Wednesday, October 24, 2012

“Rich” – Hard to Define But Always Interesting

You become "rich" when you have enough money. But how many dollars are enough?

A couple of million, carefully invested, might generate something like the median family income. But a median income won't allow you to live rich.

Ten million is sometimes termed "entry-level rich." All but the most exclusive trust companies or multifamily offices will let you in the door.

Thirty million, the threshold of Ultra High Net Worth, is probably about the level where you can start to live rich. Still, much depends on whether you're living it up in your Midwest hometown or a town house near Central Park.

The ambiguity of "rich" helps explain its popular appeal. If this blog wants to attract more readers, for example, we should use "rich" in the headlines of our posts. See Deborah Jacobs:

Superman Quits Day Job To Become Blogger; Three Things He (And Other New Bloggers) Need To Know

OK, we used "rich" in a headline. According to Jacobs, we'd be smart to use "Apple" next.

What do you think? Is Apple's new iPad Mini overpriced at $329?

Monday, October 22, 2012

1962: Three Ads and a Little History

Fifty years ago, the chauffeur wore gloves, even in Florida:

Also from 1962, a Chase nest egg ad I don't remember. If the ad didn't run much, perhaps it's because it could be entitled "The loneliness of the long-distance target shooter."

Finally, this 1962 ad, unrelated to banks and trust companies but relevant to our times.  The United States Lines was battling the competition from transatlantic jet service. (They lost.)  Featured is the family of John Frair, "returning from a military mission in Iran." At a guess, he had been training the army of the Shah, who had ruled Iran since the United States deposed Mosaddegh in 1953.

Douglas MacArthur II, shown at lower left in the ad, was the nephew of the Old Soldier. He was enjoying a posting in Belgium after a tough job as ambassador to Japan.

After leaving Belgium for assignments in Washington and Austria, MacArthur became the American ambassador to Iran in 1969, serving until 1972. Six years later, a revolution deposed the Shah and brought Ayatollah Ruhollah Khomeini back from exile.

The reverberations continue to be felt today.

Friday, October 19, 2012

Elder Abuse for the Man Who Once Ran Salomon Brothers?

At 98, William Salomon still goes to the office provided him by Citigroup. (Sandy Weill acquired Salomon Brothers along with Travelers as he built his universal bank.)

With the office came a secretary who kept track of Mr. Salomon's appointments and paid his bills. Karen Febles is now accused of embezzling almost $2 million from her boss. Apparently the thefts began around 2008, the year that Salomon's wife of more than 70 years died.

Secretaries, it seems, aren't as faithful as they used to be. But then, Wall Street isn't what it used to be, as Mr. Salomon lamented in 1991:

“In my time, the customer was God and we would no more take advantage of him than we’d fly out the window."

Why the Market Tanked 25 Years Ago

Oldtimers remember "portfolio insurance." One of them, Floyd Norris, explains how an earlier generation of computers took the concept and ran with it, raising havoc on October 19th, 1987. With program trading, you needn't need an economic downturn to make the stock market crash.

After reading the article, you can resume worrying about today's  high-frequency trading.

Thursday, October 18, 2012

Haves and Have Nots, Young Adult Division

Haves. Managers of family investments are Courting the Next Generation of the Rich. Business retention is the motive.

 Success may be limited – sticking with your parents' investment people is seldom cool. The programs do provide some financial education. Also, participants welcome the opportunity to network with their peers.

Have nots. Two-thirds of college seniors in the class of 2011 graduated with student loan debt, averaging $26,000.

Debt loads varied widely from state to state. Three out of four graduates in New Hampshire owed an average of $32,440. In Utah a majority graduated debt free, and the minority owed an average of $17,227.
Got any good ideas for A) reducing the cost of college or B) increasing the supply of wealthy parents and grandparents?

Worried About High-Frequency Trading?

Maybe you should worry about the decline in high-frequency trading. Felix Salmon explains.

Did you realize that less ice for polar bears portends even faster trading? Give a listen to Salmon's audio essay for the BBC.

Photo via Wikimedia Commons

Saturday, October 13, 2012

60% stocks, 40% bonds would have been better

The attempt by college endowments to imitate the investment strategies of Harvard and Yale have not done so well.  Unconventional ideas lose their potency if they become conventional, evidently.  Most shocking bit:
Harvard reported a 0.05 percent loss and a drop in its endowment of over $1 billion in the same period, even as a simple Standard & Poor’s 500-stock index fund gained about 5.5 percent. Harvard’s endowment decline is more than the entire endowments of roughly 90 percent of all colleges and universities.
How much is enough for Harvard?

Thursday, October 11, 2012

A “Grossly Negligent and Reckless” Trustee

Jamie Dimon did not enjoy today's New York Times.

On the front page JPMorgan's CEO was greeted with a story on emerging criminal prosecutions, focused on traders associated with Morgan's infamous London Whale and his $6-billion trading loss.

The business section was just as depressing: JPMorgan Told to Pay $18 Million to a Trust.

The trust case concerns an oil heiress with lots of Exxon Mobil stock and the trustee's use of a complex investment product, designed to cash in on appreciated shares without triggering tax on capital gain.
Judge Linda G. Morrissey of the Tulsa County District Court in Oklahoma said that the bank had breached a series of fiduciary duties in its handling of the trust of Carolyn S. Burford, an oil heiress who died in 1996. The court also ordered JPMorgan to pay punitive damages, to be set at a later date, along with the trust’s legal fees.
Judge Morrissey concluded that JPMorgan had breached its fiduciary duty in 2000 when it sold what are known as variable prepaid forward contracts to the trust, a complex fee-rich product that the judge determined was unsuitable for the trust.
* * *
The judge found that JPMorgan, which ended up with the account after a series of bank mergers, had not properly explained the product to its client and had failed to disclose that the bank was benefiting from the transaction. The bank also breached its duty when it invested the proceeds of the contracts in its own investment products, which the judge said “amounted to double dipping” that was unreasonable.

Jamie Dimon is widely admired in the financial world, and rightly so. Yet he has to be wondering whether it's possible to build a financial institution that's too big to fail without creating one that's too big to manage.

Wednesday, October 10, 2012

Old Money Rap, New Money Rap

Who Says Trust Fund Babies Can't Rap? We raised the question six years ago, answering with a link to Tea Partay. That promotional video for Smirnoff, cheerfully mocking the Trust Fund Preppies of Greenwich and The Vineyard, went viral, attracting millions of hits.

Here's a rap video that's attracting hundreds of millions of hits – a dance-crazy salute to the New Money lifestyle in the land of Hyundai and Samsung.

From Korea,  Psy's Gangnam Style.

Psy, a rapper in his mid-thirties, probably thought he was over the hill. Now he's a phenomenon, a worldwide celebrity. Gangnam, the area whose style he raps about, is a modern, flourishing district south of the river in Seoul. Someone has called it Seoul's Beverly Hills.

Why has Gangnam Style attracted hundreds of millions of viewers? Hard to explain, as Scott Adams acknowledges. This blogger's teenage grandson writes: "No mere mortal could have been this clever. I suggest we find the guy who made this and put him in charge of everything."

Psy in Gangnam Style
Korea's New Money is attracting private bankers and wealth managers galore. Citi has had a presence in Korea since the early 1980's. Now it's beefing up marketing efforts directed at Koreans with $1 million and up. 

Monday, October 01, 2012

Next Year's Gift Tax Exclusion, $14,000

This year a gift of as much as $13,000 is  excluded from federal gift tax. Next year, thanks to an inflation adjustment, the annual exclusion rises to $14,000.

Larger gifts require the donor to file a federal gift tax return. Always happens, right?

Not exactly. Uncle Patrick just gave his favorite niece a $18,000 Elantra to drive off to college. Do you expect him to file a return and reduce his Unified Tax Credit by $5,000? (Oct. 3 Correction: Patrick would reduce what amounts to his transfer-tax exemption by $5,000. The UTC itself would shrink by a smaller amount.)

What about that $15,000 watch Aunt Mame just bought for  her favorite nephew? Expect her to knock $2,000 off her lifetime exemption from gift tax?

Donors careless enough to die soon after gift-making may get snared in a tax audit. Otherwise, the exclusion seems based mostly on the honor system. Cheating, mostly unintentional, would be even more widespread were not payments of another person's tuition or medical expenses deemed nongifts.

Out of curiosity, your blogger checked out the annual gift exclusion of eighty years ago. It was $5,000. That was a lot of money in 1932 – over $82,000 in current dollars.

Shouldn't Uncle Patrick be able to buy his niece a Porsche without gift tax worries?