able to do this too.


I will gladly invest my money in worthwhile investments but the people I deal with and all that touch my hard-earned money for that matter need to understand the the meaning of fiduciary relationship.  They simply need to pick up a copy of Black’s Law Dictionary which defines a fiduciary relationship as, “one founded on trust or confidence reposed by one person in the integrity and fidelity of another.”  A fiduciary should feel the ultimate sense of responsibility for a client’s money – well above his or her own personal gain.  One final thought: W. Edwards Deming said, “Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.”  We all need to consider this very carefully!

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Aug 31 2008

Where’s the Silver Spoon?

”Wealth after all is a relative thing since he that has little and wants less is richer than he that has much and wants more.” – Charles C. Colton


I have considered variations of this quote over the years and believe there is much truth in what it says.   Those of us that constantly strive for more and better will never be satisfied for very long and so it is probably a very good idea to find some other interests or projects in life.  If we can somehow convince ourselves that it is OK to settle for what we already have once in a while we might also realize there is more to life than money and material possessions…but then some of us never will!


On a related, but slightly different subject, I am about twenty years out from the traditional retirement age and at this point in my career, I am working to accumulate enough capital so that when I approach retirement age, I won’t be under a great deal of pressure to earn more money by working.  This is not to say that I want to stop working altogether, just that I don’t want to be a slave to the grind in my seventies.  There are certainly times when I would like to spend more of what I earn on new toys and extravagant vacations, but my retirement-age goal is simply more important. 


In order to reach this goal, I am doing what you would probably expect.  I max my contributions in my company’s 401(k) plan and I save what I can of my post-tax earnings.  I realize this is nothing revolutionary but it simply amazes me how many people do not take advantage of tax-sheltered savings plans.  I suspect many of those I am referring to imagine they will one day magically (or by inheritance) come into enough money to retire in comfort.  Others just never get their finances in order and falsely believe there will be time once the kids are out of college.


So times are tough and you don’t have enough money to pay your bills – let alone set any aside for retirement.  I know this is a legitimate problem for many right now and I also realize that some of you are strapped with adjustable rate mortgages that have turned your world upside down.  Please get some help because you truly need to get things under control and begin to put money away for the future…or you will likely never get out of the trap you are presently in.


Regardless of whether you are just starting your career or you have been working for years but spending everything you earn, start contributing at least 5% of your pre-tax salary to your company’s plan.  If your company does not offer a savings plan, then you should talk to an accountant or financial advisor and learn how to take advantage of an IRA in a similar fashion.  The toughest part is just getting started.  Next year, up your contribution to 6% and then 7% the following year – you get the idea!  In a future post, I will make some suggestions on how to allocate your contributions, but for now just get started – if you haven’t already!


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Aug 11 2008

So don’t call it a budget, just get your expenses under control!

Published by under Managing Money

 “Budget: A mathematical confirmation of your suspicions.” – A.A. Latimer


In case you haven’t noticed, the economy is somewhat dubious at the moment – unless maybe you live in the United Arab Emirates or a few other select places on the planet.  Clearly many people were caught off guard by the severity of the downturn, but it really shouldn’t be such a surprise.  Over the past 100 years or more, whenever money seems too easy, either to borrow or to make by speculating, rough times are on their way.  I’m the first to admit that I’m an amateur prognosticator, but I fully expected the good times to end much sooner than they did.  I would argue that in the U.S. we made it to the double bonus round before the levy broke.  So collectively we missed another opportunity to manage our greed and now many of us get to come off the mountain and enjoy the valley for a while.  Even the Wall Street crowd might feel the pain when their bonuses come in at half of what they were in 2007.


If you are able to appreciate the good that can come out of these tough times you will certainly be better off.  Like many others, including me, you might have been a little too caught up in the fever of the moment and possibly you lost sight of what should really be important in your life – like pancakes and bacon with your kids on Saturday morning or possibly a quiet evening at home alone with your significant other.  Money and its many trappings are appealing to most of us, but the quest for prosperity can easily overshadow the most meaningful experiences in life.  This is the perfect time to reset and focus on what you have to be grateful for.  If you have faith in God and recognize that all humans (with the possible exception of a handful of astronauts) have a rather parochial understanding of everything, you know that most of what we lose sleep over has no significance in the solar system – not to mention the universe.


Now maybe you are a little calmer about your situation, but unfortunately being philosophical isn’t going to help you get your finances in order – so get to work dealing with the situation at hand.  As a solid first step, sit down and dedicate adequate time making certain that your income covers your expenses on a regular basis.  If you have more money going out month after month than you have coming in, you must do something about it.  Don’t fool yourself into thinking that you can continue to spend as you wish.  Stop the bleeding even if it means giving up something you are particularly fond of.  We all get sloppy sometimes and spend more than we should.  I only hope you will make the proper adjustments before it is too late – assuming it isn’t already.  Take a look at what Liz Pulliam Weston has to say on MSN if you need further nudging (No free rides: This means you).

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