by Patrick on April 1, 2007
The Commisioner of the SEC, Mr. Paul Atkins recently gave at financial seminar at our military installation. I recently posted the question I asked during the Q&A session. This post has a couple other questions and his respective answers from the Q&A session.
1. When I announced that Commissioner Atkins was coming to give a financial briefing at our local military base, Brandon from Money for Military sent in this question to ask if possible:
“I would like to know if he feels that these Private Equity firms that are going public are good investments. Specifically, I would like to know if Blackstone’s IPO is a good investment, since this is new investment territory.”
I was not able to ask this exact question, but Commissioner Atkins did answer several points in a roundabout manner.
The question he was asked by the audience (not me this time) involved the IPO process and specifically if company XXX would be a good investment. (He is not able to qualify or recommend specific stocks due to legal reasons).
Commissioner Atkins responded that now was an interesting time in the market place because certain segments of the market are at all time highs and there are enormous amounts of money changing hands. Some of the trends he mentioned included the frequency of companies being purchased by Private Equity firms as well as some private companies going private through the IPO (Initial Public Offering) process. As is mentioned in Brandon’s question, there are even Private Equity firms (that bring public companies private) that are going private themselves.
It was mentioned that many times private companies that are looking for investment capital to expand operations and grow their market share often go public through an IPO to earn the necessary money to expand operations. Sometimes it is the older companies that have experienced market stagnation or are undervalued that are bought out by private equity firms.
The advantages Commissioner Atkins mentioned for buying during an IPO include getting in on the ground floor (Who wouldn’t have loved to have purchased Wla-Mart, Microsoft or even Google at it’s initial market price?!) . But there are also inherent risks as many times these companies going through the IPO process are not established and may not go anywhere. You also run the risk or stock dilution (when the company issues more shares of stock and the relative ownership and value of your stocks diminishes accordingly.) As with all investments, Commissioner Atkins recommended due diligence in researching the investment and its associated risks.
2. The second question asked of Commissioner Atkins was what the SEC was doing to educate America’s youth about money and financial responsibilities.
Answer: The SEC is actively involved in teaching America’s youth through educational programs and games that actively involve the students to learn about the importance of investing and how the stock markets operate. The SEC even works with elementary, middle school, and high schools in a nationwide contest called the Stock market Game, in which classes get together to play a virtual portfolio against other classes. Recently a 7th grade class had the nation’s best performing portfolio in this game.
Another initiative that the SEC supports is Operation Hope’s Banking on Our Future, which promotes financial literacy and education for America’s youth grades 4-12. Operation Hope also promotes volunteerism and donating to worthy causes such as Hurricane Katrine relief.
3. Question: Is there any correlation between new consumer debt and the investments being made today?
Answer: Commissioner Atkins was not aware of any current studies that show this correlation. He went on to talk about how the government had at one point stopped issuing 30 year treasury bonds, but brought them back due to frequent inquiries from insurance companies, banks, and especially pension trusts which need to do long term planning for the upcoming retirements. Commissioner Atkins also mentioned the current problems in the subprime mortgage lending sector and the growth of debt exposure in these markets.
4. Well there was a fourth question but it was a rambling 2 minute dialog about Internet security, fraud, and whether the SEC could do anything about it. The basic answer was that you should perform due diligence in researching any investment, never subscribe to unsolicited investments without thoroughly researching it first, and ensure that you use secure Internet connections, the latest antivirus protections, and limit the access of personal data on the Internet from a trusted computer source if at all possible (e.g. don’t access your bank acct info from the public library or from an Internet cafe.) Most of this answer was basic information.
That was all I was able to see for the Q&A session (I had to leave a few minutes early). I hope you all got some good info from this!
*disclaimer: This post is based upon notes I took and my from own memory from the financial briefing I attended. This does not constitute the official stance of the SEC – please visit their official website for their official stance. 
by Patrick on March 31, 2007
This past Thursday, during a financial briefing to a primarily military audience, Commissioner Atkins of the SEC responded to Jim Cramer’s comments about manipulating the stock market and calling the SEC stupid. Cramer’s comments were made during a Dec. 06 interview, but were recently picked up by large media outlets such as NY Times, USA Today, CNN, and others. To read a review and watch the interview, go to Jonathan’s post at My Money Blog.
During the Q&A session following the financial briefing, an audience member (ok, it was me) detailed the situation and asked Commissioner Atkins his opinion on the feasibility and legality of manipulating the market through the spread of rumors/innuendo and massive power plays in purchasing and selling, his opinion of Cramer’s comment that the SEC is stupid, and whether or not Cramer faced any serious investigations because of these comments. The audience responded with a nice laugh, as apparently I put Commissioner Atkins on the spot.
Granted, this was a multi-part question, and took me a full 20 seconds to ask… but Commissioner Atkins was kind enough to answer almost every point. On the first point, Commissioner Atkins did not readily admit that it was feasible to manipulate the market. Admittedly, in his position I also would not answer in the affirmative on that point either. That wouldn’t look good to admit your agency does not have the power to prevent market manipulation. But he did answer that market manipulation is illegal, and anyone caught doing so faces harsh penalties. (The SEC has prosecutorial powers and the civil authority to sue persons and institutions, but does not have the power to levy punishments).
Commissioner Atkins’ remark to the second point of my question- Cramer’s remark that the SEC is ’stupid.’ Well, Commissioner Atkins did not go into much detail on this. Basically, he cautioned people on giving too much credit to the media’s ‘talking heads’ and to use caution and due diligence when researching investments. He also alluded to an occasion when apparently Jim Cramer received a subpoena from the SEC, and on air, ripped the subpoena into pieces and stomped on it. Theatrics at its best! I did not see that episode or clip, so I can not attest to its accuracy. But that would have been something to see!
And finally, the third point to my question, will Jim Cramer face an investigation? Actually, Commissioner Atkins answered this part of the question first. Basically it was the standard, I can not comment on any investigations that may or may not be ongoing or that may or may not occur in the future. I don’t remember the exact phrasing (I can’t write fast enough to get everything down…) but that was the gist of it. He answered in a laughing manner, but also in a manner that led everyone in the audience to believe that, yes, there was an ongoing investigation. And rightly so. He then detailed the lengths the SEC goes to investigate and find market fraud, and talked about the ongoing relationships between the NYSE, NASDAQ, and other organizations to track unusual trades, malicious rumors, find sources of leaked information and insider trading, and otherwise work to prevent and discover fraudulent acts. He also mentioned it is a daunting task and these allegations are very difficult to prove and require substantial evidence. (He did mention several recently successful prosecutions for these infractions.)
All in all, Commissioner Atkins is a very intelligent and insightful man, and answered my question very thoroughly (and danced around the legalities very well).
For the record, I have a copy of Jim Cramer’s Real Money and I thought it was an entertaining and insightful investing book. I also have at times watched his show, and found it entertaining, and have recreationally followed a few of his stock picks after he announced them on his show. What have his recommendations done?
Google the phrase ‘Cramer Effect.’ Here is a good link to see the results of a university study of the Cramer Effect called Can You Make Money from Jim Cramer’s Picks?. Basically, if he recommends it, it goes up the next day (It usually reverts within a week) and if he advises to sell, it usually gets pummeled the next day (sometimes irreparably, but sometimes it also reverts within a week or two).
Jim Cramer is entertaining, has a lot of knowledge, a very loyal audience, and thus a lot of power to make things happen. Sometimes he needs to act like a politician and dance around subjects without actually answering the question at hand. But he doesn’t, and therein lies his appeal.
But just like any investment – this is your money. Do your research. Understand your objectives and the risks you can handle and act accordingly. Don’t do anything because the Commissioner of the SEC or Jim Cramer say to do it or not to do it.
by Patrick on March 30, 2007
Nationwide, the average American works until April 30th to pay this year’s tax obligations according the the Tax Foundation’s annual estimate. This does vary because each state sets its own state income, sales, and property taxes. Here is the state by state breakdown.
This estimate even makes the assumption the worker was working 7 days a week! That means the average worker works one third of the year before seeing any real income for personal use. Of course taxes aren’t really assessed this way, they are assessed as you receive income. But, it is a sobering thought that you must work 4 months to pay taxes before you get to work for yourself. When you add debt to the equation, some people will work all year and not actually see any income for themselves.
There are two very interesting parts of the article that include a breakdown of the national average for number of days it takes to pay the taxes, and the breakdown for how many hours of an 8 hour work day it takes to pay other expenses.
Breaking that 120 days down, the Tax Foundation estimates it will take:
- 43 days of work to pay off federal, state and local income taxes
- 30 days to pay off payroll taxes (for Social Security and Medicare)
- 16 days to pay off sales and excise taxes
- 14 days to pay off corporate income taxes (This assumes that a tax on a business is passed on to its customers, employees and shareholders in terms of higher prices, lower paychecks and less shareholder value.)
- 12 days to pay off property taxes
- 4 days to pay off other taxes (e.g., customs duties)
- 1 day to pay off estate and gift taxes
The Tax Foundation also compares the time Americans work to pay taxes with the time we work to pay for life’s other expenses.
Based on an 8-hour workday, the research group estimates that Americans as a whole work:
- 1 hour 43 minutes to pay all federal taxes (income, sales, etc.)
- 1 hour 22 minutes to pay for housing and household operations
- 1 hour 8 minutes to pay for health and medical care
- 52 minutes to pay all state and local taxes (income, sales, etc.)
- 51 minutes to pay “other” taxes
- 40 minutes to pay for food
- 39 minutes to pay for transportation
- 28 minutes to pay for recreation
- 17 minutes to pay for clothing
What you will notice in the above breakdown is that there is no accounting for debt (or savings). The nation as a whole actually has a negative savings rate… It looks like there is mandatory overtime in the forecast!
by Patrick on March 28, 2007
That’s right, I saved $1,000 with two phone calls. How? By doing 2 simple things everyone should do – calling my cable/internet company about the rates, and calling my county auditor’s office about property taxes.
Save Money on Your Cable Bill
It was ridiculous how much my wife and I were paying for basic cable and broadband internet service – $96 a month! That is with no extra service! So I called TimeWarner and asked them why it cost so much. I directly transferred to retentions where I explained to the agent why I thought I was currently paying too much when I could get Dish Network and another Internet provider and save money. From there it literally took only a few minutes minutes and they said, “Sure, why don’t we lower that rate for you. Your new rate is $72 a month and will be good for 12 months. Is that ok?”
Yes, it was ok! $24 x 12 months = a savings of $288. Not bad for a 5 minute phone call.
Save Money on Your Real Estate Taxes
Next I called our county auditor’s office. Our house was appraised in excess of $30k above actual value! It turns out the square footage of our house was listed higher than what it actually is – hence the higher tax assessment. How do you know how much your house is assessed for taxes? Access your county auditor’s website to find a wealth of info about your house (and other houses in your neighborhood) including square footage, # of rooms, sale price, tax assessment, building permits applied for, etc. Then determine if the value is assessed too high, too low, or just right. If the assessment is too low, I recommend leaving it as is. Some counties purposely assess houses below market value to give all owners a tax break. If your assessment is too high then you should challenge your property taxes.
Luckily for me, my county lowered my tax assessment based on a phone call. I told them what I thought my house was worth (the purchase price several months previous) and I told them what the neighboring house was currently on the market for. They took down my information and a few days later I received a phone call telling me my new tax assessment value. It came in right about $30k lower than it had been. That was a real savings of approx $60/mo. Multiply that by 12 months, and you get an additional savings of $720/yr. The best part is, the property is not due to be reassessed until 2008, so I locked in the lower rates for 2 years.
In some counties, you are required to fill out a tax challenge form that usually requires homeowner info, property info, recent additions/changes to property, the reason you believe your property is unfairly assessed, and sometimes other info. My county has this form, but you are allowed to challenge the assessment one time via telephone, and if you do not agree with their findings, you must then use the formal complaint. As it happens, my new assessment is both fair and accurate.
Two phone calls, $1000 real savings. Not a bad afternoon. Not bad at all.
by Patrick on March 27, 2007
My neighbor just told me how he purchased his new vehicle and I had to share how he did it.
First, he did his research for what he wanted to buy and how much it should cost (all the usual places, Consumer Reports, Edmunds.com, etc.). Then, he went to the dealership at the end of the month when the dealers feel the pressure to meet sales quotas. He selected his vehicle & didn’t let them talk him into ‘upsizing’ his purchase with a higher end car model or adding unnecessary extras.
Negotiating the price. During price negotiations, he told them he was pre-approved for a loan @ x%, but he wasn’t dead set on using his bank for the loan. He also mentioned he had a late model car he ‘would probably’ trade in, but he held of negotiating his trade-in value until after the new purchase price was agreed upon. That was important because he was able to negotiate only the price of the new car, not the price of the trade-in. Dealers expect most people to be set on getting a great deal on the new car and not being very concerned about negotiating hard for their trade-in, especially after the new vehicle purchase price has been agreed upon. Make sure you get the price in writing!
With the purchase price agreed upon (well under dealer invoice), he went ahead and financed through the dealer. What?!? The add on points and take a commission! That’s exactly what he counted on… He was able to negotiate a couple thousand dollars lower purchase price by using dealer financing. The dealer figured to make up the lower sale price from the kick back on the loan and by giving him a less than stellar deal on his trade-in. Only, my neighbor decided at the end he didn’t want to trade his car in. 
Then he drove off the lot, satisfied he got the best deal he could.
After the loan was processed, he paid it off using a cash back rewards credit card (with an introductory 3% cash back for new purchases).
He then promptly paid the card balance with cash.
Overall, he saved a few thousand on the purchase price, then got over $750 cash back on his card. Of course, this won’t work for everyone because they don’t have $20,000+ in cash for a new car, but if you have the cash, it might be an interesting option.
Another option is playing the 0% interest transfer game, and transferring the loan to a 0% credit card – effectively buying a car for 0% interest. Be careful with this option, and make sure you pay your card off in time!
However you decide to make your next car purchase, the key is to do your research, put the pressure on the dealer, don’t get talked into unnecessary extras, negotiate one transaction at a time, and look for any other way to lower your cost (in this case dealer financing).
