30. August 2009 by Dan Walkow, CFA, CMT.

Wall Street finally has agreed to put its brokers under the tougher fiduciary standard for their dealings with customers. Now a fight looms over how tough that standard will be.

As part of its regulatory overhaul, the Obama administration proposed holding brokers who give investment advice to the higher fiduciary duty — a legal standard that would compel them to act in their clients’ best interests. Currently, brokers are held to a more lenient “suitability” standard, which means they can’t put clients in inappropriate investments. Many investment advisers, by contrast, have operated under the fiduciary standard for nearly 70 years.

Most investors do not understand the difference between a “broker” and an “investment advisor” lumping most persons who advise or manage investments as “financial advisers. What is the difference?

Most brokers and financial advisers are only required to meet the “suitability rule” that is they can sell you just about  anything as long as it can be classified as within the broad context of your overall goals. There is no requirement to act in a client’s best interest as to seeking the best investment, lowest and most reasonable cost nor is there any requirement to be objective and offer competitors products even though they may be better than the “in house” products the broker sells.

Registered Investment Advisers (RIAs), Investment Councillors and Portfolio Managers on the other hand are held to a higher standard of care, the fiduciary standard. By law they are required to “act in the clients best interest” all the time.

This means seeking, not just suitable, investments, lowest and most reasonable investment management costs and commissions and more but must act solely in the clients best interests.

This is why RIAs can only work for a fee and not commissions which is paid by the client. There can be no incentives to push a service or product and costs to the client must be transparent.

Read more at the WSJ here.

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29. August 2009 by Dan Walkow, CFA, CMT.

North America is awash in natural gas, so much that storage is overflowing,  drilling rigs are being mothballed and wells are being capped.

The giant United States Gas Fund, as noted here before, keeps spot prices low by selling spot and buying forward futures. Could this phenomena be creating artficial pricing in the gas market? Maybe. The US government is certainly concerned as it looks to cap some of these commodity funds given their size and impact over markets.

Never the less natural gas is cheap and abundant and best of all it is a domestic resource in the United States and Canada. According to the EIA it makes oil four times more expensive than natural gas to produce the same amount of energy.

Forget wind power, hydro power, other alternate energy sources and even coal, natural gas is cheaper then them all.

There was a lot of talk by Boone Pickens over the past few years about “security of energy supply” with gas being part of the solution so why is gas in limbo?

Here is a novel solution. Lets assume President Obama is musing one day and thinks I have a whole bunch of problems to solve, what could we do to:

1. Reduce the budget deficit.

2. Promote the Green Initiative.

3. Become more self-dependent when it comes to energy supply.

4. Encourage energy conservation.

5. Invest in American infrastructure long term.

 He reads the blog and says ” I got it” we will impose a $10 importation tax on crude oil. Since we import almost 10 million barrels a day that would work out to about 36 billion or so in tax revenues.

Meanwhile apply tax credits to encourage conversion to gas powered automobiles and distribution systems.

Sure you would have higher gasoline prices but if one puts it into perspective, the US has some of the lowest fuel prices in the world. For example Canadians pay, on average 40% more for gasoline and we won’t even calculate Europe!

Would there be alot of squawking and outrage? Sure, oil exporters such as Canada and Saudi Arabia would be outraged as well as the oil lobby and the usual suspects. But they would adjust.

I cannot believe that this solution has not be considered by the powers to be as it is so logical and would solve several issues. One has to suspect that special interest groups and vested interests have kept this one on the drawing board with the excuse that to impose a energy tax in these trying economic times is not the right thing to do.

I do not have the hard numbers nor have I done the math but crude oil moves around $10 a week sometimes and I suspect that with a $10 increase in crude oil, the price at the pump would not change all that much. Even if it did it would still be lower than most industrialized countries around the world.

Meanwhile an effort to convert the USA to a natural gas-powered nation would have long term benifits; to wit: security of supply, less pollution and domestic control of energy reserves.

Great article on the state of natural gas markets here at TIME.

Posted in Energy | No Comments »

28. August 2009 by Dan Walkow, CFA, CMT.

At a time when everyone thought the small car was king and Asian automakers were eating Detroit’s lunch, a big Michigan-built truck is proving that buyers still go crazy for a jumbo vehicle with torque.

Ford Motor Co.’s F-Series pickup has again asserted itself as the top-selling vehicle nationwide, new research by DesRosiers Automotive Consultants shows. By a long shot.

The crowd has been clamouring about the death of the North American auto industry seems the crowd is wrong again! On March 8 of this year I posted Ford on this blog commenting that they were getting it right. The stock was 1.70 per share at the time and the close last night was 7.67. It does not pay to listen to the crowd…

Read more here.

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27. August 2009 by Dan Walkow, CFA, CMT.

All good fads come to an end and so it goes with the alternate energy sector. There is a glut of solar panels on the market with prices dropping around 40% year over year with the outlook for more supply and even lower prices.

Biofuels ( remember not more than a year ago the stories about people boiling bio-mash in there garages ) are not far behind. To wit from the WSJ:

The biofuels revolution that promised to reduce America’s dependence on foreign oil is fizzling out.

Two-thirds of U.S. biodiesel production capacity now sits unused, reports the National Biodiesel Board. Biodiesel, a crucial part of government efforts to develop alternative fuels for trucks and factories, has been hit hard by the recession and falling oil prices.

The global credit crisis, a glut of capacity, lower oil prices and delayed government rules changes on fuel mixes are threatening the viability of two of the three main biofuel sectors — biodiesel and next-generation fuels derived from feedstocks other than food. Ethanol, the largest biofuel sector, is also in financial trouble, although longstanding government support will likely protect it. Read more here.

Posted in Energy | No Comments »

27. August 2009 by Dan Walkow, CFA, CMT.

Some ETFs have gotten so big regulators are looking to cap them as ETFs like the US Natural Gas Fund is so big that they having trouble executing on the futures market and have to go to the shady swap market to trade. On the other hand there are more than 500 new ETFs on the launch pad with minimal seed funding.

Read the article here at the WSJ.

I have been a long time investor and advisor on ETFs but with these latest developments I am wary of them at this juncture. Not all but certainly the levered ones as well as he commodity ones.

Posted in Exchange-Traded Funds | No Comments »

26. August 2009 by Dan Walkow, CFA, CMT.

One place the agency may be increasing its focus on is hedge funds, or at least, U.S. investors in off-shore hedge funds.

“Expect U.S. investors in off-shore hedge funds in places like the Cayman Islands, who failed to properly report earnings to the IRS, to be the next target of U.S. tax authorities,” said Shahzad Malik, partner at TroyGould in Los Angeles. “There are indications that the U.S. may be taking steps to target off-shore hedge funds by asking them about their U.S. partners and investigating their earnings.”

One indication for Malik that the IRS may be stepping up its enforcement of U.S. tax avoiders that are investors in off-shore hedge funds relates to a filing certain investors must make. The Treasury department has long required certain types of investors with foreign bank accounts and off-shore mutual funds to file a so-called “Report of Foreign Bank and Financial Accounts,” also known as an FBAR. Until recently, tax attorneys have generally understood that FBARs did not need to be filed by U.S. investors who owned interests in off-shore hedge funds.

US persons with foriegn bank or financial accounts want to pay attention here and file accordingly. Read the full story here.

Posted in Taxation | No Comments »

25. August 2009 by Dan Walkow, CFA, CMT.

This is a buyer beware post on ETF’s. Recent capping of some Exchange-Trades Funds such as the United States Natural Gas Fund has led to these funds to trade at a premium much like a closed end mutual fund which trades at a premium or discount to Net Asset Value. Premiums or discounts can  be as much as 20% or more and arise due to speculators bidding up or discounting a fund on speculation alone. This capping of ETFs is a recent phenomenon and bears watching. Buyers Beware. Full Story Here.

Posted in Markets | No Comments »

24. August 2009 by Dan Walkow, CFA, CMT.

 While we know that we made investment mistakes, and vow not to repeat them, most people have only the vaguest sense of what those mistakes were, or, more important, why they made them. Why did we think and feel and behave as we did? Why did we act in a way that today, in hindsight, seems so obviously stupid? Only by understanding the answer to these questions can we begin to improve our financial future.This is where behavioral finance comes in. Most investors are intelligent people, neither irrational nor insane. But behavioral finance tells us we are also normal, with brains that are often full and emotions that are often overflowing. And that means we are normal smart at times, and normal stupid at others. Read more here.

More on how pros take advantage advantage of the “sheeple”. The area of behavioral science is well understood and available to most investors. However, even if you understand “emotional triggers” most individual investors cannot capitalize on them. Each investor is their own worst enemy and it is your emotions vs you or as they say “I have seen enemy and IT IS ME!”

Posted in Investor Psychology | No Comments »

22. August 2009 by Dan Walkow, CFA, CMT.

The release of the names of persons who hid money in off-shore accounts by UBS is now takings on momentum with Canada joining the fray this week. The IRS has been speaking out on the topic saying that they will not stop at Swiss bank accounts only but will open up to other jurisdictions such as Hong Kong.

Meanwihle as names become public other creditors and ex-wives are lining up.

In Time:

It’s not just the U.S. government that wants to get its hands on the list of Americans who hold secretive Swiss bank accounts. Ex-wives, creditors and former business partners are also salivating over the idea that a settlement between the U.S., the Swiss government and a Swiss bank may lead to the public disclosure of as many as 4,450 U.S. individuals that used the foreign bank accounts to hide money. Prominent New York City divorce lawyer Raoul Lionel Felder says he is already getting calls from clients who want to know what they can do to get their portion of the money they always suspected their ex–loved one had tucked away overseas. Read more.

Posted in Taxation | No Comments »

21. August 2009 by Dan Walkow, CFA, CMT.

Canada’s rules on how it goes after tax cheats need to be seriously revamped if the Canada Revenue Agency is to have any hope of successfully prosecuting people who hide money in tax-haven banks, said Jean-Pierre Blackburn, the National Revenue Minister.

As it stands, the CRA does not have the ability to compel banks to report when account holders send money out of the country “but we should have that information that Mr. X or Madam Z did that,” Mr. Blackburn said in a telephone interview. “We need that information but we don’t have it. We need changes in the law.”

Led by the United States offshore investors who parked money in off shore tax havens are being hunted down and prosecuted. Fines, backtaxes, penalties and in some cases jail time. BUT NOT IN CANADA.

Swiss-based UBS Bank has been forced to supply the IRS in the United States with thousands of names of accounts and US persons who held accounts offshore. An amnesty program allows US persons to come forward, pay a reduced penalty but escape jail time.

Sleeping at the switch, the Canadian government is late to this party. Canadian offshore investors have been able to stay under the radar. HOWEVER don’t expect it to last much longer, Canada will fall in line with the US and make a big deal out of offshore tax cheats. It you stashed the cash offshore its time to find a tax person to dig you out of this looming probem.

Posted in Taxation, Uncategorized | No Comments »