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The Independent Investor: Robin Hood Would Be Proud
Some call it the "Robin Hood Tax" (part of HR 3313) because it supposedly taxes the rich and distributes the proceeds to the rest of us peons. It is a bit more complicated than that, but you get the idea. Some say the proposal surfaced as a result of the Occupy Wall Street movement. Others credit the late Noble prize-winning economist James Tobin for the idea. The basic thrust is to impose a financial speculation tax of .03 percent or $3 in taxes for each $10,000 in financial transactions.
Although it doesn't sound like much of a tax, its proponents claim it could generate as much as $48 billion or more per year if all G-20 countries signed on to implement the tax.
In Europe, where every nation is scrambling to raise money, the idea is supported by the European Commission in Brussels that would like to see as much as $10 per $10,000 tax in place throughout Europe by 2014. The Italians, under their new Prime Minister Mario Monti, is planning to impose the tax as part of his country's fiscal reform plan. Both the French and German leaders are on record as backing the idea and even Pope Benedict XVI came out in support of it.
In the United States, the idea has found surprising support among some strange bedfellows. Bill Gates, George Soros, Ralph Nader, Al Gore, the nurses union and the AFL-CIO among others. As such, a bill to impose a tax on certain trading transactions in financial markets (part of H.R. 3313) is working its way through Congress. All the sponsors of the bill are democrats.
Republicans oppose it, which should come as no surprise since the vast majority of Republicans won't even read a proposal to raise taxes of any sort. Surprisingly, the White House and Britain's Prime Minister David Cameron are less than enthusiastic about it. Both feel it might jeopardize their country's leadership positions within financial markets where such a tax may drive traders elsewhere to do their business. The White House also believes it would hurt pension funds and the banks.
In my opinion those are lame arguments and don't square with the facts. For instance, both Hong Kong and Singapore, two fast-growing financial markets, already charge a $20 per $10,000 transaction tax. Great Britain, the leading financial center in Europe, has had a stamp tax in force for 25 years called the Stamp Duty Reserve Tax on most paperless trades of companies located or registered in the UK. It has not impacted the financial status of those markets one whit.
The Securities Industry is against it (surprise, surprise) warning that such a tax would impede efficiency, depth and liquidity in the markets as well as raise costs to issuers, pensions and investors.
What the tax will do, in my opinion, is reduce the speculation in global markets while generating much-needed revenues. Speculation, in the form of High Frequency Trading (HFT) is the bane of our existence. These traders buy and sell blocks of stocks, bonds and exchange traded funds second by second, minute by minute in large volumes throughout the day generating thin but profitable trades that add up. They could care less about a company's earnings or its future prospects. When a stock drops, hundreds, if not thousands, of HFTs and day traders jump on the trade, like vultures over a wounded animal, they drive their victim to its knees before going on to their next prey, all in the name of profit.
A $3, $5 or even $10 tax on these transactions will crater that market and do much to reduce global volatility. Who knows, actual investing may come back into vogue and with it the retail investor. Sure, the tax may hurt the little guy but the individual investor usually doesn't trade 10 or 15 times a day at $10,000 a crack.
Detractors argue that it is not HFT but the circumstances of the market, such as the European crisis, that is responsible for the volatility. I agree that the problems we face worldwide do create volatility and always have, but the markets have never reacted with the level of violent swings and almost daily market volatility that we experience today.
So I say string your bows, Oh, ye Merry Men, let arrows fly and support this transaction tax.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
@theMarket: Ho, Ho, Ho
In a recent radio interview, the host complained that the bad news just keeps on coming. If it isn't Europe, it's the embarrassment of our own political leaders in Washington. If that wasn't enough, we have tensions in Iran, North Korea and Syria. Yes, I agreed, all of the above is true and yet the stock markets are essentially unchanged from where they were a year ago.
Reading and listening to the chatter that at this time of year is largely focused on what's next for investors, I find a great deal of confusion. Most strategists are caught up in the continuing gloom and doom pessimism that has pervaded the markets throughout the year. This is despite the fact that the U.S. economy is growing at a rate higher than anyone expected.
No matter where you look — technical charts, momentum, fundamentals — it appears we are heading lower in 2012. Conventional wisdom has it that Europe is heading for a steep recession, China a hard landing and the U.S. by default is dragged down with them. In which case, the stock markets go lower.
After more than a year of faulty starts and disappointments by European leaders, most investors discount any new initiatives coming out of the EU as too little, too late. The joke that we call leadership in Washington is also well known. And that's my issue with the bear case. Everyone knows how bad it is — investors, the Fed, politicians, even Main Street. When a crisis is as well known as this one, it is usually addressed.
In my opinion, it is a mistake to get sucked into this malaise. The Europeans are making progress in solving their financial crisis. Granted, we may not like their half-measures, their delays, their posturing and constant policy reversals but in the end things are getting done.
Bond yields in Spain and Italy are coming down. Banks are no longer in danger of going belly-up. The central banks of the world are on record that they will not let the EU or the Euro fail. Just this week the European Central Bank loaned $640 billion in low-interest rate loans to their banking industry. There will be more of the same in the weeks and months ahead. It may not be enough to save Europe from a recession but it could well limit the severity and subsequent damage to the U.S. and the rest of the world.
Pessimism abounds wherever you look and that, my dear reader, should make you sit up and take notice. It is times like this when we have our best rallies. It is times like this that the smart money stays put and does not give in to the overwhelming gloom that is assaulting us at every turn. As a self-confessed contrarian, I remain somewhat bullish on the markets, if not hysterically so.
My strategy is to watch and wait between now and the end of the first quarter. December and January are normally the strongest months of the year. If the Santa Claus rally fails, followed by a down first quarter of 2012, then I will throw in the towel and get much more defensive. Until then I will give the markets the benefit of the doubt even if I keep my enthusiasm on a short leash.
Merry Christmas to all and to all a good holiday weekend.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Give Local
American charities took in over $300 billion last year and hope to make this year even better. After all, we Americans are a giving people. Nearly two-thirds of us give something to charity every year with many of those donations occurring between Thanksgiving and New Year's.
Why we give is still somewhat of a mystery. The economy is nothing to write home about, unemployment is high and most of us are pinching pennies. Yet, we somehow find that spare dollar or two to drop into the charitable pot or, in some places, the hands of the homeless.
Experts point to the fundamental social urge to help our fellow human beings. There is also the "feel good" factor, since giving makes us feel better about ourselves. There is also the social pressure to give during company fund drives, or marketing calls for example. Yet, each year we discover that things are not quite as they should be in the nonprofit world. Most readers are aware that many large charitable organizations use professional fund raisers at some point or another for phone solicitations, direct mailing, call centers, etc. These fundraisers charge a fee for their efforts, which can be enormous delivering as little as 46 cents on every dollar donated to the charity.
Recently, the attorney general for New York State released a report that found that, on average, just 37.6 cents of New Yorker donations actually went to the charity of their choice. In some places, such as the Hudson Valley, charities received even less, just 17.4 cents/dollar, which was the lowest percentage in the state. There were actually 61 cases where the charity lost money after paying telemarketers and other fund raisers. New York is no different than Massachusetts, Connecticut, Vermont, New Hampshire or most other states in this regard.
Various organizations have given donors tips on the dos and don'ts of giving. Suggestions such as resisting pressure from telemarketers to give on the spot. Others urge you to do background checks on charities before giving or use charity rating organizations that will do that job for you. Experts say that when giving on-line read the fine print and every watchdog organization advises that we should all educate ourselves about charitable giving. All of the above advice is laudable, but where's the fun in that?
You see, most studies on philanthropy indicate that charitable giving is an impulse thing. That's right, we pass through the supermarket doors and toss our spare change into the bucket without thinking, receiving a heart-felt "Thank you and Merry Christmas" for our efforts. In fact, numerous studies reveal that the more one thinks about things like which charity is the best choice or how this or that charity uses my money, the less generous one tends to be. So how does one give without spoiling the fun?
Give local just like you buy local. Most of us know the needs of our own communities. There are dozens of charities right outside your door that you can give to directly without worrying about fraud or how much of every dollar they will receive. Food banks, animal shelters, human shelters, it's all there and when you give locally there is an added benefit. You improve the quality of life in your neighborhood, which helps everyone.
Take my company, for example. We gave away hundreds of turkeys last year at Thanksgiving. Individually, this holiday season, some of us are sponsoring needy kids with holiday presents as well as donating money to a local animal shelter. Surely there must be a soup kitchen, children's home or something that tugs your heart strings some where close. You don't even need to donate money when you give locally. The donation of your time can be just as valuable. So get out there and give. And God bless us everyone.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
@theMarket: Is Santa Claus Coming to Town?
There are many explanations for why markets sometimes move higher between Christmas and the New Year and into January. One reason is the "January Effect." Historically (since 1925) markets have risen in the first month of the year with small caps leading the way. Investors like to get in the market before that move begins, usually during the last week of the year.
Since 1896, the Dow's average monthly return in up years has been roughly 0.5 percent but Decembers have returned 1.4 percent overall. Some believe that tax considerations drive the markets during this time. Investors, for example, who sold losers earlier in the month, now begin to replenish their portfolios with new buys. There is also the fact that many employees receive their year-end bonuses, either in December or January, and invest those proceeds into the markets. I wouldn't discount the psychological impact either. Good feelings, generated by holiday cheer, and the absence of Grinch-like pessimists, who are usually on vacation at that time, spill over into the stock markets..
Yet, not all years have produced Christmas rallies and many Decembers have actually lost money for investors. Given the steady stream of bad news coming out of Europe one would expect that any rally we may have will be somewhat subdued.
For most of this week the markets have tried to rally, largely on good news generated by the U.S. economy. On Wednesday, Thursday and Friday morning's stocks were bid up by one percent or more only to flounder when comments out of Europe cut the gains to just above breakeven. As expected, the sniping began on Monday, almost as soon the EU agreed to expand and police a new fiscal austerity effort among its members. The naysayers were eager to explain why the agreement would be difficult to implement or just plain won't work.
Rumors all week that the credit agencies were preparing to downgrade sovereign French debt to ‘AA’ from "AAA" has also kept a lid on our markets. On Friday, Credit agency Fitch actually downgraded its outlook on France to "negative" but kept their "AAA" rating. It also put Italy, Spain, Ireland, Belgium, Slovenia and Cyprus on negative watch.
Traders have been watching the Euro, selling stocks as the Euro-Zone currency declines and the dollar moves up and then reversing the trade on any strength in the Euro. They argue that the Euro's decline signals worse trouble ahead for the EU and therefore for America and the rest of the world. No one seems to recognize that the Euro's decline actually helps the economies of Europe (making the goods they sell cheaper to overseas buyers), especially in places like Italy and Spain, where exports are a big part of their overall economies.
One wonders when investors are going to decouple from their manic focus on Europe and concentrate instead on the U.S. market where stocks are cheap, unemployment is declining, and the economy growing. It is my hope that it will finally dawn on the markets that there's no place like home, especially for the holidays. In which case, there may be more under the tree than most investors expected.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.
The Independent Investor: Why Everyone Should Have a Will
Looking at him, you might agree. At 25, he is as healthy as the horses he shoes. As a farrier with his own business, he works hard and plays hard. Life is his oyster right now but if he dies, I reminded him, the state gets everything.
"No way," he said, in utter disbelief.
But it is true. As a single man with no relatives and no will, the chances are quite high that the state would take everything. Fortunately, my client found religion and immediately did some estate planning, including creating a will. Unfortunately, most people will find every excuse in the book to avoid creating a will. Many individuals feel uncomfortable with the possibility of their own death or they take the attitude that when you're dead, you're dead, so why worry about it.
You may be surprised to know that most states are prepared for that and have effectively written a will for you. They are called statutes and are used to determine your heirs if you die "intestate" (without a valid will). Each state's statutes are different and can have an enormous impact on your heirs, especially your children.
If you die without a will, for example, and have children under 18, the state will control who will care for them. Sure, siblings or grandparents are usually the go-to choices as guardians, but not always. There are also many instances where a sister or brother may not agree with the court's ruling. In which case, there ensues a long and costly custody battle with most of the emotional hardship borne by your children.
It gets worse. Let's say you have been diligently saving for your kids' college education. Without a will, there is no guarantee that an appointed guardian will honor your wishes. They may simply use the money for your child's support dismissing college as a frivolous expense or a luxury they cannot afford.
Probate is the term used for the long, arduous and expensive state court procedure that administers your estate. An uncle of yours dies in Florida and leaves a condo, but no will. As his nearest kin, you will need to hire a lawyer in state, spend the money, time and effort necessary to have the disposition of the condo adjudicated in the court system and hope that in the end the state rules in your favor.
You go through all those hoops only to find out a distant cousin disputes your right to inherit. At the same time you discover the condo's mortgage is greater than its worth and the condo association doesn't approve the one buyer who might take it off your hands. I think you get the point. Probate is a nightmare.
Many people have confused a revocable living trust with a will. They are two different legal documents, which serve different purposes. In a living trust, you transfer assets into the trust during your lifetime. When you die, those assets go directly to your beneficiaries and do not go through probate. It is a private document and is more difficult to be challenged.
In contrast, a will is a public document. It can be useful in combination with a living trust to ensure that any property that is not already listed in your living trust (such as furniture or antiques, or heirlooms) before death will be transferred to the trust at death. A will can also address the needs of your children by naming a guardian and spelling out the financial provisions for their care and education. A will can also accommodate your wishes and intentions clearly and at greater length than a trust.
Creating a will and/or a living trust is best done through an attorney. It may cost a couple hundred dollars but it is the best way overall to cover yourself and your family in the event of your death. I suggest if you haven't done one yet, it's about time you did.
Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or email him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.