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THE BLUE MONEY REPORT.
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The Blue Money Report
"The knowledge of an effect depends on and involves the knowledge of a cause."
~ Spinoza
Welcome to the Blue Money Report
Today's Commentary: 08.15.03
But for some select few, the question of taxes and right to ask the IRS why are at the heart of a silent protest. Vernice Kuglin is just that sort of person. Her recent acquittal for tax evasion, six counts in all, made the news and brought to light some intriguing paradoxes of taxes.
Ms. Kuglin wanted to know and wrote numerous letters asking the IRS to cite the law the required her to pay taxes in the first place. Those letters were immediately filed in the round file next to the closest desk. The IRS does not feel as though they need to respond to these types of queries. Without a response, she changed her withholding by filing a W-4 with her employer, Federal Express.
The charge of tax evasion was filed and her passport was taken. This effectively grounded the pilot. The tax honesty movement was quick to seize the opportunity of this well argued case. A statement issued by the Western District of Tennessee U.S. attorney's office suggested that this not the norm. The judge, also championed by the same group for refusing to force her to pay the bill, made his decision based on the fact that Americans should be able to question their government. But too often this is not the case.
Consider the cheery press conference held on the President's ranch on Wednesday. With his economic team at his side, Mr. Bush the lead rider of these economic horsemen of the apocalypse, he continued to find no reason for more tax cuts until he can see how wide ranging the damage might be.
His father, often tossed by the historic roadside inherited some major and politically unpopular problems, which cost him a second term. Mr. Reagan, the president he'd most like to be took his devastating tax cuts and gradually repaired the damage by raising taxes. Mr. Bush has no intentions of doing anything of the sort. The weight of his decisions while grounded in good faith has targeted the wrong constituency.
Should Americans pay taxes? Of course we should and the IRS website even suggests the mandatory nature of the exercise. But according to the Federal District Court in Memphis, we should be able to ask why without penalty. By the way, Ms. Kuglin is still obligated to pay her bill that is thought to be close to a quarter million dollars. Perhaps she can benefit from the Tax Relief Act of 2003.
Today's Commentary: 08.13.03 Even Mr. Gross, caught unaware, did not anticipate such a violent sell off in the category. We are confused as well. Inflation is hovering around 1%. Deduct that from the yield of a 10 year note and the real return in somewhere around 3.5%. This not bad for the conservative investor and if you have a drawer full of these bonds, you should be sitting pretty. The sellers were the late arrivers to the dance. These folks pushed up the price of bonds to levels that many considered to be "ballooned".
Now that those folks have sold off and moved back into equities, most likely chasing last quarter's returns, the bond market is beginning to look like a good place for owners of money market funds. These funds, even performing at their best are yielding just shy of 1%. That is not beating inflation, let alone the taxes on that pittance of a gain. Owners of these funds might take a good look at the bond market right now.
Why besides cheaper prices and higher yields should you invest in bond funds now? If you need more reasons than that, here's another: With most of the selling done, also according to Mr. Gross, there is the hopes that prices will moderate. At least a little.
And another, it should go without saying is diversification. Stock mutual funds will always have a margin of error, but bonds tend to have a much less chance of dramatic dives. The bond market, even if it continues to decline will not hurt the funds that hold them too bad. Interest rates are low now and are probably going to move higher, even if the F.O.M.C. makes no moves on Tuesday.
So why the hoopla about the sell-off? Mr. Gross' Total Return Fund has chalked impressive and sometimes double digit returns for his shareholders (almost 12% in 2000) and those historic returns are hard to shake off. The question is what should you do if you are looking to diversify?
Many funds will be able to trim their holdings in Treasuries but will not be able to do entirely without. Look for funds that have a short term exposure. There will be considerably less rate volatility. Treasury Inflation Protected Securities or TIPS should yield about 2.5% but probably shouldn't be the only kind of bond you own. Tax-exempt municipal bonds were cited by Mr. Gross as a good place as budget pressures by state and local government shortfalls make them attractive.
Today's Commentary: 08.11.03 While the process to invest has become more intuitive, more orderly, and more available, it has yet to become a reasonable place to spend your money. Investments can be called many things but they are basically a shopping experience without compare. That said, we are looking for the best way to look at the best deal. Max Planck, a Nobel Laureate used quantum mechanics. He suggested that all things could be broken down in five basic categories. These parts were called quanta and it was believed by him that these parts could be measured individually. Energy, momentum, position, size and time, the five components of quantum mechanics, all had a place that could be defined. Until recently.
Was there ever a more accurate description of the parts of the market than energetic? It possesses energy by the bucket load. We can easily measure the excitement by the harried pace of the bond pits or the floor reaction of the traders to some piece of news. The market breathes creating an energy, inhaling when it seeks to expand, and out when it contracts. It is this energy that draws us to it in with such wide-eyed amazement. Only the most experienced and seasoned among us can look with a truly jaded at the nature of this energy and not feel something.
Momentum is measured daily through the frantic and frenetic reports that drift across the banner at the bottom of your television and computer screens to the reporters whose assignment is much the same. This is the domain of the chartist the analyst and the t.v. talking heads. They measure and seek to quantify something abstract all the while trying to make it palpable. These folks do not however influence this part of the equation in anyway, or at least that is how it is supposed to work. The days of cheerleading have given way to disclosure. Personally, I am nostalgic of those times when reporters seemed as excited for our crazy ways as we were. Only they knew we were fools. Once the trading day is open, momentum can be explained in a wide variety of ways from news related to seasonality.
Position is largely determined by price. Of course price is determined by momentum and its seemingly inseparable sister energy. Too often we concern ourselves with this piece of the puzzle making only cursory glances at the whole. No problem because position cannot, no matter how we try to change it become the only part of the equation with merit. We look at yield or dividends or any of the seemingly innumerable pieces of the pricing puzzle and we are left with are two possible approaches: taking an educated stab or as I have so often suggested, employing dollar cost averaging to do the dirty work.
It is much easier to move a kitchen chair than a living room sofa. Ownership of the market is determined by the size of your investment. This portion of your involvement should be well diversified and that should be the built in protection protecting you from whatever you have given to your investment. Too large and your investment lacks mobility. Too small and we treat it as something of little consequence. Size, position, momentum and energy are for the most part of Mr. Planck's theorem of quantum mechanics less important than the measure of time.
Time, which the decorated and renowned physicist sought to explain as a frame-by-frame collection of individual pictures strung together much the same way as a movie is produced was at the cornerstone of his calculations. Recent discoveries far out in space have made this piece of the puzzle less relevant because life it turns out does not happen in frames. A continuum yes, a movie, no. Instead it has been suggested that time happens at different speeds and those speeds allow time to run together, burring the whole net and tidy little concept.
So what is it about time that we think is measurable? How often have you heard that "now is the time" to buy or sell or worse, jump in with both feet? How does anyone know that with any exactness? They don't.
So if physics has proven that time cannot be quantized how can investors make use of the immeasurable flow of information around them? If all of the information you receive, all of the news you hear, all of the resources you pursue, can be filtered through the first four principles of the theory, then the last will surface without any real need for measurement. I am sure that this is contrary to what Mr. Planck had in mind. But lets see if we can make this theory work in its new improved state.
For instance, if you stumbled upon the latest unemployment numbers and added them in with the productivity numbers, you would have been able to filter these two items the following way.
Energy is cancelled out even possibly diminished by the two numbers. Although they are different in nature, they in essence report the same thing. Unemployment reports on who doesn't have a job. Productivity reports on how hard those that do have one are trying to keep it. If a worker has taken on more work, what reason does an employer have to hire an unemployed worker? This number produces zero energy.
With little or no energy to carry it forward, momentum is stifled as well. The number means that there is still a sizable amount of employable people available and no jobs are being created to accommodate this workforce. Productivity is up but the actual production is still at a zero momentum. These three factors have created a negative in terms of our measurement.
The position is much easier to see from the perspective of history but the size is a more difficult measurement. The economy is growing slowly with numbers being revised shortly after they are reported. This slight growth lacks any real energy or momentum and although expected to continue, the doubters believe that this might be as fast as we will go this year. If that is the case, the position is too easy to determine. A snapshot of position based on the employment and productivity shows little change in position from previous one-time looks. Another negative.
Lumbering down the field, carrying the weight of the federal deficit, the sheer size of the economy has become immobile under the lack of energy, momentum, and position. Where are things likely to end up?
Only time will tell. But how do you measure time? And how do you do it with any accuracy? As I mentioned earlier, it was recently discovered that Planck time, the measure of a light year using the frame by frame thinking is not how things really are. Turns out that these differences in how time is measured are imperceptible at short distances but enormous and meaningful at longer ones. The snapshot begins to blur somewhat the further back we go making the two numbers blur also. But because these numbers are mostly immobile when we look at them in context, blur the equation using the fact that time is not as clear as the science of physics would like and you practically have an answer to the problem as to where the economy is right now.
Over the next few months we will take a recurring look at the numbers by filtering it through this retooled quantum mechanical lens. If it weren't for this new change in how time is measured the theory would not apply. To take a snapshot of the moment in these precarious times would be extremely difficult. As soon as the measurement was completed, some other aspect would have changed. Momentum would have slowed, position would have changed, and energy would have been altered. All is an attempt to measure time.
But now, with the perfection of time changed, this theory might just work on our ability to look at the economy, the state of our investments, and how we measure our success. We'll see.
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