I really wish you would

February 28, 2008

I’m Not Running for President, but….

by Michael Bloomberg


Is Bernanke Running for Office?

February 27, 2008

I love this headline in today’s NYT

Ben S. Bernanke’s prepared testimony to a House panel that policy makers are more worried about softening recession than they are about inflation

Instead, it should go something like this:

Ben S. Bernanke’s prepared testimony to a House panel that politicians at the Fed are more worried about softening recession than they are about inflation.

There is a reason why we don’t have politicians controlling the money supply:  they will destroy the value of the currency.  In Europe, the central bank’s only responsibility is to maintain the purchasing power of the Euro.  In the US, the Federal Reserve has a dual mandate: to maintain the purchasing power of the Dollar and to keep the economy growing.

Seriously, how can they even consider lowering interest rates given the following:

* Energy, food, commodities and gold prices are at – or near – all time highs;

* The Dollar is rapidly losing value against foreign currencies;   as of today EUR/USD = $1.50

* the CPI is up more than 4% from a year ago

* the PPI is up 7.4% from a year ago

I will be very surprised if gold is less than $1,000 per ounce by the end of the year.


Stagflation

February 24, 2008

For an interesting read about the economy, check out Friday’s feature WSJ article: Fears of Economic Stagflation Return As Price Increases Gain Pace:

Here’s the most interesting quote from the article:

Mohawk Industries, Inc. raised carpet prices in December and again in January because of rising material costs, even though sales have been hurt by the slumping housing market.

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Over the last few years, manufacturers have become much better at managing their inventory.  Cheap transportation and “just-in-time” deliveries means that companies can place orders for materials and receive them in days or even hours.  So a company like Mohawk might only manufacture carpets when they receive a customer order.

Unless Mohawk is desperate for market share, they might see no reason to eat higher raw material costs and accept lower margins.  Instead, they might just turn away business that isn’t profitable enough.

Since the current inflation is largely a demand-driven global phenomenon, even if the US slows, prices will continue higher because there is so much global demand.

Interest rate cuts by the Fed may not do much to stimulate the US economy, but they could further increase demand from the rest of the world.  Since some of our trading partners, China and Hong Kong as an example, peg their currencies to the USD, an interest rate cut by the Fed causes rates to decline in Hong Kong and China, too.  So, at a time when these economies are overheating, they are further stimulated with cheap money.  This, of course, intensifies the pressure the Chinese government feels to allow the Yuan to strengthen against the dollar.  A strengthening Yuan leads to higher import prices which is very inflationary.   

In my view, the Fed is very scared about a de-leveraging, asset price deflating, weak-demand, slump in the United States and they view the threat as very real.  They view the potential for a major recession as a bigger problem than inflation.  Thus, if they succeed in their mission to prevent a recession, it will almost certainly come with a ton of inflation.


Getting Used to Spending Time Alone

February 19, 2008

I’m not sure if it’s a function of my personality or just circumstances, but I am almost never alone. I wake up in the morning at the same time as my roommate. We drink coffee and chat about the news for an hour or so. At work, I’m surrounded by people. At lunch I go to the gym and workout with a partner. Most every day after work I have some kind of social event — dinner, party, happy hour, date, meeting, etc.

I almost never sit at home and watch TV and when I do, it’s usually with my roommate. When I’m by myself I have a hard time sitting and just watching TV. Yesterday, for example, I was by myself in the apartment. I wasn’t sure what to do so I sat down and turned on the TV. Instead of just watching the show, I was also flipping through Barron’s and reading emails on my cell phone. Obviously, you can’t do three things at once so this was largely a waste of time. I eventually managed to get some work done, but it took me a long time to get started and to get focused.

There was another time in my life where I experienced a similar issue. It was the summer of 2003 and I had just gotten back from a semester abroad in Hong Kong. With an internship at Citigroup, classes, living in close quarters with everyone and SARS, the trip was hugely stimulating and social. I arrived back home and decided to take a summer internship working for Clear Channel in Raleigh, NC. I sublet a huge apartment near the Duke campus – I had the whole place to myself and there was hardly anybody else in the building because it was summer.

I knew a few people there, but aside from work, I was by myself A LOT. At first, I went nuts. I would get home from work at 5 or so and have no idea what to do… I was wasting a ton of time on Instant Messenger and aimlessly browsing the Internet. After a few days of this I started going for long runs through the campus every day when I got home from work. I think running can be a very meditative and even spiritual thing. I’m not sure how many miles I would run, but I remember how hot and muggy it was. I really enjoyed breathing the thick air and sweating profusely in the 90+ degree heat. The last stretch of my route was a 200 yard straight path of well worn dirt and gravel road. I would run as fast as I could for that stretch until I crossed over the imaginary line set by a pillar on the rock wall which runs along the border of the campus. After the sprint my heart would be beating so fast… it felt like it would pop out of my chest. It was great.

After the run, I would come back to the apartment, drink a Coors Light and fix dinner. At night I would watch TV, talk on the phone or read. In about three weeks, I had adjusted well and ended up having a great summer.

The reason I’m thinking about all this now is because I may soon have lots of free time on my hands until school starts in the fall. I hope to have lots of client work to do, but there won’t be anybody hanging over my shoulder, yelling at me if I don’t do it on time. It’s going to be very hard to adjust to spending time alone and working from home.


Chicken Stew Recipe

February 18, 2008

As I mentioned in my New Year’s Resolution Part I, I want to cook more meals at home. One of the few things I know how to cook is “stew.”

I cooked up a batch on Saturday and it turned out so well that I’ve decided to share it with the world!

Ingredients:

* 3-4 pounds boneless, skinless free-range chicken breasts, cut into cubes

* 2 large onions, chopped

* Can of no-sodium potatoes

* Can of no-sodium sweet corn

* Can of no-sodium peas

* Bag of carrots

* 3-4 32oz. cans of no or low sodium organic tomatoes — whole or crushed

 

Preparation:

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Sauté onions until browned. Then add all vegetable ingredients in a large pot. For the canned vegetables, just dump the full contents of the can into the pot. Simmer on low for a couple hours.

The chicken should be cooked separately. Since we’re dealing with so much chicken, it helps to cook it in at least two batches. Monitor the chicken carefully so that it is not overcooked. Once it’s done, keep the chicken on a plate in the refrigerator.

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Once the stew has reached the desired consistency, turn off stove and allow to cool and then add the chicken.

** It’s important not to let the chicken simmer with the stew so that it doesn’t get dried out.

Serving Tips:
Serve over brown rice and heat in the microwave. I usually pour on some olive oil and season with salt and pepper. Enjoy!

Makes enough for at least 15 servings


Filing Requirements for New York City S Corporations

February 18, 2008

Here is an overview of the filing requirements for New York City S Corporations:

Federal

The S Corporation must file Form 1120S by March 15th of the year following the year covered in the return (unless the corporation operates on a fiscal year other than calendar year).  Form 1120S also includes Schedule K1 , which lists each shareholders’ share of income and losses.  Schedule K1 is provided to the IRS, and to the shareholder.

** Since the S Corporation is a flow-through entity, the corporation itself pays no Federal income tax.   Thus, the 1120S is an “information-only” return —  all items of profit and loss are flowed through to the shareholders’ individual income tax returns.

 

New York State

For a New York State S Corporation, you must file Form CT-3-S  by March 15th.  S Corporations must pay a franchise tax which is based on size of payrolls.

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New York City

New York City does not recognize S corporation status, even though New York State and the IRS do.  Instead, the net income of an S Corporation is taxed as if it were a C Corp at a flat rate of 8.85%.  The minimum tax is $300.

Forms:  File one of the following forms (depending on your situation): NYC-3A, NYC 3-L, NYC-4S, NYC-4SEZ

** What makes this tax particularly obnoxious is that as a New York City resident, you receive no deduction for the tax paid by your S-Corporation.**


No Recession After All?

February 15, 2008

On Tuesday, the Dow rallied 178 points after an unexpected rise in retail sales of %0.3 when economists were expecting a decrease.

Maybe the economy is not so close to recession after all!? Not so fast says the Big Picture blog: Real Retail Sales Fall to 2003 Levels . In a series of posts, BR demonstrates that the rise in retail sales was all inflation and/or energy related:

Take the Retail Sales EX Inflation (gasoline, food & beverage) and retail sales were DOWN. Excluding inflation, demand at all other retailers last month were unchanged to negative. Economically, speaking, how bullish is that?

This is why I read blogs – you rarely get this kind of insightful analysis about what’s really going on from the mainstream news. CNN’s headline is simple: retail sales were good and that’s why the market rallied 200 points.

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I have increased my cash position to 40% of the portfolio. I’m also looking to add short exposure either through put options or ProShares UltraShort products.