The Truth About the Wealthy

Here is another side to the 1% vs. 99%.  People have to take risks and there are no guarantees that the risk you take will pay off.  With some risks you can lose it all or just a portion while at times risk can pay 10 fold.  the point is that once your wealthy like life, there are no guarantees that you will retain your life.  This piece in the WSJ chronicles that precise point.


For the full read The Truth About the Wealthy

• The total income of the top 1%—or those earning more than $343,000 in 2009—fell by more than 30% from 2007, according to the most recent Internal Revenue Service data. By contrast, the average income of the bottom 90% fell less than 3% during the same period
• A November Federal Reserve study, meanwhile, found that a third of the people in the top 1% in 2007, as measured by wealth, were no longer in the top 1% in 2009.
• On Wall Street, "beta" measures volatility relative to the overall market; a beta of 1.0 signals alignment with the market. Technology and gambling stocks can have betas of 1.5 or more, since they tend to overshoot the market in cyclical ups and downs. Utilities, by contrast, both rise less and fall less than the overall market and usually have betas below 1.0.
• A study by Jonathan A. Parker and Annette Vissing-Jorgensen of Northwestern University found that the beta of the top 1% nearly quadrupled between 1982 and 2007 to 2.39. The top 0.01% had a beta of 3.96, making even the riskiest tech stocks look safe by comparison. Economists and wealth managers say the betas of the rich have likely soared even higher in recent months as markets gyrated sharply.
• Lee Hausner, a California-based psychologist who works with the ultrarich, has one client she calls "The Phoenix," a real-estate developer and investor who borrowed and spent heavily. He has surged and crashed twice over the past decade, reaching a net worth of $400 million, losing it, then hitting $200 million and losing it again.

A report by Maria Elena Lagomasino commissioned when she was at by JP Morgan Private bank called "Beating the Odds: Improving the 15% Probability of Staying Wealthy" found that only 15% of the Forbes 400 stayed on the list over a 21-year period. (Deaths accounted for less than a third of the drop-offs.)  The report also points out the following;

• Overconcentration. The path to rapid riches for many of the wealthy involves betting big on a single company or asset class, whether it is a tech start-up, real-estate or gold. When those assets boom, the gains are huge. When values decline, they can take an entire fortune with them.
• Leverage. Debt has become the rocket fuel for lifting the rich into another financial orbit, amplifying gains and magnifying losses. In recent years, the wealthy have been using more debt than ever to maximize their investment gains, expand their businesses and fund their lifestyles Yet unexpected changes in their businesses or incomes can turn manageable debt levels into wealth destroyers.
• Spending. Even among the more-restrained wealthy, "some of these folks really don't have a clue how much they are spending," Ms. Lagomasino says. Many look at their paper net worth and assume they can afford that private jet or fourth home. Yet their spending often exceeds their cash flows and returns, leaving them one crisis away from a financial collapse.
• The "toxic cocktail." The first three reasons are often linked, with the newly wealthy betting big and borrowing big on a business, then using their paper wealth to fund a large lifestyle. When these three factors unwind at the same time, often forcing the rich to sell at distressed prices, they can instantly destroy huge fortunes.
• Family issues. These include divorce, inheritance battles and family-business disputes.

US Energy Independence

If your looking for new investment ideas or a job for that matter try looking into America's New Energy Security.  In this WSJ piece,  Daniel Yergin  a noted author and peak oil theorist gives his ideas and points on a less energy dependent US.  There are still debates raging as far as the environmental impact that fracking and extracting oil from sand in Canada has on the eco system.  Needless to say it's much safer to get oil from home or our friends in Canada that Iran and Venezuela.

Here are a few take aways from the WSJ article

• U.S. petroleum imports, on a net basis, reached their peak—60%—of domestic consumption in 2005. Since then, they have been going in the other direction. They are now down to 46%
• U.S. oil consumption reached what might be called "peak demand" in 2005 and has since declined. The country has become more efficient in its use of petroleum, and that will continue as vehicle fuel economy goes up. The economic slump has also muffled demand.
• U.S. crude oil output has risen by 18% since 2008
• Oil extracted from shale also means lower imports, a lower bill for these imports, and substantial job creation. Thanks to tight oil, North Dakota is now America's fourth largest oil-producing state after Texas, Alaska and California. It may well move up to third or even second place.
• North Dakota also has the lowest unemployment rate in the nation at 3.5%. The shale oil boom generates jobs in the oil fields, but it also has a long supply chain, fostering manufacturing jobs in states like Ohio and information technology jobs in California.
• The Persian Gulf represents 16% of our imports, and Venezuela 9%. By far the largest, and growing, source of imports is Canada, which supplies about 25%; Mexico is second, at 11%.
• U.S. imports from Canada will depend upon whether sufficient transportation exists. And in response to the State Department's postponement of the decision on the Keystone XL pipeline last month, the Canadian government has indicated that it cannot be wholly dependent on the vagaries of U.S. politics. The pipeline delay, said Prime Minister Stephen Harper, underscores "the necessity of making sure that we're able to access Asian markets for our energy products."
• The U.S. is still importing a larger share of its oil than it was in 1973, at the time of the first oil crisis. Even with increased domestic production and higher imports from Canada, it will still be part of the global oil market and vulnerable to disruptions and price spikes. Thus the U.S. needs to collaborate with other consuming and producing countries on energy security.

Week 1 2012 Performance...Good start to the New Year

Well to the New Year 2012.  The year and week opened up on a very positive note with most stocks opening up deep in the black but only to retreat as the week progressed.  Overall the fund was up 3.6% one of the best weeks we have had in months.

The big leader this week was SodaStream, SODA up almost 19% for the week on news the company has signed a deal with Kraft to add Crystal Light and Country Time Lemonade to it's lineup.  Under a licensing agreement,SodaStream will add the two Kraft brands to its portfolio of more than 120 flavors that can be made into carbonated drinks at home using SodaStream machines, sales of which have boomed recently in the U.S. Terms of the deal were not disclosed.

Other big moves included Owens Illinois, OI was up 10% on basically no news and BMW, BAMXY up 5.8%.  The North American Auto show opens up here in Detroit this week so it will be interesting to see how the auto companies move this week in trading.

We did add one new position this week to the option portfolio which was purchasing put options on Best Buy, BBY.  The thesis here is that the company will report week earnings due to lower volume and decreased margins.  Best Buy is basically becoming Amazon's storefront with people going into Best Buy stores to review products and then going online to Amazon to find the best deal.  I would expect this trend which has already been formed to continue on as well as Best Buy feeling margin pressure by having to discount to have customers purchase there products in store or online to match Amazon.

Here is a look into the upcoming week's economic calendar.  The beige book is likely to attract some attention on Wednesday but other than that it looks like a pretty quiet week.  With that saying, look for any news coming out of Europe to play an influential role in the markets this week.

Steve Jobs - 20 life lessons

Everyone certainly has their own way to run a company and Steve Jobs definitely had his.  Who knows 20 years from now what Apple will be or how influential Jobs' legacy will still be at the company he founded.  However he has left behind life lessons that many of us could take hold of in our daily lives as we continue to live on merry-go-round of life.

"Remembering that you are going to die is the best way that I know to avoid the trap of thinking you have something to lose."

Steve jobs - 20 life lessons

View more presentations from Rob van Alphen