My life lately: wake up at 6am, leave house 6:45am, work for a long time, return home at 9pm.
This has not been leaving me with any free time to blog. I promise to have something thoughtful up here soon. In the meantime, feel free to comment on anything I've written.
I'm also taking requests. If you have a financial question, please email it to me and I'll try to get to a few questions in a reader's mailbag.
You can reach me at moneymanblogger at yahoo dot com.
Thanks for your patience.
I haven't had much time to post with some big projects at work keeping me busy, but trust me, I have been following the financial markets. The story that really caught my eye today was the fact that Servicemaster is being acquired, which boosted the stock 12% today. Not to be confused with funeral services firm Service Corp. Intl, Servicemaster provides residential and commercial services in the US (notably, the company owns the Terminix termite-control brand, and the Merry Maids housekeeping service, among other businesses).
I thought it was interesting that the EBITDA multiple seemed pretty high on the business 11-12x vs last year's typical multiple of 8-9x. It shows that buyout firms are still going strong despite some of the recent volatility in the market. This is one of those franchise businesses I really like, especially since the company doesn't face much foreign competition (in order for someone to get termites out of your house, they probably need to be in the country first).
Anyway, this and some other news sparked a slight rally today.
For some reason I've never taken this deduction, allthough I've moved around a few times for school within the past few years. However, I have just gotten started on my 2006 tax return and I noticed that there was a "moving expenses" deduction. My wife moved from out of state to marry me and take a new job in NYC this year, and I'm going to be sure to deduct some of the related expenses (we're filing jointly).
Her previous home is a few hundred miles away from here, and she took two trips that I would call "moving-related," one to specifically take a weekend apartment hunting with me, and another to move most of her stuff via her car. I am going to deduct mileage and tolls for these trips.
It ends up being a small deduction, but I think I'm already taxed at a ridiculously high rate, so I'm going to keep as much of my hard-earned money as i possibly can.
There are many sites on the internet that list "deductable" moving expenses, but I've found that many of these stretch the rules (for example, the IRS says that the cost of meals during a move is not deductable but some sites say that it is). Your best bet is to thoroughly read the most recent IRS publication 521 and keep good records during your move. I am not a believer in risky tax strategies, especially for the $100 or so of income my moving expense deduction is going to end up being.
Shhh! Don't tell anyone, but I've had a small trading account for about 8 years now. I use it as a way to make more speculative stock market bets. It is purely money that I can afford to lose, and I have considered it part of my financial education. (I opened it when I was 20 years old, but my first few stock trades were in my teenage years via my father's account). I make a clear distinction between that account and the accounts I use for investing.
Anyway, I decided I would try to short a subprime lender or two in this account today because I think there is more pain coming in this sector. However, when I tried to do so in Ameritrade, it told me that there was "no stock available to short" for the particular companies I tried.
Shorting is a way to bet on a stock going down, for those of you who are unfamiliar with it. It can be very dangerous, but I had some limits in mind in case the stocks bounced (hardly likely).
I guess shortable stock runs scarce when these companies implode. One of the companies I was going for in the morning was Accredited Home Lenders (LEND), it ended up dropping another 20-30% after I tried shorting it, telling me it would have been a good bet for a one-day gain.
Some of the stories I read today mentioned that around 13% of subprime loans were delinquent, or had payments 30 days past due. Some others mentioned the possibility of government aid to people who were missing payments on subprime loans. This made me extremely angry.
People who bit off more than they could chew in terms of mortgage payments do not deserve to be bailed out. They deserve to have the second homes, investment condos and other properties they bought hoping to flip (bidding up prices and pricing people such as me out of the market when they did it) taken from them. Foreclose on the homes that have mortgage payments people can't make. These homes will be sold to people who can make the payments, most likely at more reasonable prices, and the market will return to equilibrium where people who have saved and can afford houses will be the ones who own them, not people who are financially unqualified.
I have said it before and I'll say it again- I hope subprime foreclosures wipe out the real estate speculators and lead to a large correction in home prices in 2007.
Warren Buffett is a big critic of the US Trade Deficit. In fact, he made a well-documented bet against the US Dollar in 2003 precisely because he thought our deficit spelled bad news for our currency.
According to oanda.com's currency converter, a dollar could buy about 1.14 Euros back on March 11, 2002. Today, a dollar only buys about .76 of a Euro, 33% less than it did back then. Buffett got it right. A dollar bought .7 of a British Pound on 3/11/02, where it only buys about .5 of a pound today. Again, he got it right, and the case holds up against most other currencies.
Buffett updated this bet in his current shareholder letter. He says that BRK has "come close to eliminating our direct foreign-exchange position..." which has earned the company about $2.2 billion since 2002. The largest portion of that, $839 million, came from betting on the Euro. The number 2 gainer was (of all things) the Canadian dollar, which earned the company $398.3 million since 2002.
He still thinks that there is a high probability that the US Dollar will continue to weaken over time due to its trade imbalance. As he says "I fervently believe in real trade - the more the better for both us and the world. We had about $1.44 trillion of this honest-to-God trade in 2006. But the U.S. also had $.76 trillion of pseudo-trade last year- imports for which we exchanged no goods or services.... Making these purchases that weren't reciprocated by sales, the US necessarily transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we peeled off a bit of what we owned in order to consume more than we produced."
However, he is not playing the US Dollar weakness via direct foreign currency ownership anymore. Why? Again, I quote: "When we first began making foreign exchange purchases, interest-rate differentials between the US and most foreign countries favored a direct currency position. But that spread turned negative in 2005. We therefore looked for other ways to gain foreign-currency exposure, such as the ownership of foreign equities or of US stocks with major earnings abroad. The currency factor, we should emphasize, is not dominant in our selection of equities, but is merely one of many considerations."
As a side note, Buffett says he doesn't think this is going to ruin America or Americans' standard of living every time soon, but he thinks that "at some point in the future, US workers and voters will find this annual "tribute" [ie paying a portion of their production to foreign countries we are indebted to] so onerous that there will be a severe political backlash. How that will play out in markets is impossible to predict- but to expect a "soft landing" seems like wishful thinking."
The final interesting point in this whole foreign currency discussion is Buffett's mention that all of the direct currency profits the company has made "have come from forward contracts, which are derivatives." He says they have also entered into other types of derivatives contracts as well.
When I read that, I thought it was very strange, since Buffett has gone out of his way to criticize the use of derivatives. Anticipating that thought, he went on to explain: "The answer is that derivatives, just like stocks and bonds, are sometimes wildly mispriced. For many years, accordingly, we have selectively written derivative contracts- few in number but sometimes for large dollar amounts. We currently have 62 contracts outstanding. I manage them personally, and they are producing tax-free profits in the hundreds of millions of dollars.... Though we will experience losses from time to time, we are likely to continue to earn- overall- significant profits from mispriced derivatives."
So what I got out of that section was that 1) Buffett expects the US Dollar to decline, but isn't making direct currency bets anymore 2) Buffett thinks there will be "a severe political backlash" against the trade deficit... and it will be ugly and 3) Derivatives aint so bad if you use them correctly.
I'm still very curious as to the exact derivatives Buffett has bets on at the moment, and how he valued them.
If you're like me, your life revolves around 5-10 excel spreadsheets a day. If you're not like me... consider yourself lucky.
If you're learning excel, or if you already know how to use it and want to know more (looking up a specific formula or a way to do something, for example), I highly recommend you head over to John Walkenbach's site. The Spreadsheet Page. He's the closest thing to an Excel guru that I know about, and there are some great tips on his site.
Some of the excel tasks I do at work everyday have grown to a point where I need to automate them, and to do so, I am writing a few macros with the help of one of my favorite Excel books:Microsoft® Excel 2000 Power Programming with VBA
Some of these macros go beyond what the macro recorder can do in Excel, and most of the stuff the macro recorder creates ends up being highly inefficient, so if you have the time, the need, and the inclination, you might want to brush up on your VBA (Visual Basic for Applications) programming skills.
A word to the wise- if you expect to be doing VBA programming after an hour's reading, you might want to temper your expectations. If you don't have any programming experience, it's quite a bit to wrap your head around. I'm by no means an expert, but I find that when I'm really motivated, I tend to pick things up pretty quickly. If I get this automation work done, I can save myself about a half hour a week that I would normally spend generating these reports, which would be a huge benefit over time. I can spend this time working on more visible projects that will hopefully bring me closer to a promotion and a pay raise.
Perhaps even more importantly, I'll save my company that time and I'll leave these timesavers behind me so that the person who takes over my job can build on them. This might make my company more productive, and make the American economy more efficient. In a tiny way, I am contributing to the future of my country. If you've seen the recent slate of presidential hopefuls, you'll know that I'm going to be giving help where help is needed!
For more on the topic of non-programmers like you and me getting into the software business, see Steven Smith's excellent blog post "When Non-Programmers Write Software."
The Federal Reserve published its latest edition of the Beige Book today. I usually like to get a copy of it from the Federal Reserve Website, print it out, and read it on my way home from work. You can take the easy route and read some of the news coverage on Reuters, Bloomberg, or MarketWatch, or you can check out a copy yourself.
The Fed's description of the book is "Commonly known as the Beige Book, this report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis."
I like how it's sort of an informal "ear to the ground" survey of different parts of the country. In particular, I think it's a good way to follow things like employment and housing.
I havent read today's version yet, but I just wanted to point it out as a good information source. As Peter Lynch might say, it's one of my "bedside thrillers."
