What Can You Buy For $5,252,722?
Posted on | September 12, 2011 | No Comments
$5,252,722 is a huge amount of money. I dream of having half that and being able to retire comfortably, someday, maybe… But, if you are Ted Weschler and you run a successful hedge fund (and take advantage of “carried interest”, presumably ), you use the money to bid and win two steak dinners with Warren Buffett and eventually land a job managing billions of dollars at Berkshire Hathaway. Mr. Weschler has had great success at Peninsula Capital Advisors for over a decade.
| Corporation | Shares | Value |
| CINCINNATI BELL INC NEW | 19,800,000 | 65736000 |
| COGENT COMMUNICATIONS GROUP | 4,000,000 | 68040000 |
| DAVITA INC | 4,300,000 | 372423000 |
| DIRECTV | 10,000,000 | 508200000 |
| FIBERTOWER CORP | 6,830,000 | 8196000 |
| LIBERTY MEDIA CORP NEW | 2,700,000 | 231525000 |
| VALASSIS COMMUNICATIONS INC | 5,000,000 | 151500000 |
| WSFS FINANCIAL COPR | 1,500,000 | 59475000 |
| GRACE WR & CO DEL NEW | 10,765,600 | 491234000 |
I need to do some further research on some of these stocks. I could be missing out on some great returns. I don’t own any of these individuals stocks and don’t plan on initiating a position in any of them in the next 72 hours.
Now about the $5.2 million. I checked out Glide (Mr. Buffett’s gets to choose the charity) and it seems be doing good work. I wonder though, was the $5.2 million just sitting in Ted’s bank account? Probably not. I believe, Ted is going to be eligible for a tax break for his donation to the charity. Maybe the tax break will cancel out capital gains he might have incurred if he sold stock to free up the cash for the gifts. I’m curious what his tax liability will be for the two years. Glide, I presume will spend it unless they use it towards building their endowment. I’m just trying to figure out the tax implications and what sort of impact the money will make as it gets shuffled around from entity to entity. I think it is necessary to be a bit critical of Warren Buffett because he is very good at minimizing his tax liability. After all, he is planning on giving away most of his wealth to family run (non-profit) business and the Bill & Melinda Gates foundation. Would it be possible to get some shares sent my way? I’d do my part to get the economy moving again.
Note to self: It would be fun to meet Warren Buffett and have dinner with him. I need to remember to bid next time around. I’ll have to bid early though because the price will be way beyond what I can pay quickly. One can always dream, right?
10 Year Anniversary of 9/11
Posted on | September 11, 2011 | No Comments
This week has been non-stop coverage of the September 11, 2001 event. It almost felt like we were reliving it. I had forgotten how easy it was for Congress to get along back then. They quickly created the September 11th Compensation Victims Fund and properly funded it with $7 billion. I had forgotten how well the fund had paid out to survivors too. The average compensation was $2,083,000. Some got paid less and others much more. CNN Money ran an interesting story on how one family (I’m fairly certain she received more than the average) was still “coping” with their new found wealth ten years later. She still has no need to work but believes that someday she might have to get a job to pay for health care.
Ceremonies commemorating Sept 11, 2001 were held all over it seemed. Including at the Flight 93 National Memorial in Shanksville, Pa. Donors to the memorial site have already spent $52 million and Bill Clinton has pledged to procure $10 million more to finish it. I could really use some of his fundraising magic to help pay off my debt.
Proposal to Refinance Loans for Millions
Posted on | September 7, 2011 | No Comments
President Obama is scheduled to give a speech tomorrow to Congress. Originally, it had been set for today but Boehner felt it might impede with the previously scheduled Republican Presidential debate. I guess this is part of the insidious Republican plan to do as little as possible for the millions of people unemployed until Obama is out of office.
I don’t expect that Obama speech will offer anything new. I expect him to announce aid for the unemployed, continuation of the payroll tax cut, aid to state and local governments and hopefully some much need spending on infrastructure.
What I would like to hear announced though is a mandate for Fannie Mae and Freddie Mac to allow refinancing of loans they own or that they are guaranteeing. This of course would include my loan.
One proposal would allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent, according to two people briefed on the administration’s discussions who asked not to be identified because they were not allowed to talk about the information.
“This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,” said Christopher J. Mayer, an economist at the Columbia Business School. “So I think this is low-hanging fruit.”
Why do I think it is a good idea?
First, Refinancing would remove the liability. As it stands now, my loan is a non-recourse loan also known as a purchase loan. If I choose to default on it, the bank cannot come after me for the deficiency. Yet, if it a government backed loan Fannie or Freddie will have to compensate the investor for the loss. (I’m still researching the details on how exactly this works.)
Second, refinancing would reduce foreclosures and distress sales. After a refinance, the loan is no longer a non-recourse loan and I would be liable for the full amount. If Fannie or Freddie want back the refinanced loan they will just come after home owner for the deficiency so they are covered. This would give myself and other homeowners a further incentive to continue making payments. Additionally, at 4% rate a homeowner would hold on to the home and just find a tenant instead of defaulting.
Third, refinancing would give home owners extra money to spend and help kick-start the economy. As you can see from this graph there are billions of dollars that can be refinanced. I along with millions of other homeowners would have additional money to spend to further stimulate the economy. The article states that as much as 85 Billion dollars a year would be freed up.
A mass refinancing plan would spread the benefits of the Federal Reserve’s most important economic policy response, low interest rates, to more people. As of July, an estimated $2.4 trillion in mortgages backed by Fannie and Freddie carried interest rates of 4.5 percent or higher.
Fourth, the investors that fronted the money initially would be repaid. They would then have to go out and find another investment. They would be able to extend credit to small business or find other investments further stimulating the economy (or do nothing and earn close to a zero return on that money)!
Fifth, refinancing will keep homeowners paying higher property taxes. In some states, property taxes are set as a percentage of sale price. If a home goes back to the bank and gets resold for less the property taxes due are diminished. Refinancing the loan will not change the property taxes due. On the other hand, distress sales will cause property taxes to decrease temporarily. Higher property taxes can be used put teachers back in the classrooms and police back on the streets.
Finally, the Federal government will gain tax revenue. One of the culprits that contributed to the housing crisis is that our current fiscal policy allows for people to deduct mortgage interest paid on primary and secondary homes. Everyone I know who has had a mortgage raves about the deduction as if it is a gift. They pride themselves of getting a tax break as a result of being homeowners. (I think it just enables prospective homeowners, abetted by realtors, to bid prices that much higher so their is no net benefit. Without the deduction potential buyers have less disposable income which would mean offers would be lower and ultimately prices wouldn’t not have gotten out of control.) Remember the $85 Billion a year that current homeowners would save on interest paid to investors/banks/government through MBS purchased? Homeowners would no longer claim $85 Billion worth of mortgage interest on their taxes. Let’s for example assume that collectively, the homeowners are in the 25% federal tax bracket. That equates to about $21 Billion in additional tax revenue for the Federal government!
This is a slam dunk. President Obama, we need you to make this change!
Yahoo! Fires Carol Bartz!
Posted on | September 7, 2011 | No Comments
I’m not sure what the big deal is about Carol Bartz getting fired. The fact that she was caught by surprise seems to me to indicate that she was out of touch and deserved it. I just hope she doesn’t try to run for political office like Carly Fiorina and Meg Whitman. Was she worth the yearly $1 million base salary and potential $4 million bonus and equity grants? In 2010, The Associated Press calculated that her total compensation in 2009 of $47.2 million made her the highest paid CEO of S&P 500 companies (the compensation formula included salary, benefits, perks, bonuses, stock and option grants). I would not be complaining about being fired knowing that I had “earned” this money by restructuring and laying off employees. She began her tenure with laying off several hundred employees. More cuts came in december 2010. The job cuts continue through 2011. Anyone can come in and layoff people but very few get paid so well to do so. So Carol, stop complaining, you are 63 and appear to be in good health, enjoy your millions in retirement.
Note to self: I need to get one of these CEO gigs.
I do not currently own or plan to acquire any shares in Yahoo! (yhoo) in the near future.
I’d love to hang with these guys!
Posted on | September 6, 2011 | No Comments
I saw some interesting news over the weekend. The title of the article was: Cops snag $2 million worth of street racing supercars in huge bust. Apparently, a group of young car enthusiasts, the oldest was 21, were enjoying their cars a little too much. I have to admit that I’m a little aggressive on the road and get a bit perturbed when I see a ‘nice’ car driven slow on the highway. So you can just imagine how delighted I would have been to see these guys really push their cars. I’m glad no cars or people were injured during this incident because that would have been a real travesty.
Here is the list of cars that were impounded by the cops:
2005 Aston Martin DB9 – $155,000
2009 Audi R8 – $110,000
2007 Ferrari 599 – $270,000
2010 Lamborghini Gallardo – $202,000
2010 Lamborghini Gallardo – $202,000
2009 Lamborghini Gallardo – $198,000
2010 Maserati Turismo – $135,000
2010 Maserati Turismo – $135,000
2011 Mercedes SL63 – $139,000
2011 Mercedes SLS – $183,000
2010 Nissan GT-R – $80,000
2010 Nissan GT-R – $80,000
2012 Nissan GT-R – $84,000
My (almost affordable) dream car is the cheapest one listed! I’d really like to know how these guys are able afford their cars because I am in the wrong bidness, erhh… business!
On a different note, I found the quote from Vice President Biden included below interesting. It was taken from an interview he did with Car and Driver. I didn’t realize he was a car guy.
And I still have my 1967 Goodwood-green Corvette, 327, 350-horse, with a rear-axle ratio that really gets up and goes. The Secret Service won’t let me drive it. I’m not allowed to drive anything. It’s the one thing I hate about this job. I’m serious.
If he isn’t allowed to drive does that mean he doesn’t have to pay for gas either?
August 2011 is over, yay!
Posted on | September 2, 2011 | No Comments
I’ve updated my Meager Income and Total Debt graphs through September 1st. I’m pleased with my progress toward reducing my debt. I can’t wait to break through the 255k mark and possibly 250k by January 1st. My monthly meager income has stayed relatively constant. I’d did use the dip early in August to buy additional stock which I hope will translate to additional monthly dividends in the near future. I purchased some stock just to get an even lot. For example, I had 650 shares of Citigroup (C) which after the reverse split became 65. I purchased 35 more to own an even 100. I plan on selling some covered calls against these holdings. I also purchased F5 Networks (FFIV), and The Boeing Company (BA). FFIV is a short term trade. I needed some capital appreciation and then I’ll sell it and purchase a dividend stock. BA is a more long-term trade for me. I’d been watching the stock for a while and couldn’t resist at the lower price and a 3% yield. On the flip side, I am concerned about a drop in technology spending that would affect FFIV and potential loss of government work that could adversely affect Boeing.
Additionally, I made a couple of changes to my ROTH IRA. I am now automatically funding it. Every month I’ll deposit $400. I also removed the automatic dividend reinvestment. I think I’ll have more control over what I purchase and at what price this way.
Finally, I calculated my net worth this evening and I was surprised to find that I was only down about 9%. Hopefully, we’ve hit the low for the year. However, if equities dip down again, I’ll increase my holdings.
I’m looking forward to Labor Day and the start of college football!
Thanks, Steve Jobs!
Posted on | August 24, 2011 | No Comments
I’ve been anticipating the day that Steve Jobs would transfer power to Tim Cook. I didn’t expect it this soon though. See Steve’s announcement below:
August 24, 2011
Letter from Steve Jobs
To the Apple Board of Directors and the Apple Community:I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple’s CEO, I would be the first to let you know. Unfortunately, that day has come.
I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee.
As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.
I believe Apple’s brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role.
I have made some of the best friends of my life at Apple, and I thank you all for the many years of being able to work alongside you.
Steve
Steve has done an amazing job leading Apple since his return. Can Apple continue to innovate? Apple’s share price is already down in after-hours trading. Is it a buying opportunity?
Warren Buffett Says Tax the Super-Rich
Posted on | August 14, 2011 | No Comments
The New York Times published an op-ed written by Warren Buffett titled: “Stop Coddling the Super-Rich” today. I’m sure if you are reading a personal finance blog you’ve already read what he had to say.
I haven’t personally seen his 1040 but i’ve read before that his salary as Chairman and CEO of Berkshire Hathaway is only $100k a year. While $100k is quite a bit of money that is quite modest by CEO standards these days. Additionally, he receives several Millions of dollars in dividends and incurs capital gains taxes as well. I’ve always found it ironic that he’s become very wealthy due to dividends yet Berkshire does not pay out a dividend. Due to this preferential treatment of dividends and capital gains his tax liability last year was a meager 17%. It still equates to a significant tax bill though: $6,938,744!
I was intrigued by the statistic below on income inequality:
Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
Currently our highest tax bracket begins at $379,150, he recommends adding two new brackets for those making a million or more and another for people who earn at least 10 million a year.
He also recommends increasing the rates on dividends and capital gains and removing the preferential treatment hedge fund managers receive in the form of carried interest. I think we should just treat it all as income and let the tax bracket you fall in determine your tax.
He’s started an interesting dialogue. I hope the Super Committee in congress is listening.
The Fed Keeping Rates Low Until 2013
Posted on | August 9, 2011 | No Comments
I’ve been watching the stock market with much anticipation the last couple of weeks. I’ve already locked in my $3000 loss for the year for tax purposes. I sold my positions in HCBK and SPF. I still like both of these stocks but I think I’ll be able to buy them again in a month (to avoid a wash-sale) for at least the same price I sold them at.
I was actually in front of my television watching CNBC and had my Etrade brokerage account open while the Fed made their announcement. They will be keeping interest rates low through 2013. Initially, there was a move up and then back down. It was during that time that I was trying to pick up stocks on the cheap.
I’ve probably already said this but I think the move will hurt more people than it will help. I don’t know anyone that can take advantage of these low rates. Everyone that can refinance has already done so. I can’t refinance because I am underwater just like millions of other people who would like to own their home one day but are stuck with a mortgage until then. The low rates will continue to prop up housing prices because it allows buyers to afford higher prices but also enables them to take on more debt. Savers will still continue to receive close to nothing on their savings causing some to take on more risk as they reach better returns. Note to Fed: We don’t need lower interest rates that we can’t take advantage of we need more jobs!
So how can we take advantage of these low rates? If you are fortunate enough to still have a job, I think one should consider maxing out your 401k and watch for signs of rate increases from the Fed. If the rates go up it means the stock market has recovered. Just before rates shoot higher it might make sense to take out a 401k loan to lock in some cheap financing.
Letting Tax Cuts Expire Not a Violation of the Pledge
Posted on | July 21, 2011 | No Comments
On my way home this evening, I caught a bit of Market Place where they were discussing a conversation Grover Norquist had with the Washington Post editorial board. He was quoted as saying that letting the Bush tax cuts expire wouldn’t technically violate the pledge. So, it basically gives Republicans in Congress some room to negotiate to allow for a compromise on the debt ceiling.