Archives For December 2011

This poll from Gallup is getting some attention. They asked this question:

I did some searching and found that the median income for the United States is around $49,000 per year. So, it’s not a stretch to see that the median income to be considered “rich” would be around $100,000 more than the current median income. It’s all relative. I’m sure those with an income of $150,000 do not think they are rich (though they may be comfortable). I think that’s just human nature. I just pray President Obama doesn’t get a hold of this information.

In light of yesterday’s post, I thought I’d share this piece from the New York Times: Top Earners Not So Lofty in the Days of Recession.

I noticed some inconsistencies with the numbers in yesterday’s post. From the NYT’s piece (bold mine):

The share of income received by the top 1 percent — that potent symbol of inequality — dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data. Within the group, average income fell to $957,000 in 2009 from $1.4 million in 2007.

Contrast that with what the CBO report supposedly says (quote taken from the Alan Reynolds’ piece):

“The share of income received by the top 1% grew from about 8% in 1979 to over 17% in 2007.”


The report that Alan Reynolds referenced was recently published by the CBO and only went through 2007. Not sure where the NY Times got their numbers and I’m also not sure why they are so different from the CBO’s.

I saw this piece by Alan Reynolds in last Tuesday’s WSJ in response to a recent CBO Study (PDF here but I could not get it to load properly so be warned).

The CBO released the report on household income in October, 2011 but the data only goes from 1979 – 2007. Why? It’s 2011. Why would they use data that’s four years old? Seems a little selective in my opinion. Perhaps they wanted to prove a point and using 2008’s numbers would have taken away from their point.

What am I talking about? Well, according to the opinion piece, the CBO released a study in October that said the following:

“The share of income received by the top 1% grew from about 8% in 1979 to over 17% in 2007.”

It’s Reynolds’ contention that the income for the top 1% deviates drastically from one year to the next based on how the economy is doing. He goes on to say in his piece that based on his estimates, “…the share of after-tax income of the top 1% by my estimate fell to 11.3% in 2009 from the 17.3% that the CBO reported for 2007.”

He goes on…

The larger truth is that recessions always destroy wealth and small business incomes at the top. Perhaps those who obsess over income shares should welcome stock market crashes and deep recessions because such calamities invariably reduce “inequality.” Of course, the same recessions also increase poverty and unemployment.

As far as the increase in income share of the top 1% over the years, that could be attributed to the fact that in 1988, many C corporations were changed to S corporations (which pass corporate income through to their shareholders which is then taxed at individual rates) in order to take advantage of the fact that individual income tax rates had dropped to 28% from 50%. In other words, it was simply reported on a different tax forms than before. And, he claims if the government raising the top rate on individuals to higher than the corporate rate, that income will disappear from individual income taxes.

It’s an interesting piece. Give it a read and tell me your thoughts.

By now, you all are probably familiar with the MF Global story so I won’t go into the details here (if you’re not familiar, Google is your friend). For fun, I went to their website this morning just to see what it looked like. The first thing I noticed was this statement on their homepage:

MF Global is a leading broker-dealer with a deep involvement in financial markets around the world. We work closely with clients to create customized trading and hedging solutions in the world’s markets for commodities, listed futures and options, equities, fixed income securities and foreign exchange.

MF Global is a member of more than 70 financial exchanges around the world, and we are a leader by trading volume on a number of these exchanges. We have trading desks around the world, and we facilitate easy connections to all of the major electronic trading platforms as well as direct market access. MF Global is also one of 22 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York.

In addition to executing client transactions, we provide comprehensive clearing and settlement services. Moreover, we are active in providing client financing and securities lending services.

MF Global’s well-regarded research and analysis franchise produces a wide range of actionable insights—from equity research and policy-focused analysis of U.S. legislative and regulatory topics, to commentary on macroeconomic trends and issues driving markets.

And here’s a look at their awards:

I then clicked on their “News” page only to find this:

Page Cannot Be Found

The page you are looking for might have been removed, had its name changed, or is temporarily unavailable.

Click < < Back to return to the page from which you came.

That one made me laugh.

Their entire “Investor Relations” section is also gone.

Here’s a quote from their “About” page:

Working relentlessly to bring our clients superior market access, hardworking insights and powerful trading and hedging solutions. It’s our mission, and throughout our long history, it’s why clients have relied on MF Global to help them capitalize on new opportunities in the world’s ever-changing financial markets.

Bottom line: These companies are always the best right up until they go bankrupt. Leverage can kill.

I found this chart in this blog post

Over 46 MILLION people are now on food stamps. Wow…

Burton Malkeil on Bonds

December 8, 2011

Interesting piece in yesterday’s WSJ by Burton Malkiel (of Random Walk Down Wall Street fame).

The point of his piece is that bond yields will most likely fall below inflation for years to come due to excessive debt and low interest rates and that investors should take a look at their portfolios and make some changes. He recommends…

I think there are two reasonable strategies that investors should consider. The first is to look for bonds with moderate credit risk where the spreads over U.S. Treasury yields are generous. The second is to consider substituting a portfolio of dividend-paying blue chip stocks for a high-quality bond portfolio.

For the first, he recommends tax-exempt municipal bonds that get reliable revenues:

The first class is tax-exempt municipal bonds. The fiscal problems of state and local governments are well known, and the parlous state of municipal budgets has led to very high yield spreads on all tax-exempt bonds. Many revenue bonds with stable and growing sources of revenue sell at quite attractive yields relative to U.S. Treasurys.

For example, the New York/New Jersey Port Authority gets reliable revenues from airports, bridges and tunnels to support its debt. Long-term N.Y/N.J. Port Authority bonds currently yield close to 5%, and they are free of both federal and state and local taxes in the states in which they operate.

He also recommends foreign bonds in countries with low debt-to-GDP ratios like Australia.

Finally, he recommends investors consider a portfolio of bluc-chip stocks with generous dividends. One stock he highlights is AT&T.

All of this makes me wonder:

At what point does portfolio tweaking become market timing?

Saw this on this morning:

Foreclosures are setting new records again, this time not in their overall numbers, but in the time it is taking for all of these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days, according to a new report from Florida-based Lender Processing Services.

Further along in the article (bold mine)…

…we are now beginning to see the effects of ineffective loan modifications. Repeat foreclosures made up nearly 45 percent of new foreclosures in October. Of the 2.1 million modifications since the start of 2008 more than 10 percent were in foreclosure with another 27.4 percent delinquent 30 or more days, as of the end of the third quarter of this year, according to the Office of the Comptroller of the Currency.

This should not surprise any of us. I said a long time ago that these modifications were only going to stretch this crisis out. We should have allowed the market to take care of this mess for us. All the money and time spent modifying loans could have been used to give loans to qualified buyers to purchase foreclosure inventory. Instead, we directed money to help keep people in homes that they could not afford. It would be like me getting help on a loan for a $10 million mansion. As much as it hurts, we have to allow the housing market to capitulate. Prices drop enough, there will be buyers.