I own 27.5% of a small, break-even tennis club. When the economy is good, we make a few shekels. When it’s awful (like now), we lose money. But we all get to play tennis. When I die, the IRS will pounce on my ownership and value it as though my tennis club shares were worth more than Facebook and Groupon combined. There are many ways of valuing my tennis shares. One is to look at the non-existent profits and say the club is valueless. Another way is to look at the land it sits on. And a third way is to just to pull a number out of the place the sun never shines.
At this point, I’m dead. My heirs are perplexed. And the lawyers, appraisers and accountants are getting rich.
I don’t want this. So now, before I die, I must simplify my life. One way to do this is to have a legal agreement between myself and my tennis partners that, when I die, they will buy my shares at a defined (and presumably fair) price.
There are other ways of solving the post-death mess. I could sell, or give, my interest in the tennis club to my kids now.
The key in estate planning is to get valuations clear. Think this way. One share of IBM is worth $174.32. How do I know? Because that’s what it last traded at at the close of business yesterday afternoon. One share of my tennis club is worth what? The shares have never traded.
Hence, today’s word is simplification.
The stockmarket went up yesterday because of Chairman Bernanke. He said he was concerned about the economy and he’d do something.
The rule is don’t mess with the Feds. Here is an excerpt from yesterday’s newsletter by doyen (old guy) Richard Russell:
July 13, 2011 — July 13 (Bloomberg) –Federal Reserve Chairman Ben S. Bernanke says the central bank “remains prepared to respond should economic developments indicate that an adjustment in the stance of monetary policy would be appropriate.” Bernanke testifies before the House Financial Services Committee in Washington.
Federal Reserve Chairman Ben S. Bernanke told Congress the central bank (i.e. the Federal Resserve) is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling.
“The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support,” Bernanke said.
Russell translation — In the face of the sagging economy, Bernanke is already talking about more quantitative easing or QE3. This should come as no surprise to my subscribers. I’ve said all along that Professor Bernanke would not tolerate anything that hinted of deflation or an economic slowdown. The Dow celebrated Bernanke admission by advancing a measly 30 points while gold surged to a new all-time record high of over 1580.
The worse the economy, the more Bernanke’s stimuli will be needed and moved into place. (Shades of 1929-1930?)
I guess subscribers have noticed that I write less and less about all the well-known fundamentals that the US and the world are obsessed with. The fact is that the opinions of recognized experts are seldom of any real use in investing.
These days, perhaps more than at any time since I started writing Dow Theory Letters (for the record, was back in 1958) I feel that we are on a survival basis. The world is changing now as it has never changed before. Wait, I take that back. In the dark days of 1942 it appeared that Germany and Japan were close to defeating the Allies, and the War was moving frighteningly in favor of the Nazis and the Empire of Japan. In February, the US halted all passenger car production and in the same month Singapore fell to Japan.
The stock market was falling. All our eyes were on the stock market as the Dow sank in April, 1942 to its famous low of an awful 92.92. From there the Dow turned up, never to see that low figure again. At the same time the battle of the Coral Sea and the Battle of Midway turned the war in favor of the Allies, and a great bull market on Wall Street was suddenly in progress.
Who knew, when the Dow turned up from 92.92, that the great tide of the War had turned in favor of the Allies? It was probably one of the most dramatic turns in the history of the D-J Averages.
Now again the stock averages are measuring the tides of history. As the market closed yesterday the Dow and the Transports sold off while August gold closed up 13.10 to a two-and-a-half month high. Unable to contain myself as the market closed, I shouted the words, “High drama. Gawd almighty, this is really high drama.”
As subscribers know, I use GLD as an up-to-date proxy for gold. On the P&F chart below we see that GLD has broken out to a new record high, which, of course, corresponds to a new high in bullion.
Although it doesn’t show on this chart, gold has exploded to 1587, clearing the last peak on the chart at 1570. Thus, gold is in a most bullish position — out in the clear at a new high — with no overhead resistance above it.
This does not mean that gold’s path to 1760 will be clear and direct, gold has a habit of making upside progress in a very erratic and often scary way. The overall trend, however, is clearly bullish.
Why would anyone employ anyone ever? I presently employ one person. I pay them $25,000. Every quarter I pay the Federal Government $1,574.19 and the State of New York and the City of New York $495.01. That’s a total of $2,069.20 a quarter, or $8,276.80 per year. Thos taxes are precisely one -third of that one salary. At the end of the year, the employee will receive a small refund. These taxes are insane. Why would anyone employ anyone ever? no wonder there are 20 million effectively unemployed people in the U.S.
Shingles is the absolute worst disease. It brings a month of sheer agony. Many older people get it because they carry the chicken pox virus.Most of us have it as a result of having had chicken pox when we were children. There is a Shingles vaccine. It’s hard to get and it’s expensive. It may not prevent you getting Shingles, but it may lessen its impact. Wikipedia explains Singles. Click here. The New York Times did an update on the virus. Click here.
Whatever happened to LinkedIn? Friends tried to short it. Contrary to everything written about the company’s horrible earnings fundamentals, its stock price has risen.
Beware, the float is very very very thin. Don’t mess with LinkedIn.
How to make your Windows XP start faster. This really works. I tested it on three laptops. It comes from the August 2011 PCWorld.com.
1. Launch Regedit
2. Search for StartupDelay
3. Change the base setting from Hexadecimal to Decimal
4. Enter 40000 in the value field (no commas)
5. Exit Regedit. You don’t have to save it
Of course, the fastest way to speed up your laptop is to swap out your spinning mechanical hard drive with a solid state hard drive. See the Kingston mention in the right hand column.
Fun places to live, or at least visit:
1. Vancouver Island, Canada
2. New Zealand, especially the South Island
3. The Mediterranean region of southern France
4. Costa Rica
5. Bhutan
6. The Maldives
7. Phuket in Thailand (pronounced poo-KETT).
8. Bryon Bay, New South Wales, Australia
Harry Newton who admits that yesterday’s recommendation on BAC was a “flyer.” One should never try and catch a falling knife, especially that of a cockroach stock like Bank of America. My BAC holding is tiny. I’m currently down a total of $56.85. If it doesn’t bounce soon, I’m out. I’m buying more SGOL today.
The key to estate planning success and valuation is “arms length transaction”.
1) Europeans pay tax more than 30%.
2) Being rich has its own price to pay, not necessaeily money. It is still a better choice than being poor. We can not get everything in our favor.
Re: “At the same time the battle of the Coral Sea and the Battle of Midway turned the war in favor of the Allies”.
These battles early-on changed the outcome of WWII in the Pacific, provided something to cheer about throughout the shrinking free world during a very dismal black period when the enemies were rolling in Asia and Europe, and, yes, pushed the Dow stock market off the floor of 92.92. Three cheers for the American fighting men and the men and women behind them. Our heroes then and now.
While more or less a draw in terms of losses of men and materiel, Coral Sea was a major “plus” for us because it deprived the Japanese of two aircraft carriers that otherwise could have participated, two short months later, at Midway. Midway was indeed huge – a single gigantic stroke that decided the fate of the Japanese and the outcome of the war in the Pacific.
However, it's an overreach by Russell to say that Coral Sea/Midway “turned the war in favor of the Allies.” While the war in the Pacific was hanging in the balance, the Nazi juggernaut was still rolling eastward – along the gigantic Russian front, and in the North African desert towards Cairo and the Suez Canal. The turning point in this second grand theatre of operation was arrived at approximately 1/2 year later, with the Russian encirclement of the German 6th Army at Stalingrad and the British defeat of Rommel at El Alamein.
To be your heirs and have to worry about what to do with all your money…would make me sleep less at night worrying about a breakeven tennis club…
Considering that last year my wife and I rambled from Geneva to the Cote D'azur (as one may note from my moniker, we really “dug” Menton), that my wife has been to New Zealand several times, and that just last month we returned from Vancouver and Victoria (had an enjoyable “bon voyage” meal in a little restaurant in Sidney), we're totally aligned with your 1-3 rankings on your “Top 10” list.
It'll be a while before we get to the Maldives; what with global warming and by the time we get there, we may be able to view it only via scuba!