Geldpress

The Wall Street Journal just had an interesting piece on The Hidden Costs Of Mutual Funds.   For most long term investors that do not dollar cost average, an ETF approach may be a better alternative than the mutual funds, which come with significant management fees.  As an example, consider the Fidelity Select Transportation mutual fund, which according to the Fidelity webpage, carries an expense ratio of 1.03%.  The iShares transportation ETF, on the other hand, carries an expense ratio of less than half that, or .48%.

Back to the hidden costs article.  The WSJ notes that the mutual fund management fees are just part of the espenses:

In selecting mutual funds, most investors know to check the expense ratio, the standard measure of how costly a fund is to own. U.S.-stock funds pay an average of 1.31% of assets each year to the portfolio manager and for other operating expenses, according to Morningstar Inc.

But that’s not the real bottom line. There are other costs, not reported in the expense ratio, related to the buying and selling of securities in the portfolio, and those expenses can make a fund two or three times as costly as advertised.

“These trading and transaction costs are very real,” says Stephen Horan, head of professional education content and private wealth at CFA Institute, a nonprofit association of investment professionals. “While it’s very important to look at that expense ratio, it’s just not going to capture” all of the costs, Mr. Horan says…

A study updated last year of thousands of U.S.-stock funds put the average trading costs at 1.44% of total assets, with an average of 0.14% in the bottom quintile and 2.96% in the top.

Adding a financial advisor into the mix could eat even more into the returns of your funds.  A typical financial advisor would pass along the management and trading fees already associated with the funds.  But they would also add their own management fees to the mix, justified by their “expertise” in picking the funds on your behalf.

If all of those fees are a bit shocking, and you want to learn more about the lower cost ETF approach to investing, you should check out one of these two books:

The ETF Book is a great start for those wanting more in depth information on ETF’s and a more hands off approach to buying into the low cost ETF craze.

The ETF Book: All You Need to Know About Exchange-Traded Funds by Richard A. Ferri

If you are looking to supercharge your ETF investing experience, then consider Trading ETF’s.  It adds more in depth information on ETF trend analysis, entry and exit timing criteria, and even sections on balanced portfolios – mixing a handful of short ETF’s with long ETF’s.

Trading ETFs: Gaining an Edge with Technical Analysis by Deron Wagner

Also check out:

• Most Active Optionable ETF’s – Lower BID ASK Spreads
• Correlation Error With Leveraged ETF’s
• Portfolio Hedging With Index Puts
• Married Puts, Collars, And Hybrid Hedging
• Portfolio protection – hedging todays roller coaster market ride

If you have an Optionsxpress brokerage account, and you use Gainskeeper software you are in for a nice surprise just in time for tax season.  There are reports of many customers data feeds completely broken at Optionsxpress.  Some Gainskeeper reports are coming up completely empty, some of them have completely irrelevant data.  One Optionsxpress customer reported to Geldpress that his case with Optionsxpress has been opened for over a week with no update and no resolution.  Optionsxpress is reportedly passing the buck – telling customers that the problem is with the Gainskeeper platform.  They do admit that it is affecting “many” accounts, but give no estimate for the time to resolve, stating only that it is a high priority.  On the Optionsxpress Gainskeeper page, there is a general message that states “Please Note – Gainskeeper has identified a problem with their tax software for portfolios with options expiring in 2010. This issue will be resolved shortly.“   There is however, no mention, of the general problems with the Gainskeeper feed – irrelevant and mysterious data showing up in individual Gainskeeper tax reports.

Optionsxpress charges a $24.95 fee for use of the third party software.  At last check Scottrade and some other brokerages provide free use of Gainskeeper to its customers.   The Geldpress research team has not heard of any broken or incorrect data feed problems with the use of Gainskeeper on other platforms such as Scottrade.

Optionsxpress customers who have paid the $24.95 fee for the use of Gainskeeper may want to double check the tax report generated with the tool for accuracy.

Have you found an issue with Gainskeeper? Tell us about it here

For more general information on trader related tax rules, check out the following book:

Capital Gains, Minimal Taxes 2009: The Essential Guide For Investors And Traders by Kaye Thomas

Few people really understand the breadth of the financial sector bailout beyond the $700 billion TARP program, some of which has already been paid back.  Virtually everyone in government, the main stream news, and of course the financial sector is doing their best to sweep the entire bailout under the rug.

Dylan Ratigan is one of the few, if not only, main stream news reporters that attempts to tell the whole story – in all their the ugly and painful details.  Here is an MSNBC clip of Ratigan going off on what he calls the $23.7 trillion bailout.  Dylan is absolutely right that the TARP program is a mere drop in the bucket compared to the overall bailout.  But unfortunately, he does not go into enough details or even provide sources for the $23.7 trillion figure.

So where does the $23.7 trillion figure come from? SIGTARP, an oversight commission created at the same time as TARP, produced quarterly reports that present a much more detailed view of the financial sector handouts bailout program.  The July 2009 Sigtarp report contains the $23.7 trillion figure, as shown in the graphic below.

It’s called “Total potential support” because not all of the money has actually been spent.  Much of the potential costs are associated to government guarantees for financial system transactions, which according to the financial institutions, are backed by a pile of worthless paper “assets”.

Two additional SIGTARP quarterly reports have been released since the July report with the $23.7 trillion reference.  True to government form, there is not much consistency in the look and feel of these average 250 page reports.  The section which contained the $23.7 trillion figure – “TARP in context with other programs”- has been removed from subsequent reports.  It’s likely still possible to extract the new figure with a painstaking comb through of the report.  My hunch is that this was intentional.  SIGTARP and the government agencies that created it do not want the true cost of the financial bailout known, or at least not easily known.

Have you found the updated “Total Potential Support” numbers in either the October 2009 or January 2010 SIGTARP reports?  Add the page and section numbers in the comments below.

Also See:

• Total Bailout Cost Now $12.8 Trillion
• Is the FDIC Insurance Program Insolvent?
• Yearly Budget Deficit Tops $2 Trillion

The Financial Lives Of the Poets is truly a book of the times, and one of the best books I’ve read over the last year.  The book revolves around the life of one man, and his interaction with his family (cheating wife, father and 2 sons), his bank (sub-prime mortgage holder about to foreclose on him), his new drug dealing mall friends, his former newspaper boss that laid him off, and the special police drug unit that gains control of his life.  It sounds like a lot, but the character and story development is well done, and it is very entertaining.  And for those that just haven’t had enough of the mortgage meltdown theme, here is a notable quote from the book:

the only thing that seemed rock steady was the house, so we took another chunk out of it, just to catch up, we said, to temporarily cover living expenses, and we refinanced at the peak value; like a snake eating its tail we borrowed against our house to pay the house payment of a house leveraged at forty percent more than the house was worth.

Later when everything seems hopeless, he confirms it with his financial adviser, the same financial adviser who destroyed nearly all of his non-house related assets’

You have fiscal Ebola, Matt.  You are bleeding out through your nose and your mouth and your eye sockets, from your financial asshole.

The desperate situation eventually leads to a subtle crime wave, and then more trouble and doses of reality.  But despite the busy plot, there is also quite a bit of development on the more simple theme of family affairs, and changing relationships – with Matt’s father, his wife, and his kids.  It truly is one of the best books of 2009.  Click the book below to purchase your copy.

One more note, for those wondering about the title.  I don’t want to spoil any more than I already have, but there are a few financial poems and financial haiku’s within the pages.

The Financial Lives of the Poets by Jess Walter

Here is an entertaining rap music video portraying two notable economists, Hayek and Keynes, and their opinions on how to fix the economy.

Once again, CNN misses the mark in its reporting of government finance.  Their latest story  on the supposed $52 billion profit at the Federal Reserve is misguided and irresponsible.

The Federal Reserve banks made a $52 billion profit in 2009, reaping extra income on the government securities they bought in an effort to stabilize the financial system.

But where does this nonsense come from that CNN and every other main stream media outlet reports on?  Here is the link the Federal Reserve press release.  An excerpt follows:

The Federal Reserve Board on Tuesday announced preliminary UNAUDITED results indicating that the Reserve Banks provided for payments of approximately $46.1 billion of their estimated 2009 net income of $52.1 billion to the U.S. Treasury. This represents a $14.4 billion increase over the 2008 results ($31.7 billion of $35.5 billion of net income). The increase was primarily due to increased earnings on securities holdings during 2009…

he Federal Reserve Banks’ 2009 net earnings were derived primarily from $46.1 billion in earnings on securities acquired through open market operations (U.S. Treasury securities, government-sponsored enterprise (GSE) debt securities, and federal agency and GSE mortgage-backed securities), $5.5 billion in net earnings from consolidated limited liability companies (LLCs), which were created in response to the financial crisis, and $2.9 billion in earnings on loans extended to depository institutions, primary dealers, and others. The significant increase in earnings on securities was primarily due to increased securities holdings as a result of the Federal Reserve’s response to the severe economic downturn. Net earnings from currency swap arrangements, which have been established with 14 central banks, and investments denominated in foreign currencies totaled $2.6 billion. Additional net earnings of $1.5 billion were derived primarily from fees of $0.7 billion for the provision of priced services to depository institutions.

Of course the keyword in that Fed statement is in the first line – UNAUDITED.


Why unaudited?  Because nearly every aspect of the Fed’s actions are hidden from American taxpayers, congress and even the president.  Ron Paul is the cosponsor of the HR 1207 bill that threatens to open the Fed’s book to a REAL AUDIT, but until that bill passes, and an audit is performed there is NOTHING in the Fed statemnent that can be trusted, especially false claims of profit.

From the Daily Herald on the Fed’s secrecy:

Today, nearly $13 trillion in taxpayer dollars in bailouts and loans threaten every aspect of our lives. Our constitutional principles and freedoms are being assaulted at every turn. More bailouts, trillion-dollar “stimulus” plans, huge new debt burdens for our children, simply printing money to cover our failed policies and mask our dire economic situation – I could go on and on.

You and I both know President Obama is going to keep going and going unless the proper controls are put into place.

Just think about the magnitude of our spending: The massive, outrageous amount of dollars committed to the economic bailouts in recent months totals more than the New Deal, more than the entire Iraq debacle, more than the 1980s savings and loan mess, more than the Korean War … COMBINED.

The basic premise of examining any problem is determining root cause, which means starting with the Federal Reserve. However, the Federal Reserve is shrouded in secrecy. Their meetings and inner workings are off-limits to the public. And just recently, the Federal Reserve told Congress “NO WAY” when asked to account for $2 TRILLION in taxpayer-backed loans!

Also see:

• The United States Has Not Had A Balanced Budget Since 1957!
• Total Bailout Cost Now $12.8 Trillion

Washington state, like so many other states in the union has huge budgetary problems. An OpEd opinion in the Seattle Times recently asked leaders in the state for their advice to our legislature.   There were two opinions showcased, one of which appeals to the peoples emotions with little regard for financial responsibility.  The other co written opinion was dead on the money about everything wrong with general government spending habits, and Washington state’s specifically.

Richard Davis, the president of the Washington Research Council and Kriss Sjoblom, the council’s economist and vice president of research offered up these choice words.

…What’s been called the state’s structural deficit — an enduring mismatch between revenues and spending — may be better understood as a durable legislative appetite for betting on windfall revenues to bail out overextended budgets. To a remarkable degree, budgetary gambles have paid off over the past decade, as the tech, housing and construction bubbles swelled state coffers.

In 2007, lawmakers raised the stakes, writing a two-year budget that increased spending at twice the forecast rate of revenue growth. Because of the Great Recession, however, 2007-09 revenues came in well below forecast. Only the 2009 federal stimulus windfall averted an even greater budget disaster. The federal monies will be gone in 18 months.

The National Governors Association estimates state budgets will be in the tank through at least 2014. Recent statistics from the Philadelphia Federal Reserve Bank peg Washington’s economy as the fourth-weakest in the nation at present.

It is past time for lawmakers to reset spending and focus on economic growth…

That pretty much sums up the root of our problems.  When additional spending is desired beyond the projected revenue levels, the quick and irresponsible means to achieve additional spending is to just raise the revenue projection numbers – whether achievable or not.

Also See:

• Washington state debt history – does Dino Rossi understand it?
• The United States Has Not Had A Balanced Budget Since 1957!
• The United States National Debt Limit Has Become A Joke
• California Goes Broke – Issues IOU’s
• California’s Exploding Debt Problem

John Perkins, author of Confessions of an Economic Hit Man, just released his new book – Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded–and What We Need to Do to Remake Them.

The book is comprised of two main parts – a detailed look at the root of the problem in part I, and the solution as Mr. Perkins sees it in part II.  To find out more, or purchase your copy, just click on the book image below.

Hoodwinked: An Economic Hit Man Reveals Why the World Financial Markets Imploded–and What We Need to Do to Remake Them by John Perkins

The Seattletimes just ran a story on some expensive Tokyo rents that would make a Manhattan studio look cheap.

Now, Hotel Shinjuku 510’s capsules, no larger than 6 1/2 feet long by 5 feet wide, and not tall enough to stand up in, have become an affordable option for some people with nowhere else to go as Japan endures its worst recession since World War II.

Affordable is all relative I guess.  The story goes on to say – “The rent is surprisingly high for such a small space: 59,000 yen a month, or about $640, for an upper bunk.”

There are dozens of good book on options trading theory and practice.  But there is only one I have seen that does a great job with covering the inevitable – how to manage, adjust and refine losing option trades.  And that book is just about to get better with a newly revised edition.  Click the link to pre-order your copy today.  Or if you already have a Kindle, you can access the new book immediately.

The Option Trader Handbook: Strategies and Trade Adjustments (Wiley Trading) by George Jabbour