“You can’t go to California and get a pair of shoes for what you can get a house in Detroit.”
That’s a quote from this Bloomberg story on the distressed housing market in Detroit, and how some people are scooping up foreclosed homes by the dozens. According to the story, one man bought 290 Detroit properties for $189,600, which is less expensive than a single-family home in many U.S. Metropolitan areas.
A bit more from the story:
More than 6,500 Wayne County parcels were auctioned in 2011 and another 20,000 are expected for sale this year, said David Szymanski, the county’s chief deputy treasurer.
Roughly one-quarter of Detroit’s housing units are vacant, according to Detroit Future City, a 50-year blueprint for the city’s recovery. Mallach worked on the plan initiated by Mayor Dave Bing to redesign Detroit’s 139 square miles, larger than San Francisco, Boston and Manhattancombined for a shrinking population. It envisions such strategies as turning sparsely populated swaths into green space and farms.
About 150,000 of Detroit’s 385,390 lots are vacant or have unused buildings, Mallach said. About 66,000 parcels are publicly owned, and that number grows as unsold homes from tax auctions revert to the city or state.
Detroit Future City assumes the population will bottom out at about 615,000. It fell by 25 percent since 2000 to 713,000 in the 2010 U.S. Census.
What’s this nonsense I’ve been hearing about a trillion-dollar coin? It’s got to be some kind of elaborate —
Stop. It’s no joke. At least no more than voluntarily defaulting on our obligations by refusing to lift the debt ceiling would be. It sounds like something out of the Simpsons, but thanks to a crazy technicality the Treasury really can create a trillion-dollar coin, which would let us keep paying our bills if the debt ceiling isn’t raised. It’s an absurd solution to an absurd problem, but a solution nonetheless. As they say, when in Washington….
No, I’m pretty sure this is from the Simpsons.
Almost. That was a $1 trillion bill, which Fidel Castro tricked out of Monty Burns, but this is real life, so it has to be a $1 trillion coin. A platinum coin, to be exact.
I’m almost afraid to ask, but why does it need to be a coin? And why platinum?
We don’t make the loopholes. We just find them. The Treasury can’t print money on its own, because the money supply is supposed to be the strict purview of the Federal Reserve … but that might not be quite so strict after all, thanks to a coin-sized exception. Congress passed a law in 1997, later amended in 2000, that gives the Secretary of the Treasury the authority to mint platinum coins, and only platinum coins, in whatever denomination and quantity he or she wants. That could be $100, or $1,000, or … $1 trillion.
Read on to find out: what happens if the coin is stolen?
Warren Buffett is in the news again, this time stirring up some controversy with his op-ed in The New York Times, where he argues the ultra-rich need to pay a minimum tax:
Additionally, we need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy.
Above all, we should not postpone these changes in the name of “reforming” the tax code. True, changes are badly needed. We need to get rid of arrangements like “carried interest” that enable income from labor to be magically converted into capital gains. And it’s sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.
He cites some hard numbers:
A huge tail wind from tax cuts has pushed us along. In 1992, the tax paid by the 400 highest incomes in the United States (a different universe from the Forbes list) averaged 26.4 percent of adjusted gross income. In 2009, the most recent year reported, the rate was 19.9 percent. It’s nice to have friends in high places.
The group’s average income in 2009 was $202 million — which works out to a “wage” of $97,000 per hour, based on a 40-hour workweek. (I’m assuming they’re paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And — brace yourself — a few actually paid nothing.
I was reading an article on reducing your 2012 taxes at Fidelity this morning. A lot of it was already familiar to me, such as this bit about investing in municipals:
If generating income is one of your investment goals, you may want to consider using a taxable account to invest in tax-free municipal bond and money market funds—especially if you’re in a high tax bracket. These funds typically invest in bonds issued by municipalities and their earnings are generally not subject to federal tax. You may also be able to avoid or reduce state income tax on your earnings if you invest in a municipal bond or money market fund that holds bonds issued by entities within your state. Interest income generated by most state and local municipal bonds is generally exempt from federal income and/or alternative minimum taxes.
But I would venture to say not a lot of investors may be familiar with tax-loss harvesting:
Use ongoing tax-loss harvesting. Tax-loss harvesting is the practice of selling investments that have lost value to offset current- and future-year capital gains. Unlike one-time or occasional loss sales, however, a systematic tax-loss harvesting strategy requires diligent investment tracking and detailed tax accounting. That means continuous analysis of every tax lot (shares purchased at a given price and time) to determine when the tax-loss benefit warrants selling appreciated positions. Trading a specific tax lot with a specific cost basis is different than selling all of your shares in a particular fund or stock, which may have been purchased at different times over many years and could have significantly different tax implications as a whole than they would individually.
I also found the below table very useful. Especially notable, if nothing changes before end of the year, is that all dividends will be taxed at your income level in 2013:
Earlier this week, WSJ/MarketWatch published a piece “How to Invest in Legalized Marijuana.” One of the suggested stocks mentioned was Medbox ($MDBX), a company that creates medical-marijuana dispensing machines:
For regular investors looking to get in on the action — and without having to actually grow or sell drugs — there are several small-cap stocks that stand to gain from marijuana’s growing acceptance. Medbox , an OTC stock with a $45 million market cap, for example, sells its patented dispensing machines to licensed medical-marijuana dispensaries. The machines, which dispense set doses of the drug, after verifying patients’ identities via fingerprint, could potentially be used in ordinary drugstores too, says Medbox founder Vincent Mehdizadeh. Based in Hollywood, Calif., the company already has 130 machines in the field, and it expects to install an additional 40 in the next quarter…
That article propelled the stock to a meteoric rise from roughly $4/share to a whopping $215/share in a matter of two days (thereby increasing Medbox’s market capitalization from $45 million at the start of the week to a staggering $2.3 billion by Friday). So much interest was expressed in the stock that company executives had to go on record to “dampen investor enthusiasm.” It seems to have worked: the stock traded in a wide range today, ultimately finishing at $20/share.
This Bloomberg piece details how those on Wall Street handled Hurricane (Superstorm) Sandy. It’s slightly (perhaps very) disconcerting, as these people turned to $1,000 wine, delivered sushi, and Monopoly games:
“I had to go to the wine cellar and find a good bottle of wine and drink it before it goes bad,” Murry Stegelmann, 50, a founder of investment-management firm Kilimanjaro Advisors LLC, wrote in an e-mail after he lost power at 6 p.m. on Oct. 29 in Darien, Connecticut.
The bottle he chose, a 2005 Chateau Margaux, was given 98 points by wine critic Robert Parker and is on sale at the Westchester Wine Warehouse for $999.99.
“Outstanding,” Stegelmann said. He started the day with green tea at Starbucks, talking with neighbors about the New York Yankees’ future and moving boats to the parking lot of Darien’s Middlesex Middle School.
You have to click to read the rest. Using fax machines? No dumpling bar at JP Morgan? Wall Street had it rough.
Mark Gimein has a short post on Bloomberg, explaining that a typical investor doesn’t really have a chance to profit on Hurricane Sandy:
Another way to take advantage of the downside risk might be to put buy put options on the S&P 500 index. If a lot of folks were doing that, you might expect November put options with a strike price of 1350 or 1375 — that would represent a three or four percent decline in the S&P 500 — to spike upwards. They haven’t.
Recent years have been blockbusters for catastrophically deadly and expensive extreme weather events; Munich Re has some very useful data on this, which show 2011 as a record-setting year for costs of natural disasters (this includes Japan’s Tohoku quake). While a lot of ink has been spilled about the possibility of hedge funds betting on high-impact, low-but-meaningful-probability events like the storm, that’s easier said than done. It’s possible to make a fairly general bet against the insurance industry, or to bet on a sharp drop in the markets.
In practice, however, making a specific bet that would hedge against — or profit from — a weather disaster, is a lot more difficult. There’s not a substantial market for, say, put options on the insurance companies with exposure to Sandy.
If you want to hedge the financial risks of a hurricane, there are not a lot of market tools at your disposal. The main hurricane option for investors, whether ordinary stock pickers or hedge fund traders is the same as for other New Yorkers: shut the windows, turn on the news, and watch the storm’s progress on TV.
Not mentioned: even if you wanted to trade stocks or options, the entire stock market (NYSE, NASDAQ) is closed today and tomorrow. Good luck with that.
Financial crises are similar to storms: they require humility, not hubris. Being prepared can be helpful at the margin, but ultimately it doesn’t matter how good your liquidity management teams and risk ledgers and counterparty hedging operations are: if everybody else is blown over by forces beyond their control, then you will be too.
That’s why skyscrapers always used to be built well above the water level, and that’s why we used to have dumb regulations like Glass-Steagal and Basel I, which weren’t very sophisticated, but which generally did the trick. Buildings like 200 West are a bit like Basel III: they’re built with models, so that they can withstand certain forces. But if an unprecedented storm arises, they’re still more at risk than, say, Trinity Church, built more than 150 years earlier. Sometimes, simple common sense (high ground is safer, huge books of complex derivatives can blow up in unpredictable ways) does a lot more good than any amount of sophisticated preparation.
The gist of Felix’s post relates to how Goldman Sachs is protecting its multi-millionaire dollar headquarters with sandstorms, but the analogy can be expanded to all the big banks.
This is a really interesting piece in The Economist that underscores investor confidence and stock mania:
A MID-SIZED sized Korean semiconductor firm named DI makes products with distinctly un-sexy names like “Monitoring Burn-in Tester” and “Wafer Test Board”. It has lost money in each of the past four quarters. And there have been no changes to its fundamentals that might explain why its share price should shoot up from 2,000 to 5,700 won (from $1.80 to $5.12) in the space of just three weeks—including another 15% gain today.
But DI’s chairman and main shareholder, Park Won-ho is no ordinary mortal. He is the father of Park Jae-sang, better known as PSY (as in “psycho”). “Gangnam Style”, if you haven’t heard, is now number one in Britain’s pop charts and number two in America. Local retail investors—referred with the derogatory gaemi-deul (“ants”) by professionals—are piling into DI shares because of it.
Quite how they expect the horse-dancing YouTube phenomenon of 2012 to help DI sell more of its Wafer Test Boards is a mystery. But convoluted investor logic is of course not a new thing. DI is merely the latest example of Korea’s “theme stock”—the local equivalent of the 17th-century Dutch tulip, Pets.com and the like going into 1999, or the Chinese walnut.
Wikipedia has almost 200 (!) references for the article on Gangnam Style. My favorite section is the song’s presence in academia:
According to a blog post published on the Harvard Business Review by Dae Ryun Chang, Professor of Marketing at Yonsei University, one primary factor that has contributed to “Gangnam Style”s international success is the song’s intentional lack of a copyright. This allows people to easily adopt, re-stylize and then spread the song.[6] Brian Gozun, Dean of the Ramon V. del Rosario College of Business at De La Salle University, writes that the absence of a copyright and the use of crowd-sourcing are just some of the more innovative ways that Psy has marketed his song.
Dan Freeman, Marketing professor at the University of Delaware, remarks that Psy’s achievement is an anomaly which counters the typical trend of successful international artists, because foreign music poses a difficult challenge due to language issues, making it unlikely for a song to catch on “when you don’t even understand the words”. Freeman asserts that Psy owes his success in the United States to YouTube, because of YouTube’s effectiveness in reaching a broad market.
David Bell, marketing professor at the Wharton School of the University of Pennsylvania, suggests that “Gangnam Style” lacks a certain aggressive attitude that many find offensive in the rap genre, and “Gangnam Style” is like a classic rap video from a few years ago with girls and cars—”not as offensive and in your face, but with a humorous edge”. Bell argues that it is Psy’s accessible image, not his message, that has made the song so popular.
As per The Economistpiece, this entry would be incomplete without the video:
The important issue is recognizing that Wall Street is no longer serving the purpose what it was designed to. Wall Street was designed to be a market to which companies provide securities (stocks/bonds), from which they received capital that would help them start/grow/sell businesses. Investors made their money by recognizing value where others did not, or by simply committing to a company and growing with it as a shareholder, receiving dividends or appreciation in their holdings. What percentage of the market is driven by investors these days ?
Over just the past 5 years, the market has changed. It is getting increasingly difficult to just invest in companies you believe in. Discussion in the market place is not about the performance of specific companies and their returns. Discussion is about macro issues that impact all stocks. And those macro issues impact automated trading decisions, which impact any and every stock that is part of any and every index or ETF. Combine that with the leverage of derivatives tracking companies, indexes and other packages or the leveraged ETFs, and individual stocks become pawns in a much bigger game than I feel increasingly less comfortable playing. It is a game fraught with ever increasing risk.
This was the most important reasoning from Cuban, I thought:
My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business. Whether its through a use of taxes on trades (hit every trade on a stock held less than 1 hour with a 10c tax and all these problems go away), or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 1 year or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years.
Books I Read 