Wednesday, February 24, 2021

The Law That Made Everybody’s Tax Info Public

 After the Crash of ’29, tycoons like J. P. Morgan, Jr. had more than enough tax write-offs to reduce their income tax to zero. As this old WSJ item reminds us, the resulting public outrage led Congress to take bipartisan action:

Under the Revenue Act of 1934, anyone who filed a federal tax return would also complete another — pink — form, with his or her name, address, income, deductions and total taxes paid. Everything on the pink slips was public information, available to reporters, nosy neighbors or former spouses alike.

 With the pink slips, the theory went, upper-income toffs would be shamed into paying something. But ordinary taxpayers also would have their earnings and tax payments exposed to public view. What would the neighbors think? What if they looked affluent enough to attract kidnappers? (With the kidnapping of the Lindbergh baby still a fresh memory, the latter worry was real.) 

A Pittsburgh glass heir named Raymond Pitcairn led the effort to repeal pink slips. Using know-how gained while lobbying for the repeal of Prohibition, he quickly won the day. The “pink slip” law was repealed less than a year after it passed.

The Supreme Court recently ordered the release of the income tax records of a wealthy serial nontaxpayer. But these days, living rich and tax free is a feat perhaps more admired than condemned.

Friday, February 12, 2021

Christo’s Estate Sale

Together with his late wife, Jeanne Claude, the artist known as Christo liked to wrap extraordinarily large objects. Christo died last year, but a posthumous work, L'Arc de Triomphe, Wrapped, may appear this fall. 

Meanwhile, Sotheby’s is auctioning off the couple’s arty possessions, including this screenprint they acquired from Damian Hirst. 

You can bid on the print, All You Need is Love, through February 18 online, but be prepared to offer more than 24,000 EUR.

Happy Valentine’s Day!

Thursday, February 04, 2021

More Game Stop winners

 The Financial Times reports that the biggest winners in the Game Stop frenzy may have been the market makers, as trading volume reached record levels.  Trading in options has exploded to record levels as well.

I've never been a day trader, I've bought many stocks but I've never sold one.

So far, so good. 

Tuesday, February 02, 2021

A taint on a trust strategy?

 According to an account posted at TaxProfBlog, Jeffrey Epstein made most of his fortune simply be getting billionaires to execute GRATs to save estate and gift taxes.

I am surprised.

Trading as a Team Sport

The new sport of trading stocks has evolved much faster than expected. A legion of bored amateurs, some armed with government stimulus checks, has driven Gamestop and other stocks shorted by hedge funds to ridiculous highs. Trading, the novices have discovered, can be fun. When you get together and make it a team sport, you can batter hedge funds so badly they need financial transfusions.

Pundits are alarmed. If a financial advisor can ignite a flash mob to shake up Wall Street as easily as former president Trump inspired a crowd to storm the Capitol, who or what is safe? (Hey, are they attacking silver? Could they go after Bitcoin?)

History tells us that participants in speculative binges get their comeuppance. This time it may take a while. According to this Axios bulletin, the short sellers have a deep bench. “[B]ig bets are coming in from hedge funds and institutional investors, meaning that the short squeeze has not even begun."

Wednesday, January 27, 2021

Tulip mania returns

 This time it's GameStop.

When short interest goes above 100% of the shares in the hands of the public, trouble is brewing.

Thursday, December 17, 2020

Millennials Like ETFs

Vanguard's "How America Invests" offers a look at the behavior of five million households that invest with the firm. As you would expect, investors are moving into index funds and away from actively managed products. Some wealthier Vanguard customers are using exchange traded funds to add diversification, but the real fans of ETFs are the young. 

Most households who currently invest in ETFs are “diversifiers,” meaning ETFs make up less than a quarter of their assets. Their ETF investments are in addition to already-diversified mutual fund portfolios. These households tend to be wealthy and long- tenured. However, there's a small but growing group of ETF “enthusiasts,” typically millennials who have been with Vanguard for only three years, who build complete portfolios from ETFs.

Wednesday, December 16, 2020

Two Churned Accounts Cost Merrill Lynch Over $64 Million

 After the rise and fall of Cabletron, the company he co-founded, Craig Benson served a term as governor of New Hampshire. Now, as the result of investment misadventure, he’s the recipient of the largest monetary settlement in that state’s history.

In a claim filed with FINRA, Benson asserted that needless, ill-advised trades by his Merrill Lynch brokers had cost him $50 million. The New Hampshire Department of Securities Regulation launched a probe.

“My account was churned in large part for the benefit of generating commissions that benefited Charles Kenahan, Derm Cavanaugh, but mostly Merrill Lynch,” Benson told CNBC. “I certainly didn’t sign a document and say it’s OK to steal from me."

Apparently Merrill served Benson a full diet of upmarket investments, from IPOs to leveraged and inverse products. The results were so unpalatable that the New Hampshire settlement imposes a $2 million fine on Merrill Lynch and requires the BofA unit to pay Benson restitution of $24.25 million. 

These payments also resolve Benson's FINRA claim, making it the second largest FINRA settlement involving an individual over the last decade or so. The largest?  The $40 million Merrill Lynch was required to pay Robert Levine, Benson's friend and co-founder of Cabletron.

Friday, December 11, 2020

Jabbing the 1%

 Wondering why millions and millions of Red State voters detested the Blue State elite? Here's a clue from the Dow Jones Newswires:

These are the loopholes America's 1% can use to get early access to the COVID-19 vaccine

Actually, the "loopholes" sound too cramped to accommodate the whole 1%. Maybe the 0.1%.

Monday, December 07, 2020

The Bob Dylan solution to the Prince problem

 Reportedly Bob Dylan has sold the rights to all the music he has written.

This will be the subject of Merrill Anderson's January issue of the Investment and Trust Newsletter. Click here to sign up.

Monday, November 23, 2020

If a Four-Day Week is Good Enough for a Trust Company . . .

 The five-day work week is a modern construct. Back in 1871, when The New York Stock Exchange started continuous trading, the floor was open Monday through Saturday. Six years later the Saturday trading session was cut to mornings only, but Saturday morning trading persisted until 1952. 

If the six-day work week could evolve to five days, why not four? A New Zealand trust company has tried the idea – work four days, get paid for five – and the experiment went so well that the change has become permanent.

Now the consequences of Covid 19 have proponents of the four-day week hoping for a large-scale breakthrough

Could it happen? Plenty of employers seem to embrace the idea, at least until they learn they're not supposed to pay 20 percent less for 20 percent less work time. Four days work, five days pay!

Wednesday, November 11, 2020

When a Trust Could Set You Free

The fall issue of "Financial History,” published by the Museum of American Finance, includes an article on the free black businesspeople of antebellum New Orleans and Charleston. 

After the American Revolution, the number of free blacks in Charleston grew. By 1820 some whites found the trend disturbing. "As a result…the state legislature passed a law prohibiting immigration and outlawing manumission. Those slaveholders still wishing to free their slaves would have to adopt more sophisticated, legally intricate estate planning devices in hopes of circumventing the 1820 law."
One universal approach adopted by many owners involved the establishment of a “trusteeship” with the creator of the trust acting as the beneficiary. The beneficiaries could then exercise emancipation rights whenever they chose. William Ellison, a free mulatto and cotton gin manufacturer with family in Charleston, “purchased” his daughter Maria in this manner in 1830. After technically purchasing her, he immediately vested her ownership in trust by “selling” her for “one cent” to Col. McCreight. The trust stipulated that though owned by McCreight, he was to allow her to reside with the Ellison family. Under the trust, William Ellison could emancipate at any time; upon his death, the agreement required that McCreight “secure her emancipation as soon as possible here or in another state.”

Wednesday, October 21, 2020

Art for Our Unhealthy Times

 Six or seven years ago, prankster artist Banksy messed around with a painting by Damien Hirst to create this collaborative work. Today the painting serves as a pointed commentary on our Covid 19 crisis. Art is more than just a financial asset.

Nevertheless, at Sotheby’s October 28th auction of contemporary art, the Banksy-Hirst creation is expected to sell for two or three million. 

Friday, October 16, 2020

From Unmentionable to Unmeaningful

Up until the 1980s, I bet there wasn’t one reference to “wealth” or “rich people” in the  newsletters Merrill Anderson churns out for bank and trust companies. “Wealth” was unspeakable. Those who had managed to hang onto their fortunes during the Depression and World War II didn’t want attention. That meant newsletter articles had to signal their target market with euphemisms: people of means…affluent...with substantial assets…extensive resources.*

In the 1980s a new Boomer financial elite emerged – “If you’ve got it, show it!” William Safire noticed the trend in a 1981 On Language column. The New Money, and those aspiring to it, were talking fancier:
Only fuddy-duddies go to the gym, or to the drugstore, or to Europe; the upscale (formerly hoity-toity) crowd goes to the spa, or to the pharmacy, or to the Continent.


A decade ago, the passé people would say rich while the with-it types would say affluent; now the passé say affluent and the with-its say wealthy….

Wealth was mentionable again! And just it time.  Investment advisers faced a marketing challenge. Index funds had emerged, diminishing the perceived usefulness of active investment management. Advisers were responding by broadening their services – more estate planning, retirement planning, tax planning. Now they needed a term to describe their broader role – something with more pizazz than "financial planning."

Thanks to the renewed acceptability of "wealth," the solution was simple. Investment advisers became wealth managers. By the 1990’s the term “wealth management” had soared in popularity, as  this Google Ngram indicates.

"Wealth management" was a big-tent concept. Brokers offered it, insurance companies spun off wealth management units, bank trust departments hurried to rename themselves. Now, well into the 21st century, familiarity has bred confusion. 

Most people now think wealth means something nice but vague, Yale researchers have found. Who can blame them? Many years of marketing campaigns have told them "wealth is a life well lived," "wealth is peace of mind and happiness."

Only about one person in five, said the researchers, knows that wealth is what you have left after subtracting your debts from your assets. 

* On TV the other day I heard poor children euphemized as “under-resourced kids." 

Sunday, September 20, 2020

The Billionaire Who Gave It All Away. Really!

A number of billionaires have pledged to give their fortunes away, but you know they'll go on living the lush life. 

Not Chuck Feeney, who now lives in a rented San Francisco apartment and is said to own one pair of shoes. Remarkably, reports The Guardian, this billionaire has actually given almost all of it away.

Chuck Feeney has achieved his lifetime ambition: giving away his $8bn fortune while he is still around to see the impact it has made.

For the past 38 years, Feeney, an Irish American who made billions from a duty-free shopping empire, has been making endowments to charities and universities across the world with the goal of “striving for zero … to give it all away”.

This week Feeney, 89, achieved his goal. The Atlantic Philanthropies, the foundation he set up in secret in 1982 and transferred almost all of his wealth to, has finally run out of money.

The head of Feeney's foundation said his boss had once tried to live a life of luxury but it didn’t suit him. “He had nice places [homes] and nice things. He tried it on and it wasn’t for him."  

Thursday, September 17, 2020

Are You a Blue or Red Wealth Manager?

Yes, even financial advisers have to adjust to our divided nation. A survey commissioned by Hartford Funds reveals that nine out of ten investors under age 45 want their advisers to share their political views. 

Fortunately, older investors are somewhat more tolerant.  

Wednesday, September 02, 2020

Sign of the Times

Clipped from an online ad for a Maine law firm:

Tuesday, August 25, 2020

Work in the Cloud and Pay Taxes . . . Where?

When I lived in Connecticut and commuted to work in New York, I paid NY income tax. Now the traditional idea of imposing state and sometimes local income tax based on work location is under stress. With many of us working in the cloud, the location of our abandoned office desks hardly seems relevant.

Yet if I were working from home in Connecticut, New York would still expect me to pay NY tax. Likewise, Massachusetts wants workers living in New Hampshire to pay Massachusetts income tax even though they are now working at home. New Hampshire is fighting back, inspired by the unofficial state motto: “Live income-tax free or die!”

High earners who have fled cities to their vacation homes or new mansions in other states are advised to check their state tax status. Could more than one state want a chunk of their salary and bonus?

If office cubicles end up being abandoned permanently, states will face troublesome tax challenges. When you work in the cloud, your “place of employment” may be fungible. 

For example, one of the largest employers in this part of New Hampshire is an insurance company with headquarters in Massachusetts. Imagine a New Hampshire employee who commuted to headquarters but now works from home on marketing projects around the country. Massachusetts wants to tax her income. She doesn’t want them to. So she says, “Boss, please change my virtual desk assignment to New Hampshire.” 

As “place of employment” becomes cloudier, states may have to settle for taxation based on place of residence. 

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!


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.

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.