Friday, August 07, 2020

1783 Strawberry Cent Sells For “Only” $660,000

Only four 1783 Strawberry cents exist, and only this one has a fully legible date. At a recent auction it sold for $660,000 – a handsome price, but notably less than it fetched when coins were a hot alternative investment.  In 2009, the last time the rare penny changed hands at auction, it brought $862,500.

Tuesday, July 28, 2020

The Great GOP Stock Market Myth

The market commentators on TV are at it again. The high-wire stock market will not only avoid virus-induced catastrophe, they tell us, but stocks will then soar to new highs. Unless Democrats capture the White House. In that case, “Look out below!”

Wall Street has long believed stocks do better with a Republican POTUS. As a wealth manager quoted in the Financial Times explains: “Historically, equity markets have favored Republican presidents as they generally have more market-friendly policies.”

Except . . . historically the stock market has done no such thing. Since 1976, FT reports, the average annualized return under
Democratic presidents has been 14.3 percent, against 10.8 percent under Republicans.

In a really long-term comparison, 1920 to 2016. the Democrats win by a landslide. Annualized return for the Dems: 10.83 percent. Republicans (penalized by both the Great Depression and the Great Recession) 1.71 percent.

Why do Wall Streeters cling to the myth that Republican presidents lead to bigger investment gains? Perhaps they're too credulous. Republicans may talk “market friendly” and Democrats may threaten tougher taxes and regulations, but politicians' ability to influence the economy and stock prices is probably less than they would like us to believe.

Friday, July 17, 2020

What’s “Wealth”? Most Americans Aren’t Sure

According to Yale researchers, most Americans underestimate the wealth gap between white Americans and black Americans. Most also have trouble defining “wealth."
Wealth can be a difficult concept to get ahold of. If you get into the weeds, economists and accountants may disagree about what exactly should be counted. But for a basic definition wealth is assets minus debts. In our own samples, when we ask people to define wealth, only about 20% of our respondents are getting that right. Most talk about money along with things like values. That’s consistent with the messaging of asset management firms. Their websites have testimonials that highlight happiness, retirement, and providing for your family. Whatever the reason, the study participants don’t understand wealth well.

Tuesday, July 14, 2020

The Same Old Bull

Came across this twenty-year-old Wall Street Journal illustration while cleaning out my graphic archives. Still timely.




Tuesday, June 30, 2020

This post is not about trusts or wealth management

Instead it's a heartwarming story about Carl Reiner. I enjoyed it, hope you do as well.

Lights! Camera! Online Art Auction!

          FRIDA KAHLO | CONGRESO DE LOS PUEBLOS POR LA PA

Maybe art collectors' estates won’t have to borrow to pay the tax bills after all. Sotheby’s venture into online auctions shows promise. Yesterday's evening sale, which I watched, was a fascinating attempt to evoke live auction excitement. The auctioneer, animated as an orchestra conductor, faced three giant screens – New York, London and Online. Each screen displayed ranks of Sotheby’s employees relaying bids. Key bid takers got close ups as they proxy-dueled for paintings.

The sale offered 32 items, including lesser works by Picasso. Although six artworks did not sell, several fetched more than expected. The Frida Kahlo above, estimated at $500,000 or so, went for $2.66 million.

Thursday, June 25, 2020

Though Rare,Tax Audits Follow the Money

IRS tax audits have become an endangered species. From 2010 to 2018, the overall audit rate for individual tax returns dropped by 47%. The audit rate for top taxpayers – those with incomes of $10 million or more – dropped by 64%.

Amount of taxes owed but unpaid
in last fiscal year
To make the most of limited resources, Barron’s reports, the IRS has relied on technology and carefully targeted collection efforts. Income stashed offshore, for instance. From 2009 to 2018, the IRS persuaded 54,000 offshorers to hand over more than $11 billion in taxes due.

Taxpayers dealing in cryptocurrencies are another IRS target. Are Bitcoin and such really currencies or just investments? Lately the IRS has leaned toward the latter view.

Tuesday, June 16, 2020

CNBC is the New ESPN

On TV I watch sports, mostly. When Covid-19 closed down sports broadcasts, the least bad substitute was the daily stock picking game on CNBC.

Millions tired of sheltering in place seem to agree with me. With no sports to bet on, they're taking advantage of the free stock trading offered by Schwab, Fidelity and others to play the stock market.

Serious investors they are not. For these thrill seekers, it's not whether you win or lose but how you play the game. Some juice up the excitement with options. Others just get weird, the NY Times observes: "Transactions that make little economic sense, like buying up the nearly valueless shares of bankrupt companies, are off the charts."

Serious or not, Barron's notes,  the stocks-for-sport crowd is big enough, and frantic enough, to influence stock prices.

Do you suppose there'll be playoffs at the end of the regular season?

Saturday, May 23, 2020

Boom in Borrowing Against Art

Andy Warhol, Dollar Sign
Sotheby’s reports “a tenfold increase” in requests for loans secured by works of art. One reason: collectors’ estates face estate tax deadlines and cannot wait until Sotheby’s auctions resume to liquidate their artworks.

Tuesday, May 12, 2020

How to Imagine Trillions of Dollars

The Federal Reserve is prepared to lend as much as $4.5 trillion to fight off a depression. Congress may vote to authorize another two or three trillion in financial aid. Getting one’s head around all those trillions isn’t easy.

One way to understand large numbers is to convert them to seconds. If you lived one trillion seconds ago you were back in the stone age.

This old post imagines a stack of $100 bills tall enough to add up to $1.25 trillion. It was 850 miles high! (A stack worth $4.5 trillion would soar over 3,000 miles into the sky. If laid on its side across the U.S., it would stretch from sea to shining sea.)

Here’s a view of $1 trillion in $100 bills. For scale, note the little man at the lower left corner.



References to trillions of dollars are becoming commonplace. Will our grandchildren have to get used to quadrillions?

Saturday, May 09, 2020

The $60,000 Estate Tax Exemption Lives On

You thought the punitive $60,000 federal estate tax exemption vanished back in the 1970s? Not entirely. It lives on for foreigners who move assets to the perceived safety of the U.S. but are not domiciled here.

Unless, of course, they hire an ingenious U.S. tax lawyer.

Thursday, April 23, 2020

Megabanks vs. Local Banks

In a crisis, it’s no contest:

Banks Gave Richest Clients ‘Concierge Treatment’ for Pandemic Aid. Most megabanks mean well, they're just too big to cater to all their customers. (One megabank may not have meant well, according to this USA Today report.)

How a family-owned Nebraska bank became a leader on coronavirus loans. Working from home, The Washington Post reports, employees hustled to process small-business applications under the Paycheck Protection Program.
Union Bank and Trust is nowhere near the top of the banking leagues. Last year the family-owned institution, with 900 employees, was the nation’s 202nd largest bank by assets, according to the Federal Reserve. Yet 72 hours into the emergency lending program, it ranked second in the nation for number of loans approved, according to the Small Business Administration.
One of our daughters recently switched from a big, multinational bank to a local bank. She says she couldn’t be happier. I begin to see why.

Tuesday, April 21, 2020

Where Should Billionaires Shelter?

Proactive wealth managers help their wealthiest clients with as many of life's questions as possible. Lately top wealth holders  have faced a vexing decision: Where to shelter in place to avoid Covid-19?

Billionaires have a range of choices....

Principal residence. A Central Park South triplex or a London town house may offer every convenience, but exposure to staff and other locals who live in these Covid-19 hot spots is undesirable.

Nantucket
Summer home. Decamping to one's summer place in Nantucket or the Hamptons is a popular shelter choice. Locals, however, have proved resentful of top wealth holders and their entourages. (If only we had enough testing to make out-of-staters less threatening.)

Go West. Billionaire landholdings typically include a Texas ranch or a spread near the Grand Tetons. These isolated properties could be a good shelter choice, assuming life in the boonies doesn’t get too boring. Here again, however, the locals aren’t necessarily welcoming.

The family yacht.  David Geffen popularized this shelter alternative. Advantage: the ability to pull up anchor for periodic changes of scene. Possible disadvantages: Most billionaires’ yachts are not as big as Geffen's. Also, there’s a risk that a crew member could become infected and make a yacht unweloomc in other ports.

The family bunker. Before MAGA, top wealth holders who feared the worst included a bunker in their survival plans. Now these underground havens offer another way to shelter in place. As with the boonies, boredom could set in and there’s no sunshine. Still, a deluxe bunker in New Zealand might have appeal. New Zealand has only been grazed by the virus, so billionaires who tire of living in their burrows might feel comfortable enough to venture out into the open air.

Sunday, April 05, 2020

Did This Masked Family Signal the Start of ESG Investing?

Found this disconcerting image in a 1970 Merrill Lynch ad.

“People in parts of Japan wear respiratory masks just to walk the streets,” Merrill explains. "Many
keep them handy in London. In the United States, air pollutants spew out at the rate of two-thirds of a ton per person per year. And our waters have become vast cesspools.”

Merrill’s ad goes on to tout the opportunities offered by pollution-control stocks. ESG investing? Not exactly. The term was yet to be invented. Merrill was thinking profits, not social responsibility.

Fifty years later, happily, the air in U.S. cities is mostly breathable. Less happily, wearing masks in public is becoming the new normal.

Saturday, March 28, 2020

Gold is the New Toilet Paper

Forget squeezable Charmin, where’s the gold?

The Wall Street Journal reports that two groups –survivalists seeking tangible wealth to use as barter when their ammunition runs out and investors seeking inflation protection – are threatening to make gold bars as scarce as Clorox wipes. Ability to supply bullion has been reduced by the COVID-19 crisis.

“When people think they can’t get something," says a gold trader, "they want it even more.”

Sunday, March 15, 2020

The King Who Disinherited Himself

Think the British royal family has problems, what with Andrew, Harry and Meghan? For big time royal troubles, look to Spain.

King Felipe VI has disinherited himself. He’s seeking distance from a scandal involving his father’s offshore wealth, which may represent kickbacks from Saudi Arabia.

Wednesday, March 11, 2020

Lemonade from lemons

Don't let a market crash go to waste, say the estate planners at Leimberg.  Lower stock prices make this the perfect time for intra-family taxable gifts, or for converting a traditional IRA to a Roth IRA at a lower tax cost.

Trouble is, with this much market volatility the accuracy of any projections of tax savings are suspect.

Tuesday, March 03, 2020

Celebrity Ads Promote Investment Scam

This European investment scam, promoted with online ads featuring Hugh Jackman and other celebrities, has already reached Australia, so U.S. investors and their advisers should take note. Forewarned is forearmed.

From The Guardian’s report:
British and Australian victims of a sophisticated enterprise were apparently lured by fake ads posted on Facebook and mobile phone games featuring celebrities such as Gordon Ramsay, Hugh Jackman and the moneysaving expert Martin Lewis. 
After responding to the ads, the whistleblower alleges that unsuspecting victims were contacted by call-centre workers operating in a building in the heart of Kyiv’s business district, promising lucrative investment opportunities.

But the investments in bitcoin, commodities and foreign currencies all appear to be fake, as do the follow-up calls from companies telling victims that they could help them recover the losses.
P.S. Martin Lewis, the money expert, just issued a timely tip: In this year of coronavirus, vacationers really need travel insurance.

Thursday, February 20, 2020

How Registered Investment Advisers Became Financial Advisors


Some job titles don’t tell you much.

In the decades following the crash of 1929 and the Great Depression, stockbroker was an off-putting term. To improve their image, wirehouse brokers began referring to themselves as financial advisors. Would the public confuse financial advisors with actual investment advisers? Of course.

Regulators and consumer advocates have been trying to dispel the confusion ever since. This year, the SEC’s Regulation Best Interest generally will bar brokers from referring to themselves as advisors or advisers unless they actually wear two hats and have registered as investment advisers.

A generation ago, that SEC requirement might have been helpful. In our age of passive investing, what’s the point?  Advisers no longer need to give much investment advice. What clients mostly require is financial guidance, usually tax related. Where to stash their investments, for instance: Taxable account? Roth IRA? 529 plan? Revocable trust? Special needs trust? GRAT? Donor advised fund…?

A small advisory firm that creates investment programs with index funds recently opened an office in our fair city. One Day in July (bet they can tell you a good story about that name) doesn’t identify itself as a registered investment adviser. In mailings and on their web site, they're financial advisors.

Sunday, February 09, 2020

Where the Primary is Early but Trusts Last Forever

Tuesday brings New Hampshire’s “first in the nation” primary, after which hordes of political operatives and mainstream media types will move on.

What happens the rest of the year? Trusts. New Hampshire boasts dozens of trust companies, all eager to help wealthholders take advantage of the state’s willingness to let trusts last forever.

New Hampshire’s seal honors
Portsmouth’s shipbuilding heritage.
Best known: John Paul Jones’ Ranger.
As this well-crafted promo from Fiduciary Trust  indicates, New Hampshire also offers other incentives for trustors. Freedom from state income tax on trust income, for instance. (Your obedient blogger pays New Hampshire income tax on his dividends and interest, but irrevocable trusts have an exemption.)

The politicians, pollsters and pundits who descend on New Hampshire every four years give the state economy a significant boost. Does tolerance for perpetual trusts also pay off? Some have their doubts.

Wednesday, February 05, 2020

Help Your Kids be Millionaires

Randy Cassingham’s examples of the advantages gained by investing early and often may not be quite realistic, but they are inspirational.

Wouldn’t it be cool if stocks went up almost 30% every year?

Friday, January 24, 2020

STATs and MARI-CRUTs and TEA POTs – Oh My!

Your obedient blogger retired just in time – never had to learn about various trust arrangements devised to take advantage of the late, lamented stretch IRA rules. Judging from this Forbes column, that was lucky.

How do you suppose a Flip NIMCRUT works? On second thought, never mind.

Tuesday, January 21, 2020

Scam Alert for Wealth Managers

Users of financial services are obvious targets for scammers. So are the providers of those services. “It’s almost as if many of the fraudsters have worked in financial services in the past,” says a Finra official.

Wealth managers, keep your guard up!

Sunday, January 19, 2020

Did Stretch IRAs Deserve to Die?

Individual Retirement Accounts began as simple way to put aside a few bucks. With the passing years, limits on annual IRA contributions increased and top income earners started moving megabucks into rollover IRAs.  Estate planners took notice.

Assets remaining in IRAs and 401(k)s at the owner’s death could be passed to a named beneficiary, and not necessarily in a lump sum. Distributions could be stretched over the beneficiary’s lifetime. Planners saw the potential for “inheritances" that offered many years of tax-deferred investment growth. Potentially, owners of seven-figure rollover IRAs could leave the grandkids a growing income for life.

Just one problem: Bright, imaginative grandchildren weren’t going to let a stretch IRA dribble out payments decade after decade. They would empty the account and use the after-tax proceeds to buy a beach house, start a business, back a Broadway musical. or who knows what.

The challenge for estate planners: Create trust provisions that deterred or prevented such impulsiveness, while also complying with IRA regulations. They rose to the challenge. Now the SECURE act has made their ingenuity almost useless. Except for spouses and with certain other limited exceptions, the SECURE act eliminates stretch IRAs. Most beneficiaries are now required to empty their IRAs within ten years.

The Editorial Board of The Wall Street Journal was not amused by the stretch IRA's demise, accusing Congress of playing a dirty trick on “the 90-year-old banking on this strategy." But the WSJ conceded, "there’s a reasonable case that IRAs weren’t meant to outlive their owners by decades.”

Michelle Singletary in The Washington Post agrees. IRAs weren’t intended to be estate planning vehicles.
There is nothing wrong with trying to minimize your taxes or the tax bill for your heirs. That’s a smart money move. However, IRAs and 401(k)s weren’t meant to be used as a way to transfer wealth. They were designed to encourage people to save by giving plan participants and/or account holders — not their children or children’s children — a tax break. The loophole created by the law that has allowed beneficiaries to stretch out their tax burden was a bonus, not an entitlement that should never be touched.
I’m with Singletary. The death of the stretch IRA is timely.

Friday, January 10, 2020

Tax Wealth by Taxing the “Squatters”?

When it comes to taxing wealth, Eugene Steuerle believes we should pay more attention to three issues.

1. A stockholder’s investment income is already taxed twice, at the corporate and personal levels. Current proposals for an annual wealth tax would result in what amounts to triple taxation.

2. If most returns on investment wealth receive a stepped-up basis at the owner’s death, why are inherited investment gains taxed when the heir withdraws them from an IRA?

3. The best time to tax the returns from wealth is at the owner’s death, as productive New Money passes to heirs and becomes less productive Old Money.

To bolster his last point, Steuerle quotes Winston Churchill:
 “The process of creation of new wealth is beneficial to the whole community. The process of squatting on old wealth though valuable is a far less lively agent.

Thursday, January 02, 2020

The most remarkable decade

I'm not talking about the stock market, though that was good also.  This article by Matt Ridley in The Spectator has been noticed by several bloggers and a NYTimes columnist, and I'm doing my own version for Wealth Management.

Sunday, December 29, 2019

Dave Barry’s Light Take on a Heavy Year

Jim Gust and I share an annual enjoyment of Dave Barry’s Year in Review. For a while, Barry writes, president Trump’s trade war with China made the Dow Jones industrial average flit up and down “like a butterfly on meth.”

The market recovered, and you may feel better about 2019 after reading Barry’s recap.

Wednesday, December 11, 2019

Inheritance: Many Hope, Few are Chosen

"The Boomers…are expected to inherit trillions of dollars.” Merrill Anderson’s newsletter clients received that alert back in 2004. As 2020 approaches we hear of another great wave of inheritance. By one estimate, boomers could pass $68 trillion to millennials and others over the next decade.

But these deluges of wealth from generation to generation aren’t orderly. Some boomers are still waiting for their bequests. Many members of the silent generation are still around, including presidential hopefuls Biden, Bloomberg, Sanders and Weld. As of last year, almost 22 million Americans were 75 or older.

Over half of millennials say they expect an inheritance. Most won’t get anything beyond trinkets. According to a United Income study, only about one out of five households receives an inheritance, and that ratio has held steady over 30 years. Only about one in ten receives more than $55,000.

Hoping for a million or more? The chances are maybe one in three hundred.

Even millennials lucky enough to make the inheritance cut may have to wait longer than they expect. From 1989 to 2016, the average age of inheritance rose from 41 to 51, and it seems certain to keep climbing.

The few millennials who inherit millions will become Old Money. Meanwhile, some of their peers are building new wealth. Over 600,000 millennials, mostly in their 30s, are already millionaires.

Saturday, December 07, 2019

Requiem for the Levitating Comma

Youre probably not alarmed to  learn that, after almost two decades, the founder of The Apostrophe Protection Society has decided to give up the fight. You may continue to use the apostrophe not at all when texting. But to avoid the complete loss of the once useful punctuation mark, do observe the post-industrial custom of putting an apostrophe before “s” when creating a plural.

Some us will miss the properly deployed apostrophe, a second-rate comma that tried to rise in the world.

Wednesday, November 06, 2019

Dirigiste Plan Features Pigovian Tax

Learned two new words the other day.

Steven Rattner's op-ed, critiquing Senator Warren's plan for funding universal Medicare by "taxing the  rich," introduced me to dirigiste. The noun form is dirigisme, borrowed from the French, and it means state control of economic and social matters. Dirigisme is the opposite of laissez-faire.

Neil Irwin's column describes Warren's proposed 6% annual tax on billionaires' wealth as Pigovian. A Pigovian tax is "intended to reduce the prevalence of whatever it targets." Taxing cigarettes helped to reduce the number of smokers. Taxing billionaires could help to turn them into an endangered species.

Almost nobody (probably including Senator Warren) expects the wealth tax to become a reality in 2021. What might a Democrat controlled Congress do instead to raise revenue from the rich? Here's what Rattner suggests:
Raise the top federal income tax rate, imposed on incomes over half a million or so, from 37% to at least 42%.
Tax capital gains at regular income tax rates and do away with stepped-up basis for calculating gains on inherited assets.
Close egregious loopholes, like treating fund managers' "carried interest" income as tax-favored capital gain.
How many proposals to tax carried interest as regular income have you heard over the years?

Some tax breaks seem indestructible.

Wednesday, October 30, 2019

Sunspot update

Back in 2009 I did two posts on the unexpected decline in the number of sunspots, and wondered whether that might lead to a period of global cooling.  The sunspots eventually returned, and there is no general cooling trend as yet.

Here we are ten years later, and the blankness of the sun is even more pronounced.  The record for spotlessness is 269 days, set in 2008.  We are at 225 spotless days this year, with two months to go, so the record is in jeopardy.

Electroverse provides more data on this, with some analysis and graphs.  The next solar cycle is projected to be weakest in 200 years.  200 years ago we had the Dalton minimum, when global temperatures fell by 2 degrees centigrade over 20 years, leading to crop failures and food riots.  Some believe that a grand solar minimum operates on a 400-year cycle, and we are at the beginning of just such a cycle. 

Perhaps we can put the Green New Deal on hold until we have more data?

Sunday, October 27, 2019

"Taxing the Rich"

Funding the government by taxing the wealthy has always had political appeal. In 1913 the ancestor of today's federal income tax was introduced to chastise the rich by imposing a tax ranging from 2 percent to 6 percent.

The 2 percent bracket started at an income level, in today's dollars, of over $500,000.

The top rate of 6 percent only hit incomes, again in todays' dollars, of $13 million or more.

Times have changed, haven't they? 

Taxes on wealth may trickle down even before they are enacted. Elizabeth Warren's proposed 2 percent tax on wealth over $50 million, for instance. One of her advisers has already suggested a lower tax bracket starting at $l million. 

Thursday, October 24, 2019

Dubious Decanting of Grandchildren's Trusts

A potential advantage of decanting, where authorized by state law, is that it may permit a trustee to modify a trust without the consent of the grantor and the beneficiaries or the time, expense, uncertainty, and publicity associated with obtaining court approval of the modification.
          – Michael J. Skeary, "The Power of Trust Decanting"
A wealthy grandmother celebrated the birth of her grandchildren by funding a generation-skipping trust for each new arrival. She served as trustee, with Merrill Lynch as custodian.

When grandmother resigned as trustee because of age, the children's father took over. Decades later, when the grandchildren learned they were old enough to draw upon their trust funds, they found their mother had been named co-trustee. And, according to the childrens' lawsuit, she had moved trust assets into a new trust that entitled her “to all net income and as much principal from the trust property as the trustee determines is necessary.”

For other wealthy grandparents the moral is obvious: Naming a reputable bank or trust company is  worth the trustee fees.

Thursday, October 17, 2019

As Candidates Talk Taxes, Remember Hauser's Law

Jim Gust once called attention to David Ranson's column on Hauser's Law.

We should keep the "law" in mind for the next year or so, as political candidates shout their promises to cut taxes or hint at plans to raise them.

Despite ups and downs in tax rates, Hauser's Law states, federal tax revenues hold more or less steady. The tax take persistently hovers at slightly below 20% of GDP.

All those tax billions the Democrats will be hoping to raise? All those billions Republicans will be hoping to shield from the IRS?  Hauser's Law indicates we shouldn't pay them much heed.

Saturday, October 12, 2019

Is the Estate Tax a Good Wealth Redistributer?

The concentration of wealth among the very few is a problem. In a WSJ op-ed ten years ago, Art Laffer argued that estate taxation is not the solution:
Advocates of the estate tax argue that such a tax will reduce the concentrations of wealth in a few families, but there is little evidence to suggest that the estate tax has much, if any, impact on the distribution of wealth. To see the silliness of using the estate tax as a tool to redistribute wealth, realize that those who die and leave estates would be taxed just as much if they bequeathed their money to poor people as they would if they left their money to rich people. If the objective were to redistribute, surely, an inheritance tax (a tax on the recipients) would make far more sense than an estate tax.