History Course: Great Depression

Now I am not comparing the curreny meltdown directly to the Great Depression...but it is important to know thy past.

1. Dow fell from ~400 to ~40...~90%.  Currenly we are only down about 40%.  Just imagine how you would feel if this were just the halfway point...

2. It took the Dow about 25 years to recover to par value (1929 to 1954)

3. From the low of ~40 it took only 3 months for the market to double back to 80...and then stabalize at 60.

4.  If you had waited for the market to stabalize and then invested in Q4'32 (DJI=60), you would have made 500% (6X your money) by the time the market returned to pre-crash levels.  You need to invest once a bottom materializes. It is less important that you find the exact bottom...you can wait for some stability before pulling the trigger. 

Presidential Tax Braket Estimates

I saw this the other day and figured I would pass it along without too much commentary:

One interesting thing to note...while the statement Obama keeps making that "Only the top 5% (above $250K) will experience an increase" is technically true...this shows that anyone making over $100K actually will fare worse with Obama.  Something I am sure McCain would love to say but obviously can't since he will still piss off the 90% of America who makes <$100K. 

And remember...the top 5% of the earners already pay 60% of the taxes...I guess we will see how long the top earners will tolerate ~70%.

Forbes on Taxes

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The road to $1,000

This past weekend I cleaned the other 2 air conditioners --> $70.  Although, I did have to have the A/C guys come out and fix one anyway which ended up costing me $35....so let's call it +$35.

Total:  $342

Oh yeah...and I bet your 401K is down a hell of a lot more than $342...but at least I have $342 more dollars than I would have had.  When the great depression strikes and apples are selling for $0.05...I will be able to feed the family for a while!

The road to $1000

Yesterday I decided to reconcile all my recent Aetna insurance claims (believe me I did not want to).  Since we are in CR, I need to pay in cash at the time of service and then get reimbursed later.  Due to recent workload isses, I ended up submitting about 12 claims at the beginning of this month.  Guess what...they had "missed" a few items...total ~$55.

Total: $307

PS - I liked Flogger's comment on the last $1K post.  It really is amazing that something as simple as just changing your mindset in small ways can pay off substantially in the long-run  (includes more than just financial matters)

$700B

So I really wanted to stay out of this because it is being talked about to death...but...I heard something troubling today. I heard that the pricing that was being used to purchase the bad loans was something OTHER than fair market value. I certainly hope that this is not true. If we (the taxpayer) pays one cent more than the fair market value for these loans then we are getting ripped off and our money is effectively subsidizing the banks.

At the end of the day I think it is bad enough that we are buying bad debt. I understand that we *HAVE* to or the whole market may "collapse"... but it certainly is not something that most of us would ever contemplate doing with our own money...oh wait...this *IS* our money (or should I say our debt since this will simply be written against the national debt).

In the end, it will be done...we just need to ensure that we get the best deal possible. I recommend we have someone like Warren Buffet step in and negotiate a good deal on behalf of the American Taxpayer. He has a great track record of driving a great deal...let's use our national resources here on this one!

The road to $1000

Day 3 (Friday): coffee at home, skipped lunch and did not buy a bag of candy that I wanted --> $4

Day 4 (Sat): nothing ;-(

Day 5 (Sun): opted for the "$115/night" room at Las Palmas vs. the "$165/night" room saving a total of $150 over the three night reservation...plus...we figured out that Payton was an "infant" and not a "child" saving another $60. Total for day 5: $210 (Jen assisted on this one)

Total: $252

The road to $1000

Day 2: Well today I did not really do much but I did brew my first 2 cups of coffee at home and I skipped lunch. In the states that may have saved me about $10...but here in Costa Rica that only saved me about $3.

Total: $38

Now...as far as the economy goes...today was a nice day on Wall Street. Amazing how one can feel "better" when their stocks going up 6% despite the fact they are still down 20%.

The road to $1,000

For the time being I am going to stay away from commenting about the market.  I think we all have had a little too much market talk lately.  For the record I have not done anything with my positions except watch them go down like everyone else.  Instead...

On the drive home today, I was wondering just how much we tend to piss away money in a seemingly infinite number of little ways.  Now I know that this is nothing new to most of you who have been through one or two financial books...most of the time it is called something akin to "The Latte Factor".  While I do not drink fancy lattes everyday from Star$$ it does not meant that we don't do this in many other ways.   And a penny saved IS a penny earned...so my gaol is to keep track of all the little things that I do daily and keep a running total.  That way I can see how long it will take before we get to $1K. 

Today I cleaned one of the A/C units in our house.  I know that would have cost me $35 so today I saved $35.   I have two more to get to at some point...so that should help...

Total:  $35

That is all for tonight

What's a billion here or there...

This morning I was able to watch about 20 mins of last week's "Meet the Press". I know...you are thinking "Really, you have 20 mins to watch TV"? Or maybe you were thinking "Really, you record Meet the Press"? But whatever you were thinking this morning I was struck with an ironic juxtaposition from the boob tube. And for the record the answers are...yes (but it was just 20 mins before the tribe descended upon me) and yes (I like to try and keep current on US politics since we are down here in Costa Rica and recording it just makes sense...)...

Anyway...During Meet the Press...Senator Obama was being asked about Pakistan and a soft-ball statement he made earlier about getting them to stiffen their fight against the crazies (i.e., terrorists). Obama went into one of his long winded not-really-gonna-answer the question modes. They were discussing how Pakistan should be spending the ~$10B we give them each year. Tom Brokaw was making an argument that more of the money should go directly towards fighting al-Qaeda or else we stop giving it to them. Obama went on about how more should be put towards schools and such. While I tuned the politics out...what resonated with me was the number $10B per year to Pakistan. That seems like a lot of money to me...but then...soon after I lost control of the TV (again...only 20 mins for dad) ...there was a quiz on the HGTV channel about how much Americans spend every year on their yards. Of course, Jen got it right and I was wrong...but the number was $37B.

Now since the population of Pakistan is about 170M folks (~half of the USA) and since they all reside in just 340K square miles (only 4% of the entire US area of 9.6M square miles)...it seems perfectly rational that Obama should have instead suggested that we simply re-landscape all of Pakistan. Hell, at just 4% of the area...they should have money left over to pave a few streets and throw up a few schools too....and with everyone proud of their yards...there would definitely be nowhere for the terrorists to hide-out anymore. Just imagine what they could do with even more of our tax dollars and a Lowes! I should have been a political think-tank guy.

ROH

Back in October 2007 we bought Rohm and Haas due to the fact it was a nice safe and steady stock with room to go up and a nice dividend. Well sometimes those stocks are attractive to the bigger fish in the waters....and on July 10 the big fish of DOW chemical put in an offer to buy ROH for ~$75 a share....~65% higher than where it was on July 9. Nice.

Now, they always say buy the rumor sell the news....so I sold it within a week of the "news". My fear: the deal would collapse and so too would the profits. Like we say...sometimes enough is enough. Since the stock for sure would not go over $75...it was basically dead money (minus the 2.5% dividend) until the deal was closed with only huge downside risk. I guess getting into DOW at a cheap rate could have been a good thing...but since I don't know the conversion details there is nothing to base that on. If I want DOW (with it's 5% dividend by the way) I will just go ahead and buy it directly. Might not be such a bad idea seeing as how it is hovering around a 5 year low and paying 5%....hmmmm

Tax Bill

There was a good article on kiplinger.com (What's Your Share of the Nation's Tax Bill? - Kiplinger.com). Key parts:

New statistics from the Internal Revenue Service show that the highest-earning 1% of taxpayers in America make 22.06% of all income reported to the government. That’s almost twice the 12.51% of total income earned collectively by the lowest-earning 50% of workers. Yes, 1.4 million taxpayers claim 22% of income earned while 68 million share just 12.5%.

But get this: When it comes to taxes paid, an even wider discrepancy shows itself -- in reverse. That top 1% of earners pay 39.89% of all the federal individual income taxes. The bottom 50% of earners pay just 2.99% of those taxes.

So I am not trying to argue that the "rich should not pay a little more"...but I am troubled by the definition of "rich". If half of the people pay only 3% of all taxes...that seems to be a bit low. It gets a little worse if you look at the "bottom" 75%...they only pay 15% of the taxes! Yup...that means that only 25% of the population is carrying the weight of 85% of the bills in America. Just imaging if one of the presidential nominees wanted to repeal the Bush tax cuts for the "rich" and lower the taxes for the middle class. Hmmm - let's say ~10% will be paying ~90% of the tax bill. Some might...just might...call that something close to Socialism. But putting that aside for a second...what about the old bar axiom...what happens if that ever shrinking population actually paying the bills suddenly decide to go somewhere else (kind of like our businesses are)??? Seems like that may also be a threat to our national security...

BREAKDOWN OF INCOME AND TAXES PAID BY CATEGORY
Income Category	2006 AGI			Percent of All Income			Percent of Income Taxes Paid
Top 1%	Over $388,806			22%			37%
Top 5%	Over $153,542			37%			57%
Top 10%	Over $108,904			47%			68%
Top 25%	Over $64,702			66%			85%
Top 50%	Over $31,987			87%			97%
Bottom 50%	Under $31,988			13%			3%

Source: IRS

Buying

Two factors:

1. My Citibank savings interest rate falling from 5% to about 2.5%
2. The DOW has cooled down to 12,160

So I moved some money from the savings account and last Friday I bought:

• Much more GLS. The stock has fallen to $11 which puts it's dividend at 17%...yup 17%. And with long term contracts as the source of revenue...that is relatively safe. Plus, they are still renegotiating their leases successfully since airlines are wanting to upgrade to more fuel efficient models.
• Buying back into WFR. The stock fell back down to $61 and solar has gotten no cooler in my mind. Already popped up to $66 with a 1 year target of $91.

The market is a wonky place right now...the fact that a stock can have a 17% dividend makes you wonder if this is the greatest gift ever...or the start of a looong curse. Honestly...just imagine if you could make a guaranteed 17% for the next 10 or 15 years...you could definitely sleep easy then.

Beer and Taxes

The title should at least pique the interest of most of my readership (one of the two)....I saw this today and found it funny....

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this: * The first four men (the poorest) would pay nothing. * The fifth would pay $1. * The sixth would pay $3. * The seventh would pay $7. * The eighth would pay $12. * The ninth would pay $18. * The tenth man (the richest) would pay $59. So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers,' he said, 'I'm going to reduce the cost of your daily beer by $20.' Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so: * The fifth man, like the first four, now paid nothing (100% savings). * The sixth now paid $2 instead of $3 (33%savings). * The seventh now pay $5 instead of $7 (28%savings). * The eighth now paid $9 instead of $12 (25% savings). * The ninth now paid $14 instead of $18 (22% savings). * The tenth now paid $49 instead of $59 (16% savings). Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. 'I only got a dollar out of the $20,' declared the sixth man. He pointed to the tenth man, 'but he got $10!' 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that he got ten times more than I!' 'That's true!!' shouted the seventh man. 'Why should he get $10 back when I got only two? The wealthy get all the breaks!' 'Wait a minute,' yelled the first four men in unison. 'We didn't get anything at all. The system exploits the poor!' The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

All I want to know is: where is this place that 10 guys can drink all night for $100??? Maybe the Den at 4th street bowl????

Nothing to say...

So unfortunately I have had zero time to watch the markets lately. All I know is that things seemed to have settled out around the 12K mark. I still have not seen a really good trend emerging that says things get significantly better in the next few months so I really do not feel compelled to go flying back into the market just yet. Instead I will use this time (whenever I get some) to look for some stocks which are solid and can weather the storm. Speaking of which...I should mention that of the stocks that we recommended here...

Those snoring dividend stocks are holding up well (ROH +6%, TTM even, FWLT +1%, GLS +10%, DSX even) despite the market meltdown of almost 15%.

Those high fliers are not holding up well (GOOG only up 10% vs being up 50% before, AAPL -20%, STV -20%). So it just goes to show that you must be diversified or you will get killed. Having said that...tech is looking pretty cheap...but is usually one of the last to rebound....you have time!

And props to Sue for her comment left on the last post....well done.....spoken like a true old fogie ;-) JK!

Ouch

Really, that is all we have to say. Have I ever mentioned trailing stops before...oh yeah...here, here and here ;-) And we called for selling/stops back on Dec 10 at 13,800. BUT...then I started buying again in early Jan at 12,800....kind of reminds me of trying to catch a falling knife...gotta be REALLY careful. Well, we got burned on those. But at least the commissions are free at Zecco.com so getting in and out quickly does not hurt nearly as much! Unfortunately MOST of the net worth is all tied up in those things called 401Ks....which are currently getting pummeled...so in reality...saving some losses on the small stuff is kind of a moot point...but at least it makes us feel a little better.

While we are talking about the 401K, back in Early December I moved a LOT of my 401K into emerging markets and Europe/Asia. While they are also not doing all that well...they are not getting clobbered the same way the USofA is right now...maybe in a few months we can bottom fish in the USofA...but I am going to be a bit skiddish for a while since things are just piling up over here.

Buy/Sell Corner

So the Dow is down to below 13K and the Nasdaq has fallen to about 2.5K. So why would one be buying? Because as always when things go down...you buy...duh! I am now confident that the latest "fears" will drive the fed to move on rates again....so I expect a rally in the next few months. Hopefully we can get in front of the action...maybe a little short term pain but by end of Q1 I think these are all safe plays.

Buys:

• China Digital (STV) at $26.14. I recently reviewed the reasons for investing in this spec play. Since my money was tied up in a transfer to Zecco.com I was only able to recently get on the buy side. I still really like this one longer term...hold on tight!
• Gensis Lease (GLS) at $18.11. I also explained my reasons on this one previously. Fundamentals have not changed but the recent pull-back gives me another chance to DCA ($ cost average). Since my last purchase I received a dividend of ~2% (yield is at 10%) so even though the stock has not gone up...I am still on track for 10% on the year ;-)
• Diana Shipping (DSX) at $30.03. This one is another dry bulk shipper (similar to GNK). They have a very young fleet and have a huge dividend at 7%. PEG is good at 0.9 and they have 33% room to their 1 year price target. I still am a huge believer in the dry bulk shippers and would have put more money into GNK but I figured splitting across the two companies was about the same (sector will move together) and the dividend is higher.
• Foster Wheeler (FWLT) at $136. Back in mid-November I mentioned that I bought AAPL but forgot to mention that I bought Foster Wheeler....sorry about that one ... it was a late night ;-(. It has subsequently run up to $162 with a target of $180...I like this one long term since it has mega contracts lined up for the next 5 years so in my mind there is little downside risk....the upside is somewhat limited by the high price (PEG of 1.92) now...but back at $136 (during the November market meltdown) it was screaming buy to me.
  

For the record...selling WFR last week proved to be a very good deal. Selling at $93 and now at $82 and change. I am not in a rush to get back in this one until it falls below $75 again.

Zecco.com Review

So there is a "new" website called ZECCO.COM which offers 10 free trades per month ($5 after 10). This is perfect for people who trade like myself. I rarely have more than 6 trades per month. Day traders have other options available to them which I am sure are better....but this one looked about right for me.

Instead of just telling you about this I decided to give it an actual try and then update everyone on how it went. I have now been using this for about 2 months and it definitely has it's plusses and minuses so far.

Pluses (or musts in some cases):

• Your money is protected through SIPC/FIRNA for your first $500K ($100K cache max) and an additional coverage up to $35M (900K cash max) through Lloyd's of London.
  
• Their transactions are very fast! I had a few instances with Citibank where transactions took minutes...yes minutes. With Zecco I can re-check in about 2 seconds and not only has my transaction gone through but my entire portfolio has been adjusted with the new information...that is way better than Citi!
• They have an investing community. You can see what others are doing and chat with others about certain stocks. This can also be found on Google and Yahoo Finance...but I often find that those forums have a lot of people just yapping about...the folks here tend to be much more focused.
• Customer service is friendly and fast. I asked a few dumb questions in the beginning via email and always got fast responses (hours instead of days like Citi) with clear answers (not written in India).
  
• Did I mention 10 free trades per month? Now...this is important because I am not a huge investor. I typically invest in blocks of only $3-$8K. When I am paying almost $60 to get in and out of a position...that can be as much as 2% of my gains....and that is a big bite when you can get that 2% back here at Zecco. So in my mind...I just improved my investing intelligence by 2% even if I am just as wrong as I was yesterday ;-)

Minuses:

• Money transfers in/out of my account take a little time. The first one took about 4 days to clear and the second one took about 2 days to clear. This can be a little frustrating if you want to make a move quick...but in the grand scheme of things...once you have money in your account...this is a non-issue.
• They have a pretty good stock screener...but better ones can be found elsewhere.
• The interface is getting much better. It was a little clumsy when I first tried it...but it is rapidly getting more organized and much more responsive. They need to keep up the improvements and it will quickly be better than Citi.

Overall, I really like Zecco. The fact that I can dabble in trades without paying the 1-2% penalty of the big brokers is exactly what I was looking for. The tools are sufficient and the trade executions are excellent (so far). If you want to sign-up and try yourself...just remember to tell them that I sent you there ;-)