That Was The Week That Was-3rd Week November

There are times when leaving your 401k at your old employer makes perfect sense. Every Tom, Dick and Harriet stockbroker, insurance agent and banker wants your old 401k to be rolled over into their IRA. Sometimes it doesn’t behoove you to do that. One good reason is if you have a loan on your 401k then rolling over the plan assets will trigger the loan as a distribution and cause taxes and a possible penalty to appear on your next Federal income tax. And please don’t think you can only roll the actual assets and leave the loan. You cannot.

Another reason is that some 401k plans allow employees to start taking income while under the age of 59 1/2 and not triggering a 10% penalty as it would out of an IRA. Usually its age 55 and termed early retirement. Those who decide to take income from an IRA and not age 59 1/2 can do so under 72(t). Call or email me for details.

If you owe money, have lawsuits or past due taxes an IRA is now creditor proof, as are 457, Roths, 403b and 401k plans. However under the new law this is limited to about 1.2 million dollars.

Finally having company stock in your 401k could leave the door open for tax saving strategies under 10-year averaging or Net Unrealized Appreciation. These are specific rules especially if you have highly appreciated company stock. Make sure you talk to your tax-advisor if you have this opportunity. The rules are very specific. Usually a professional advisor can help you make that determination. ( call or write me with your questions). In most cases you are indeed better off rolling over your plan to an IRA. Also, if your assets are five thousand dollars or less the company may send you a check and close out the account automatically- Questions whether you should roll your plan over or not- call or email me. ‘

Time Magazine Last Week had a huge story on Bill Gross and Mohamed El-Erian of PIMCO, the mega-billion fund company. The starship of the PIMCO fund family is the Bond Fund that Gross manages. What Time reported on is old news- months old. In fact The Street has argued and poo-pooed Gross’ and El-Erian’s conclusions for months. I want you to know this since I have no idea why Time published Gross and El-Erian’s opinions at this late date. What Gross and El-Erian have been telling investors is that going forward don’t expect the kind of returns in stocks and bonds that you’ve gotten used to over the past 20-plus years. In fact, that’s what has gotten these two in trouble- telling folks the truth to the embarrassment of hedge funds, ETF and mutual fund managers. In a nutshell here’s their reasoning: Stocks, real estate and bonds, because of the current Fed policy, will not have the kind of returns investors experienced in the 80s and 90s. With interest rates at or close to zero there isn’t much room for growth in the domestic bond arena. Because Washington has been more worried about politics than the welfare of the country certain growth enhancing programs such as Jobs Training, New Deal-style infrastructure building and energy and education have been ignored. The result is putting the U.S. decades back in true growth. Not only is there truth to this but Gross and El-Erian are laying out an investment strategy that remarkable mimics that which would be used in an inflationary atmosphere. While some experts could call them contrarians the fact is that the future is relatively clear. What investors need to do is also abundantly transparent. My breakfast meetings next year will clarify this and exactly what investors should be doing going forward.

Monday’s WSJ Reported Investment Scale Back. Major companies fear that the failure to resolve issues will result in tipping the country into a recession. Also, a possible compromise could include tax code changes that hurt certain businesses/sectors.There could be a January boost if an agreeable compromise is reached before the end of the year.

 

Freakonomics explores stuff you and I may think of but don’t know why we’re for or against except we know we are. For example if you’re a Detroit Tiger fan you may still be in either mourning or shock at the beloved Tigers taking a four-zip pasting at the hands of the SF Giants. The Giants! fercryingoutloud! According to the results of the series the Giants are the best team in baseball. Whoa,  this may not necessarily be so. Steve Levitt, the author of Freakonomics, recently wrote in his blog that a seven game series is not nearly long enough to truly indicate the better team. In that short of a series a crummy team has all the possibilities of winning. In fact to really test the best team the series should go to 23 games. In a 23 game series this results in the weaker team having only a 5% chance of winning. So a true test of best in all of baseball is to extend all the playoff games. This could result in a six month playoff system but who cares as long as the Tigers can come out and bat in game five, six, seven…well, you get what I mean…

Tax Threat is the real culprit behind the market selloff.  A wise accountant once told me that you never invest primarily for tax reasons…you get into more trouble that way.

62% of all eligible voters voted. so I don’t want to hear the other 38% complaining…

It won’t be cheap but we’ll have plenty of it!

  I’m talking about oil-, black gold, Texas Tea (someone cue the Beverly Hillbillies!)… move aside Russia and Saudi Arabia the good old U.S. of A is back, says the International Energy Agency, a Paris, France based organization that studies energy patterns and scarcity. According to the study the U.S. surge in oil production is projected to be 11.1 million barrels a day by 2020. New methods of extracting oil and the glut of natural gas should make us almost independent of importing energy in the next seven years. In addition to a reduction in use and more efficient refiners the United States will further reduce its dependence on foreign oil. U.S. oil consumption dropped last year by more than eight percent. However the cost of extracting oil through fracking and other means is not inexpensive and so don’t expect to see low energy costs going forward. Independence has a price. Energy companies paying dividends still make sense going forward and as an inflation hedge. Talk to me before trading or adding to your current portfolio.

Global Correlation Has Increased, reports Morningstar. (yawn…) What does it mean in dollar and cents for the average investor? First when designing an asset allocated portfolio what one wants is to own stuff that doesn’t all go up and down at the same time. If it does than something is wrong- somewhere. Long-term investors want to own different stuff and different sectors. That means that things are not correlated. But, Morningstar did a study and found that Global stocks and our domestic’s have a closer correlation than one would think. While this is not historically accurate it seems to have been creeping up over the years. The reasons are there are more global companies and the most current financial crisis is worldwide. Both situations have brought our markets closer in risk and performance. Large cap global stocks are more prone to be closer to our domestic indices than smaller stocks. Investors should review performance of their different sector funds and broom those that have close correlation to the large cap domestic funds. Call or e if you need some help or software analysis.

Don’t Fight It! Healthcare is on the table and will be with us for four years. There are some great opportunities in healthcare funds that (1) pay dividends (2) have a great history and (3) the time is right. Use professionally managed funds for your portfolio instead of trying to find which stock will benefit the most from our National Health Care Insurance Plan. Many of the funds have already factored in Obama Care.. and the opportunities presented may be un-correlated to the rest of your  investment portfolio….which is a good thing. Call me for my Healthcare picks.

Storage Locker Wars on the ether. Cloud storage is a locker for computer stuff. Google has one and so does Microsoft,  Apple; and they are proprietary and cannot be shared from one device to another. One saves one’s stuff in the Cloud and uses it when its needed. The problem is that Google is Google and Apple runs on Apple and never the twain meet. But Dropbox offers free storage to a certain degree plus uses of multiple tool support-either iPhone or iPad, etc. The company is not public-yet, but keep your eye on it- there are 100 million users of Dropbox and its gathering consumer and business support.

The painting is a Mark Rothko and titled No. 1 Royal Red and Blue. I find it interesting. Not $75 million interesting, which is recently sold for, but interesting. (Someone hand me a brush!)

Now that the election is in the rearview mirror what are investors to do? The problem is that we sometimes over-think stuff. Nothing has changed and the basic philosophy out of Washington hasn’t suddenly become enlightened or made a move to the middle. Investors who stay the course and reallocate as the economy grows should do well.  

Bill Minor sent me his real estate letter and seems real estate is still moving up in price. Mortgage rates declined. Homes sales did fall to a seasonally adjusted  4.75 million units,  but an 11% increase from 2011. The number of properties that are distressed have been decreasing but still high by historic standards. To get Bill’s newsletter delivered to your in-box click on Billminor@kwrealty.com.

Markets ended Wednesday last at 4 month lows. That’s the headlines and scary news indeed only if we hadn’t been here before. Mr. Market always surprises and Wednesday was no different. Facebook stock shares were unlocked, meaning over 800 million shares owned by a select group were eligible to be traded. Everyone was expecting FB shares to dump in price. Instead, on a down market day, FB shares popped over 12%. Lots of reasons why and the most common one is that simply because shares could be sold/traded is not a reason that they would.

Apple is off its feed. Really off its feed. Whenever you see a stock get hit, even though it has a history of being socked, its still unnerving. But Avi Gilbert for Dow Jones wrote back in August ( as I was whistling past that particular graveyard), Apple, on the charts, could be a great buy right around $515/517. He’ amended that on November 13th to up the price to $522, and writes that you may see all time highs for the stock as early as next year. Silver, he expects, to double. The ETF SLV closed $31.64, and Gilbert likes it around $29.70 level. However, he warns, not to get lost among the leaves in the forest. For whatever reason that makes sense….Starbucks in June opened its first Tazo stand alone tea shop. The company announced it would be a buyer of Teavanno Holdings, Inc. The 300 store tea company has 100 loose leaf teas and artisanal tea equipment and merchandise. Share in Teavanno jumped 59% on the announcement. The global tea business is valued at $40 billion, according to Starbucks, and growing. SBUX closed under $49 a share, a $53 fair value, with Morningstar.

Sin stocks were once the rage. Phillip Morris was the King of Sin owning several cigarette brands, Miller Brewery and Kraft Foods. The story was you could eat a bowl of mac and cheese, smoke a cigarette and wash it all down with a beer and make one company rich. Today cigarette companies are still huge dividend payers for shareholders even as they scrounge for new markets. The old Phillip Morris is now Altria and a mere shadow of itself having divested both Kraft and Miller. Today social conscience funds are more attractive to the investor psyche. But don’t count out sin. Booze is still a big deal, especially in emerging markets. Cigarettes, too. Then there are fast food stocks, many making billions in China and other BRIC countries. And don’t forget firearms. More guns have been sold during the Obama administration than any previous. One firearm company had to stop taking orders because of the backlog. The United States is one of the biggest arms exporters in the world. Ignoring sin in your portfolio could be costly.

2013 Ford Fusion with all the bells and whistles $34,770… 0-60 in 9 seconds! Imagine running that on Woodward from Teds to the Big Boy in 1956- or from the Totem Pole to Teds….

I don’t get it! No Tax Hike For The Middle Class…unless… Anyone that can count on their fingers and toes knows, ‘It’s the government spending that needs a muzzle.’ The WSJ published a chart showing the tax increase on specific incomes if politicians don’t get to work on a fiscal cliff compromise.

CPI inches up in October even as energy prices fell.Food and housing were up. The Empire State manufacturing index improved in November from October levels. The Phily Fed November manufacturing survey showed a contraction. Hurricane Sandy was blamed.

ING the Dutch Insurance/Financial Services Firm is getting dolled up for an Initial Public Offering of its U.S. unit.

Hostess Twinkies are gone. Maybe not the tasty treats but certainly the company that made them for about 85 years is kaput. A one-two-three punch of too much debt and no more concessions from the baker’s union combined to kill the company and lay off all 18000 workers. Two hedge funds, who bought all the old loans for pennies, attempted to reconstruct the current debt and union’s demands when it all fell apart. The hedge funds are left with enormous debt and some equity in buildings, machinery and the Twinkie and Hostess names. Down the road some bakery will buy the recipe and Hostess and  Twinkies will again be in lunch bags throughout America. Still the big story is another 18000 workers will be out of a job. A fried Hostess Twinkie with raspberry sauce….!

Time to Buy…Evan Niu, CFA, of the Motley Fool     ( I’ll have more on the Fool next week) on November 8th wrote Apple and Bank of America are two stocks beat up enough with room to run (my interpretation of his analysis). Remember, always do your homework- and both stocks fell more since his article was published. 

Markets moved up slightly Friday- FDIC shut down a Georgia bank Friday bringing the total bank closings in 2012 to 50. 

Questions call Paul @ 586 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.