Interesting times

Even as the S&P 500 touches new highs, the Commerce Department has just reported that the economy shrank 1% in the first quarter.

How can stock market prices grow so much faster than the economy?  In the long run, they can't.

Bad winter weather has been identified as the culprit behind the contraction, the first in three years. Unusual cold through most of the country was attributed to global warming.  Inventory adjustments were also fingered as a contributing factor.

Another quarter like the first, and we're back in a recession—which many Americans believe we never left.

Trust and Investment Ads From 25 Years Ago

This blog has displayed numerous financial ads from the 1960s, the Mad Men era. Here are three from just 25 years ago.

Buy a mutual fund from Xerox? In 1989 you could. (Van Kampen's founder pioneered insurance coverage for tax-exempt bond funds.)

How do you appeal to he-man investors yet gain cultural creds? In 1989 Merrill Lynch pulled off the double play by sponsoring a Frederick Remington exhibit.

US Trust was struggling in the 1980s, but the trust company wasn't going to let people forget its impressive heritage. "Multi-generational financial counselling is nothing new at U.S. Trust. We've been doing it for nearly seven generations."

Great changes have reshaped financial services in the last quarter century. Each of the three advertisers above has changed hands. US Trust was acquired by Charles Schwab, then sold to Bank of America. Merrill Lynch, of course, also became a Bank of America brand. Van Kampen eventually passed to Morgan Stanley and was sold to Invesco in 2009.

Understanding Taxes In Three to Five Minutes

Microsoft co-founder Paul Allen and filmmaker Morgan Spurlock ("Supersize Me") have teamed up to produce 20 short films on the economy. Intended to reduce Americans' economic illiteracy, the three-to-five-minute films will be released via the Internet and on-demand services this fall.

“Accessible and digestible, that’s what we’re going for here — a very creative, informative short film about taxes, for example,” Mr. Spurlock said.

Fortunately, taxes really aren't that complicated, as Will Rogers explained:

"The only difference between death and taxes is that death doesn't get worse every time Congress meets."

The Money-Managing Prince Who Made the Rolling Stones Rich

Keith Richards described Prince Rupert zu Loewenstein-Wertheim-Freudenberg, Count of Loewenstein-

Scharffeneck, this way: “He is a great financial mind for the market. He plays that like I play guitar."

The unlikely money manager to rock-and-roll royalty died at age 80 last Tuesday in London. Read a Brit tabloid tribute. The New York Times obit is here. 

What's the Estate Tax on a “$4.8 Million” Madoff Account?

Many Madoff investors lost their shirts. Some didn't. As you'll read here, death has led to tricky estate tax questions.

Through a personal pension plan, in 1992 Bernard Kessell started investing millions with Bernie Madoff. Kessell died in 2006. Madoff's firm told Kessel's executor that the date of death value of the account was more than $4.8 million. That value was reported on Kessel's federal estate tax return.

After Madoff's massive Ponzi scheme was exposed in 2008, Kessel's estate filed an amended return valuing the Madoff account at zero and claiming a refund. The IRS balked. Now the question of value has gone to Tax Court.

In a way, Kessel and his heirs were lucky. Before the roof fell in, they were able to withdraw more than he had invested. But not really so lucky. The Madoff trustee has sought to claw back such faux profits, using them to reimburse Bernie's less lucky investors.

What was the true value of Kessel's Madoff account? Apparently the Tax Count will have to decide.

Retirement Investing is Personal

From Dueling Strategies for Your Retirement Funds:

For anyone approaching retirement, an important investing question is: Should your strategy be "to" or "through"? *** 

The "to" refers to preserving savings for an expected retirement date; the goal is to get "to" that date without last-minute harm to your nest egg. Generally this means cutting back sharply on riskier investments—namely stocks *** 

A "through" strategy means tilting a portfolio to keep increasing savings well into, or "through," retirement. That means higher allocations to stocks and other riskier investments despite a bigger risk of losses.

The strategies aren't dueling. As we discussed five years ago, different retirees have different goals. See The Trouble With Target Date Funds.

Will the tax-free Roth retirement account really stay tax free?

Maybe not, warns Megan McArdle.  She decided to do one anyway.

Thomas Jefferson Considers Gifts to His Grandchildren

Poplar Forest, a plantation Jefferson inherited at his wife's death, was a significant source of income. In 1805 he wrote to his Poplar Forest estate manager:

“The time is now approaching when I shall wish to be parceling off some of my lands to my grandchildren. This renders it necessary that I should understand the separate value of each portion of them distinctly. As no person is so well acquainted with them as yourself, I must ask a favor of you to consider the questions on the paper enclosed, and to write at the end of each the answer in figures, and to send me the same paper to Monticello, by the first post.”

The previously unknown letter is now for sale.

In that same year of 1805, Jefferson began work on this octagonal house.

 Poplar Forest
Photo via Wikimedia Commons

Photos of Huguette Clark

Published by Huffington Post, taken from a new biography of her.

The Great Hedge Fund Mystery

Why do hedgies make so much? The New Yorker's John Cassidy can't figure it out. He asks for help.

Merrill Lynch Ponders “Sustainable” Wealth

Sustainable farming, sustainable energy sources, sustainable forests…Merrill Lynch goes with the flow and surveys Sustainable Wealth.

The survey – conducted last December among investors with $5-million and up  – deals mostly with the "values" side of family wealth but did include a question on trusts.

Two-thirds of respondents believed assets should be held in trust for the lifetime of their heirs.

Three quarters of respondents under age 56, who presumably have younger children, said lifetime trusts were a good idea.

But…more than half the respondents also said that heirs should be handed full control of their inheritances at a certain age, usually under 35. That's surveys for you.

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In targeting the $5 million and up market for legacy planning, how well does Merrill Lynch Private Bank get along with its BofA sibling, US Trust? Just asking.

1969: More Ads from the Mad Men Era

In the spring of 1969 Merrill Lynch joined the rush to promote hot new go-go stocks:

It used to be that practically all you needed to sniff out a growth stock was a good nose for technology. Xerox smelled good to some people. Polaroid smelled good to others. And sure enough, both rose higher than a soufflé at Pavillon.

Young and small was the way to go, Merrill Lynch figured, because "we wanted companies that could show dramatic gains in earnings. That’s a lot easier for Davids than for Goliaths."

Alas, go-go shares were about to collapse. Investors soon decided the only trustworthy stocks were the Goliaths, the Nifty Fifty.

US Trust must have sensed market uncertainty, for it reran one of its classic ads. Could any headline be more timeless?

Instead of spotlighting an affluent adult as usual, this Chemical ad features a kid. In current dollars the lucky lad's trust is worth way over $1 million. Would an ad calling attention to that much youthful good fortune prove problematic today? 

Mark Zuckerberg: a Billion Here, a Billion There…

Last year, CNBC's Robert Frank reports, Mark Zuckerberg paid an estimated $1 billion in taxes.

Photo: Wikimedia Commons

Facebook's CEO also made last year's biggest charitable donation, giving the Silicon Valley Community Foundation shares worth about $1 billion.

If $1 billion is starting to sound like a routine sum, remember the John Allen Paulos comparison:

A million seconds is less than twelve days.

A billion seconds is almost thirty-two years.

Huguette Clark's Monet Sells for $27 Million

Huguette Clark, the eccentric recluse who owned a number of splendid homes yet chose to live in a hospital, left notable works of art. Now that disputes over her estate are resolved, Christie's has sold her Monet painting of water lilies for $27 million ($24 million plus $3 million buyer's premium).

Clark's Monet

Christie's was hoping for more. The $24-million sales price may be bad news for the Washington, D.C. Corcoran Gallery, according to the Los Angeles Times.

Though The New York Times describes the Christie's auction of Impressionist and modern art as "tepid," Reuters hails the sale as Christie's best since 2010. In the art world as on Wall Street, apparently, the state of the market may be a matter of opinion.

Investing 101: William Bernstein's Study Guide for Millennials

Would you believe me if I told you that there’s an investment strategy that a seven-year-old could understand, will take you fifteen minutes of work per year, outperform 90 percent of finance professionals in the long run, and make you a millionaire over time?

So begins "If You Can," William Bernstein's little investment guide for Millennials. Featured in The New York Times, the e-booklet is free at Bernstein's web site (the PDF is here) and sometimes on Amazon. All Millennials have to do, Bernstein advises, is invest 15 percent of their income in three index funds: foreign and domestic equities, and bonds.

Of course, it's not really that simple. His e-booklet offers a crash course in how to get past five hurdles that stand in the way of the young would-be investor.  He describes each hurdle and suggests a reading program of one or more books.

The first hurdle, learning to save rather than spend. The recommended reading, "The Millionaire Next Door," a work that Bernstein terms "the most important book you'll ever read."

Surmounting the next hurdles requires gaining investment literacy and, equally important, a sense of investment history.

[I]f learning about the theory and practice of finance is akin to studying aeronautics, then studying investment history is akin to reading aircraft accident reports….

The fourth hurdle is human psychology. We're not designed to think long term or stay the course.

Last hurdle, "the monsters who populate the financial industry."

To be avoided at all costs are: any stock broker or “full-service” brokerage firm; any newsletter; any advisor who purchases individual securities; any hedge fund. Most mutual fund companies spew more toxic waste into the investment environment than a third-world refinery. Most financial advisors can’t invest their way out of a paper bag.

Tough words, those. But I'd give much the same advice to our family's Millennials. Anyway, wealth managers can afford to roll with the punch – beginner investors are not lucrative business.

A great college course, preferably required, could be built around Bernstein's booklet. But how many colleges would risk offending their Wall Street donors?

1969: Amex "salutes" Ugly Americans

Not all the beneficiaries of the postwar boom of the 1950s and 1960s were as cosmopolitan as TV's Mad Men. In honor of Derby Day, here's an American Express ad from the spring of 1969. Obviously, this American couple arriving at Ascot never saw "My Fair Lady."