Investing Curiouscatblog

Category: Personal finance

  • Google Posts Good Earning But Not Good Enough for Many

    Google posted very good earnings yesterday but not good enough for many. The earnings, and a 5% fall in Google’s stock price, were good enough for me to add a few more shares to my long term investment in the company. Earnings per share grew from $4.49, $1.42 billion total, in the 1st quarter of 2009 to $6.06, $1.96 billion (38% increase in profits and 35% on a earnings per share basis). On a non-GAAP basis earning per share grew from $5.16 to $6.76. Revenue increased from $5.51 billion to $6.78 billion and the operating margin increased from 34.2% to 36.7%.

    Chris Bulkey has a good article on TheSteet.com, Google Tax Rate Inflates EPS, though I disagree with his conclusion.

    Google (GOOG) reported revenue of $6.78 billion and pro forma earnings of $6.76 a per share for the first quarter, but when stock-based compensation is included net income gets pulled down to $6.06 a share in GAAP terms. Elevated interest income, a lenient tax rate, and decelerating cash flow were primary points of contention.

    Recall that Google records gains from marketable securities with interest income. This gives management flexibility to boost income by timing investment sales. Normalizing this line item with the year-ago period shaves 3 cents a share from the bottom line. The effective tax rate came in below the prior year with essentially no change in revenue from international customers (53% vs. 52% in the first quarter of 2009). It is therefore likely that deliberate utilization of deferred tax assets was responsible for the easy comparison. Attempts to ascertain specific amounts deferred were unsuccessful; we’ll have to wait for the 10-Q.
    …
    Cash flow decelerated to $2.58 billion from $2.73 billion sequentially. On a year-over-year basis, cash generated from operations increased 15% — respectable in absolute terms, but loosely correlated with net income, up 38% from last year.
    …
    We reiterate a “sell” rating and $544 price objective; Our target multiple moves to 21 times revised 2010 EPS estimate from 23 times.

    Obviously I bought more, so I don’t agree with the conclusion, but his points are sensible and worth considering.

    Related: Great Google Earnings (April 2007) – Buy Google (Feb 2008) – Is Google Overpriced? (July 2007) – Stop Picking Stocks?

    Google profit up 38%, helped by ads by John Letzing
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  • Avoiding the Vicious Cycle of Credit Problems

    Credit problems create a vicious cycle. Credit card interest rates are increased, fees are onerous and even applying for jobs is negatively affected (many employers look at credit reports as one factor in the hiring process), insurance companies look at them too and can offer higher rates. Employers and insurers have the belief that bad credit is an indication of other risks they don’t want to take on. Once into the cycle there are challenges to deal with. I must admit I think it is silly to look at credit for most jobs. But a significant number of organizations do so that is an issue someone that gets themselves in this trouble has to deal with.

    I think the best way to deal with this problem is to build a virtuous cycle of savings instead. We tend to focus on how to cope with a bad situation instead of how to take sensible actions to avoid getting in the bad situation. In general we spend far too much money and take on too much debt – we live beyond our means and fail to save. Then we have a perfectly predictable temporary hit to our financial situation and a vicious cycle begins.

    If we just acted more responsibly when times were good we would have plenty of room to absorb a temporary financial hit without the negative cycle starting. The time to best manage this cycle is before you find yourself in it. Avoiding it is far better than trying to get out of it.

    Build up an emergency fund. Don’t borrow using credit cards – or any form of consumer debt (borrowing for education, a car or a house, I think, are ok). Save up your money until you can afford what you want to purchase. Don’t buy stuff just to buy stuff.

    Re: The Vicious Circle of Poor Credit

    Related: Real Free Credit Report – In the USA 43% Have Less Than $10,000 in Retirement Savings – Financial Planning Made Easy

  • Will The Savings Rate Fall Back Again

    Welcome to the False Recovery by Eric Janszen

    Because of the way the government measures household savings, the increase doesn’t signify more money in people’s wallets; instead, it suggests that consumers are paying off their mounting debt during a period of reduced borrowing. That’s no harbinger of growth.

    Companies planning for sudden and relatively near-term growth should reshape their strategies to make the best of economic flatness.

    He makes a decent point for companies, but the he flips back and forth between the need to save more (because we are buried in debt) and the need to spend more (because we need to grow the economy right now). And while I wouldn’t stake my life on it I wouldn’t be surprised that we have a strong economic rebound (it is also perfectly conceivable we have a next to no growth or even fall into a recession). But it seems to me the return to bubble thinking and spending beyond our means is making a strong comeback.

    The money is not going under mattresses or into bank accounts, from where it will emerge one day to jump-start the economy. It’s actually subsidizing the previous boom, which was built on debt and the presumption that assets would always cover that debt.

    Another ok, point but we have hardly paying off anything of the previous living beyond our means. It would take decades at this rate.

    Banks can loosen lending policies to allow people to borrow and spend again—but for that to solve anything, consumers must be extremely judicious in how they take on and use their debt. It’s more likely that consumer debt levels will rise again as individuals stretch themselves to afford what they want. Alas, this will drive the reported savings rate back down. By the end of 2010, I expect it to dip below 3%. Then, any drop in asset values will set off the debt trap. We’ll again see a rising savings rate and tightened lending, followed by loosened lending and a declining savings rate. The recovery will become a series of starts and stops: promising progress, periods of retreat.

    So the problem is the saving are not actually resulting in increased ability to spend (first point above) – which is bad he says, because it means their won’t be more spending (because people won’t have the ability to spend). Then he says when banks lend the consumers money they will spend and the saving rate will go down (which is bad – though he doesn’t seem to really want more savings (because that means business won’t get increased sales).

    The conventional wisdom likes to point out the long term problem of low savings rate but then quickly point out we need more spending or the economy will slow. Yes, when you have an economy that is living beyond its means if you want to address the long term consequences of that it means you have to live within your means. It isn’t tricky. We need to save more. If that means the economy is slower compared to when we lived beyond our means that is what it takes. The alternative is just to live beyond your means for longer and dig yourself deeper into debt.
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  • Apartment Rents Rise, Slightly, for First Time in 5 Quarters

    Apartment Rents Rise as Sector Stabilizes

    Nationally, effective rents, which include concessions such as one month of free rent, rose 0.3% during the quarter compared with a 0.7% decline in the fourth quarter of last year and a 1.1% drop in the first quarter of 2009.
    …
    enters are also staying put longer: the average renter now stays for 19 months, up from an average of 14 months, said Mr. Friedman, and despite low mortgage rates and greater home affordability, fewer renters are leaving to buy homes. “This is the first time in many, many years that it feels like even people who could afford to buy are making the investment decision not to,” Mr. Friedman said.
    …
    Portland, Ore., posted the largest rent decline, at 0.7%, followed by Las Vegas, San Diego, and Southern California’s Inland Empire. Those three markets have all seen an uptick in home-buying activity, particularly among the low end from first-time buyers and investors.

    Colorado Springs had the largest rent increases, 2.5%, followed by Washington DC, 2% and San Antonio 1.5%. There is a very nice new online tool, Padmapper, for renters or landlords. It is a mashup on Google Maps of rental listings by location from Craigslist and other sources. Very good search options. Easy to use. Find more real estate links on the Curious Cat Cool Connections Directory.

    Related: It’s Now a Renter’s Market (April 2009) – Housing Rents Falling in the USA (February 2009) – Apartment-vacancy Rate is 7.8%, a 23-year High

  • Protect Yourself from 11 Car Dealer Tricks

    Top 11 dealer tricks

    2. The single-transaction strategy: Many people view buying a car as one transaction. It’s not, and dealers know this. It’s really three transactions rolled into one — the new-car price, the trade-in value and the financing. The dealer sees all three as ways to make money. Treat each as a separate transaction, and negotiate each one. If you get a new car for $200 over invoice but receive only $1,000 for a trade-in car that’s worth $2,500, you haven’t done as well as you could.

    3. The payment ploy: A dealer might say, “We can get you into this car for only $389 a month.” Probably true, but how? In some cases, the dealer may have factored in a large down payment or stretched the term of the loan to 60 or 72 months. Focus on the price of the car rather than the monthly payment. Never answer the question, “How much can you pay each month?” Stick to saying, “I can afford to pay X dollars for the car.”

    Some good advice. I bought my last car at CarMax which gave a good price and none of these tricks (I didn’t have a trade in – I donated it) and I paid cash. They offered a great deal on a Toyota Rav4 when I was looking. I believe, those that are interested in getting the very best deal and are skilled and able to defend themselves from the dealer can do better than CarMax. But I would bet most people would be much better off using CarMax.

    Related: Manufacturing Cars in the USA – Avoiding Phone Fees – Actually Free Credit Report – How to Use Your Credit Card Properly

  • Bill Gross Warns Bond Investors

    Bill Gross Warning May Catch Bond Investors Off-Guard

    Pacific Investment Management Co.’s Gross, manager of the world’s biggest bond fund, said yesterday in an interview with Tom Keene on Bloomberg Radio that “bonds have seen their best days.” Pimco, which announced in December that it would offer stock funds, is advising investors to buy the debt of countries such as Germany and Canada that have low deficits and higher- yielding corporate securities.

    The prospect of a strengthening U.S. economy and rising interest rates makes an “argument to not own as many” bonds, Gross said in the interview.
    …
    Treasuries have rallied for almost three decades, pushing the yield on the 10-year Treasury note from a high of 15.8 percent in September 1981 to 3.89 percent as of yesterday. The yield reached a record low of 2.03 percent in December 2008 during the height of the credit crunch.
    Excess borrowing in nations including the U.S., U.K. and Japan will eventually lead to inflation as governments sell record amounts of debt to finance surging deficits, Gross said.

    “People have been making money on fixed income for so long, people assume it’s going to continue when mathematically, it cannot,” said Eigen, whose fund is the third-best selling bond fund this year, according to Morningstar. “When people finally start to lose money in fixed-income, they won’t hesitate to pull money out very soon,” he said.

    John Hancock Funds President and Chief Executive Officer Keith Hartstein said retail investors are already late in reversing their rush into bond funds, repeating the perennial mistake of looking to past performance to make current allocation decisions.

    I agree bonds don’t look to be an appealing investment. They still may be a smart way to diversify your portfolio. I am investing some of my retirement plan in inflation adjusted bonds and continue to purchase them. My portfolio is already significantly under-weighted in bonds. I would not be buying them if it were not just to provide a small increasing of my bond holdings.

    Related: Municipal Bonds, After Tax Return – 10 Stocks for Income Investors – Bond Yields Show Dramatic Increase in Investor Confidence – Investors Sell TIPS as They Foresee Tame Inflation

  • How the New Health Care Law May Affect You

    10 Ways the New Healthcare Bill May Affect You by Katie Adams

    Starting this year, if you have an adult child who cannot get health insurance from his or her employer and is to some degree dependent on you financially, your child can stay on your insurance policy until he or she is 26 years old.
    …
    Starting this fall, your health insurance company will no longer be allowed to “drop” you (cancel your policy) if you get sick.
    …
    Starting this year your child (or children) cannot be denied coverage simply because they have a pre-existing health condition. Health insurance companies will also be barred from denying adults applying for coverage if they have a pre-existing condition, but not until 2014.
    …
    If you currently have pre-existing conditions that have prevented you from being able to qualify for health insurance for at least six months you will have coverage options before 2014. Starting this fall, you will be able to purchase insurance through a state-run “high-risk pool”, which will cap your personal out-of-pocket expenses for healthcare. You will not be required to pay more than $5,950 of your own money for medical expenses; families will not have to pay any more than $11,900.
    …
    Under the new law starting in 2014, you will have to purchase health insurance or risk being fined.
    …
    Starting in 2018, if your combined family income exceeds $250,000 you are going to be taking less money home each pay period. That’s because you will have more money deducted from your paycheck to go toward increased Medicare payroll taxes. In addition to higher payroll taxes you will also have to pay 3.8% tax on any unearned income, which is currently tax-exempt.

    Related: How the health care bill could affect you – Answers About Health Care Bill – Why the Health Care Bill May Eventually Curb Medical Costs – post on health care – USA Consumers Paying Down Debt – Personal Finance Basics: Long-term Care Insurance

  • 11 Stocks for 10 Years – March 2010 Update

    I created the 10 stocks for 10 years portfolio in April of 2005. In order to track performance created a marketocracy portfolio but had to make some minor adjustments (and marketocracy doesn’t allow Tesco to be purchased, though it is easily available as an ADR to anyone in the USA to buy in real life – it is based in England). The current marketocracy calculated annualized rate or return (which excludes Tesco) is 6.2% (the S&P 500 annualized return for the period is 2.5%) – marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that the return is about 5.7% above the S&P 500 annually).

    The current stocks, in order of return:

    Stock Current Return % of sleep well portfolio now % of the portfolio if I were buying today
    Amazon – AMZN 248% 11% 8%
    Google – GOOG 152% 16% 15%
    PetroChina – PTR 87% 9% 9%
    Templeton Dragon Fund – TDF 80% 10% 10%
    Templeton Emerging Market Fund – EMF 40% 5% 6%
    Cisco – CSCO 38% 6% 8%
    Danaher – DHR 10% 9% 10%
    Toyota – TM 10% 8% 10%
    Intel – INTC 0% 4% 7%
    Tesco – TSCDY -10%* 0%* 10%
    Pfizer – PFE -34% 4% 8%
    Dell -56% 3% 0%

    The current marketocracy results can be seen on the Sleep Well portfolio page.

    Related: 12 Stocks for 10 Years – July 2009 Update – Investing, My Thoughts at the End of 2009 – posts on stocks – investing books
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  • Curious Cat Investing and Economics Carnival #7

    Welcome to the Curious Cat Investing and Economics Carnival: we highlight interesting recent personal finance, investing and economics blog posts.

    • The 4% rule and other fallacies of retirement planning – “I might try a 5% withdrawal rate, which according to the Trinity study, would give me an 80% chance of not outliving my money. As time goes on, I’ll adjust up or down depending on what life and the market throws at me.”
    • The lesson of the Greek crisis: Every government cheats and no one wants to know by James Jubak – “The IMF projects that U.S. net debt as a percentage of GDP will be 66.8% in 2010, more than twice that for Canada, and gross debt will be 93.6% of GDP, still almost 14 percentage points above Canada’s.”
    • Renting 101: What You Should Know Before You Sign by Austin Morgan – “Renter’s insurance helps protect the items in your apartment in case of theft or damage. The renter’s insurance will also cover you in case a visitor in your apartment gets injured or their items get damaged.”
    • In the USA 43% Have Less Than $10,000 in Retirement Savings by John Hunter – “if you plan ahead you have a long time for compounding to work in your favor. Unfortunately most people continue to fail to make even the most minimal efforts to save for retirement”
    • The US Has A Spending Problem, China Has A Savings Problem – “Back in 2005 the savings rate in the US dropped to below 1%. That’s sad considering up until the mid 80s we were always above 5% and crested 10% a few times… Our savings rate is currently just under 5%… The savings rate in China is something like 30%; and this number has grown in recent years, “
    • When will the Fed raise interest rates? by Olivier Coibion and Yuriy Gorodnichenko – “given current information and barring political or populist pressures, one can reasonably expect the Federal Reserve to start raising interest rates toward the end of this year in its attempt to balance the risks of higher inflation against prolonging the current economic downturn.”

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  • In the USA 43% Have Less Than $10,000 in Retirement Savings

    There are several personal finance basics that everyone must account for. Retirement requires the most planning and accumulating the largest amount of money. Luckily if you plan ahead you have a long time for compounding to work in your favor. Unfortunately most people continue to fail to make even the most minimal efforts to save for retirement: 43% have less than $10k for retirement

    The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute’s annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

    Fewer workers report that they and/or their spouse have saved for retirement (69%, down from 75% in 2009 and 72% in 2008. Moreover, fewer workers say that they and/or their spouse are currently saving for retirement (60%, down from 65 percent in 2009).

    27% say they have less than $1,000 in savings (up from 20% in 2009).

    46% report they and/or their spouse have tried to calculate how much money they will need to have saved for a comfortable retirement by the time they retire.

    What is a very rough estimate of what you need? Well obviously factors like a pension, social security payments, age at retirement, home ownership, health insurance, marital status… make a huge difference in the total amount needed. But something in the neighborhood of 15-25 times your desired retirement income is in the ballpark of what most experts recommend. So if you want $50,000 in income you need $750,000 – $1,250,000. Obviously that is difficult to save over a short period of time. The key to saving for retirement is a consistent, long term saving program.

    Related: Retirement Savings Survey Results (2007) – How Much Will I Need to Save for Retirement? – Personal Finance Basics: Long-term Care Insurance