Monthly Archives: January 2013

Want to buy a nice dollhouse … for about $35,000 per room?

The Financial Times has a website called “How to spend it.”  it’s a place where you can use some of that billion dollars you have in the vault (you do have a vault, don’t you?).  For example, if you were deprived in childhood and your parents never got you that dollhouse you always wanted, here’s your chance.

A property boom on an exquisitely small scale has sparked a magical new event. The City of London Dollshouse Festival is an extension of the hugely popular show that has attracted international collectors to Kensington Town Hall since 1985. More than 100 renowned exhibitors will display and sell their beautifully crafted miniature houses and furniture at the Tower Hotel on Sunday January 27, in addition to the original, twice-yearly event.

Collectors are in for a treat, given the extremely high quality of the intricate designs, such as the elegant chinoiserie bedroom in the second picture. Also take for example the work of former jewellery designer Jens Torp, who specialises in making 1/12-scale silver miniatures, such as a French horn (£680), replica 19th-century field gun bottle holder (£420), Tiffany water pitcher (£125) and limited-edition herb and oil storage box (£1,475)….

Connoisseurs should also make time for the highly detailed models of historic buildings made by Lucy Askew. Having specialised in model making for 25 years, Askew’s 1/12-scale miniatures are prized for their recreation of colour, texture, fabric and furniture, such as the gilt picture frames and looking glasses, fireplaces with fire irons and Robert Adam furniture from the Glass Drawing Room, Northumberland House. Askew also crafts bespoke “box rooms” (£5,000 to £20,000), whose wooden doors open to reveal a single, glamorously furnished room.

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The Millionaire Cop Next Door

Think you have to go to Harvard or Yale and make a lot of money to be able to retire comfortably?  Perhaps, but along the way you may accumulate a six-figure debt in student loans.  As an alternative, maybe you should join the police force or become a fireman.  From NAPA Net:

Who are America’s fastest-growing class of millionaires? Police officers, firefighters and teachers, Forbes publisher Rich Karlgaard noted recently.

Doubt it? Then ask yourself: What is the net present value of an $80,000 annual pension payout with additional full health benefits? Working backward, the total NPV would depend on expected returns of a basket of safe investments — blue-chip stocks, dividends and U.S. Treasury bonds.

Based on a 4% return, an $80,000 annual pension payout implies a rather large pot of money behind it — $2 million, to be precise. A stash of that size would probably fall in the 95th percentile for the 77 million baby boomers who will soon face retirement, Karlgaard notes.

Many cities and counties offer its police and firefighters a “3-percent-at-50” retirement plan, meaning that emergency services workers who retire at age 50 can get 3% of their highest salary times the number of years they have worked for the city. It’s not unusual for the average firefighter or police officer to retire at age 55 with 28 years of service. Using the 3% salary calculation, that person would receive an annual pension of $76,440.

Unless things change drastically, our new millionaire class of police officers, firefighters, and teachers will be paid something near their full salaries every year — until death — after retiring in their mid-50s. That’s equivalent to a retirement sum worth millions of dollars. As Karlgaard notes, the question is, how long can we afford that?

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Tax Treatment of dividends under ATRA

The American Tax Payer Relief Act of 2012 (ATRA) maintains the special tax treatment of qualified dividends that were in effect prior to 2013 for people below the 39.6% tax bracket.  That means that for most people, qualified dividends are taxed as if they were net capital gains.  For tax payers below the 25% bracket the rate is 0% and for taxpayers above 25% the rate is 15%. 

For taxpayers in the 39.6% tax bracket, the rate for qualified dividends is 20%.

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Where can you get a good income?

When the typical investor thinks of income they usually think of bonds.  And much of the time they would be right.  Bonds produce income by way of interest payments.  But sometimes things are turned around.  These are one of those times.  The 10-year US government Treasury bond, a benchmark for many other rates is only paying 1.90%.  In contrast, the S&P 500 has a dividend yield of 2.14%.  No one buys the S&P 500 for income, but it’s instructive that an un-managed stock index produces 13% more income than a benchmark bond.

Of course the value of the S&P500 fluctuates from day-to-day, but so does the value of the 10-year US Treasury bond, just not as much.  

A lot of people are looking for a better income than their bank, credit union or the US Treasury can provide.  It’s one of the reasons why so many people who are looking for income are looking to stocks rather than bonds.

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Market Review and Outlook 2012 – 2013

We ended 2012 and brought in 2013 as a cliffhanger.  During the 4th quarter of 2012 markets around the world were obsessed with the question of whether the various parts of the US Government would agree to an alternative to the so-called “Fiscal Cliff.  That drama ended with the can being kicked down the road again.

Washington and Main Street both had their problems.  Individual investors often live in a state of denial. In the good times, we’ve seen investors reject the notion that the party will ever end. In the bad times, we’ve seen investors cling to the belief that things will never get better.  The U.S. stock market has been on a bull run since early 2009. At the same time, individual investors have been pulling billions of dollars out of stocks each year.

As the S&P 500 rallied about 13% during the first eleven months of 2012, individual investors yanked about $152 billion from the U.S. stock market. That marks the third year in a row that investors have withdrawn more than $150 billion from U.S. stock mutual funds and ETFs.  While individual investors have been shunning the market, institutional investors, such as hedge funds and pension funds, have been significantly adding to their stock positions adding more than $80 billion into stocks in 2012.

Investing is a forward-looking exercise and despite some serious issues facing this country the economy continues to improve, although at disappointingly slow rates. 

What do we look to is we begin a new year?  While we avoided the worst of the fiscal cliff on New Year’s Day, what we have now is a short-term compromise and not a grand bargain.  To really bring the country’s fiscal house in order we have to address the tax code, “entitlement spending” and regulatory issues.  The looming sequestration and the debate over the debt ceiling extend policy uncertainty and, at least for the early part of 2013, are likely to keep business leaders reluctant to deploy capital in a meaningful way.  Despite considerable progress, the drag from household deleveraging still has months and billions to go.

The one bright spot of a geopolitical nature is that new technology, “fracking,” appears to be on the way of making the US truly energy independent for the first time in my lifetime;  which could not come at a better time given the deteriorating situation in the Middle East.

While the governments in Washington and in many state houses leave fiscal and economic issues unaddressed in a meaningful way, we remain, as we have for some time, cautiously optimistic.  That attitude is reflected in our portfolios which remain focused on generating a fair rate of return while keeping capital preservation always in mind. 

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Social Security’s Old Forecasting Method Hides New Time Bomb, Researchers Say

Are the actuarial assumptions behind Social Security’s solvency accurate?  Two researchers say no.

In a Sunday New York Times op-ed, researchers Gary King of Harvard and Samir Soneji of Dartmouth argue that the Social Security Administration is using outdated methods to project longevity and therefore understates the system’s shortfall.

The two professors forecast that Social Security’s trust funds will be depleted two years earlier than the government’s current 2033 estimate, meaning there are just 18 years before a program that Americans across the board support and rely on faces a funding crisis.

The issue in a nutshell:

Specifically, King and Soneji say that Social Security relies heavily on actuaries using 1930s-era forecasting methods, but seem to have missed the revolution in big data and employ few statisticians capable of making accurate predictions. The result, they say, is that “more retirees will receive benefits for longer than predicted, supported by the payroll taxes of relatively fewer working adults than projected.”

People in their 30s and 40s should be making strenuous efforts to become financially independent because many government programs may not be able to take care of them when they retire.

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The new estate tax and you.

The bill called The American Taxpayer Relief act of 2012 provides an exemption from estate taxes on the first $5 million passed to non-spousal heirs.  If the bill had not been enacted, the exemption would have dropped to $1 million.  In addition, the act allows the widow or widower to use the unused portion of the deceased spouse’s exemption, making it possible to leave an estate to non-spousal heirs of $10 million. 

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