Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Friday, May 5, 2006: Cinco de Mayo. I'm
in a tiny quandary. On the one hand, the US economy is doing spectacularly.
Consumers are buying. Productivity is booming. Productivity
powers profits. And profits are booming. Share prices are rising.
On other other hand, I hear "gloom and doom" concerns from
knowledgeable friends who worry about the dollar and the U.S.'s inability
to reign in its profligate spending.
I don't buy "gloom and doom." It's a horrible way to live.
My grandfather, who had come from the old country, couldn't speak English and
didn't trust nobody (especially banks) put his savings in his mattress (literally).
By the time, our family fished the money out of the mattress, it had lost most
of its value to inflation. And it stunk. I remember the odor today. Think 30
years of sleeping on paper money and never once washing the mattress.
I do buy being prudent. The U.S. is profligate. It cannot forever
sustain its present deficits -- federal budget and overseas trading. I can't
put my money into my mattress. For one thing, my wife would kill me if I made
a hole in our new $5,000 mattress. But I can move more money into two countries
which are managing themselves with intelligence and restraint -- Canada
and Australia. Both have mega-commodities that are in high demand by
a devouring world, especially China and India.
I bought some more Canadian Oil Sands Trust yesterday. I have some syndicated
real estate in Canada. I need to find a better way of investing in Australia.
I'll be there next month for my father-in-law's 90th birthday. I'll research
more when I'm there. By the way, my Vanguard International Value Fund (VTRIX)
continues to perform beautifully.
The trigger for this "dollar gloom" thought today was yesterday's
news that the Senate had ignored President Bush's veto threat and easily
passed a $109 billion emergency spending bill for war and hurricane recovery
costs that also brimmed with favors for farmers, the fishing industry, and the
states of Hawaii and Rhode Island. The two-week debate that preceded yesterday's
77 to 21 final vote was marked by an election-year surge in targeted spending
on behalf of constituents and special interests, despite repeated warnings by
fiscal conservatives about a swollen budget deficit.
The Senate added money to rebuild a highway in Hawaii; protect riverbanks in
California; upgrade a hurricane barrier in Providence, R.I.; and compensate
New England shell fishermen for their losses from a red tide outbreak. The Senate
also took steps to make farming less risky by offering compensation for virtually
any scourge, including drought, flood, wildfires and pestilence.
best (and only) argument for buying on margin:
I've always said NO to buying on margin. It's too risky.
It whipsaws you. Etc. However, I have finally discovered one sound argument:
From today's New York Times:
Kenneth L. Lay,
former chief executive of Enron, was forced to sell millions of dollars in
Enron stock in 2001 because of demands from his brokers, not because of a
lack of faith in the company, a finance expert testified yesterday. Christopher
Barry, a finance professor at Texas Christian University in Fort Worth, told
jurors that the sales of stock were "forced sales."
is that Mr. Lay was obligated and forced into the sale of his stock because
of the margin calls that hit him," Professor Barry testified in
federal court in Houston.
was called by Mr. Lay's defense lawyers as an expert witness and has been
paid about $865,000 so far for his work on the case.
Lay pays this college professor at least eight years of salary to feed this
crap to the jurors. Lay and the professor expect the jurors to believe it. Amazing.
Truly amazing. The government, by the way, alleges that Mr. Lay sold Enron shares
in 2001 because he knew the company's finances were in trouble, even as he told
investors and employees that the company was doing well.
Case For Prepaying Tuition. This is really neat. From
the May 8 issue of BusinessWeek:
Today is the holiday of Cinco de Mayo. It celebrates
the victory of the Mexican militia over the French army at The Battle Of Puebla
in 1862. All my friends in Southern California will be celebrating tonight. Unfortunately
for Mexico, the victory was short lived. Upon hearing of his army's defeat, Napoleon
sent more troops overseas to invade Mexico again.
one way to give away money tax-free, as a recent IRS ruling makes clear
have long written checks to cover college and private school tuition for their
grandchildren. And why not? It's a way to transfer thousands of dollars --
private school tuition alone averages $17,000 a year for 12th graders nationally
-- to younger generations for a worthwhile purpose, while avoiding gift and
estate taxes. Now, a recent Internal Revenue Service ruling lends support
to individuals who'd like to transfer even more tax-free by prepaying years'
worth of tuition. "We're seeing more individuals as well as schools who
want to do this," says Susan Frunzi, a partner at New York law firm Schulte
Roth & Zabel. "College and private school tuition is so expensive.
Prepayments are a big help even to upper middle class families."
the IRS "private letter" ruling applies only to the taxpayer who
requested it -- in this case, a grandparent prepaying several years' tuition
for six grandchildren. But advisers say that if others follow the ruling's
guidelines, which echo a similar private letter ruling from 1999, they're
likely to receive the same favorable tax treatment.
You don't have
to be a grandparent or even a relative to prepay a child's tuition. Be aware,
though, that you risk forfeiting money if a student drops out or transfers
to another school. This is the reason prepayments make the most sense for
older people who have a need to transfer money out of their estates quickly,
says Janine Racanelli, managing director at JPMorgan Private Bank (JPM).
You can give
away up to $1 million during your lifetime tax-free. On top of that, you can
transfer up to $12,000 a year tax-free to as many people as you like. On every
dollar you give away after that, though, the federal government imposes a
gift tax of up to 46%. When it comes to gifts to grandchildren, anything above
$2 million is also subject to a "generation-skipping" tax, which
is generally up to 46%.
payments don't count. Based on the IRS ruling, a grandparent can prepay as
much tuition as he or she wants to and still give each grandchild $12,000
a year tax-free. Some caveats: You will have to pay the school directly, and
if you foot the bill for expenses aside from tuition -- such as room and board
-- you will have to use up some of your $1 million lifetime or $12,000 annual
gift tax exemptions.
many years' tuition, grandparents can also transfer substantial sums from
their balance sheets, thereby reducing their taxable estates. Currently, the
federal government levies a tax on estates worth more than $2 million. (Some
states, including New York and New Jersey, impose their own taxes on smaller
Under the IRS
private letter ruling, the benefactor agreed to pay tuition for future years
at today's rate and to cover increases as they arise -- or the parents would
become liable. In addition, the ruling requires that the money be "nonrefundable"
to escape taxes, says Blanche Lark Christerson, a managing director at Deutsche
Bank Private Wealth Management.
many private schools have forwarded unused tuition prepayments to another
school when a student has transferred, says Sarah Daignault, executive director
of the National Business Officers Assn., an organization that serves financial
officers at private schools. You can always ask a school to agree to such
terms in a contract or letter of agreement. Brooks School, a private boarding
and day school for students in grades 9 through 12 in North Andover, Mass.,
currently has tuition prepayment agreements with two families. Both provide
for any unused money to be transferred, in the event that the students switch
to other schools, says business manager Jim Pugh.
But the IRS
ruling doesn't make clear whether the agency would look favorably on such
an arrangement. "The risk is that if you die, the IRS may say you never
gave up control over the money if you retained the right to redirect it to
another school," says Christerson. "In that case, the money would
return to your estate." To find out for sure, you would have to request
an IRS private letter ruling of your own.
30,000 more troops and a full year later, the French were eventually able to depose
the Mexican army, take over Mexico City and install Maximilian as the ruler of
rule of Mexico was short lived -- from 1864 to 1867. With the American Civil War
now over, the U.S. began to provide more political and military assistance to
Mexico to expel the French, after which Maximilian was executed by the Mexicans.
Today his bullet riddled shirt is on display in the museum at Chapultepec Castle
in Mexico City.
Of course, all this is one story. The real story
of Cinqo de Mayo is as follows:
Back in 1912, Hellmann's mayonnaise was manufactured in England. In
fact, the Titanic was carrying 12,000 jars of the condiment scheduled for delivery
in Vera Cruz, Mexico, which was to be the next port of call for the great ship
after its stop in New York. This would have been the largest single shipment of
mayonnaise ever delivered to Mexico. But as we know, the great ship did not make
it to New York. The ship hit an iceberg and sank, and the cargo was forever lost.
The people of Mexico, who were crazy about mayonnaise, and were eagerly awaiting
its delivery, were disconsolate at the loss. Their anguish was so great, that
they declared a National Day of Mourning, which they still observe to this day.
The National Day
of Mourning occurs each year on May 5th and is known, of course, as Sinko
Have a great weekend.
Hug the family. Get more exercise. Eat less.
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
is . You can't
click on my email address. You have to re-type it . This protects me from software
scanning the Internet for email addresses to spam. I have no role in choosing
the Google ads. Thus I cannot endorse any, though some look mighty interesting.
If you click on a link, Google may send me money. Please note I'm not suggesting
you do. That money, if there is any, may help pay Claire's law school tuition.
Read more about Google AdSense, click
here and here.