Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Archive for December 2008

Madoff

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I’d be remiss if I didn’t weigh in on the Madoff scandal.  Here’s the big picture:  

  • Madoff’s Ponzi scheme is a minor league game of marbles compared to the inter-generational theft of the Social Security welfare program. 
  • As a most excellent boss told me: “Capital Loss Equal Memory Loss”.  If people lose money on an investment, they forget all the cautions, warnings, and yellow and red flags that were raised at the inception or offering documents.
  • It’s an axiom in accounting that even a proper audit cannot be relied on to discover collusion. 
  • You should always seek a legal fiduciary relationship with those that invest money on your behalf.  As an investment advisor (and a CPA) I am always required to act in my client’s best interests. Stock brokers and insurance salesmen do not offer that level of duty.  
  • Understand your SIPC or FDIC coverage levels and get reassurance from your broker in writing. 
  • “It’s not a loss until you sell it” is a bald-faced lie. Get up and leave or hang up if your broker ever says that. 
  • They don’t call it a “correction” for nothing. Now that the credit bubble is deflating, we’re seeing who was swimming naked at high tide. 

Written by heyercapital

December 16, 2008 at 10:01 am

Junk Bonds

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My October article on Junk Bonds, or euphamistically “High yield” bonds, has generated a fair bit of readership, so I’ll offer an update:

Bond prices have fallen, and yields and spreads have increased. And I don’t think the trend will reverse soon, as the bond prices of tracking ETFs are hovering right at 52 week lows, and junk bond spreads are at records, if I understand the data correctly. I’m staying clear for now, as a trend in motion tends to stay in motion, and fighting the trend or picking a bottom typically just leads to pain.

Some tickers to watch are JNK, HYG, and Vanguard’s VWEHX.  These are not recommendations for you, but a means for you to learn, observe the market, and to track prices.

Written by heyercapital

December 5, 2008 at 1:30 pm

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Unemployment and the Great Depression analog

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Let us start this discussion with the admonition that you, dear Citizen, will be continuously lied to by your government.  I know those are harsh words, and perhaps a bit unexpected from an investment blog.  There are times to be delicate with the truth, and there are times to deliver it with a 2×4. 

The Department of Labor goes to great efforts to compile the statistics of employment and unemployment.  As you can imagine, it’s understood by everyone that there’s a quite a bit of guess work involved.   As long as the guess work and assumptions are documented, the users of that data can develop workarounds with those guesses and weight them accordingly. 

The “official total unemployed” figure the media reports is one for six numbers that is released to the public.  For whatever reason the media and government like to fixate on the U-3 figure. Here’s a chart showing all six “U-” figures.    

The most valid figures of unemployment, in my opinion, are the U-6 category, since it is the most inclusive at showing those that are willing to work, but can’t find that work.  This comprehensive figure shows 12.2% of Americans looking for work, a little less than double the unemployment rate the government touts. 

For perspective, in 1930,  the unemployment rate with a similar methodology with the U-6, was 8%.  If the Great Depression is an analog, and we’re now one year off the stock market highs, (1929 and 2007 were the stock peaks), we’re already well ahead of the joblessness rate of the Great Depression.

EDIT: 

Excellent videos such as this make me very reluctant to make analogies to the Great Depression, as they are such poignant reminders that modern society is so ill-equipped spiritually, mentally, and physically to make it through such a time again.

Written by heyercapital

December 5, 2008 at 11:37 am