Investing Curiouscatblog

Category: Investing

  • Rent Controls are Unwise

    Response to: The desirability of rent controls

    I do not believe rent controls are wise, in general. There are some options I wouldn’t mind – some sort of affordable housing that has breaks from the government (tax…) in exchange for a commitment to keep rental rates down. But wholesale rent controls are very unwise I believe.

    A related issue I find amusing. You will hear don’t regulate at all state that it is regulation preventing housing being constructed (zoning regulations) that create rising prices which they imply is unfair. It seems to me the data shows the opposite of what those people claim. People are willing to pay more for the regulated housing markets. That means the market forces value the regulation and in order to increase the economic utility (which is represented by what people will pay) more regulation should be used not less.

    Related: articles on real estate investing – regulatory risk (for rent control that would be the risk that investment property rights were limited due to rent control)

  • UK Real Estate Prices Decline

    London Leads the Biggest U.K. House-Price Drop for Five Years

    The average U.K. asking price fell 3.2 percent to 232,396 pounds ($473,437) from November, the largest decline since the survey of real-estate agents’ listings began in 2002, Britain’s most-used property Web site said today. London home costs dropped 6.8 percent, also the most recorded by Rightmove.
    …
    Prices in the London region fell an average of 28,099 pounds on the month and all 32 areas of the capital in the survey had declines, led by the districts of Hackney, Tower Hamlets and Islington, Rightmove said. Home costs in Kensington and Chelsea, where Russian billionaire Roman Abramovich lives, fell 4.9 percent to 1.65 million pounds.

    Related: Fourteen Fold Increase in 31 Years

  • Fed Plans To Curb Mortgage Excesses

    Fed Plans To Curb Mortgage Excesses, way late but at least they may do something.

    Before Ben S. Bernanke became chairman nearly two years ago, “the Fed racked up a long record of neglect in regards to predatory lending,” said Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), who introduced his version of mortgage-lending reform this week

    Yes the Fed should have taken more aggressive action. But the legislators should not throw stones at others – what have they done? A recent example – they want to lower the down payment required for FHA loans to 1.5%. I can’t take anyone’s opinion, of how others should have behaved seriously, when they vote for such legislation in the midst of a subprime mortgage loan crisis. What are these people thinking. Ok, everyone now says loan standards were to lax, people stopped putting 20% or even 10% down on home purchase. Ok, lets blame the Fed and then lower the down payment required for federal backed mortgages to 1.5% (from the already very low 3%). Did this crazy legislation just barely squeak by? Nope, passed the senate 93-1! Lets have the politicians explain what they have done right before they just criticize others. Their game of blaming others while doing next to nothing positive themselves is sad.

    “If you are too severe or too draconian, you are going to eliminate value in the marketplace,” said Steve O’Connor, senior vice president of government affairs for the Mortgage Bankers Association.

    Another real voice of reason. The Mortgage Bankers Association (MBA) really expects anyone to pay any attention to their opinions. They have someone managed to create a threat to the economy so large that $90 a barrel oil is not the threat to the economy people are worried about. I think anyone that reads these opinions from the MBA and doesn’t see them as self serving statements and nothing else should be ashamed of themselves. Shouldn’t the Washington Post at least include some follow up question on why the public should listen to that organization. What was there senior vice president saying 5 years ago to ensure the economy wasn’t threatened by the reckless action of their members? We seem to have forgotten that individuals and organization should be held accountable for their actions. Quote some people that are not only concerned with their benefits without regard for what it does to everyone else. If that is not what they are doing, lets see 5 policy recommendations they have made in the last 5 years that are good for America and bad for you and your members. I don’t think the rest of us believe what is good for the MBA is good for America.

    Related: Why do we Have a Federal Reserve Board? – Ignorance of Many Mortgage Holders – How Not to Convert Equity – Washington Paying Out Money it Doesn’t Have – Legislation to Address the Worst Credit Card Fee Abuse (Maybe) – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren

  • Add to Your Roth IRA

    If you haven’t added money to your Roth Individual Retirement Account for this year yet – go ahead and do so now. Given the state of retirement planning for the vast majority of those in the USA there is a good chance your retirement is the area of your financial life that will most benefit from more resources. The other action that is likely worthwhile is to cut your spending but we will leave that for other posts.

    If your employer offers matching on your 401(k) or 403(b) that may well be an even higher priority. There is almost never a decent reason not to add at least 5% of your income to a retirement account matched by your employer. Make sure, as the amount grows above $100,000 that it is invested in a diversified manor (not all in the stock of your employer or…).

    For 2007 the most you can add to your Roth IRA or just IRA is $4,000 ($5,000 for those 50 years old or older). Next year that maximum increases to $5,000 ($6,000 for those 50 and up). If you have already added the maximum that is matched to your 401k and have added the maximum to your IRA for this year get ready to add the $5,000 to your IRA for 2008 in January (you do have to make sure you don’t earn too much to be eligible to add funds – pretty much you have to be over $100,000 in income, $150,000 on a joint return, before you have to worry but look up the details yourself). By adding the money to your IRA early in the year you will get another year or tax free growth (for the Roth or tax deferred growth from the regular IRA).

    For more details on the rules on IRAs see the links we provide on the Curious Cat Investment Dictionary IRA page.

    Related: Saving for Retirement – Roth IRAs a Smart bet for Younger Set – Our Only Hope: Retiring Later

  • Goldman Sachs Rakes In Profit in Credit Crisis

    Goldman Sachs Rakes In Profit in Credit Crisis

    Rarely on Wall Street, where money travels in herds, has one firm gotten it so right when nearly everyone else was getting it so wrong. So far, three banking chief executives have been forced to resign after the debacle, and the pay for nearly all the survivors is expected to be cut deeply.

    But for Goldman’s chief executive, Lloyd C. Blankfein, this is turning out to be a very good year. He will surely earn more than the $54.3 million he made last year. If he gets a 20 percent raise – in line with the growth of Goldman’s compensation pool – he will take home at least $65 million. Some expect his pay, which is directly tied to the firm’s performance, to climb as high as $75 million.
    …
    This contrast in performance has been hard for competitors to swallow. The bank that seems to have a hand in so many deals and products and regions made more money in the boom and, at least so far, has managed to keep making money through the bust. In turn, Goldman’s stock has significantly outperformed its peers. At the end of last week it was up about 13 percent for the year, compared with a drop of almost 14 percent for the XBD, the broker-dealer index that includes the leading Wall Street banks. Merrill Lynch, Bear Stearns and Citigroup are down almost 40 percent this year.

    Interesting story with at least a couple of good points to remember. First it does make a difference what company you chose. There are many market conditions where anyone can make money, but those conditions will change. Also look at the type of pay these people get. The CEO’s take huge risks to possibly get even more obscenely paid. It is absolutely no surprise to me the companies write off hundreds of millions in losses. It happens constantly. Executives are paid ludicrous salaries. In order to try and justify them they take huge risks. When the gambles pay off they pocket even huger bonuses. When they fail they pocket huge severance packages. Who wouldn’t bet the future of the company for that kind of money. Some people wouldn’t but not many that fight there way to the top of the corporate world. Right now it is banks writing off hundreds of millions but just watch every year companies do it. It is not some isolated rare event – it is predictable, common happening.

    And third the financal markets are much riskier than people think. Combine that with leverage and you get huge swings – huge profits and huge losses. I suppose some company may be able to guess just write about when to leverage and make the changes at just the right time – but I doubt it. A few great investors might be able too much of the time.

  • MIT Launches Initiatives in Innovation and India

    MIT launches initiatives in innovation and India

    MIT has launched a group that will act as a liaison between MIT researchers and venture capitalists around the world. The International Innovation Initiative (I³), which MIT president Susan Hockfield announced at a conference in New Delhi, India, will be modeled on the school’s Deshpande Center for Technological Innovation

    Since 2002, The Deshpande Center has funded 64 projects with over $7 M in grants. 11 projects have spun out of the center into commercial ventures, having collectively raised over $88 M in outside financing. Twelve venture capital firms have invested in these ventures. The Center supports a wide range of emerging technologies including biotechnology, biomedical devices, information technology, new materials, tiny tech, and energy innovations.

    Related: India related posts from our management blog – Educating Engineering Geeks – What Kids can Learn – The Future is Engineering

  • Tips To Allow Retiring Sooner

    The Motely Fool is one of the best web sites for learning about investing (it is one of the sites included in our investing links – on the left column of this page). A recent article on the site is worth reading – Ways to Retire Sooner:

    Add cash… It takes a little more than $550 per month in savings earning a 7% return to get to $1 million over the course of a 35-year career. But if you can add just $100 per month to that — including what your employer puts in and your tax savings — you can cut more than two years off your wait.
    Embrace stocks Saving more is great, but there’s only so much you’ll be able to put aside. You have to make the most of what you have. People are often too conservative in their retirement investments. Despite the sometimes-violent ups and downs of the stock market, the long-term return on stocks far exceeds that of less risky investments like bonds and bank savings accounts.

    These are not exactly earth shattering recommendation but so many people fail to take even the most basic steps to assure a economically viable retirement the simple advice needs to be re-enforced. No one piece of advice can assure success but by educating yourself about investing and retirement planning and taking steps when you are in your 20s, 30s and 40s you can succeed. You can also succeed without doing anything in your 20s it just means you have to do more work later. Those that get started earlier get a huge advantage.

    Related: Saving for Retirement – Retirement Tips from TIAA CREF – Retiring Later, Out of Necessity – investment risks – IRA (Individual Retirement Accounts)

  • Easiest Countries from Which to Operate Businesses

    The World Bank compiles a ranking of the easiest countries from which to run a business. The rank counties on categories such as: protecting investors (New Zealand is #1), enforcing contracts (Hong Kong is #1), employing workers (USA and Singapore tied for #1). The overall ranking for 2007:

    1. Singapore – 2006 #2
    2. New Zealand – 2006 #1
    3. United States – 2006 #3
    4. Hong Kong, China – 2006 #7
    5. Denmark – 2006 #8
    6. United Kingdom – 2006 #9
    7. Canada – 2006 #4
    8. Ireland
    9. Australia – 2006 #6
    10. Iceland

    Related: Countries Which are Easiest for Doing Business 2006 – Top 10 Manufacturing Countries – Farming Without Subsidies in New Zealand – Growing Size of non-USA Economies

  • 12 Stocks for 10 Years Update – Oct 2007

    I originally setup the 10 stocks for 10 years portfolio in April of 2005. At this time the stocks in the sleep well portfolio in order of returns –

    Stock Current Return % of sleep well portfolio now % of the portfolio if I were buying today
    PetroChina – PTR 298% 11% 7%
    Google – GOOG 210% 17% 13%
    Amazon – AMZN 173% 7.5% 7%
    Templeton Dragon Fund – TDF 116% 17% 13%
    Cisco – CSCO 67% 6.5% 8%
    Templeton Emerging Market Fund – EMF 67% 3.5% 5%
    Toyota – TM 48% 7% 10%
    Tesco – TSCDY 25% 0% 10%
    Intel – INTC 18% 4% 8%
    Yahoo – YHOO -2% 4% 5%
    Pfizer – PFE -9% 5% 8%
    Dell -16% 7% 10%

    In order to track performance I setup a marketocracy portfolio but had to make some adjustment to comply with the diversification rules. In December of 2006 I announced a new 11 stocks for the next 10 years (9 are the same, I dropped First Data Corporation, which had split into 2 companies and added Tesco and Yahoo). Earlier this year I added Templeton Emerging Market Fund (EMF) and reduced the TDF portion. Tesco also pays a dividend which I am not including in the calculation – that is one reason marketocracy is so nice it keeps track of all those details for you.

    I have orders in to sell some of the PTR and TDF if the prices rises a bit more. In the marketocracy portfolio I have several smaller positions. I do this to comply with marketocracy’s diversity rules – I also have about 8% in cash (they still won’t let me buy Tesco). Google, PetroChina and Amazon have had an incredible few months. I am getting a little tired of Yahoo’s failure to deliver. I also think Amazon’s price has gotten a bit ahead of the performance but I think the performance is great and the long term looks strong.

    The current marketocracy calculated annualized rate or return (which excludes Tesco – reducing the return, and has a significant cash position reducing the return) is 20% (the S&P 500 annualized return for the period is 13.4% – in addition to the other reductions in the return, marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund). View the current marketocracy Sleep Well portfolio page.

    Related: 12 Stocks for 10 Years Update (Jun 2007) – 10 Stocks for 10 Years Update (Feb 2007) – 10 Stocks for 10 Years Update (Dec 2005)

  • Home Price Declines Exceeding 10% Seen for 20% of Housing Markets

    Double-digit home price drops coming

    Over the next few years, more than three-quarters of the nation’s housing markets will suffer some decline in home prices. Many will experience double-digit hits in a forecast that has worsened considerably in recent months. According to an analysis conducted by Moody’s Economy.com, declines will exceed 10 percent in 86 of the 379 largest housing markets. And 290 of the cities will experience price drops of 1 percent or more.

    The survey attempted to identify the high and low points of housing prices in each of the markets, some of which started declining from their peak in the third quarter of 2005. All are median prices for single-family houses. Nationally, Moody’s is projecting an average price decline of 7.7 percent. That’s a jump from the 6.6 percent total price drop that the company was forecasting in June and more than twice that of last October’s forecast of a 3.6 percent price decrease.

    This forecast appears to me to be from the absolute top to the bottom over the course of several years. That decline is now estimated to be over 10% for nearly 23% of the markets. The remaining 67% will decline less than 10% from the peaks or increase. There average price decline prediction (again from the top of the market to the bottom) nationwide is now 7.7% up from an estimate of 3.6% last year.