In Search of the Perfect Investment

Three years he focused on buying expensive commercial real estate, holding it for three years and selling at a gigantic profit — all juiced up by 75% borrowing.

Now he’s back with a residential apartment complex offering a monthly dividend — it should be 8% a year. The deal has much less borrowing, much higher debt coverage, and lots left over for the dividend which should be partially shielded from taxes.

His investors — like me — now want yield. A monthly check. Hence my recent discussion with ultra-high yielders, like NLY, which Motley Fool also likes.

On last week’s WealthTrack, Consuelo Mack interviewed Hersh Cohen, Chief Investment Officer of ClearBridge Advisors, a division of Legg Mason. The key question posed to him is: “How long can low yielding bonds deliver better returns than some of America’s highest quality blue chip companies, which have dividends offering competitive yields and have a history of increasing dividends every year?”

You can see the interview here or here. This is Hersh Cohen’s list:

To die,  to sell. This year is good to die. No estate tax. Doctor friends see see a drop in electricity usage as the plug gets pulled on Grandpa. I-bankers are talking about owners selling their businesses. And lots of other tax-induced events.

Next year, taxes will skyrocket. The Tax Tsunami On The Horizon. That’s the headline of a story in Investors Business Daily. Here are some excerpts:

… Through the end of this year, the federal estate tax rate is zero – thanks to the package of broad-based tax cuts that President Bush pushed through to get the economy going earlier in the decade.

But as of midnight Dec. 31, the death tax returns – at a rate of 55% on estates of $1 million or more. The effect this will have on hospital life-support systems is already a matter of conjecture.

Resurrection of the death tax, however, isn’t the only tax problem that will be ushered in Jan. 1. Many other cuts from the Bush administration are set to disappear and a new set of taxes will materialize. And it’s not just the rich who will pay.

The lowest bracket for the personal income tax, for instance, moves up 50% – to 15% from 10%. The next lowest bracket – 25% – will rise to 28%, and the old 28% bracket will be 31%. At the higher end, the 33% bracket is pushed to 36% and the 35% bracket becomes 39.6%.

But the damage doesn’t stop there.

The marriage penalty also makes a comeback, and the capital gains tax will jump 33% – to 20% from 15%. The tax on dividends will go all the way from 15% to 39.6% – a 164% increase.

Both the cap-gains and dividend taxes will go up further in 2013 as the health care reform adds a 3.8% Medicare levy for individuals making more than $200,000 a year and joint filers making more than $250,000. Other tax hikes include: halving the child tax credit to $500 from $1,000 and fixing the standard deduction for couples at the same level as it is for single filers. …

But even more tax headaches lie ahead. This “second wave” of hikes, as Americans for Tax Reform puts it, are designed to pay for ObamaCare and include:

The Medicine Cabinet Tax. Americans, says ATR, “will no longer be able to use health savings account, flexible spending account, or health reimbursement pretax dollars to purchase nonprescription, over-the-counter medicines (except insulin).”

The HSA Withdrawal Tax Hike. “This provision of ObamaCare,” according to ATR, “increases the additional tax on nonmedical early withdrawals from an HSA from 10% to 20%, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10%.”

Brand Name Drug Tax. Makers and importers of brand-name drugs will be liable for a tax of $2.5 billion in 2011. The tax goes to $3 billion a year from 2012 to 2016, then $3.5 billion in 2017 and $4.2 billion in 2018. Beginning in 2019 it falls to $2.8 billion and stays there. And who pays the new drug tax? Patients, in the form of higher prices.

Economic Substance Doctrine. ATR reports that “The IRS is now empowered to disallow perfectly legal tax deductions and maneuvers merely because it judges that the deduction or action lacks ‘economic substance.'”

A third and final (for now) wave, says ATR, consists of the alternative minimum tax’s widening net, tax hikes on employers and the loss of deductions for tuition: …

 “Small businesses can normally expense (rather than slowly deduct, or ‘depreciate’) equipment purchases up to $250,000,” says ATR. “This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be ‘depreciated.'”

 According to ATR, there are “literally scores of tax hikes on business that will take place,” plus the loss of some tax credits. The research and experimentation tax credit will be the biggest loss, “but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.”

 The deduction for tuition and fees will no longer be available and there will be limits placed on education tax credits. Teachers won’t be able to deduct their classroom expenses and employer-provided educational aid will be restricted. Thousands of families will no longer be allowed to deduct student loan interest.

Then there’s the tax on Americans who decline to buy health care insurance (the tax the administration initially said wasn’t a tax but now argues in court that it is) plus a 3.8% Medicare tax beginning in 2013 on profits made in real estate transactions by wealthier Americans. …

The Middle Class in America Is Radically Shrinking. Here Are the Stats to Prove it. That’s the headline on a story in Yahoo Finance. The 22 statistics in the article “prove beyond a shadow of a doubt that the middle class is being systematically wiped out of existence in America.” You’ll be depressed. The piece is worth reading. Some more information to factor Click here.

More bad news on the Afghanistan war. A trove of military documents made public on Sunday by an organization called WikiLeaks reflects deep suspicions among American officials that Pakistan’s military spy service has for years guided the Afghan insurgency with a hidden hand, even as Pakistan receives more than $1 billion a year from Washington for its help combating the militants. To read more, click here.

So you’ve always loved yoga? This past weekend’s New York Times reviewed two books, THE SUBTLE BODY  — The Story of Yoga in America and THE GREAT OOM, The Improbable Birth of Yoga in America. The Times illustrated its story with this totally wonderful photo:

Its article began:

Posing as Fitness
Depending on the audience and the era, yoga was repackaged in different ways for America.

A few years ago, the pop singer Sting confided to an interviewer that a specific yoga asana, or posture, had enabled him to have sexual intercourse with his wife, the star of a line of yoga videos, for as long as eight hours at a time. “Your stomach,” he said, “goes as near to the spine as you can make it, . . . and you never lose control, you just keep going.” The news of this priapic tour de force “went around the world,” in Sting’s own words, “like a forest fire.” Then he admitted he had been joking. His epic bouts of lovemaking, he said, included “four hours of begging, then a movie and then dinner.”

Sting probably didn’t realize how many would-be erotic athletes he had brutally disappointed by this confession. Even while the news of his sexual prowess was rumbling across countless magazine profiles, few people seemed to have suggested that eight hours of hydraulic exertion, however rapturous, might cause a slight problem of tedium, not to mention soreness. Nor did it provoke fundamental questions about the purpose of yoga, which in India, the country of its origin, is identified as one of the six main schools of classical philosophy as well as a form of intellectual training, ethical behavior, meditation, alternative medicine and physical culture. (The Sanskrit word itself means “union,” of the individual self with the cosmic Self.)

But then, as two new books on the strange history of yoga in America show, even the most esoteric and ancient spiritual tradition mutates weirdly when it meets a modern culture pursuing happiness with ever diverse means. As Pierre Bernard, one of the first of many indefatigable charlatans who popularized yoga, or at least its physical-training aspect, hatha yoga, in the United States, put it, “The purpose of yoga is to prepare us from getting cheated; to enable us to make better bargains, and to get what we go after!” Fabulous sex was high on Bernard’s menu even in the strait-laced 1910s. Robert Love’s entertaining ­biography, “The Great Oom,” depicts a bold and successful liar who could tell his gullible disciples with a straight face that oral sex, punishable in 1915 by up to 20 years in prison, was a sacred practice in India and produced orgasms 10 times longer than ordinary intercourse. …

You can read the full article by Pankaj Mishra; click here.

Harry Newton,who has personally  found yoga to give boredom a whole new meaning.

For fear of getting tarred as a bleeding upper west-side liberal, I’m sneaking this piece on global warming from Thomas Friedman, July 25, 2010:

We’re Gonna Be Sorry

When I first heard on Thursday that Senate Democrats were abandoning the effort to pass an energy/climate bill that would begin to cap greenhouse gases that cause global warming and promote renewable energy that could diminish our addiction to oil, I remembered something that Joe Romm, the climateprogress.org blogger, once said: The best thing about improvements in health care is that all the climate-change deniers are now going to live long enough to see how wrong they were.

Alas, so are the rest of us. I could blame Republicans for the fact that not one G.O.P. senator indicated a willingness to vote for a bill that would put the slightest price on carbon. I could blame the Democratic senators who were also waffling. I could blame President Obama for his disappearing act on energy and spending more time reading the polls than changing the polls. I could blame the Chamber of Commerce and the fossil-fuel lobby for spending bags of money to subvert this bill. But the truth is, the public, confused and stressed by the last two years, never got mobilized to press for this legislation. We will regret it.

We’ve basically decided to keep pumping greenhouse gases into Mother Nature’s operating system and take our chances that the results will be benign — even though a vast majority of scientists warn that this will not be so. Fasten your seat belts. As the environmentalist Rob Watson likes to say: “Mother Nature is just chemistry, biology and physics. That’s all she is.” You cannot sweet-talk her. You cannot spin her. You cannot tell her that the oil companies say climate change is a hoax. No, Mother Nature is going to do whatever chemistry, biology and physics dictate, and “Mother Nature always bats last, and she always bats 1.000,” says Watson. Do not mess with Mother Nature. But that is just what we’re doing.

Since I don’t have anything else to say, I will just fill out this column with a few news stories and e-mails that came across my desk in the past few days:

• Just as the U.S. Senate was abandoning plans for a U.S. cap-and-trade system, this article ran in The China Daily: “BEIJING — The country is set to begin domestic carbon trading programs during its 12th Five-Year Plan period (2011-2015) to help it meet its 2020 carbon intensity target. The decision was made at a closed-door meeting chaired by Xie Zhenhua, deputy director of the National Development and Reform Commission … Putting a price on carbon is a crucial step for the country to employ the market to reduce its carbon emissions and genuinely shift to a low-carbon economy, industry analysts said.”

• As we East Coasters know, it’s been extremely hot here this summer, with records broken. But, hey, you could be living in Russia, where ABC News recently reported that a “heat wave, which has lasted for weeks, has Russia suffering its worst drought in 130 years. In some parts of the country, temperatures have reached 105 degrees.” Moscow’s high the other day was 93 degrees. The average temperature in July for the city is 76 degrees. The BBC reported that to keep cool “at lakes and rivers around Moscow, groups of revelers can be seen knocking back vodka and then plunging into the water. The result is predictable — 233 people have drowned in the last week alone.”

• A day before the climate bill went down, Lew Hay, the C.E.O. of NextEra Energy, which owns Florida Power & Light, one of the nation’s biggest utilities, e-mailed to say that if the Senate would set a price on carbon and requirements for renewal energy, utilities like his would have the price certainty they need to make the big next-generation investments, including nuclear. “If we invest an additional $3 billion a year or so on clean energy, that’s roughly 50,000 jobs over the next five years,” said Hay. (Say goodbye to that.)

• Making our country more energy efficient is not some green feel-good thing. Retired Brig. Gen. Steve Anderson, who was Gen. David Petraeus’s senior logistician in Iraq, e-mailed to say that “over 1,000 Americans have been killed in Iraq and Afghanistan hauling fuel to air-condition tents and buildings. If our military would simply insulate their structures, it would save billions of dollars and, more importantly, save lives of truck drivers and escorts. … And will take lots of big fuel trucks (a k a Taliban Targets) off the road, expediting the end of the conflict.”

• The last word goes to the contrarian hedge fund manager Jeremy Grantham, who in his July letter to investors, noted: “Conspiracy theorists claim to believe that global warming is a carefully constructed hoax driven by scientists desperate for … what? Being needled by nonscientific newspaper reports, by blogs and by right-wing politicians and think tanks? I have a much simpler but plausible ‘conspiracy theory’: the fossil energy companies, driven by the need to protect hundreds of billions of dollars of profits, encourage obfuscation of the inconvenient scientific results. I, for one, admire them for their P.R. skills, while wondering, as always: “Have they no grandchildren?”