Boghies Account Talk

[Boghie]

Breakin' Bad...

Time to watch out for the big one
I will ride this bull for a while - eyes wide open all the way...

Now, surprise, we see the the Federal Tax revenue plummeting by the largest percentage since ... The Great Depression...

There are multiple factors:
1. The Recession
2. Adjustments people and corporations are making for tax management.

How many of you want your dividends taxed as ordinary income next year? None. Do you want the companies you invest in (C/S/I) to pay dividends if they are taxed higher? Nope. Guess what, companies will have their accountants move their pencil to another column to mitigate dividends taxation – thus, corporate profits will miraculously decrease. See Chevron. We not want them.

The dividend and capital gains tax treatment will change behavior for the long term. It may extend the recession as well.

But, we voted for Change.
And, Hope too

 

[Birchtree]

If Obama only had some experience he wouldn't pis* into the wind. The smartest thing he could do would be to cancel taxes on capital gains and dividends for a two year period - but his people are not that smart.

 

[Viva_La_Migra]

Re: Breakin' Bad...

...But, we voted for Change.
And, Hope too

Too bad so many people have no hope of getting a job soon and are out on the street begging people for their spare change!

 

[Boghie]

Gold Bugs – Let Me Show You Something You Can’t Ignore…

Gold Bugs and REITmen are righteously angry over the inability to hold these assets in their TSP accounts. Most financial advisors concur. Oh well…

But, there is a whispering campaign on a technique to do this.
Listen carefully folks.
Here it goes:

“‘Just borrow $50K from your TSP account and buy the glittering gewgaws off EBAY and stick it in a safe deposit box. Nothing like the feel of gold streaming between one’s fingers. Clink, clank, swoosh”

The brilliance of such a move is astounding.

• The current interest rate is 3%
• Since it is a loan it is a non-taxable event.
• And, you can pay it back over a five year timeframe.

Folks, this is a loser. Basic math proves this point:

1. Gold Bugs and REITmen pay high fees
2. You pay the money back with AFTER TAX money.
3. You are buying the ‘G Fund’ and paying the interest return.

When I purchased small amounts of gold in the mid-90’s at $250/oz I actually paid $280/oz. Yup, a hefty 12% commission. Why? Because the chap selling it to me has to cover his potential trading costs. Not only that, but I think when I sell my Dragon’s Hoard I will also pay a large commission for the same reason. So, me thinks I will have to clear at least 20% just to break even. Maybe the bigger dragons can do a bit better, but I think high fees are simply part of the game. REIT funds aren’t as bad, but they do have much higher fees than anything available in the TSP family. Not such a good deal.

Now, let us look at the tax implications. You and your significant other’s income (or your eukanuba dog show Pekingese champion’s income!) places you in the 25% Federal tax bracket (this year, next year it will be at least 28%) and 10% California State tax bracket. That is pretty middle class – at least in California. Now – assuming you borrowed $50K to buy gold and are planning to pay it back over 5 years – you have a $900/month payment for five years. That $900/month is a bill in the mail that you pay from the net on your paycheck. That payment actually costs you $1,215 a month in equivalent funding of TSP. Not such a good deal.

Finally, you get the honor of paying yourself back in the least aggressive fund in TSP while simultaneously providing the interest to yourself. What a deal. Lock a hole in your allocation of $50K for five years earning 3%+ that you get the honor of paying. Not such a good deal.

How are you going to cover the following fees:

• The 20% commission,
• The 35% tax fee,
• And, earning a -3% return on $50K over 5 years

It is a loser move. Such transactions should only be done in an emergency. There are other huge negatives. 1. That $50K hole initially has no potential earnings and only slowly grows, 2. You are locked into Federal Service for the 5 years unless you can pay it back in full, 3. Anyone think the interest rate on the ‘G Fund’ will stick at 3% in times of inflation – your very own Alt-A payment plan, and 4. You have reduced your monthly cash flow by $900 very expensive dollars.

I do agree that the FEDS should aggressively seek commodity and REIT funds to help us asset allocate in a pre-tax low-fee environment. Maybe our new brokerage (BlackRock – a famous hedge fund; yuk, yuk) will offer those options.

 

[Birchtree]

I have fifteen 1 oz. gold coins minted in 1980 - they are U.S. mint gold coins. Remember the Grant Woods and Louis Armstrongs - they are simply beautiful. Actually have a small profit in them now but I suspect the numismatic value is greater to a collector because they are rare - not that many sold. If I recall I may have purchased them through Drexel Lambert.

 

[Boghie]

That 'G Fund' Raid Thang...

It's coming folks.

In a month or two the Gubmint has to raise its own debt ceiling. The ever brilliant Geithner claims that Congress has never refused to raise the ceiling. That is incorrect.

Twice during the Bush Presidency the Congress slow rolled the call to ChinaBank to raise their credit card limit. Posing and Posturing. Will it be different this year.

Anyway, a slow roll will force the Treasury to 'borrow' assets from your 'G Fund' to tide them over till they sign some stupid paper.

If I were the Chinese I would ask someone with some assets to co-sign the papers:embarrest:

 

[Boghie]

ReAllocating...

Folks,

Reviewing the board seems to indicate that the smart foliks believe a rebounding buck will affect foreign holdings. Who am I to argue with them.

Regardless, I was going to adjust to a 'Strong Bull Market Allocation' anyway. And, thus away from a pure speculative All-In Bull Market Allocation. Kinda odd for me to be all in all the time. A bit too much risk for the reward. But, that extra 17% of assets in C/S/I has sure been tasty. Yummmmyyyyyy

Anyway:
G Fund: 2%
F Fund: 13%
C Fund: 50%
S Fund: 20%
I Fund: 15%

 

[Boghie]

Deficit Talk...

The monthly deficit - July 2009: $181 Billion
The annual deficit - Fiscal Year 2007: $161 Billion

I didn't think it could be done

Hope and Change :embarrest:

 

[burrocrat]

Hope you don't mind a long comment, but this is a subject that interests me.

I agree with most of the reasoning why taking a TSP loan and using the cash to speculate is a negative return proposition. However, I do think there are some reasons why one might find it an acceptable trade-off.

Loan repayments are distributed across whatever fund(s) your payroll contributions are going to, and as soon as they're back in you can reallocate just like the rest of your account funds, so I don't think the 5 year low return on the G is accurate.

I took a tsp loan this spring at 2.875% and paid off all credit card debt running high-teens into 20+%, thinking i would come out better than even on the interest spread. No comment about poor financial decisions that lead to the credit card balances in the first place. Now I just have a student loan consolidated at 2.5% fixed, no other consumer debt or mortgage or car payments. Nothing fancy but the roof don't leak and the car runs good, gets the job done. Poured all resources into paying the tsp loan off and in 2 more weeks will be clear of that too.

Given how the market took off since March, obviously I would have done better leaving the money in tsp for the rally and been patient paying on the cards. But I've been sleeping much better at night knowing the CC companies can't sneak in after the lights go out and put it to me again and again. Fringe benefit, not sure how to factor that in to the calculations though.

I also thought about buying more cows with it, frustrated with losing 40% over the previous year, thinking "hell you can't eat your tsp and if things keep going the way they are no $ amount on paper in NY is going to help." But the freezer and pantry were full so I held off on that idea.

As for gold, I used to have some 1 oz coins, kind of an international collection of countries that mint bullion, but sold them in 2003 for the divorce attorney retainer. Best money I ever spent in my life. You're right about the premium on both the retail buy and sell sides though, need a major move to overcome that. I sometimes wish I still had them so I could sell at 3 times purchase price, but truth be told I would have already sold them many times over in the intervening years and squandered the loot.

Theres something addicting about that shiny yellow metal though holding it in your hands. So i took up coin collecting as a hobby, not much investment value involved but satisfies the urge for hard assets. Also pick up random 1 oz silver ingots at coin stores, pawn shops, jewelers, etc. at a little over spot, lots of interesting stuff out there. Kind of like dollar cost averaging and a cheap way to scratch the itch.

I would love to have physical gold again but just cannot see buying it at these prices. If it takes off and explodes in value like some expect, then I think the much better armeggedon investment is in lead and blued steel. Can you really imagine going to the market, bartering, and then breaking off the appropriate size chunk of a krugerand? Most likely someone who had invested in lead will have separated you from your assets long before you got to the rice and canned meat aisle. Kind of like having a big food storage in Utah. Why bother when all of your neighbors already have more than enough. And if predictions about the rapture are correct then they will all be instantly in a better place, so there should be plenty just laying around. Besides, there will likely be much more immediate concerns than what to serve for thanksgiving dinner.

Anyway, I digress. I do wish there was a way to use gold/commodities in my tsp account for the times when the stock market is full of fear and nobody trusts paper, a low cost fund makes the most sense. But therein lies the rub. Gold is only truly of actual value when it is used, ie: paper is worthless. But if the only way for the retail investor to cost effectively compete in gold is buying paper promises, then how do you expect to take delivery when it hits the fan? I don't think the little guy will ever be the guest of honor at that party.

 

[burrocrat]

Probably a breach of etiquitte to post twice in a row in another's thread, but I only see 3 scenarios where taking a tsp loan could have positive value. All require uncanny vision and precise timing. Unlikely that any of them are going to work well as a long term strategy:

1) Whatever you use the money for has a much higher personal value. Buy the little red corvette, get the hot gal to go for a ride, live happily ever after. Opportunity only knocks once. But if the object of your desire requires that kind of maintenance the future probably holds some nasty suprises. And the types that regularly trade future security for instant gratification probably don't spend much time on this board or have sufficient resources in tsp to make the purchase anyway.

2) Be your own broker. Loan yourself the money for your very own margin account. Borrow at a low rate, invest in assets unavailable in tsp, make a big score. But if one is that good at timing the market, why aren't other more liquid funds available for one's disposal? If you have to ask yourself for a loan you probably can't afford it. Not a good use of retirement funds.

3) Most interesting option: subvert the 2 trade limit. Stuck in G for the month, take the loan, change contribution allocations to CSI, repay the loan. Unfortunately, a very small window to accomplish this. Loan proceeeds are sent only by treasury check and take 7-10 days to arrive for deposit in bank account. Also, loan repayments in excess of regular payroll deductions must be mailed in by check, add another week. Unless your net take home is enough to cover the balance due and payday is coming soon, this is not going to do much good except in the extreme circumstance when you are out of trades early and absolutely know that in 2-1/2 weeks you must be in equities for a few days at the end of the month.

Anybody else had measurable success with tsp loans?

 

[KevinD]

Scenario 3 can be achieved with the <1% method. You would be surprised at the percentages that can be moved in a short period of time during an uptrend.

 

[Medic72]

interesting read

 

[Birchtree]

I just paid off two 25% credit cards by transferring the debt to my margin account with an interest rate of 3%. The rate is going to increase to 5.25% on September 21 but still remains tax deductable. I plan to pay off another card at the end of the month the same way.

 

[Boghie]

I Was Just Thinking...

This morning I was thinking about moving another 15% of C/S/I to G/F. That would have given me a stable 70/30 split.

Just thinking...

Not acting...

Maybe for once my patience will pay off :nuts:

 

[Birchtree]

If you want capital appreciation you must assume risk - too much emphasis on capital preservation is often nonproductive. Just look down the tracker.

 

[Boghie]

I almost thought myself into a more conservative, more balanced allocation. I am using three of Ric Edelman’s portfolios to manage my TSP under normal circumstances.

Aggressive: 2% G, 15% F, 48% C, 19% S, 16% I <<< Current
Normal: 12% G, 22% F, 39% C, 15% S, 12% I
Conservative: 12% G, 27% F, 37% C, 13% S, 11% I

Then, unlike Edelman, I will sometimes go ‘All In’ or ‘Majority Out’. Those will be implemented in clear times. Times aren’t super clear right now, but my Aggressive allocation gives me plenty of equity (83%) for growth.

Well, why did I almost think myself to a Normal (if not Conservative) allocation. Because President Obama gets to select the FED Chair next week. Now I know most here don’t seem to think he did a good job. That everything wasn’t perfect. That mistakes were made. Well, the free-fall seems to have been arrested rather rapidly. Things would have been better had the choice for President not been limited to two economic novices.

The only things that seem to have worked are Bernanke’s Black Helicopters and Obama’s Cash for Clunkers. The vast majority of the stimulus package is still on mid-level bureaucratic desks.

When the market trains their eyeballs on the upcoming choice then I will be able to buy on a dip with my 17% G/F holdings for an all in position.

However, if President Obama selects Larry Summers for FED Chair than I will lose. We all will lose.

 

[Boghie]

Rebalance - FED Chair, Labor Day, October

Shouldn't do it, but...

G: 5%
F: 22%
C: 39%
S: 15%
I: 12%

L2040: 1%
L2030: 1%
L2020: 1%
L2010: 1%
Income: 1%

Why?

One should not adjust ones allocation strategy on projected momentum, or on political expectations, or on a whim…

But, the Seven Sentinels is in a sell. Labor Day is approaching. October is nearing. ‘The One’ gets to pick his FED Chair this week or next. And, a trade today only leaves me 34% out of the equities market for 5 days.

Am I justifying a ‘fraidy cat’ move?

Probably.

But, I have no HOPE that a CHANGE by President Obama in the FED Chair will be positive. Anyone really want Larry Summers. Anyone?

P.S.
The 1% holdings in the L Funds might help me move more assets to equity (via ‘<1%’ transactions) if this transfer is a mistake, Obama keeps Bernanke, etc… This would make it possible to move up to 5% every day to funds with strong equity holdings.

 

[Boghie]

Notes...

I had a potential scud for President Obama if he had let politics play a role in nominating a FED Chairman...

Thank you President Obama. Maybe Bernanke isn't perfect, but we are no longer in a crash and he isn't a toady. Wise choice.

Also, doesn't the market feel like money is just moving from bonds to stocks and back again. Just washing our feet. Nothing new coming in...

 

[Boghie]

The End is Near...

My God,

I think I've lost almost 1% this week...
Hasn't someone guaranteed me a gain of 1% a week
That would be an annual average growth rate in excess of 52% :cheesy:
Now That is something I could live on..

I just can't handle this.
I'm panicking...
Dread
End

:nuts:

 

[Boghie]

For any that are confused as to what I am doing...

I am obviously confused...

I am trying to post an html table into the body of this thread. Done it before (I think)...

Anyway, since I am obviously rather pathetic, to sumarize:

It looks as if the asset allocators beat the market and the swingers this past week. Rather rare this year.

ATCJeff will probably get a call from the SEC. He actually made almost 3%. ATC, don't take any calls from anyone you don't know