Steve Jobs' Obituary if Technology were like Medicine            November 21,2011


Nobel Prize winner Steven Jobs died today. Mr. Jobs won the Nobel prize for his research on a device called the iPhone which someday will revolutionize the way people communicate. The device will begin stage one trials as soon as funding is available. Testing will involve using the telephone not only for voice communications but also for accessing the Internet, sending text and e-mail messages and listening to music. The study will include a control group which will use two tin cans and a string in trials to assess safety. After phase III trials the iPhone is expected to be on the market in another five years.


In a recent interview on the Charlie Rose Show, Jobs discussed the possibility of a follow-up device called the iPad but said that development will require several more Nobel prizes. He called scientists in China who were developing a similar device "idiots" for not properly using the scientific method to test its safety. "There have been rumors that mobile phones cause cancer," he said. "It takes years of testing to determine whether these products are safe and effective. If we save even one life the extra time spent will be worth it." 

Steve will be buried in his signature Ralph Lauren shirt, jacket and bow-tie. Pallbearers will include close friends Bill Gates and Paul Allen who are interrupting their bicycle ride to Washington DC from their apartment in Albuquerque, New Mexico where they are attempting to raise awareness for their project called "Windows," which will allow a personal computer to load more than one program at a time into memory.


Another look at municipal bonds               July 21,2011

Municipal bonds may deserve a closer look for several reasons:

A headline in the opinion section of the WSJ this week read, “Get ready for a 70% marginal tax rate."  Hopefully we won't see taxes rise to that level, but most taxpayers do expect tax rates to increase as Congress deals with the federal budget deficit.  State income tax rates could very well increase for the same reason.

 And then another headline caught my attention. Bill Gross, co-head of Pimco, the world's largest bond fund,  said on CNBC that he thought the Fed was likely to keep interest rates low for long period of time, maybe even years.  If there's any truth in these two conjectures then investors should certainly take a close look at municipal bonds.

 Municipal bonds are debt obligations issued by state and local governments and other governmental entities to fund the building of highways, hospitals, schools, sewer systems and many other public projects. Munis are attractive to investors in high tax brackets because, in most cases, the interest income is excluded from federal income tax calculations. If investors own municipal bonds issued within their states of residence, interest income may also be excluded from state and local taxes.

 Here's what that means in real dollars.  If you're in a combined 35% tax bracket including both federal and state taxes a 3% $10000 certificate of deposit will give you only 2.35% to spend after taxes but the same dollars in a municipal bond may enable you to keep the entire 3%.  In real terms 3% taxable interest on $10000 gives you $300 but only $235 to spend after taxes. But the entire $300 can stay in your pocket in a municipal bond investment.  The higher your tax bracket the more difference there is. 

Remember that credit and interest rate risk are issues you need to consider, and other factors such as alternative minimum tax (AMT) may lower your return. But if we do see that 70% marginal rate taxes will devour the interest on your CD's.

While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, or state or local taxes.  In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bond investments may involve market risk if sold prior to maturity, credit risk and interest rate risk.

 

Equities Retreat on Worries about U.S. Economy, Eurozone      May 31, 2011

The rally that had propelled equities in April to their highest point in three years paused in May, with concerns over slowing economic growth in the U.S. and sovereign debt problems in Europe among the issues weighing on investors. Stocks slid throughout May, posting four straight weekly declines before ending the month strongly on the last trading day.      

As it did last year at this time, the U.S. economy has entered a soft patch, with first-quarter economic growth slowing to 1.8% after rising 3.1% in the final quarter of 2010.

Higher gasoline prices, an unemployment rate of 9% and the ongoing decline in home prices are restraining consumer spending, which grew at an annualized rate of 2.2% in the first quarter compared with 4% in the final three months of 2010. The Conference Board’s index of consumer confidence dropped to 60.8 in May, down from 66.0 in April and the lowest reading for the index since last November. Overseas, fears that Greece will be just the first of several eurozone nations to require debt restructurings also made investors wary.

 Investing is surrounded by ancient adages, one of which is “Sell in May and Go Away.” These types of admonitions are almost guaranteed not to hold true, for the simple reason that if they did, everyone would follow them and that would change the equation. For example, going back to 1971, the S&P 500 has advanced about 0.7% between Memorial Day and the Fourth of July, even more when stocks were ahead for the year going into that period, as they were this year. Bottom line? Ignore the clichés and follow your strategic plan.

Going forward, investors will be watching to see what happens when the Federal Reserve Board ends its second round of quantitative easing, widely referred to as QE2, and tracking the outcome of continued wrangling in Washington over raising the nation’s debt ceiling. Although various pundits have warned that interest rates could jump when QE2 ends and if the debt limit isn’t raised, to date the bond markets seem generally unconcerned – interest rates have actually fallen slightly in recent weeks. As always, time will tell.           

Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance mentioned does not include transaction costs which would reduce an investor’s return. 

                                 Trains, Boats and Planes                            May 12, 2011

In the mountainous expanse of Utah Territory’s high desert several miles north of the Great Salt Lake, the cowcatchers of the Union Pacific’s No. 119 locomotive and the Central Pacific’s Jupiter eased together in early May 1869. It was an iron handshake at Promontory Summit preceding the golden and silver spike presentations that marked completion of the country’s transcontinental railroad.

It had been only 39 years since the nation’s first scheduled passenger rail service had begun between Baltimore and Ellicott’s Mills, Maryland, in May 1830. May, it appears, has witnessed its share of transport-related events.

The British liner Lusitania was sunk by a German U-boat in May 1915, an event that helped draw the United States into World War I. In May 1941, the much-feared German battleship Bismarck was sunk by British naval and air forces off the coast of France.

But May figures perhaps most memorably in aviation history. The first transatlantic flight occurred in May 1919, and it was on May 21, 1927, that Charles Lindbergh landed the Spirit of St. Louis in Paris after a grueling 33½-hour solo flight from Long Island.

You may have less ambitious projects in mind for the month. Simply observing Memorial Day, preparing the garden and enjoying the springtime weather are enough for many of us.

 

 

             Fixed Income Investments - Part 1                            November 4, 2010

Fixed income investments are designed for security and income, not growth.  If you own these investments, or are thinking about purchasing some, you need to be aware of the terms and conditions of your holdings.  Most (but not all) fixed income investments pay a specific, unchanging rate of interest.  The date when your investment pays back its face value is called the "maturity date."  The amount returned to you at maturity is called the "par value."  Most bonds are valued at one thousand dollars each.   The amount returned to you at the maturity date is called the par value, and the interest rate that the issuer of the bond pays is called the coupon rate.  If you purchase a fixed income investment that is not a new issue because it is already owned by someone else; or if you sell your investment before its maturity date, you will deal with what is called the "secondary market."   When you buy a fixed income investment on this market, you may pay more - or less - than the product's par value.  Therefore, the interest rate you would earn could be different from the coupon, and would be called the "current yield." 

                  Fixed Income Investments - Part 2         November 8, 2010

We call the combination of the gain or loss of principal - and the interest you receive - the "yield to maturity."  Here's an example: If you had purchased a long-term government bond some years ago (when interest rates were higher than they are now), and were to sell that bond today, you would receive more than par value for your bond.  This is because a bond that pays higher interest is more valuable than one that yields a lower rate.  On the other hand, if you wanted to sell a bond with a lower yield than today’s going rates, the price you would receive would be less than the par value.  That's because bond prices always move in the opposite direction from interest rates.  If you sell a bond that pays a higher interest rate than current yields, you can get a higher price than the par value because the investment is more valuable.  Conversely, if you sell a bond that pays a lower interest rate than current yields, you would receive less than par value for it.

               Fixed Income Investments - Part 3        November 11, 2010

Generally, fixed income products with longer maturity dates pay higher interest rates than those that mature in shorter periods of time.  If you hold a long-term investment, you are tying up your money for many more years and are taking more of a risk that interest rates will fluctuate.  If you decide to invest in the bond market, you will want to know the interest rate and maturity date of your holdings.  It is also important to be aware of what the "call features" of your bond are.  If a bond is "callable," it means that the entity that issued this investment is allowed to retire your bond - and pay back your principal in full - before the maturity date.  If your bond is paid off early, you will have to reinvest your principal, often at a lower interest rate.  Generally if a bond is callable, the issuer is required to pay you more than the face value in exchange for retiring the debt early.  If we say a bond is "non-callable," we mean that the principal may not be paid back any earlier than the maturity date.  So if you buy a bond at a premium to par value and it is immediately called you will sustain a loss.  These same principles hold true in bond funds, but the money manager is handling purchases and sales, but is still subject to the same interest rate risk as individual bonds.

Carol Jones Financial Advisor, RJFS Contact Us