Roth IRA part II

Tue, 2010/03/16 - 10:03am | Your editor

Apologies for an error in my note about converting to a Roth IRAs yesterday. The tax you pay when you convert an IRA to a Roth is not at the capital gains rate but at your statuatory income tax rate. Note that the city and state do not tax the conversion, at least not if you are a New Yorker. I am not a tax expert.

What I did. I got my bank to open a new IRA. I will then ACAT to transfer the holdings in the E-trade IRA to the bank, where I am a premier customer and will not pay fees. Then when everything is in place, I will convert the bank IRA to make it a bank Roth IRA. My bank, HSBC, uses Pershing as its main marketmaker. Pershing is one of the intermediaries which can trade stocks in Bangkok, as noted yesterday. Thus I can get a proper valuation of my shares in Mutual Fund Public Company Ltd. either using the ticker symbol MTDFF under which I bought them last April, or via Bangkok as MFC..

My bank's investment counsellor said that if neither of these can provide a current quote for the Thai fund manager's stock, I will get a no-value letter allowing me to avoid any taxes at all on this IRA holding in the conversion process. But in fact, as I learned from my correspondence Rajitpron Manawes, the company legal secretary, the stock does have value and I will have to pay taxes on it.

I prefer paying taxes to writing off positions altogether.

Tomorrow night I leave for Europe to attend two family weddings, in London and Malaga, Spain. The London marriage of my eldest nephew, Felix, will take place in Kew at the botanical gardens. I'm wearing my huge silk wedding hat for the occasion. I bought it at a 2nd-hand couture shop by the Paris British Embassy when Felix was a toddler for the wedding of Anglo-Belgian fashion writer Suzy Menkes to the late David Spanier, who wrote on diplomacy and gambling for the Times and later ITV. I hope the snows will hold off.

We will also celebrate Passover in London for the first time since we bought our pied-à-terre, Mudchute Manor, on the banks of the Thames a decade ago We will have a Seder, a special family meal with symbolic foods, a narration, and riddles and songs. We do not plan to cross the River Thames to repeat the miraculous escape of the Hebrew children fleeing from Pharaoh.

More for paid subscribers follows starting with Scottish developments, with news also from Australia, Brazil China, Israel, Canada, and Brazil:

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Saakashvili is a Leprecaun

Mon, 2010/03/15 - 10:45am | Your editor

Your editor has been trying to Roth her IRA with E-trade but faces a major problem. US law requires that the taxpayer doing the conversion pay capital gains tax on the non-Roth IRA account when converting it to a Roth. You have two years to pay. And this year, because of the market mess in 2009, you can convert to a Roth without income limits.

So my accountant was keen that I do the switch.

But that requires that E-trade evaluate the non-Roth IRA positions correctly. And they can't. Maddeningly, the price they are showing for one of my positions is not only more than what I paid; the stale price is from before my purchase. That means I would pay capital gains taxes on capital gains not made from my most recent trade.

The stock is an obscure ADR, as you would expect from me, MTDFF, Mutual Fund Public Co. Ltd or MFC of Thailand. This had been a pink sheet ADR, created by Citigroup when they bought a minority percentage in the Thai fund manager. It appealed to my taste from taking US investing vehicles to emerging markets.

Citi has had a few tumbles since then and the appeal of Thailand suffered because of political uncertainties after the overthrow of Thaksin Shinawatra, concern at the King's health, and the polarization of Thai politics.

I first bought it for my IRA in 2005 at 41 cents/sh before I moved to E-trade. My account was then with Morgan Stanley.

My e-trade purchase doubled by holding at 29 cents on April 17, 2009. My average cost was 35 cents. The stock is shown in my IRA as having had its last trade at 41-41.26 US cents on Dec. 28, 2007. That is 12 cents per share more than what I paid 16 months later.

E-trade claim they cannot find a marketmaker now, although they did the trade under a year ago. So I cannot sell the stock to establish its current value. My trade last April does not show up on their books now and they say they cannot any record of how the trade was done or what outside specialist or market-maker was used. They refuse to tell me who does their market-making at all.

In fact, one theory being floated by the E-trade New York Center managing my account is that the broker did the trade in the foreign market as a courtesy to me and then only charged me a discount US commission of the deal.

Frankly, I don't believe this mainly because I could not track or trade the stock after this supposed “courtesy.”

MFC continues to be listed and to trade in Bangkok's main exchange. I can check its price on the SET website. The most active marketmaker in Thai stocks is Pershing, a sub of BNY-Mellon, but where Internet discount brokerages are paid by marketmakers for order flow, the customer can't ask E-trade brokerage to place the trade there.

Having first cousins in Bangkok, I sent a query to the MFC website, offering them a chance to reply in Thai. Rajitporn of MFC Fund replied (in English, so I didn't need my cousins):

 

Dear Ms.Lewis,

First of all, I have to appologise you for late reply. Refer to your request specified in your e-mail , an issue which you need to know is the MFC share price, now I can provide you the price of MFC share including histroy of the price for the past few months (as attached). The remaining information that you need I will supply you later as I have to find out from the registra and if you have further questions, please contact me via my e-mail legal@mfcfund.com . Additionly, another channel that you can find company information is our website mfcfund.com. I hope the information in the attached file meet your requirement.

 

Best regards,

Rajitporn Manawes

Company Secretary & Legal Service Department

(662) 649-2130-31

 

So now I am expect to show the IRS that the price in my old IRA is wrong. All I have to do is check the Bangkok price in Thai bahts and convert at the daily rate into US dollars. And persuade the taxman.

Will the IRS let me do this if my broker gives contrary information? The customer man at E-trade says that my knowledge of the ADR market will persuade the Feds, but past experience with the IRS makes me dubious, and my accountant also.

Meanwhile, E-trade has sent me a corrected 1099 for my main account. It is stuffed with errors, not just showing payments for rights supposely sold which I never received, but also embarrassingly mixing up countries. My foreign tax payments to Ireland are said to have gone to Georgia, the country in the Caucusus. My foreign taxes paid to Australia are said to have gone to Austria.

Is Saakashvili a leprecaun?

More for paid subscribrers about our companies follows with two notes linking Canada and Brazil; news from Korea and India, and Britain. Ever since I started studying geography in the 3rd grade I have kept my eye on the difference between Australia and Austria.

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From Egypt, From Israel

Fri, 2010/03/12 - 1:06pm | Your editor

Reader NT asked me what the financial analyst discovered in the TelMex books two decades ago which led me to sell the shares of the company of the world's richest man. It was not a Lehman-style sophiticated scam. Mexicans applying for a telephone account paid a large deposit to Carlos Slim Helu's company and this sum was booked as a sale even before the phone line was installed. Read more »

Forbes Billionaire

Thu, 2010/03/11 - 12:40pm | Your editor

 

Just what linkage is there between Carlos Slim Helu being selected as the richest man on earth by Forbes, and the outlook for his native Mexico? In my view, nada.

To be sure Matthew Miller, the senior editor of the magazine who does the billionaire tables thinks otherwise. But he would, wouldn't he?

Back in the Dark Ages when I started Global Investing we recommended TelMex, Slim's flagship company, until one day via a financial analyst publication I received a devastating report from a CFA about how TMX accounted for clients and churn.

The author had been blocked from putting out his views by the investment bank he worked for. They had a relationship with Slim's company (who didn't?) Mr. Slim was a friend of the then-president of Mexico and had benefitted mightily from special deals on telephone and TV licenses.

My source passed his analysis on condition of anonymity. And we dropped TMX from the Model Portfolio. And the whole world of Mexico analysts tried to find out who had done the deed. My lips were sealed.

For whatever it worth, as Mr. Slim won the gold ring by beating Bill Gates by the mere bagatelle of $500 mn in wealth, Mexico is seeking $48 bn in rollover credits from the International Monetary Fund. Same order of size.

A reader of the pre-subscription newsletter named Kim K. wrote to me yesterday, I think from Canada:

I think that the reader who was talking about playing roulette was right. You have about 60-70 stocks in your portfolios. An average investor cannot hold that many stocks, he has to pick maximum of 20-25. So there is a lot of luck involved to pick the “good” ones.

It is a well know [sic] fact that with 20-25 stocks, the total risk of the portfolio is reduced by 70 percent. Further increase in the number of stocks does not produce any significant further risk reduction.

The most successful newsletter in the last 5 years, [Cabot] China & Emerging Markets (average annualized return of 21.4% in the last 5 years, including the 23% loss in 2008) holds up to 10 stocks.

Even with only 10 stocks you can do very well including only 23% loss in 2008. Holding 60-70 stocks is impractical for most individual investors. Once you need to pick and choose, it’s no more than roulette. We both know that 80% of your performance is contributed by 20% of the stocks (20/80 principle works here, like in other areas in life). If I have a portfolio of 20-25 stocks and I want to allocate 40-50% to global stocks, I can pick and choose only 10-12 of your stocks. What are the chances that I would pick those 20% big winners? No more than pure gambling.

Vivian replied:

I think you are misrepresenting the pile. There are in fact 4 portfolios one for beginners made up of closed end and exchange traded funds for instant diversification; then a yield portfolio for the over 40s who need stability and which people add more of as they get older and older; then buy and hold which is the basic portfolio; and then speculations which are just that.

They have different risk so they also produce different gains. In fact last year the buy and hold outperformed the speculative which is odd but we were in a major market recovery.

As for my ability to tell you which 10 or 20 stocks will produce the bang-up winners, sorry, but my crystal ball is clouded. We never add a new share without selling something to make room. I never say "EVERYONE BUY THIS STOCK NOW!"

If you want a momentum-driven newsletter, buy it. I am not buying China and Emerging Markets without the rest of the globe. You compare our Hulbert performance with the CEM one. Okay, go to China and emerging markets and invest all your money there and good luck to you.

Diversification does not mean buying 10 stocks in China and emerging markets while ignoring the rest of the world outside the USA. The Chinese growth story has been wonderful and we benefitted from it handsomely, but I would not put all my money, or half my money, or even 10% of my money into Chinese shares. Nor should you. Nor even would Fei Chen who writes about China for us.

Nor having watched the Chinese Great Internet Wall in action would I ever buy Baidu, one of the top Cabot performers just on ethical grounds. Running a newsletter makes me part of the press, and when in China I do not want my access to the world cut by the authorities as it was during my 3 weeks in China two years ago.

China and emerging markets alone make up a concentrated high-risk approach to global investing. And past performance is not predictive of future results, as the SEC keeps making funds tell people.

So if you were to ask my advice, which you didn't, I would say that you should balance those ten emerging markets plays with probably another 30 positions in developed country and yield stocks.

I have been editing global investing for 20 years and if I had been doing a single best idea each issue I would no longer be in business. And I and my readers would be much poorer.

Another reader commented on my rule that we sell to buy something else that it was just like his tie collection. He gets rid of an old tie before he will wear a new one. More for paid subscribers from Canada and Britain and China below starting with China. Read more »

My Stamp Collection and A Gold Fund

Wed, 2010/03/10 - 11:50am | Your editor

Two readers asked the same question from Atlanta and Albuquerque.

One wrote: Picking so many stocks means you're just trying to get lucky and hit a few big winners. It reminds me of playing roulette, hardly a science.

 

And the other wrote: I'd like to hear your thoughts on how many different stocks an individual investor should have. It's an issue I wrestle with. There's the discipline argument. Limiting the number of companies forces you to be more selective. I have many things I want to buy, but I worry about having too many. I believe there is an important discipline in limiting the number of companies you own. By setting a maximum, you force yourself to identify investments that are less good that the alternative and shed them.

Everything you own is something else you don't own. There's an opportunity cost in every investment decision, even after we have made it. Every day we hold a stock is a day we miss out on putting our money somewhere else. Since we have a tendency to become emotionally attached to stocks, I think this is a good antidote.

The other argument against excessive diversification is that you end up essentially owning home-made index fund.

Vivian replied:

Good questions. How many stock to own? as many as you or your staff can track and follow. I am a big believer in diversification. Mayri Voûte, a money manager friend in Paris, says I have not a portfolio but a stamp collection. A Russian, she likes to gamble at roulette tables; I am a petite bourgeoise American and don't.

I also do not believe in rebalancing, hooey put out by brokers to get business. I also do not believe in target prices for trades although I use them mentally when watching. You may have noticed there are no targets in global investing except from Frida Ghitis.

When you invest in a couple of dozen different markets in stocks with different personalities (yield, speculative, or boring) in different industries you are not creating an index because you are focused on performance one by one not on tracking a market index. I hate indexes, a lazy way to invest.

My main reason for not rebalancing is that I own gobs of my best ideas.. I did not take money off the table because it was there. I only sell if I can think of a reason to. Many share traders suffer from sellers' remorse, even good ones. Last week I had to comfort Maurice, an Italo-Briton, for his having sold Berkshire Hathaway about a year ago and now having to buy it back for more cash. He sold because he made so much money with it. And so he paid part of that back, sob sob.

Another thing I do is trim my bets, buying and selling in little chunks until I am surer of things. My late great-uncle Jack Oppenheim, my first broker, used to say: "Vivian, fish or cut bait". But that was  when commissions (to him) were high and taxes also. This no longer is true. See below.

I violate the theology of investing preached by brokers, ETF promoters, and fund managers. I break their rules in real life and in Global Investing. They want you to trade a lot, rebalance, buy indexes, and leave it to their brilliant managers to manage your money. Fuggedaboutit.

*Deutsche Bank just launched a new Exchange Traded Commodities fund family which will appeal to the most mistrustful, nay paranoid, gold bugs. The “db ETC” investment platform will offer new index products initially on the Xetra (Frankfurt) Exchange and initially for gold.

Later it will offer ETCs for silver, platinum, and palladium there and on other European markets. It will also price future ETCs in euros (although precious metals markets are priced in dollars and always incur exchange risks for euro investors.)

Recent Deutsche research reports that total assets in ETCs across Europe grew by 145% in 2009, vs only 43% more in equities and 17% more in fixed income. ETCs are a popular way for investors to gain exposure to commodities without trading futures contracts or taking physical delivery of the commodities tracked. Deutsche fully collateralizes the Gold ETC using physical gold, with fully liquid trading by Deutsche acting as market maker.

db ETC also can provide access to Deutsche's own “Optimum Yield” indexes to commodity investors seeking to minimize losses from the "rolling" of commodity futures contracts (contango, where the future price is higher than the spot).

Head of db x-trackers Thorsten Michalik said: "We expect to launch more than 30 products before June across Europe. We are also planning to launch db ETC on the underlying physical asset class for silver, the first product of its type brought to market."

Deutsche's ETC products are transparent and fully collateralized (with the actual commodities) and trade on regulated exchanges. The commodity indexes will have annual product management fees of 0.45%. while platform product fees are said to be low. Other costs may arise from products, underlyings, or collateral and will be made known to investors who monitor www.etc.db.com.

More for paid subscribers from India, Britain, Australia, Israel, China, and Brazil follows.

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Anniversary News

Tue, 2010/03/09 - 11:00am | Your editor

 

Today is the first anniversary of the bottom of the global stock markets on March 9, 2009. Here is what I wrote that day:

The main optimistic view is that because the U.S. was first into the mess, it will be first out. FIFO in fact.

Since we never have been in a comparable economic downturn in my lifetime, I hesitate to make predictions. But I am sure of one thing: the stock market will not sink to zero. And the U.S. will come back.

I then segued into a recommendation to buy GE which many readers teased me about forever after.

Today's newsletter is short because I am going to a lunchtime concert. But we have news from Germany, Israel, Britain, Canada, and Brazil.

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Monday Trades

Mon, 2010/03/08 - 4:12pm | Your editor

Today we did some trading. We sold Stada Arzneimittel (STDAF) at $39.35/sh and also EZU at $35.51/sh. I had not noted that we also got a 2.941% dividend on that ETF last year which enhances our return. Read more »

A Departure for Paid Subscribers

Mon, 2010/03/08 - 11:38am | Your editor

Today's newsletter is a new departure. We run for paid subscribers a pair of article by... paid subscribers, each about his or her favorite stock in the Global Investing universe which we have not written about yet.

This violates one of our rules. Normally Vivian and the editorial team do not buy the shares we write about before the issue has gone out. On the other hand, both of these long-term readers are not managing money for anyone but themselves. Naturally I took the liberty of making editorial comments.

The companies our paid subscribers wrote up come from India and Britain. Read more »

Automated Mindless Censorship

Fri, 2010/03/05 - 11:27am | Your editor

Here is my final rebuttal to Tom McClellan's taste for charting. It is a news item from today's Bloomberg about a Singapore gambling stock:

Genting Singapore Plc, the worst performing stock on the Straits Times Index this year, may extend declines should key moving averages intersect in a 'dead cross' pattern, according to DMG & Partners Securities Pte.

If that is not a self-fulfilling prophesy, what is?

Today's blog is about sex and hard liqueur. But first a bit of help with the Internet.

Yesterday I was too clever by half. I headlined my daily blog "Eurodollars and Female Viagra" and many did not receive it because it triggered spamblockers. Our webmaster sent those whose bounced emails hit him a new version headlined: “Eurodollars and Female Prescriptions.”

If you are a paid subscriber, you can view either version on the website without Mrs. Gundy stopping you. If you are not a paid subscriber, become one to avoid automated brain-dead censorship..

Internet ain't easy. We were subject to a phish attack from Paypal, a service that we occasionally used in the past. Most subscription credit card orders now come via our authorize.net merchant account which links our website to our bank.

Because of the phish attack, with their tech support, we locked down the paypal acccount. Subscribers who had expected to renew automatically with paypal are warned that it will not work. You will receive notification from our website to renew and you should click to it. There are no automatic renewals with our merchant account although these were possible with the now unsafe paypal.

For all matters of subscription and renewal please visit www.global-investing.com where you can log on with a password you set, or get a new log on. This way, you can even read about female V1@gr@, which of course was a perfectly legitimate part of yesterday's blog.

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Eurodollars and Female V1@gr@

Thu, 2010/03/04 - 11:50am | Your editor

Right of response was granted to Tom McClellan who emailed about my charts note yesterday:

    "1. You misstated my assertions about the meaning of the eurodollar COT data. It shows an important top due in mid-March, and not an upswing at the end of March as you stated. Furthermore, you should already know that eurodollar futures don't have anything (directly) to do with FOREX. It is an interest rate instrument, not a currency instrument. They are not the same thing as euro currency futures as you implied. (VL: My error first on the timing, which I think is likely to be variable and vague with a new overlay; on the rest, please see below.) 

"2. You misidentified the name of my service. Mcoscillator.com is the domain name of my web site. The publication from which you were (incorrectly) paraphrasing is the Daily Edition of the McClellan Market Report. (VL: I was just trying to help those who want to learn more find you. It does. Sorry.)

"3. You hypothesized that charts only 'work' because of a self-fulfilling prophecy, i.e. people see what the chart says should
happen, and respond accordingly making it work. That is an interesting hypothesis, and it is also a testable one. All one needs to do is to look at stock price or other data from years when charts were not in common (or any) usage, and see if the "rules" of price behavior that one is interested worked back before people could know about them.
It turns out that chart analysis became popular between the 1930s and 1970s IN SPITE OF a multitude of assertions that it was akin to voodoo. I know people who got fired from banking jobs for being caught in possession of chart books. But over time, analysts realized that there was merit to technical analysis, and that realization continues to grow which is why the ranks of the Market Technicians Association are growing so quickly. People are finding out that the "school way" of analyzing the market does not work so well, and so they are migrating to things that do work.(VL: That is exactly my point. The degree of predictability will rise as the number of chartists does.)

"The bigotry against technical analysis is finally starting to die down because people are seeing for themselves that it works, just as the objections to black people being admitted to Harvard eventually died down when it was proven that they could do just as well as white students despite what the "experts" said. Sadly, such bigotry still exists in pockets, against both racial minorities and chartists. (VL: Okay Tom, take it easy. And the civil rights analogy is overstated, I think. W.E.B.DuBois was admitted to my old college in 1890-something.)

"Signed: Tom McClellan"

Vivian replies. Chartism is not proven by the fact that backtesting charts into the antedeluvian era before they were widely used seems to confirm the theory. True, when certain levels of pricing are breached upwards or downwards, the stocks rise or fall further. That is simply a reflection of human nature.

Momentum works because people like to buy a winner and sell a loser.A proof that you don't need charts for people to subconsciously use them is shown by how stocks which have split 2:1 tend double to prior levels more quickly than stocks which did not split. Investors have a recollection of what price a share commands and this pushes split stocks up.

As for the link Tom alleges between the eurodollar rate and the stock market, this really is voodoo. The eurodollar rate serves a bunch of functions besides being a way for foreigners to buy dollars (which despite what Tom wrote, has foreign exchange implications.) Offshore buyers buy offshore unregulated dollars because they get a better yield thanks to the absence of Fed reserve requirements and other regulations applying to normal dollars here.

Then too check accounts for corporations "sweep" surplus money into eurodollars because yields are higher. You set this up with your bank or have a smart CFO do this, but it only pays off for megabucks.

The eurodollar market is also used, as Tom notes, to lock in yields for large players planning to borrow or lend later. This is a pure interest rate measure although because the eurodollar pays out interest in advance and is leveraged, it is also a cool way to do interest rate speculation.

And finally the eurodollar is part of the TED spread, a way to benefit from market complacency or panic by buying T-bills and selling eurodollars, or the reverse. If there is panic, deposits flow to T-bills. T-bills pay less than eurodollars but are perceived as safer and then in demand. This pushes their yields even lower so eurodollar yield spreads become more profitable. In periods of calm, more funds go into eurodollars for the extra yield, and the spread in prices shrinks.

A supposed link between this large market in offshore dollars and any S&P movement is voodoo (despite Tom McClellan's charts). The reason: I cannot figure out how the two markets are linked in the real world. While we can't quantify it, we know pumping more carbon into the atmosphere increases global temperatures. I can see why a huge shift in tectonic plates off the west coast of Chile can wiggle the earth's axis a few mini-seconds from the prior balance.

But apart from the chart itself, I cannot explain why the eurodollar price 14 months ago will affect the stock market this month.

We reported (mistakenly along with everyone else) that China had cut its purchases of US T-bills in Dec. In fact, the latest wizard analysis says China is buying as much US debt as before, channelled via London and Hong Kong. Fund flow analysis is not easily grasped and even charts miss stuff.

Value destruction via mergers continues. The latest victim is AmBev which we sold over concern over its gulping down Anheuser Busch. It missed its targets for Q4 (except in the old InBev pre-merger heartland of Brazil) and forecast further sales erosion. Cheers.

While the Euro (not the same crittur as the eurodollar) fell today on news than Angela Merkel does not want German ants to help fund profligate Greek grasshoppers, Greece in fact is moving toward a 10-yr bond issue. It will be at something like 310 basis points over the euro mid-swap level (down nicely from the 365 bp spoken of a week ago.) The amount is uncertain, around euros 5 bn to 10 bn, so there will be more issues. This one will pay on my birthday, June 19, and run to 2020. Any reader wanting to buy me a chunk should accept that the value of the euro may even go up over the next decade as tightening comes, however belatedly, to euroland. So the payoff to me will be even higher. By 2020 I will have retired in any case and I will show my gratitude by consulting for the donor.

*More for paid subscribers follows from Israel, Australia, Germany, Chile, Switzerland, and Lincolnville.

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