Calculated Risk

When the Los Angeles Times prints an article about a blogger that is not associated with the paper that is news. Appearing on today’s front page of the business section it was an eye catcher. Bill McBride predicted the housing crash in 2008 and more recently the bottom of the housing market in 2012. The Times article is here. I have added Calculated Risk blog to the listing at the right.

Some Investments are Appropriate

Why are you relying in savings account interest? Some banks are paying .05% APY on certificates of deposit. I saw an ad this morning trumpeting 0.9% APY. That is an unacceptable rate of return.

As we start the new year we are all looking at our savings and the earnings those savings provided. Commentaries on financial networks like CNBC and in the financial sections of newspapers all say that most of us have put our money in low interest earning savings accounts at banks. The reason is obvious. We fear losing those hard gained savings.

Businessweek December 24-Janauary 6 edition cover story Titled “Get Rich Slow” points out that at today’s bank interest rates it would take 1,387 years to double your money. Yes, the Federal Reserve is trying to encourage you to invest elsewhere. Honestly there are many investments that pay more than FDIC insured savings accounts. Some are just as safe as a savings account. My favorite is Ginnie Mae Bonds that are “providing a guaranty backed by the full faith and credit of the United States”. These bonds currently pay an interest rate of 2.68%. They have earned higher interest rates in past years. According to Morningstar, if you had invested $10,000 in January 2003 and had all interest re-invested in GNMA bonds, the current value would be $16,398.

There are other somewhat more risky investments but those risks are minimal. Consider Procter and Gamble the world’s largest consumer goods company, whose products like Tide detergent and Gillette razors are in 98 percent of U.S. households. Other products of theirs are Crest Toothpaste, Pantene Shampoo, Duracell, and Prilosec OTC. That is not the complete list that encompasses at least 32 items. The share price has varied over the decade but it has been a reliable dividend payer that now yields 3.19%. As one lady told me, “I do not care what the share price is as long as I receive my dividends”. She lives in an expensive independent living facility and draws her income to pay the bill from the dividends.

http://finance.yahoo.com/echarts?s=%5Egspc#symbol=^gspc;range=3m;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

The S&P 500 was at 1257.60 on January 1, 2012. Today the value is 1502.96. That is a 19.5% increase in value. There is no guarantee this growth will continue. Is this a bubble? Perhaps!

Can you afford to be a non-participant? If the market drops 10% just sell and you just might have more money than you do today.

Senator Dianne Feinstein’s Weapons Ban Legislation

This proposed law may never be passed by Congress but Senator Dianne Feinstein has nothing to lose and everything to gain. If passed, this legislation will help reduce the homicide rates in our nation.

It has been reported that the Administration is focusing on high-capacity magazines because they are the real issue and it is believed that there can be agreement on that issue.

Assault Weapons Ban of 2013

The legislation bans the sale, transfer, manufacturing and importation of:

1. All semiautomatic rifles that can accept a detachable magazine and have at least one military feature: pistol grip; forward grip; folding, telescoping, or detachable stock; grenade launcher or rocket launcher; barrel shroud; or threaded barrel.

2. All semiautomatic pistols that can accept a detachable magazine and have at least one military feature: threaded barrel; second pistol grip; barrel shroud; capacity to accept a detachable magazine at some location outside of the pistol grip; or semiautomatic version of an automatic firearm.

3. All semiautomatic rifles and handguns that have a fixed magazine with the capacity to accept more than 10 rounds.

4. All semiautomatic shotguns that have a folding, telescoping, or detachable stock; pistol grip; fixed magazine with the capacity to accept more than 5 rounds; ability to accept a detachable magazine; forward grip; grenade launcher or rocket launcher; or shotgun with a revolving cylinder.

5. All ammunition feeding devices (magazines, strips, and drums) capable of accepting more than 10 rounds.

6. 157 specifically-named firearms (listed at the end of this document).

The legislation excludes the following weapons from the bill:

a. Any weapon that is lawfully possessed at the date of the bill’s enactment;

b. Any firearm manually operated by a bolt, pump, lever or slide action;

c. Assault weapons used by military, law enforcement, and retired law enforcement; and

d. Antique weapons.

The legislation protects hunting and sporting firearms:

i. The bill excludes 2,258 legitimate hunting and sporting rifles and shotguns by specific make and model.

The legislation strengthens the 1994 Assault Weapons Ban and state bans by:

ii. Moving from a 2-characteristic test to a 1-characteristic test.

The bill also makes the ban harder to evade by eliminating the easy-to-remove bayonet mounts and flash suppressors from the characteristics test.

iii. Banning dangerous aftermarket modifications and workarounds.

iv. Bump or slide fire stocks, which are modified stocks that enable semi-automatic weapons to fire at rates similar to fully automatic machine guns.

v. So-called “bullet buttons” that allow the rapid replacement of ammunition magazines, frequently used as a workaround to prohibitions on detachable magazines.

vi. Thumbhole stocks, a type of stock that was created as a workaround to avoid prohibitions on pistol grips.

vii. Adding a ban on the importation of assault weapons and large-capacity magazines.

viii. Eliminating the 10-year sunset that allowed the original federal ban to expire.

The legislation addresses the millions of assault weapons and large-capacity magazines currently in existence by:

i. Requiring a background check on all sales or transfers of a grandfathered assault weapon.

ii. This background check can be run through the FBI or, if a state chooses, initiated with a state agency, as with the existing background check system.

iii. Prohibiting the sale or transfer of large-capacity ammunition feeding devices lawfully possessed on the date of enactment of the bill.

iv. Allowing states and localities to use federal Byrne JAG grant funds to conduct a voluntary buy-back program for grandfathered assault weapons and large-capacity ammunition feeding devices.

v. Imposing a safe storage requirement for grandfathered firearms, to keep them away from prohibited persons.

vi. Requiring that assault weapons and large-capacity ammunition feeding devices manufactured after the date of the bill’s enactment be engraved with the serial number and date of manufacture of the weapon.

List of Firearms Prohibited by Name

Rifles:
Pistols:
Shotguns:
Belt-fed semiautomatic firearms:

Inauguration Day 2013

President Barack Obama offered an inaugural speech calling for unification of purpose regardless of political party. This is the sort of speech we all expect in an inaugural presentation. Sadly political divisions in the nation are more like chasms. He knows that there are major differences between the political parties and other groups in the country. Listen to Bill O’Reilly or Sean Hannity and there is affirmation of the split between the political parties.

Thus he tried to put the best face on a country that is seriously broken by geographic, religious, and racial disagreements. Never mind the breach between rich and poor or the labor unions battling the employers. When state leaders voice intentions to nullify or just plain ignore federal law and many who voice desires to succeed from the union, the president’s job will be about holding the nation together.

This may seem as all too negative. The president’s speech about one purpose was an “A” effort towards healing our differences.

Apple Needs to Take Bold Action

Apple is done, say teens

We know this company for the Mac computer, iPod, iPhone, and iPad. All were leaders in technology.

Many people do not believe that Apple (AAPL) will be a leading innovator now that Steve Jobs has passed away. There are flaws in that thinking. Steve Jobs lead the company through some serious mistakes and the company did thrive despite those events. Those bad decisions did impact company earnings and Apple’s reputation. Some examples below.

Sticking with AT&T as an exclusive partner for too long

If only Jobs had pulled the plug on Apple’s exclusive relationship one year earlier, the U.S. smartphone landscape might be radically different. Motorola released the first DROID phone for Verizon at the end of 2009. It was the first Android phone that we remember seeing in the wild. It was Verizon’s answer to the iPhone.

Emailing an iPhone 4 customer to say, “Just avoid holding it in that way,” was a mistake

Apple had its sterling reputation severely tarnished by Antennagate. The iPhone 4 became synonymous with dropped calls and signal problems. (Sneer if you want, but when we’d pull out the new iPhone a lot of people would ask us if we could even use it to make phone calls.)

Tim Cook, CEO of Apple, needs to go Bold. That translates to taking on some new ideas for new products and extraordinary improvements for existing products. He can do it! The question is: Will he do it?

Performance Enhancing Drugs Used by Athletes

AP source: Armstrong tells Oprah Winfrey he doped

At the beginning of this commentary I confess to not being a big sports enthusiast. I watch three to four football games each year. UCLA vs. USC, the Rose Bowl, the Super Bowl and one more time at random. I watch the World Series and the NBA finals.

I believe that the professional teams know that some of their players are using drugs to enhance their performance. They just don’t want to confront the issue. After all a Barry Bonds hitting run after run draws larger crowds to the games and that translates to more money.

Are all extraordinary performances the result of drugs? Of course not. However, if owners of clubs want to sustain their reputations they need to enforce the rules that they have created.

As to the Tour de France bike race. This is supposed to be an amateur race but clearly there is significant money to be earned. Besides the prizes that are as high as €450,000($601,000 USD) and there are the salaries for pro team riders that range as high as €190,000. The Seattle Times reported, “Amid a booming market for TV sports rights, the Tour could be worth as much as $1 billion, says Conor O’Shea, a media analyst in Paris at Kepler Capital Markets. Is it any wonder that Lance Armstrong would be taking drugs to win?”

Where are the screeners who check for drug use? Where are the owners, managers, and others who are responsible for keeping sports drug free? The answer is simple. Money and fame are more important than honesty.

Who cares? Not many people. They watch the sports for entertainment. The public will ultimately abandon events that are not honest. Example: no one in America takes wrestling (WWE) seriously because it is thought of as pre-planned entertainment.

Cities With The Best Infrastructure in the World

In the past three years I have visited Toronto, Ontario, Canada – London, U.K. – Paris, France. All three and their surrounding communities had wide well paved highways and smooth city boulevards and streets. All three had excellent public transportation systems. Unfortunately Los Angeles (my home town) has old crumbling highways and streets as well as an inadequate public transit system.

Ali Velshi, on CNN’s Your Money program a few weeks ago had a segment on the ten best cities for infrastructure in the world. Not one American city made the list. The list was prepared a by a human resources company named Mercer that has offices around the world.

Here is the list:

1. Singapore, Singapore

2. Frankfurt, Germany (tie)

2. Munich, Germany (tie)

4. Copenhagen, Denmark

5. Düsseldorf, Germany

6. Hong Kong, Hong Kong

6. London, UK (tie)

8. Sydney, Australia

9. Hamburg, Germany (tie)

9. Vancouver, Canada (tie)

American cities in this list?

13. Atlanta, Georgia

15. Dallas, Texas

22. Washington, D.C.

28. Chicago

30. New York

Number 30 was the last city in the review.

Paris skyline from the Eiffel Tower

Consider some of those other cities such as Paris, France. “Paris (number 12) is one of the world’s leading business and cultural centers and its influences in politics, education, entertainment, media, science and arts contribute to its status as one of the world’s major global cities.”

The leaders of the United States keep telling us Americans that we are the greatest country in the world. They tell us that we are the exceptional country. If that is accurate then why are our cities so lacking?

Cerberus: The Three-headed Dog in Greek Mythology

The ancient Greek pantheon is rife with symbolism. One such symbolic creature is Cerberus, the three-headed monstrous canine, the loyal servant and guardian of the Greek God of Death. In the Greek mythical tradition, Cerberus is the guardian of the gates of the underworld, the realm of Hades. His job is to prevent the living from entering the land of the dead and to prevent the dead from escaping the boundaries of the underworld.
Read more at Buzzle: http://www.buzzle.com/articles/cerberusthree-headed-dog-in-greek-mythology.html

Cerberus Capital Management, L.P. is an American private equity firm. The firm is based in New York City, and run by financier Steve Feinberg, who co-founded Cerberus in 1992 with William L. Richter, who currently serves as a senior managing director. The firm has affiliate and/or advisory offices in the United States, Europe and Asia. [this information from Wikipedia]

Is this an odd name for an investment firm? You decide!

According to Bloomberg News, the father of Cerberus chief executive Stephen Feinberg lives in Newtown, Conn. Cerberus said in its statement that it would “immediately” begin the process of selling off the assets of the Freedom Group (the manufacturer of the Bushmaster assualt weapon used in the Newtown massacre).

Cerberus is the company that owned Chrysler Corporation when it decalred banruptcy on April 30, 2009.

The Financial Times reported that after buyout firm Cerberus Capital Management bought a majority stake in GMAC and took that firm private, it later sold most of its exposure to a variety of other investors in order to reduce its own risk. Fair enough. But how did those other investors decide whether they wanted in on the deal? According to several of them, a group of hedge-fund managers were invited to a private meeting with Cerberus, and most decided–rather quickly–to join in without making any true investigation of their own. “It was a ‘trust me’ kind of trade,” one investor who bought a small piece of GMAC told the Financial Times. “You had no time to do real due diligence. But it was a hot deal and everybody wanted in as part of the gang.” [this item found in a Morningstar.com report]

And now Bloomberg News reports that Cerberus has agreed to acquire Supervalu’s Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market grocery stores in a transaction valued at about $3.3 billion. Will these grocery chains be in business a year or two from now? The Cerberus track record is not encouraging. The owners of this private equity fund may earn significant profits but at what cost? Reduced competition and layoff of employees are the two possible consequences.

Is this the job for the three headed dog?