As this mess goes on, we shatter myths. The latest to go: the theory of non-correlated asset classes. Gold is going down with equities. Most asset classes move together these days. Not good to own equities today.
But I correct myself. Bonds aren’t cratering. They’re holding up nicely. See below for two recommendations.
For a taste of the turmoi, some headlines from today’s wall Street Journal:
+ An agreement on U.S. budget cuts looks increasingly unlikely, a situation that could mean more turmoil for markets.
+ Germany’s central bank sharply lowered its growth forecast for the German economy in 2012, repeating its warning that the country could hit a “pronounced” weak patch if the euro zone’s debt crisis worsens.
+ European stock markets slumped Monday (today), hit by the combined fears over ongoing euro-zone debt worries and a rift between members of the U.S super committee.
+ Spanish bond yields rose sharply as the markets ignored the opposition party’s sweeping victory in Sunday’s Spanish general election and focused on the economic problems the country faces.
This low-cost municipal bond fund seeks to provide a high level of federally tax- exempt income and typically appeals to investors in higher tax brackets. The fund’s lower credit quality may provide a higher yield, but it makes the fund more susceptible to price volatility due to uncertain prospects for the bond issuers. Investors who are looking for a fund that may provide sustainable federal tax-exempt interest income and can tolerate moderate risk to principal may wish to consider this fund as a complement to an already diversified fixed income portfolio.
The fund has 768 bonds with an average duration of 8.5 years. I don’t believe there’s any significant risk in this fund. It has so many bonds that one or two going broke would not affect performance. You can only buy the fund if you have an account at Vanguard.
Here’s a short-term muni box fund, also a good idea. It’s called the Vanguard Limited-Term Tax-Exempt Fund Admiral Shares (VMLUX). It has 1579 bonds with an average maturity of 2.8 years.
Vanguard describes it:
This low-cost municipal bond fund seeks to provide income exempt from federal taxes and typically appeals to investors in higher tax brackets. The fund holds high-quality short-term municipal bonds with an average duration of approximately 2 years, a bit longer than the Short-Term Tax-Exempt Fund. Risks of the fund include the fact that changes in interest rates, both up and down, can affect the fund by resulting in lower bond prices or an eventual decrease in income for the fund. Investors who are looking for a modest level of federal tax-exempt interest income and can tolerate some income and share price risk may wish to consider this fund.
There also a New York State fund which is exempt from Federal and States taxes. Click here.
The Treasury Department yesterday revised its loss estimate for the Government Motors bailout from $14.33 billion to $23.6 billion, thanks to the company’s sinking stock price. GM’s Sept. 30 closing price, on which the new estimate is based, was $20.18, about $13 less than its December IPO price and $35 less than what is needed for taxpayers to break even. (It closed on Friday at $21.68.)
The $23.6 billion represents a 25 percent loss on the feds $60 billion direct “investment” in GM. But that’s not all that taxpayers are on the hook for. Uncle Sam’s special GM bankruptcy package allowed the company to write off $45 billion in previous losses going forward. This could work out to as much as $15 billion in tax savings that GM wouldn’t have had had it gone through a normal bankruptcy. Why? Because after bankruptcy, the tax liabilities of companies increase since they have no more losses to write off.
This means that the total hit to taxpayers, who still own about a quarter of the company, could add up to $38.6 billion.
Why the Treasury didn’t sell the bulk of its shares at the IPO beats me.
Favorite recent newspaper headline. From the New York Times of October 10, 2011:
The deal is near. Ha. Ha.
The camera that will change photography — forever. Maybe. It’s called the Lytro Light Field camera. It has an 11 megaray sensor (all other cameras have only one), that captures photos that can be refocused after shooting. I have not played with it. Read about the novel camera here.
The Fujifilm X10 is getting a lot of attention, also. The X10 combines a bright 4x stabilized zoom lens with extensive direct control and the attractive rangefinder-esque styling of its big brother, the X100. It fits into the same category as my beloved Canon G10 — what they’re calling the enthusiast’s camera with oodles of manual controls. I have not played with it, either. I can’t keep up. New digital cameras are coming out too quickly. Click here.
Lessons from my experience with charities.
You have to pick them, carefully. You have to know them, well. The world is full of needy causes. You can’t solve all of them. Even Bill Gates found he can’t cure all the diseases he’d like to.
When I sold the business, I gave big money to a charity devoted to helping ex-convicts achieve a normal life. I’d fund a networking lab — computers, routers, WiFi, desks, chairs, etc. The ex-cons would learn how to troubleshoot and fix. New York’s financial firms were desperate for these skills. A good job would keep them out of jail the second time (a huge problem). The first equipment bill I got was three times the price anyone would buy the same equipment online at Dell. Why so expensive? Their consultant had chosen the vendor.
The people who run non-profits have their own agenda (and their own pricey, friendly consultants). Sometimes their agenda focuses on whom they’re meant to be helping. Often it’s their own careers.
Charities need as much due diligence as investing in companies. The best charity is one you started yourself and control. You know where the money is going and can see, first hand, if your money is doing any good.
Years later I’ve found a few charities that do good work cheaply — meaning most of my money goes to help people. But it’s been hard work finding them. I have to be ultra-wary of the superb direct mail marketing skills charities have developed and the tendency to use all my money on their “administrative” expenses.
The most expensive bicycle in the world. Only $500,000. This is a Trek Madone made for the return of Lance Armstrong, designed by Damien Hirst, an English Artist, who ringed the entire bike with (of all things) butterflies.
Buy me me one, please. Click here.
The awesome benefits of Apple iPhone 4S Siri.
To watch this wonderful video, click here.
Harry Newton who cautions: Before you go on a trip, empty your wallet of stuff you won’t need. Photocopy everything you’re taking. Use a color copier or scanner.
Son Michael with baby, not his.
I hope the baby thing is contagious. You sure they know where babies come from? Did you do your job there?
Your words about charities are exactly right. I stick very close to home and always want to see the results. My favorite is Take Stock in Children. Six years of adult guidance and advice for kids at risk, good enough grades, always good behavior, and then we help pay for their college or trade school. And… we only pay to the school. Tightly run. Very little overhead. And local.
You read a lot of Internet garbage about charity salaries… usually quoting some tiny salary for a gentleman who is no longer the head of the Salvation Army. Here is a pretty realistic article from Forbes: http://www.forbes.com/2009/11/…
Please Harry, any feedback would be appreciated on the camera front: Are entry level DSLR cameras a waste of money are there benefits that are worth having compared to a point and shoot…Having a background in product design, I have to say I like that Lytro Light Field Camera. From what you can tell technology wise, is it worth it to wait to for one of these over an SLR. I know you are very knowledgeable about cameras, I really could use your guidance. Thanks
Zack….any chance you've ever used Parametric Technologies Pro Engineer to assist in any of your product design?
Hopefully (for your sake, Harry) Micahel is familiarizing himself with the wonders that come in little adorable bundles called babies. 😉
Hmmm, looks as though that opposition party's sweeping victory in Sunday's Spanish general election was won by the center-right Popular Party or in Spain a.k.a. the conservative party. Even those socialist nut cases in Spain recognize that the shit-is-about-to-hit-the-fan, and they realize that it's time to elect some adults. I didn't see any coverage of “that” on this mornings U.S. liberal mainstream media.
Hey Harry, tell your kids no 5 mil this year unless they promise you a grandchild………life's a bitch!