Investing

Ratings Agency Downgrades British Petroleum

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Recently, we talked about how Warren Buffet’s Congressional testimony about Moody’s responsibility for causing the banking crisis and stock market crash by rating collateral mortgage options (CMO) triple-A up until it was already obvious to everyone that these investments were in trouble, was wrong headed. Today, the ratings agencies Fitch and Moody’s gave us all another reason to wonder why we listen to rating agencies at all with its downgrade of British Petroleum. It is not that downgrading BP is incorrect. It is both the timing and the sanctimonious nature of how the downgrades British Petroleum (BP plc – NYSE:BP) stock and debt came about. It has been six weeks since the April 20th explosion on the Deepwater Horizon oil rig and the company’s stock has already fallen over 40% since the incident. Which has been a big hit on Members of Congress are calling for BP to put $20 billion into some sort of escrow fund out of concerns that the company may end up not being able to fully pay its legal obligations resulting from the massive gulf oil spill. Yet, both Moody’s and Fitch’s statements act like their concerns about BP are actually news to anyone. “Today’s …

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Safely Earn More Interest on Your Money

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I am always a bit curious when I read a cover story headline like the one on Kiplinger Magazine this month. It says 18 Ways To Earn 5% or More On Your Money. A lot of readers will make an assumption that goes along with that headline that they are talking about low-risk investments or no-risk savings products. After all, it doesn’t take a degree in advanced personal finance to know that there are literally thousands of ways to earn 5% or more on your money. Of course, most of those also come with a way to lose 5% or more on your money too. That is not what the article is about. Instead, this particular article, whose article title inside the magazine is, “Great Rates In A Low-Yield World” manages to give a better clue. The article is NOT about where to open a savings account to earn 5% or more. It is about how to get 5% YIELD on your investment. That is, 5+ percent as income, and not counting losses on invested capital. Real Earnings Are About More Than Dividends and Interest Unfortunately, while the article does indeed uncover available investments earning a 5% or higher yield, …

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Yahoo Buys Associated Content

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There are plenty of other things Yahoo gets from buying Associated Content, not the least of which is a big fat swath of Internet real estate that ranks obscenely high in Google search results and Bing search results. A great deal of the traffic generated from these high ranking searches is monetized via, you guessed it, Google AdSense which pays content publishers based upon ads placed by Google on those websites. Yahoo, can now switch out those Google Ads and replace them with their own Yahoo Ads.

Sell Banks Stocks or Buy Bank Stocks

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Ok, here it comes. After the government released the results of its stress tests, banks are scrambling to come up with ways to raise huge amounts.  It seems that the government money that was a much vaunted and absolutely necessary lifeline to banks has become tainted now that it comes with, horror of horror, strings on how the money can be spent.  As if the banks ever handed out a huge loan to anyone without some sort of control on the collateral. Be that as it may, banks want out of TARP and they want out now.  Even banks that would be much better off holding on to their TARP dollars are looking to buy back the government shares of preferred stock that they had to put up in order to their money.  Seems there is a feeling that the banks that do keep their TARP funds will be viewed as sickly or less stable than their counterparts who repay, regardless of the cost or wisdom of doing so. The only way for these banks to raise the kinds of dollars being thrown around is by selling off assets, which is fine if they are not part of the core …

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SEC Advisory Committee Recommends Ways to Improve Financial Reporting

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The SEC became concerned that financial reporting and disclosure was in need of some smoothing out and improvement, so in true government fashion, it formed an advisory committee to explore ways to improve financial reporting for investors. You may recall that I mocked the whole thing based on the fact that A LOT of that complexity is actually the fault of the SEC and other assorted regulators who insist on constantly adding requirements of dubious value.  However, making the system better is making the system better and I welcome the SEC advisory committee’s report even if most of what it does is to undo things the SEC has done before. So, without further ado, I will download the Advisory Committee’s report elegantly entitled: FINAL REPORT of the ADVISORY COMMITTEE on IMPROVEMENTS to FINANCIAL REPORTING to the UNITED STATES SECURITIES and EXCHANGE COMMISSION After quickly reading over the document I will report the recommendations here and … wait a second — So, the report is 120 pages long and then there are 48 pages of appendixes.  Hmmm.  Well I’ll get back to you a little later.  I guess we won’t be improving things by making them any shorter and easier to …

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A Financial Advisor Makes Money

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Today’s inspiration comes courtesy of All Financial Matters (a solid blog with good hard numbers data) who notes that a Money Magazine article called “The Mole” discusses how just because a financial advisor says he puts his clients first doesn’t mean he does.  Really?  Did I miss something?  If it says “I put my clients first” on an attorney’s website does that mean that he does, or does it depend on the attorney?  Are there doctors who over bill your insurance company to boost their income?  Does a waiter ever suggest a more expensive wine to increase his tip?  I’m shocked, shocked, to find out there is gambling going on in here! All of this, of course, is why you need a good trusted financial advisor in the first place, but that is not why we come here today.  I want to show you something from “behind the scenes” as the Mole says. Financial Advisors and Commissions Let’s make up a fake client with a $500,000 account to be invested.  Let’s ignore all taxes and legal implications for the sake of simplicity and concentrate on commissions.  We’ll also assume that the account value stays the same over the years for …

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Muni Taxes Stay the Same

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The U.S. Supreme Court in a 7-2 decision upheld the central tenant of most state’s municipal bond tax policy, specifically that a state can exempt it’s own muni bonds from taxes while taxing the interest on other state’s muni bonds. So, nothing changes from before. If you live in California, the only way to avoid state tax on bond interest is to buy California Municipal Bonds. If you buy bonds from Texas, they can tax that interest. Taxes and Bonds Because interest on bonds is taxed as ordinary income, avoiding taxes on that interest is more important to investors than avoiding taxes on dividends paid by stocks. Most corporate bonds are taxed at both the federal and state level which reduces the real rate of return to the investor. Municipal bonds issued by states are exempt from federal income tax because one branch of the government cannot tax another branch. Whether or not the state municipal bonds are exempt from state income tax is determined by the laws of the states they are issued in. Most states make their own bonds tax-free as a way to make them more attractive for purchase. This tax-free status, plus the relative safety of …

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Get Rich Not So Quick in Real Estate

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As you may have noticed, we are getting ready to sell our house.  After living in our first house for about 7 years, we’ve been in our last two for 2 and 3 years respectively. The interesting thing is that each time we have made a lot of money.  The past two times we’ve used this new wealth to buy more expensive houses.  This time, we’ll be trading down, but we will also be paying off every dollar of debt we have other than the new mortgage.  This isn’t insignificant when you consider that we are in our early thirties and both had to go to college on the back of student loans (including the wife’s three years in law school.) Looking back, I’ve noticed a parallel to the stock market.  In the stock market, there are day traders.  You probably remember more than one or two friends who tried this way to easy wealth in the late 90s.  Only, it turns out it isn’t so easy, and ironically, that most of the people who thought they were day traders really weren’t. A day trader buy and sells positions within the same day.  The entire concept is based upon taking …

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SEC Thinks Prospectuses Are Too Big!

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laugh I laughed so hard I ended up crying. The [tag]SEC[/tag] is concerned that the prospectuses that mutual fund companies send to their clients are too big and full of legal mumbo jumbo to be useful to the general public. How many of you think that mutual fund companies WILLINGLY CHOOSE to spend the money to develop, write, print, and mail a 38-page book to your house, not just once, but every single year you own the fund?

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Buy Real Estate?

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realestateicon Whether or not now is a good time to buy [tag]real estate[/tag] depends, as most things do in finance, on time and amount. For example, if you have been renting for the last year or two and have saved up 20% for a down payment and you just found the house of your dreams, then yes, now is a great time to buy real estate. But what about people looking for a good investment? Is now the right time?

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