From Laughter to Lamentation

Six years ago I used this quote in a blog comment because it seemed funny. Now . . .

Congress is the single strongest argument against Intelligent Design.
 --Alan Abelson, Barron’s, 5/23/05

Contentious Trusts

Across the pond, The Society of Trust and Estate Practitioners has handed out its Private Client Awards 2011/2012. My favorite:

Contentious Trust and Estates Team of the Year: Taylor Wessing LLP

The Luxury of Getting Away From It All

Fifty Septembers ago, when Chase ran this ad, movers and shakers could still get away from it all (except for those pesky "investment cares"). No mobile phones … no e-mail … no Internet access. What luxury!

Quote of the day:

From Megan McArdle:

Providing stimulus through payroll tax cuts that are financed with tax hikes on other people is like trying to boost your household income by making your wife pay you to mow the lawn.

Mitt Romney's Parable of The Faithless Fiduciary

Marc Thiessen in The Washington Post:

Heated exchanges notwithstanding, the fact is that Romney and Perry both agree that Social Security is being run as a criminal enterprise. In his book, “No Apology,” Romney writes: “Suppose two grandparents created a trust fund, appointed a bank as trustee, and instructed the bank to invest the proceeds of the trust fund so as to provide for their grandchildren’s education.” (Yes, he really chose a “trust fund” as an example.) “Suppose further that the bank used the proceeds for its own purposes, so that when the grandchildren turned eighteen, there was no money for them to go to college. What would happen to the bankers responsible for misusing the money? They would go to jail.”

No more tax patents

By 89-9, the Senate passed the patent reform legislation that, among other things, bars future patents on tax strategies.  An estimated 150 such patents have been issued, and 160 are pending, but no more. A distinction is made for tax preparation software, which can still be protected. 

In the old days laws firms used their caches of Private Letter Rulings as a type of intellectual property.  When a firm had a favorable ruling from IRS for one client's strategy, they would share that information with other clients, but not other law firms.  Private Letter Rulings were jealously guarded, they were potent new business tools. Then Tax Analysts successfully sued to make public redacted versions of the Private Rulings, to let everyone in on what the IRS was thinking.

When your tax code is so complicated that compliance strategies can be deemed so unobvious that they are patentable, when lawyers will treat IRS correspondence as trade secrets, I think you have a serious problem. Merely outlawing tax patents isn't the solution.  Radical simplification is needed.  First, go back to Reagan's 1986 Tax Code.  Next, eliminate all deductions for personal expenses--charitable gifts, property taxes, mortgage interest.  Sure, some tax lawyers will lose some business, but the economy will be much better off.  And the feds will have a whole lot more revenue.

Knight regs. are withdrawn

Fees paid for investment management services are subject to a floor of 2% of AGI.  Trust fees are generally fully deductible. In Knight in 2008 the U.S. Supreme Court held that the 2% rule should apply to investment management fees paid by a trustee to an outside investment advisor. Going further, the Court held that only fees incurred because the assets were in an estate or trust (such as trust accounting fees) are fully deductible, and any expenses that individuals might also incur are subject to the 2% of AGI limitation.

IRS has had some trouble with the regulations implementing this decision, particularly on the issue of unbundling of trust fees into components.  The Proposed Regulations on the subject were withdrawn on September 6.  New hearings will be held in December, and new Regs. won't take effect before 2013.

For Steve Jobs fans

I'm one, you must know by now.

Here is one person's take on Steve Jobs' 10 Best Quotes for Advertising Agencies.  Actually, I was underwhelmed by the quotes, but each one includes a link that sources it. So I'm really linking for the links. Those interviews cover a wide time frame.  The Wired interview from 1993 is especially interesting.

Can Investment Advisers Save the Economy?

Savers and investors continue to suffer from an income famine. Yields on CDs are negative. Ditto for real, after-tax yields on ten-year Treasuries. Belatedly, financial journalists have realized that policies intended to bring banks back to life are toxic for savers and investors. 

That's not the worst of it. What's bad for savers and investors is bad for the economy – especially now, as the great tidal wave of Boomers are reaching retirement age. Ordinarily, many business managers and professionals up their spending as they prepare to retire. It's time to expand the cottage at the lake into a real retirement home … launch and equip a retirement business .… take more time off and treat the grandkids to a Disney cruise.

With Boomers suffering from the  income famine, they're not likely to tap their nest eggs to augment consumer spending. Unless ….

When investment advisers help their clients realize income through interest-paying deals that aren't too dicey, plus sturdy income stocks, they're doing more than helping their clients. They're helping save the economy.

This easy $4.2 billion tax hike should not be controversial

From the Washington Post.

That's not the 10-year total, which is the way we usually talk about tax hikes and breaks.  That's just one year. So, $42 billion in ten years.  You know, we might make a down payment on getting rid of the AMT with this!

Retirement: a Low-Stress Alternative to “The Number”

If I want to retire, according to conventional marketing messages, I need to reach a number. Say my number is $1.2 million. When I hit that target I can retire and withdraw 4% a year.

 If only it were that simple. At retirement, volatility in the markets  could chop my expected $1.2 million down to $900,000. (Yikes! I'll never be able to stop working.)

Or volatility could temporarily supersize my nest egg, to $1.5 million or more. (Whoopee! I'll live large for the next 30 years.)

Wouldn't my risk of deep despair or dangerous euphoria be sharply reduced if I set an income target and invested accordingly?

Suppose I want $40,000 a year. If I prepare by building a portfolio from income stocks and a bond fund or two, my chances of success are pretty good. Even if Wall Street goes berserk the year I retire, my dividend and interest income should remain close to expectations.  (The Great Recession hardly dented this blogger's modest investment income. Dividend increases pretty much balanced out dividend cuts.)

David Van Knapp is an author who loves dividends. He favors setting a retirement-income target and investing primarily in stocks known for increasing dividends..

Hardly a new approach. After the Great Depression vaporized his hot-shot portfolio, grandfather promised himself he'd never again buy a stock that didn't pay decent dividends. And he retired in solid comfort.

Should this low-stress approach to retirement investing be encouraged? Or is it an anachronism, unfit for a "total-return" era, where most retirement investing is highly regulated and fewer Americans are accustomed to "living on income"?

Digitally Incommunicado?

Have trouble reaching your clients and prospects? Do they have trouble reaching you? Not surprising, wrties Frank Bruni in The New York Times:

You hear so much about how instantly reachable we all are, how hyperconnected, with our smartphones, laptops, tablets and such. But the maddening truth is that we’ve become so accessible we’re often inaccessible….

Should Philanthropy Be Purposeful or Public?

Dealbook's Andrew Ross Sorkin takes Steve Jobs to task for his lack of public philanthropy. There is no "hospital wing or an academic building with his name on it." See The Mystery of Steve Jobs Public Giving and the comments thereon.

One comment, from AB, cites a 1985 interview: Jobs indicated that the practice of philanthropy was more demanding than most billionaires would tolerate. There's more to it than giving a sum sufficient to get your name on a building.

Interviewer: You could spend all of your time disbursing your money.

Jobs: Oh, you have to. I'm convinced that to give away a dollar effectively is harder than to make a dollar. 

•

Want a Steve Jobs building? Here's the amazing spaceship come to earth that will become Apple's new campus. I'm guessing that Cupertino will consider it a contribution to the civic good.

Something to cheer you up

Responding to JLM's post below, here's the best summary post I've found so far about Steve Jobs, a collection of video highlights:

http://thenextweb.com/apple/2011/08/25/our-top-10-most-unforgettable-steve-jobs-video-moments/

I haven't looked at all of them, but don't miss the fourth one, his 1983 conference presentation that ends with the "1984" ad for Macintosh.  As great as that ad was, it was even more powerful, and emotional, in the context of his presentation.  I'd love to see the rest of that program.


There's conjecture that the Jobs resignation was less about his health and more about locking in the services of Tim Cook as the successor CEO. I'd like to believe that.

Ten Reasons You May Need to “Cheer Up”

10.

Negative real, after-tax yields on Treasury bills and notes. Investors must pay the government to hold their money.

9. 

Stock market full of sound and fury, signifying nothing.

8. 

Likelihood of double-dip recession said to grow.

7.

Congress plans return to work. Prospect causes citizenry to cringe in fear and loathing.

6

Republican refusal to raise income tax rates triggers renewed interest  in consumption tax.

5. 

Gap between very rich and the rest of us expands, making future of estate tax hard to predict.

4. 

Unemployment remains stuck around 9 percent.

3 

Banks foreign and domestic waver. Even Warren Buffett cannot save them all.

2. 

Seemingly endless supply of foreclosed homes kills demand for new ones.

1. 

Steve Jobs, the man who changed the world, resigns as Apple CEO.

A tip of the freshly-brushed fedora to Rob Bamberger, who played this recording on Hot Jazz Saturday Night.

Investment Yields: Back to the Fifties?

Ancient investment folk wisdom: because stocks are risky, they must reward investors with dividend yields higher than the interest paid by bonds.

For generations that rule of thumb endured, weakening only when stock-market madness exploded in 1929. Crash and Depression restored the traditional order. Not until the late 1950s, as the notion of growth stocks took hold, did stock yields dip below bond yields. And there they stayed. By 1961, when Chemical Bank ran the ad shown here, well-chosen stocks seemed so reliable that Chemical could promise "investment growth with peace of mind."

Fifty years later, that selling proposition might get you committed.

How wary have investors become? Well, according to today's charts from multpl.com, stocks once again yield more than bonds.

The Power of Print

Why does our sponsor, The Merrill Anderson Company, keep churning out printed newsletters and brochures in the digital age? Because print has power.

Millionaires: Endangered species?

There are a lot fewer than there used to be.

Stock Market Volatility = Gift Tax Saving

Stock market gyrations may be causing you gastric distress, but volatility does have an estate planning upside. The Wall Street Journal points out that higher than normal volatility may justify a steeper than normal discount when gifting shares in a privately-held business.

(Clients will be able to transfer publicly traded shares pretty cheap, too, if the market keeps plunging.)

How to increase federal revenue by $50 billion per year.

End the dumb tax policy that encourages companies to park their cash abroad.  Most amazingly, this link goes to the New York Times!

Stop the Mutual Fund Merry-Go-Round?

Photo: Wikimedia Commons

Once upon a time, a Merrill Lynch broker made a pitch for the company 401(k) plan. Could we see the prospectuses for the proprietary funds he proposed to use? Of course, he said.

Did we ever see a prospectus? Of course not.

In theory, regulations required that an investor receive a prospectus before purchasing fund shares. In practice, brokers selling high-expense, low-performing funds could not comply. They were schooled to use Plan B: Make the sale first, deliver the prospectus later.

That memory cropped up as I read David Swensen's tirade against The Mutual Fund Merry-Go-Round.  Yes, "investors should take control of their financial destinies, educate themselves, avoid sales pitches and invest in a well-diversified portfolio of low-cost index funds." But asking fund salespeople to hand out more informative prospectuses, offer index-fund alternatives and generally act like fiduciaries? I fear that's still not practical.

Warren Buffett Wants Multimillionaires to Pay More Tax

From Buffett's op-ed in today's NY Times:

I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress.

 Back in the day, the federal government sometimes imposed a surtax when the going got rough. Wouldn't a 10% surtax on millionaires and a 20% surtax on decamillionaires be the simplest way to tax the richest?

“We Want to Hold Your Hand . . .”

Investment firms have learned they must communicate with clients in a time of crisis. (Even a small T. Rowe Price investor like this blogger recently received two e-mailed advisories.) Most clients don't expect advisers to offer solutions; they simply want reassurance that their adviser is paying attention.

Check out Deal Journal, which has used Wordle to convert various firms' 'don't panic" letters into something like art.

“Family Offices” For the Rest of Us

George Soros intends to turn his hedge fund into a family office managing billions and billions. Lesser wealth, in the hundreds of millions, also may justify setting up a free-standing family financial services firm. For the rest of us, Bloomberg reports, multifamily offices now seek clients with as little as $5 million.

Good Grief, They're Slashing EVERTHING!

Here's how my new issue of The New Yorker arrived in the mail today. Wall Street's tremors must be shaking the whole city.

Four Hundred Years of Bubbles

From SmartMoney, a crash course on financial crashes. There were more bubbles where these came from, notably the stock market bubble, fueled by buying on margin, that burst in 1929.

The Great (Delete Recession) Contraction

Anyone turning to The Times business section this morning – "On Wall Street, traders and strategists trekked to their offices on Sunday in scenes reminiscent of the fateful weekend before Lehman Brothers collapsed in 2008" – knew this wasn't going to be a good day.

 Double-dip recession ahead? No. Don't call it a recession. What we have, as Ezra Klein in The Washington Post illustrates with a chart, is something special. Economist Kenneth Rogoff, co-author of "This Time is Different,"  calls it the second Great Contraction.

A lot of deleveraging remains to be done before we put the second Great Contraction behind us. As for the stock market, the next saros cycle isn't expected to start for another seven years or so. (Well, maybe a bit sooner, if you believe Warren Buffet's guesstimate). Meanwhile, the hordes of Boomers hoping to retire towards the end of the decade may have several years to load up their portfolios with bargain stocks.

The challenge for investment pros? How to convince their Boomer clients that Wall Street's bad news is their good luck.

I watched President Obama on MSNBC today . . .

. . . and it appeared to me that the Dow broke through the 11,000 barrier while he was talking.

I did not get a sense that any new ideas are on the horizon.

Form 8939 was released on Friday

Here is the announcement.

This is the Form for opting out of the 2010 estate tax, choosing the carryover basis instead, and telling IRS what the asset values are in the estate.  Only the very largest estates need be concerned--I'm looking at you, executor for George Steinbrenner.

The due date is November 15, 2011, and extension opportunities will be limited.  That's because, even though it's a short filing window, it's an overly long window since the date of death for all affected estates.

The budget deal

Robert Samuelson offers a spin-free review.

A Reverse Mortgage By Any Other Name . . .

View from Malaga villa

Danske Bank sales pitch to Scot living in Malaga, Spain: Borrow against your house with our equity release plan. You'll get income for life, and your daughters will pay less Spanish inheritance tax when you die.

Reality: Bad idea.

How bad is this recession?

Derek Thompson at The Atlantic highlights four shocking graphs. We are far, far from real recovery.

How to Sell Performance

As the stock market surged in the 1980s, even the staid house of Morgan joined the ranks of banks and trusts that launched ad campaigns. This Morgan ad from 1986 offers a classic definition of "performance." (Note that a quarter century ago, a mere $2 million made one wealthy enough to gain Morgan's attention.)

Does the dashing gent in the photo look familiar? James Goodfellow now serves as chairman of Fiduciary Trust International.

Related post: A Classic Ad from 1985

Recession must be over . . .

. . . when kids are taking private planes to camp.

The Great Communicator

At the risk of repeating myself, here is what President Ronald Reagan wrote in his diary on Tuesday, November 1, 1983:

Last night the Repub. Sen. very irresponsibly refused to pass an increase in the debt ceiling which is necessary if we're to borrow & keep the govt. running. *** I sounded off & told them I'd veto every d--n thing they sent down unless they gave us a clean debt ceiling bill. That ended the meeting.