One of the articles in Barron's was a peculiar piece about whether or not investors should sell stocks in front of the fiscal cliff not because markets might go down but for tax reasons. One of the building blocks of the cliff is the expiration of the Bush era tax cuts which means tax rates on dividends and gains will go up.
To get the obvious out of the way, the article made no real attempt to assess whether any or all of the blocks making up the cliff will be mitigated one way or another. Long term capital gains would go from 15% to 20% if nothing happens. In terms of being peculiar, the article seem to be quoting various advisors who believe that investors should sell stocks with large capital gains to save the 5% in taxes. The only thing is that it is not clear why it makes sense to sell a stock and pay the 15% on a stock that you would not otherwise be selling.
If somehow you knew you needed the money in February then it would make sense to save the 5%--of course if you needed money that soon it shouldn't be in equities in the first place.
There was then an substantiated assertion that brokers and advisors would use this opportunity to sell these holdings and put their clients into high commission products. It is not clear why this would be a catalyst for unethical or illegal behavior. What, have these would-be unethical advisors been lying in wait for years for the fiscal cliff to now take unethical action? Like many professions there are plenty of dirtbags in financial services but the notion that they've been waiting until now to prey on their clients doesn't make sense.
Taxes and investing are very personal things meaning that everyone has their own ideas and sensitivities and one person can't judge another person's thought process. My own personal belief is that taxes should not be the primary driver of portfolio decisions.
Next item, for many years here I have talked about managing a portfolio that combines individual stocks and ETFs--wrapper agnostic. There was a profile of a hedge fund company called Whitebox (love that name) that also has a mutual fund with symbol WBMRX for anyone interested.
In the holdings are various ETFs, individual stocks and a very large cash balance. I believe it is worth noting the extent which more and more investment managers do use different tools. The importance here is that the manner in which the ETF industry will evolve will be driven primarily investment advisor/portfolio manager demand. Do-it-yourselfers able to spend the time benefit from this because they have an ever expanding investment universe to choose from but I do not believe do-it-yourselfers are driving product development.Last from Barron's is the Streetwise column trying to warn investors of the Dangers of Dividend Stocks. Vadim Zlotnikov is quoted as saying that utilities and telecom stocks are very expensive relative to their own recent histories based on PE ratios. Interestingly utilities are not expensive based on the recent history for dividend yield. Using the Utility Sector SPDR (XLU) as a proxy, the yield actually seems to be higher than average over the life of that ETF which goes back to the late 1990s.
In taking a similar look at the dividend history of the iShares Telecom ETF (IYZ); again, based on dividend yield the stocks to not appear to be relatively expensive. Dividend stocks is clearly a crowded and popular trade and caution of crowded and popular trades is always worthwhile but I am not sure that deciding something expensive by only one metric makes the most sense. Yield as a valid way to measure how expensive something is along with PE ratio and several other measures. If people buy utilities and ma bell telecoms for the yields then it seems that it would be important to consider whether the current yield is high or low in trying to evaluate valuation.
Finally a couple of lighter sports items. The Red Sox blew up the team over the weekend trading away all sorts of salary and possibly team-malcontents to the Dodgers for a goat and two sacks of rice. If the team needs to be overhauled then so be it but my concern is that this trade means that manager Bobby Valentine might actually be back next season. He was obviously the wrong guy from the start and while the vote of confidence he got earlier in the season was to be expected, a second season however would be another wasted season.
Hopefully you saw some of the US Pro Challenge which was essentially the tour of Colorado bicycle race. The scenery was spectacular and the action was great. Also sports related, Bill Lee age 65 pitched in an independent league game in Northern California Thursday night and got the win. I mentioned Lee a couple of years ago when he won a game in Brockton. You may have also seen where Roger Clemens pitched 3 and 1/3 for the Sugarland Skeeters (as in mosquitoes) which may pave the way for a gimmicky comeback with the Astros. He was pitching around 87-88 mph which is amazing for a 50 year old. While it would seem very unlikely he could get into the high 90s again, maybe he could get into the low 90s.
The picture is of a dog named Kodi outside of the Palace on Whiskey Row in Prescott. My wife is working on the 2013 United Animal Friends calendar and a similar picture of Kodi will probably be on the cover. The Palace is something of an institution or landmark in Prescott. Among other things it featured prominently in the Steve McQueen movie Junior Bonner and a bunch of us hung out there the night before Joellyn and I got married in 1993. At some point along the way it went from being a dive bar though to more of a family restaurant.
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