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Thread: Money Market Funds now 'breaking the buck' ...

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    Default Money Market Funds now 'breaking the buck' ...

    Speculation is that THIS is the real motivator behind the Fed bailout super SIV fund !



    (snip)" Legg Mason, SEI Investments Co. and SunTrust Banks Inc. have stepped in to make sure their funds don't fall below the $1 a share net asset value, known as ``breaking the buck.'' The 10 largest managers of U.S. money funds have about $50 billion in short term debt of SIVs, some of which has defaulted.

    ``This is the first real case'' of securities held by money-market funds defaulting, said Peter Crane, founder of Crane Data LLC, the Westborough, Massachusetts-based publisher of the Money Fund Intelligence Newsletter.

    Legg Mason invested $100 million in one of its money funds and arranged $238 million in credit for two others, the Baltimore-based company said in a Nov. 9 regulatory filing. SunTrust Banks Inc. received approval from regulators last month to protect two money funds that bought debt from Cheyne Finance Plc if the SIV is unable to repay the Atlanta-based bank.

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    Money funds, considered among the safest investments, loaded up on asset-backed commercial paper with the hope of increasing returns. Asset-backed commercial paper maturing in 90 days yielded an average 5.3 percent this year, 0.6 percentage point more than U.S. Treasuries with similar maturities, data compiled by Bloomberg show.

    ``When you get involved in this contest for when you can make 3 basis points more here or 2 basis points more there, that's insane,'' said Bruce Bent, chairman of Reserve Funds, who in 1970 created the first money-market fund. ``It's not what I designed the money fund to do.''

    Now, managers including Charlotte, North Carolina-based Bank of America, Federated Investors Inc. and Fidelity Investments are trying to limit losses by backing a plan coordinated by the Treasury Department for an $80 billion fund to keep SIVs afloat.

    ``It could be the impetus behind Treasury in this whole process,'' said William O'Donnell, head of U.S. rate strategy at UBS Securities LLC in Stamford, Connecticut. ``They're not talking about it. They don't want to say, `We're doing this to save the money funds.'''

    Raising Questions

    The SIV crisis has raised questions about whether the debt vehicles are appropriate investments for money-market funds. Vanguard Group, the fifth-largest U.S. manager of money funds, shunned them as too risky. New York-based Goldman Sachs Group Inc., the world's most profitable securities firm, dumped SIV debt on expectations the vehicles would be hurt by losses on subprime-mortgage securities.

    ``I'm sure, in hindsight, every manager wishes they hadn't'' bought SIV debt, said Robert Plaze, an associate director in the investment management division at the U.S. Securities and Exchange Commission in Washington. "(snip)

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    Default Re: Money Market Funds now 'breaking the buck' ...

    What a scary development. Literally nothing is safe right now. Other than real money, I guess ;-)

    I may sound a little clueless here, but I had not realised that money market funds did or could invest in such assets. And I guess that if someone like me didn't know, most other investors did not either. There are going to be some nasty surprises to follow.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by StuartL View Post
    What a scary development. Literally nothing is safe right now. Other than real money, I guess ;-)

    I may sound a little clueless here, but I had not realised that money market funds did or could invest in such assets. And I guess that if someone like me didn't know, most other investors did not either. There are going to be some nasty surprises to follow.
    And excellent excellent opportunities to buy Dollars on cents. I'm just salivating..... Thank God for irrational markets

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    Default Re: Money Market Funds now 'breaking the buck' ...

    check out the caption next to the photo ...

    "Inflation 1923-24: A German woman feeding a stove with currency notes, which burn longer than the amount of firewood they can buy."

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Fantastic! What a find. Thanks. I'm going to send that round to my finance geek pals. They will love it.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by Melonie View Post
    http://en.wikipedia.org/wiki/Hyperinflation

    check out the caption next to the photo ...

    "Inflation 1923-24: A German woman feeding a stove with currency notes, which burn longer than the amount of firewood they can buy."
    Of Course HyperInflation is caused when Fed prints more money than the GDP growth.

    To oversimplify (ignoring money velocity)

    If Fed prints at the rate of 6% and GDP is growing at 4%, you'll have 2% inflation.

    or Conversly, if Fed is targetting 2% inflation and the GDP grows 4%, Fed actually has the freedom to print 6% more money without any consequence. In fact in order to stave off recession they *have* to print 6% extra money

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    Default Re: Money Market Funds now 'breaking the buck' ...

    yes but what happens when the Fed is printing at a 'real' rate of 15%, and GDP is growing at a 'real' rate of -2%, while the gov't is releasing 'official' inflation numbers saying 3% ? Obviously your textbook formula has a lot of missing elements LOL.

    see

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by Melonie View Post
    yes but what happens when the Fed is printing at a 'real' rate of 15%, and GDP is growing at a 'real' rate of -2%, while the gov't is releasing 'official' inflation numbers saying 3% ? Obviously your textbook formula has a lot of missing elements LOL.

    see http://www.shadowstats.com/cgi-bin/sgs/data
    My source is textbook, yours is from a crackpot. I really don't know which one is correct. But again it really shouldn't matter in investing (seriously) especially if you are benchmarking against 10-Year TSY or S&P 500

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by xanfiles1 View Post
    My source is textbook, yours is from a crackpot. I really don't know which one is correct. But again it really shouldn't matter in investing (seriously) especially if you are benchmarking against 10-Year TSY or S&P 500

    The world has changed. If you're going to use old fashioned finance theory, you've now gotta diversify across the world. An example Hold a portfolio of 10% in S&P500, Hang Seng, Nikkei, FTSE, and 20% in Euros invested somewhere either fixed interest or stocks, 20% in Australian dollars in the ASX or fixed interest, and 20% in precious commodities and or non-US resources companies.

    When will we see a $1 million USD note?

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by salsa4ever View Post
    The world has changed. If you're going to use old fashioned finance theory, you've now gotta diversify across the world. An example Hold a portfolio of 10% in S&P500, Hang Seng, Nikkei, FTSE, and 20% in Euros invested somewhere either fixed interest or stocks, 20% in Australian dollars in the ASX or fixed interest, and 20% in precious commodities and or non-US resources companies.

    When will we see a $1 million USD note?
    I absolutely agree with you. But you are already complicating for the parent poster. Remember the more you throw in these things, the less reluctant a newbie would be to begin investing. So, I repeat, the biggest risk of them all is *Not* Investing.

    So any newbie investor should just start socking away in S&P 500 Index to begin with. Then they can get sophisticated by adding Bonds, International, Small Cap, Some REITS, Commodities. Then if they can spare time, even pick individual stocks with Value Investing.

    But she has to learn to boil water to begin with...

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    Default Re: Money Market Funds now 'breaking the buck' ...

    To quote salsa4ever - 'The world has changed.' We might mostly sound like crackpots on this board, investing in metals, currency diversification and the like, but the truth is hard to find these days. Official statistics don't mean much and it is almost full time work pulling back the curtain.

    If you want to see some of this the easy way, go and grab a copy of The Economist. At the back is a statistics section. In the inflation index, the all items US$ index is usually running at around 15% which seems a little more than the official numbers. In the UK, inflation is 'under 3%' and yet The Economist reckons on more like 18%!!!!!!

    This is The Economist publishing this. It is one of the most respected publications in the world.

    And I actually have a $1million note - you can buy them on ebay for surprisingly little!!

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by StuartL View Post
    To quote salsa4ever - 'The world has changed.' We might mostly sound like crackpots on this board, investing in metals, currency diversification and the like, but the truth is hard to find these days. Official statistics don't mean much and it is almost full time work pulling back the curtain.

    If you want to see some of this the easy way, go and grab a copy of The Economist. At the back is a statistics section. In the inflation index, the all items US$ index is usually running at around 15% which seems a little more than the official numbers. In the UK, inflation is 'under 3%' and yet The Economist reckons on more like 18%!!!!!!

    This is The Economist publishing this. It is one of the most respected publications in the world.

    And I actually have a $1million note - you can buy them on ebay for surprisingly little!!
    Investing in metals? On the one hand you talk about inflation and on the other you want to buy an asset which is been 'inflated' into a huge bubble with no underlying fundamentals supporting it. If you can sleep well being invested in metals, good for you.

    When you invest in a stock, you buy a piece of asset which generates real money. When you buy gold, you still buy a piece of asset, but its value is only determined by speculators (its fundamental value is determined by supply and demand). I'm not saying there isn't speculation in stocks, much of the internet stocks were speculated just like gold, oil.

    The one thing you learn from the internet bubble is assets which is bid up by speculation (Gold, Oil) as oppose to real value, will always come crashing down.

    Gold and Oil were good investments when it was out of favor. Now everybody and their uncle wants to invest in Gold and Oil. That is a sure sign of a bubble burst

    And don't even get me started on the currency speculation

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Not worthy of a proper response.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Awwww. Xan, you have some of the principles in order, but then the rest becomes a mess.

    Stocks and gold are both "equity" type assets. Their value always depends on supply and demand. However, commodity supply/demand economics is a bit more straighforward than that of a huge financial firm, or a commercial real estate builder.

    Meh, I really don't know what the best choices are. But are money market accounts really, truly at risk?

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    Default Re: Money Market Funds now 'breaking the buck' ...

    But are money market accounts really, truly at risk?
    Well, there are two classes of money market accounts. One class is issued by 'savings banks' (which fall under Banking Regulators) and are FDIC insured up to $100k. While these accounts pose some risk that the 'savings bank' could become insolvent, eventually the depositor would get their money out of the FDIC insured money market account. However, there is no specific time requirement for the FDIC to pay off, and the FDIC is not required to pay interest during any period of delay. Money market accounts through Credit Unions, and NCUA insurance, are essentially the same.

    Right now the FDIC / NCUA has managed to find buyers for the handful of US 'savings banks' and credit unions that have gone bankrupt this year and passed the money market accounts over to the new bank that acquired the bankrupt bank. However, if the bankruptcy rate of 'savings banks' or credit unions should accelerate, or should the FDIC / NCUA be unable to find other banks to willingly buy bankrupt 'savings banks', the FDIC / NCUA would have to pay off insured depositors using their own reserves (which are comparatively tiny). If the FDIC / NCUA reserves were exhausted, they would then have to either turn to the US taxpayer or increase FDIC / NCUA insurance costs on healthy banks as a source of additional funding. In the latter scenario it could take years for the FDIC / NCUA to raise enough money to pay off all insured depositors.

    The other class of money market accounts are issued by 'investment banks' and their subdivision brokerage firms / financial services companies (which fall under Securities Regulators). These money market funds are NOT insured by the FDIC, and may not be insured at all. Thus there are absolutely no guarantees that the NAV if these money market funds won't drop below $1.00 causing losses in principal. There is also no guarantee whatsoever that the NAV of these money market funds couldn't drop to 50 cents or 10 cents or even zero if the issuing 'investment bank' or subdivision should go bankrupt, meaning that in the event of a bankruptcy the money market investor might only get back 50 cents or 10 cents or absolutely nothing from their original money market account balance when the bankruptcy is settled.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    I'll say this - the housing bubble was predicted by the edge and fringes long far before the mainstream media even admitted it existed.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by Katrine View Post
    Awwww. Xan, you have some of the principles in order, but then the rest becomes a mess.

    Stocks and gold are both "equity" type assets. Their value always depends on supply and demand. However, commodity supply/demand economics is a bit more straighforward than that of a huge financial firm, or a commercial real estate builder.

    Meh, I really don't know what the best choices are. But are money market accounts really, truly at risk?
    Stocks 101
    A Value of a stock = Present Value of future Cash Flows.

    *A stock is no different than a Bond*

    If GE produces $1 Billion in Cash Flows per year forever, at a discount rate of 10%, it is worth $1B/10% = $10 Billion.

    If GE is has 1 Billion shares, the stock will trade at $10Billion/1 Billion or $10.

    When does GE stock price move down(up)?
    i) When the market thinks GE's earnings will be lower(greater) than $1 Billion.
    For Eg: Suddenly if Market thinks GE will only earn $900 Million, GE's market cap will be $900/10% or $9Billion or $9 / Share.

    ii) When Market thinks GE's earnings are riskier. i.e Due to unpredictability of GE's future, market may demand a higher Discount rate, say 11%
    GE's new Market Cap will be $1B/11% or $9.1Billion
    GE's new Share Price will be $9.1B/1B or $9.1

    There is no supply and demand part to it (atleast not in the long run)

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Stocks 101
    A Value of a stock = Present Value of future Cash Flows.
    the 21st century version also has to include ...
    - cash flows that may or may not be available for repatriation from foreign sources (due to associated tax consequences)
    - negative cash flows that may or may not have to be used to cover losses on off-balance-sheet items
    - self-consuming cash flows i.e. stock share buyback programs
    - positive speculative interest by M&A investors financed by borrowed Japanese Yen
    - negative speculative interest by hedge funds driven by 'naked' shorting, options etc.
    - dilutions stemming from stock option grants to execs and key employees

    and to top this all off, a major non-speculative factor is the percentage of stock share ownership held by investors for whom the US dollar is not their home currency ... meaning that GE's US dollar denominated earnings may be offset by the falling exchange rate of the US dollar. This also means that GE's share price rising by 5% in terms of US dollars may translate into a NEGATIVE share price change in terms of their home currency. Considering that over 40% of most Dow stocks are owned by foreigners, the exchange rate issue is far from trivial.
    -

    Xan, you really have to move beyond your 'nifty fifty' Americanized viewpoint and acknowledge the 'global' economy forces that are now at work in US stock and bond markets !
    Last edited by Melonie; 11-17-2007 at 08:40 PM.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    How would this affect the "Tax Exempt Money Funds"(mostly short term muni bonds pool)?

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    Default Re: Money Market Funds now 'breaking the buck' ...

    ^^^ well, at least by implication, muni bonds cannot crash since the municipality that issued the bond has authority to tax residents sufficiently to cover payments for muni bond interest and principal. However, the risk is really untested ... i.e. municipalities can and have gone bankrupt and muni bonds can and have gone into default.

    There's also an implied requirement that muni bond issuers carry secondary insurance ... but given the other risks that mono insurers like ANBAC have underwritten, I'm not sure whether that secondary insurance would actually be worth anything in a 'sky is falling' scenario.

    Probably the biggest gray area would be the fact that the muni bond fund 'operator', as a corporation, may have cross-collateralized the assets of their muni fund to cover the ass of different funds they also 'operate'. Thus it's theoretically possible that muni bond fund assets could become embroiled in larger problems that the 'operating' corporation may also face. There are probably SEC regs against this, but that doesn't mean that it couldn't happen as a desparation move.

    Let me just say that I'd be a bit leery of some California munis in the near future !

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    Default Re: Money Market Funds now 'breaking the buck' ...

    the 21st century version also has to include ...
    - cash flows that may or may not be available for repatriation from foreign sources (due to associated tax consequences)

    ==> This is still cash flow

    - negative cash flows that may or may not have to be used to cover losses on off-balance-sheet items

    ==> This is still cash flow

    - self-consuming cash flows i.e. stock share buyback programs

    ==> This is mere distribution back to the owners. If GE can't earn more than 10%, it should return the money back to its shareholders. Distribution can either be dividends (Taxable) or Share buyback (Tax free).

    - positive speculative interest by M&A investors financed by borrowed Japanese Yen

    ==> Irrelevant for the value of stock. If GE's value is $10, no amount borrowing anywhere from this world can change its value

    - negative speculative interest by hedge funds driven by 'naked' shorting, options etc.

    ==> Irrelevant for the value of stock. If GE's value is $10, no amount of shorting can change its value

    - dilutions stemming from stock option grants to execs and key employees

    ==> This is still cash flow

    Xan, you really have to move beyond your 'nifty fifty' Americanized viewpoint and acknowledge the 'global' economy forces that are now at work in US stock and bond markets !

    ==> What is good for the world is good for USA. As long as USA is innovating (Last checked Google, Apple, Facebook, Merck, Pfizer were all US companies) it should be good. If the world's wealth increases that can only be good for US companies.
    The day the Entrepreneurial spirit dies in the USA, tell me to short S&P 500 and I'd be happy to do that. There are plenty of negatives in US, but those are pocket change compared to the real assets USA has.

    So,
    Stock Price = Present Value of Future Dividends
    In general,
    Value of an Asset = Present Value of Future Cash it generates

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Not worthy of a proper response.
    ... I'm trying, Stuart, I really am !

    I suppose the only brief but meaningful response I can make is that Xan's definition of the 'value' of a stock must have little or nothing to do with it's actual SHARE PRICE.

    Of course I would also have to concede that Xan may be onto a great 'truth' in that regard ... otherwise we would not be seeing stock share prices based on P/E multiples of 40 or even 100+ . Perhaps we will soon see US stock share prices return to levels that more closely correlate with their true 'value' ... once the M&A speculators / carry traders / hedge funds have their heavily leveraged asses handed to them.

    I'll also have to concede that the Entrepreneurial spirit of American companies is not dead ... it has just been hamstrung by US gov't policies. Those innovative American companies are indeed increasing their wealth ... but by investing in new facilities in China, and by expanding the marketing of their products in Europe and Asia. Yes this is great for corporate executives and to some degree for stockholders, but it is decidedly NOT good for America since there is extremely little American job growth and extremely little US tax base growth when the 'real world' results of that innovation wind up being constructed overseas.



    (snip)"Tesla isn't a service business any more than, say, Apple is a service business. Why doesn't Apple manufacture its own iPods? Because Apple has learned (like so many other firms have in their respective industries) that it is far more profitable to design, market, and sell iPods than it is to actually assemble them. Why is this? Because it's harder to design, market, and sell consumer electronics devices than it is to assemble them.

    Think about it this way: how many firms could realistically compete to manufacture iPods for Apple? I'd guess at least dozens -- some in China, some in Taiwan, the rest in a few other Asian tigers. But how many firms have proven they can compete against Apple and win in the digital media player business? In the US, at least, the number is effectively zero, given that Apple's market share is north of 70 percent.

    Or think of it this way: can you name the firms that assemble iPods? I'm betting you can't. But you can name Apple.

    Or think of it this way: how much does an iPod assembler make on each unit? Well, given that they have to compete with dozens of other companies that can do the same thing just as well, I'd be surprised (though this is a guess) if they make more than $20/device, even on the highest-end iPods. How much, on the other hand, does Apple make on each iPod? iSuppli estimates gross margins of 50 percent on iPod nanos -- $101 on a nano, with $8 of the cost going to assembly. You can do the math, but it seems reasonable to say it's 10 times more profitable to be the designer-marketer-seller than it is to be the assembler, at least when you're the best at what you do.

    Again, Apple isn't a service company. A more accurate way of thinking about them would be as an intellectual property company: they design proprietary hardware, design the user interface for the hardware, create (portions of) the software that drives the user interface, and create the software for the hardware to connect to computers (iTunes) as well as the software to provide back-end services to the hardware (iTunes Music Store). How relevant is the fact that they don't actually assemble their proprietary hardware? It's only relevant to the extent that to do so would actually lower their overall profit margins (given how much less profitable assembly is than design), therefore making their company less valuable. Who would want that? Not any rational Apple shareholder. In any case, since Apple controls the entire product creation cycle, including directing external suppliers and assemblers, though technically they're an intellectual property company, it's easier for us to think and say that Apple makes iPods."(snip)

    ....... and ............

    (snip)"Apple’s Irish subsidiaries had accumulated profits of $2.6 billion in 2004 when the last accounts were registered according to the Sunday Business Post. If these represent after tax profits then pre tax profits (assuming a 12.5% Irish tax rate) would have been $3 billion i.e. tax of about $400 million would have been paid in Ireland to that time. But if tax had been paid at the average cash paid tax rate Apple suffered in the years 2002, 2003 and 2004 (according to its US filed accounts) then the tax bill would have been charged at 39% - or $1.17 billion.

    I think that rate might overstate things as Apple was not that profitable in 2002 and 2003. Let’s assume a more likely OECD average sort of rate of 30% - then the tax bill would have been $900 million on those accumulated earnings. That’s still a saving of $500 billion of tax by Apple.

    Now, at September 2004 Apple was worth in total (per its accounts) just over $5 billion. 10% of that might have come from Irish tax savings. It’s also worth noting that it’s total retianed reserves were $2.67 billion - of which 97% were in Ireland according to the Sunday Business Post report.

    Let’s also put this in another way. In 2004 Apple had pre tax profits of $383 million. And its profits in Ireland were $345 million. So 90% of Apple’s profits flow through Ireland.

    Which as anyone can tell you is absurd. 90% of Apple’s added value does not take place in Ireland. So this is profit laundering on a grand scale to ensure that profits are relocated by what are without doubt entirely legal means to a place where they cannot be argued to be earned but where they can be booked at low tax rates.

    This is not, in my opinion, corporate responsibility. It may be legal, but that’s the only basis on which you can defend it.
    And in my book that’s not the way to run a business."(snip)

    from


    ... so what you're really talking about in regard to Apple corporation is a bunch of office space in California filled by management and hardware / software design engineers that actually results in property tax revenue and income tax revenue. There are no assembly facilities nor semi-skilled hardware jobs in America creating property tax revenue or income tax revenue. In addition, a huge percentage of Apple's tax liabilities stemming from worldwide royalties and worldwide corporate profits are legally not 'American' at all ... they are legally registered to be Irish, and taxed at an extremely low Irish corporate rate versus a 'fair' US corporate rate ! Yup, a great 'American' company, all right ! Actually they learned this lesson from Microsoft, who has been pursuing the same Irish tax avoidance scheme for years.

    You can also bet that Apple is rapidly pursuing the relocation of more mundane hardware and software development work to lower cost countries as well ... employing Chinese / Indian engineers rather than American engineers. As this develops, Apple Corp. will eventually wind up with a US presence that amounts to one corporate headquarters building in California full of corporate management, lawyers, accountants, and senior engineers, with all middle level and lower level jobs and facilities relocated to lower cost lower tax countries.

    THIS is the ultimate destiny of your innovative 'American' companies ... and IMHO it is decidedly not good for America. Merck and Phizer are doing the exact same sort of stuff ... although merck did get a minor hand-slap recently re royalty income shifting to escape US taxes ... see

    (snip)"IRS Commissioner Mark Everson said last June, “Tax issues associated with the transfer of intangibles outside the United States have been a high risk compliance concern for us and have seen a significant increase in recent years. Taxpayers, especially in the high technology and pharmaceutical industries, are shifting profits offshore.”

    The cost of manufacturing drugs or computer technology is minimal compared to the cost of research and development. So, beginning in the early 1990s, several dozen pharmaceutical and computer companies established subsidiaries in Bermuda and other tax havens to game the system.

    They set up shell companies and transferred patents or logos or other intangible property there. Then, when profits rolled in, the company paid big license fees or royalties to its own shell — at the price it decided — and deducted that from home taxes. Revenues were sucked out of the U.S. or other countries even though the patents were created and were still used for work within home borders.


    Although almost 60 percent of U.S. pharmaceutical companies’ sales take place in the U.S., where the government’s refusal to control drug prices makes profits higher than elsewhere, the companies report to the IRS that their profits come largely from international sales. The world’s biggest drug firm, Pfizer, with most of its sales in the U.S., said that in 2004 it had 4.4 billion dollars in pretax profits in the United States and 9.6 billion dollars internationally.

    Last year, Martin Sullivan, a former U.S. Treasury Department economist, noted in the journal Tax Notes that pharmaceuticals had accelerated their movement of profits to low-tax jurisdictions. He wrote that “In 1999, foreign profits accounted for 39.2 percent of worldwide profits of large U.S. drug companies. By 2005 that percentage had jumped to 69.9 percent.”"(snip)

    ... so not only have these innovative 'American' companies managed to jettison an ever increasing number of US production facilities and mid + lower level US jobs, but they are also being SUBSIDIZED by tax revenues derived from other mid + lower level American workers whose jobs have yet to be exported. This subsidy takes the form of higher than necessary income tax rates being imposed on mid + lower level US workers to compensate for the avoided corporate taxes not paid by Apple, Merck, Phizer etc.


    ~
    Last edited by Melonie; 11-18-2007 at 08:31 AM.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    Quote Originally Posted by Melonie View Post
    ... I'm trying, Stuart, I really am !

    I suppose the only brief but meaningful response I can make is that Xan's definition of the 'value' of a stock must have little or nothing to do with it's actual SHARE PRICE.


    ~
    Aha. Now we are back on the same page. Price and Value are two entirely different things. The biggest mistake any investor (who is buying individual stocks) is not differentiating Price and Value.

    Yet, Millions and Millions of 'Traders' focus on Price and Price only. How is the stock market doing today? How much was it up and how much down? Bulls & Bears

    If you ask the World's greatest investors this is the fundamental point that they harp on. You have to spend atleast a Year in determining the Value of a company.

    It is imperative that every investor atleast read and digest the most famous and valuable allegory Mr. Market

    The following from Warren Buffett, (It is also amazing that people ignore Warren Buffett who has made $50 Billion by investing and listen to bloggers and shady web-sites whose track record is no better than S&P 500)
    -----------------------------------------------------------------------------------------------

    Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a
    private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

    Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

    Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

    But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, "If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy."

    Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of
    investment advice
    . After all, what witch doctor has ever achieved fame and fortune by simply advising "Take two aspirins"?

    The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business
    judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben's Mr. Market concept firmly in mind.

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    Default Re: Money Market Funds now 'breaking the buck' ...

    ^^^ understood ! However, on a personal level, I tend to acknowledge that the super-contagious emotions that you refer to are actually a HUGE force behind market price movements ... can you say 'momo'.

    There are also other HUGE but hidden forces which affect market price movements i.e. the US Fed, futures markets, 'hot money' from foreign investors a.k.a. yen carry trade, etc. All of this is circling back to the point that stock 'value' has little to do with stock prices anymore, thus depending on stock 'valuations' in the making of investment decisions is incomplete and highly at risk of being wrong.

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