TIPS

Buying TIPS through a mutual fund (or ETF) is a good idea, because it gives you a lot of convenience for a small price. Pros for investing in a fund include:

1. Buy at any time without a transaction fee. Although there is no charge to buy individual TIPS bonds at auctions through certain places (Fidelity, Schwab or TreasuryDirect), the auctions only come up a few times a year. If you want to buy individual TIPS bonds when there's no auction, you must use a brokerage account. Some brokerage firms charge a commission for bond orders. Vanguard charges minimum $40. You also pay a higher price ("markup") than the wholesale price when you buy on the secondary market. Or you will just have to wait until the next auction, but the prices will have changed by then.

2. Instant diversification. A mutual fund holds about 20 bonds with different maturities. You get all of them with one purchase. If you are buying individual TIPS bonds, they don't come on auction at the same time. You must wait for the auctions or pay commissions to establish your positions.

3. Sell at any time without a transaction fee. If you have individual TIPS bonds, there is no fee if you wait until they mature. If you want to sell before they mature, you may have to pay a commission. TreasuryDirect charges $45. Vanguard charges at least $40. You also receive a lower price ("markdown") than the wholesale price when you sell on the secondary market.

4. Buy or sell for any random amount. Minimum additional investment in the Vanguard TIPS fund VIPSX is $100. Want to buy $456.78? No problem. The individual TIPS bonds are in $100 increments at TreasuryDirect or in $1,000 increments in a brokerage account.

5. Reinvest interest payments immediately without charge. If you have individual TIPS bonds, you must hold the interest payments elsewhere. Reinvesting in another TIPS bond is also subject to the auction cycles and $100 increments at TreasuryDirect or $1,000 increments in a brokerage account.

6. Easy tax handling (for taxable accounts only). TIPS bonds in a taxable account have a unique phantom income issue. I won't go into the details here. The fund shields that issue away from you. You receive regular dividends from the fund and you get a 1099 at the end of the year, just like any other mutual fund.

All of these convenience come at a cost of 0.20% a year for the Vanguard TIPS fund VIPSX. That's $20 a year for each $10,000 invested. If you have $100,000 or more for TIPS, Vanguard's fund offers Admiral shares which cut down the expense ratio to 0.11%, or $11 a year per $10,000 invested. It seems very reasonable to me. Why bother buying individual bonds then? Because,

1. Low expenses. If you buy at auctions and hold to maturity, there is no extra expense. If you buy a large amount of TIPS, you can save money by building your own fund with individual bonds. Fidelity, Schwab and TreasuryDirect charge no fee or commission if you buy at auctions and hold to maturity. Even if you buy on the secondary market, as long as you buy long-term bonds in large chunks and hold the bonds to maturity, a one-time commission and markup can be less expensive than having to pay an ongoing expense year after year.

2. Be your own fund manager. You get to decide what maturity you buy. When you buy fund shares you buy a basket. The fund's (experienced) managers decide what to buy and when to buy. With individual bonds, now you become the (amateur) manager for your own fund. Want short maturities? Buy 5-year notes. Want long ones? Buy 20-year bonds.

I've bought all of these before, the Vanguard TIPS fund VIPSX, the iShares ETF TIP, and the individual bonds. They all worked the way they're supposed to. Right now I'm buying individual bonds and holding them to maturity because I want to save the ongoing expenses.

Buying at auctions and holding to maturity is not that hard. I have a step-by-step guide for doing so. If you buy long-term bonds at least $10,000 at a time, the secondary market can also be cost effective. If the the yield becomes attractive between auctions, I will not hesitate to buy on the secondary market. After all, for a 20-year bond, paying a one-time 1% commission plus markup beats paying a 0.2% expense every year for 20 years.

The Big 3... 2... ...1?

The WSJ is out with a muchly regurgitated piece, which may, however, finally end up being right. Turns out the negotiations between bondholders, General Motors (GM) and the intractable UAW are moving at the same pace as cars on a showroom floor. On February 17 GM is set to give the taxpayers a progress to report; and probably as for more money. With 48 hours to go, there has been minimal progress, it may finally be time to pull the plug.

GM's options are asking the administration for more money, which at this point has a one in a million chance of being granted (so I'm saying there's a chance), or filing for some kind of bankruptcy protection. Bankruptsy may be teh only truly viable long-term option, GM does still have solid revenue, despite low profit margins. Hopefully it also takes Chrysler with it.

One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company. The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked.

Now is the time to short the stock.

Gee Whiz

New York - General Motors Corp, the largest US automaker, is offering another round of early buyouts, this time to 22,000 older and relatively expensive union workers, the Wall Street Journal reported Thursday, citing unnamed GM managers.

The sources told the Journal they hope at least half will accept the deal.

The cuts would come on top of the elimination of 10,000 salaried

jobs around the world that the ailing auto company announced on Tuesday as part of its plan to prove financial viability to the US government.

The company would apparently draw a line under the offer to 22,000 members of the United Auto Workers (UAW) union and warn that it would be the last sweetened deal the company would offer, according to a GM spokesperson who talked to the industry magazine Automotive News.

It would be the third such offer in four years.

All told, GM still employs 62,000 UAW members. Worldwide, the company employs 245,000 people, including 55,000 in Europe.

The company is trying to hang on to 13.4 billion dollars in government loans, which could be withdrawn if GM does not come up with a survival plan by Tuesday. Chrysler motors has a similar condition hanging over its head for billions of dollars in government loans.

Both companies must tell the US Treasury Department how it will reorganize, restore profit and repay US loans by the end of 2011.

Amidst the year-old US recession, auto sales have dropped to their lowest in more than a decade.

Scott trade

There are consumer staples and then there are consumer staples. Coca-Cola is sometimes called a consumer staple, but come on, nobody really needs to drink a coke. Toilet paper and paper towel, on the other hand, are about as staple as staple gets. You need toilet paper. But maybe we don't need as much of it as we've been buying.

In its earnings report today, Kimberly Clark (KMB) says volumes for these basic products significantly tailed off in the quarter:

In North America, sales of consumer tissue products increased more than 3 percent in the fourth quarter, as an increase in net selling prices of almost 13 percent and improved product mix of about 1 percent were partially offset by a 10 percent decline in sales volumes and currency effects of 1 percent. The improvement in net selling prices reflects price increases implemented across the bathroom tissue, paper towel and facial tissue categories during the course of 2008. This focus on improving revenue realization, along with slower category growth and consumer trade-down, particularly in paper towels, contributed to the lower sales volumes. For the quarter, shipments were down more than 10 percent for Viva and Scott paper towels, approximately 7 percent for Cottonelle and Scott bathroom tissue and about 3 percent for Kleenex facial tissue. A portion of the overall volume decline also was due to the company's decision in late 2007 to shed certain low-margin private label business.

We suspect that people aren't necessarily using less toilet paper, so much as they're buying white-label 1-ply, sandpaper-textured toilet paper. Maybe Kimberly-Clark shouldn't have shed that low-margin business.

Wall Street's (still) Big Bonus

The cataclysm on Wall Street did not stop New York City-based employees from collecting $18.4 billion in bonuses for 2008. Sure, that pool is down 44% from the prior year but still represents the sixth-largest bonus haul on record, according to the NY State comptroller's office.

So after the worst year ever, Wall Street collected its sixth-biggest bonus pool. Makes perfect sense.

But whether its John Thain's rationale for paying Merrill employees accelerated bonuses (or any bonus for that matter), Citigroup's purchase of a $50 million corporate jet (before reneging), or the sickening vapidity of the DABA blog, it's clear many people on Wall Street remain completely out of touch with reality.

"The sense of entitlement that's been engendered in this group of people has clearly not been beaten out of them by the brutal performance of the financial sector over the course of the last year," says Bob O'Brien, stocks editor at Barrons.com.

Of course, what's most sickening to the vast majority of Americans is these bonuses were paid (mostly) by the same firms who've received TARP funds. The rationale that "bonuses must be paid or we'll lose our best people" doesn't hold water when everybody on Wall Street is suffering and cutting back. Similarly, the idea "there are separate pools of capital for bonuses vs. lending" doesn't hold water when Wall Street CEOs say "money is fungible" as a way of explaining why they can't track TARP funds.

Since Wall Street is clearly incapable of policing itself, the biggest question now is whether the Obama administration, Congress and Treasury Secretary Geithner will summon the political will and do the right thing -- attach major strings on future bailouts, including:

Severe limitations on bonuses and executive pay at TARP recipients. (I know many people want 'clawbacks' but let's start with the future first, which is simpler.)
Elimination of dividends paid by TARP recipients. (Even after "slashing" their dividends to a penny per share each, Citigroup and Bank of America are set to collectively pay approximately $425 million in dividends this year.)
Force banks to write-down bad debts before injecting capital, a.k.a. The Swedish Solution.
Elimination of lobbying by TARP recipients. (Sorry Tim Geithner, "imposing restrictions" isn't enough.)

Obama keeps his blackberry

WASHINGTON – The first family settled into their new lives in the White House on Thursday as President Barack Obama won an important personal victory: He gets to keep his BlackBerry.

Obama will be the first sitting president to use e-mail, and he has been reluctant to part with his ever-present handheld device. Its use will be limited to keeping in touch with senior staff and personal friends, said White House spokesman Robert Gibbs.

And though Gibbs said Obama had to ask at one point where to go next in his "pretty big house," he also said the president was enjoying living above the store and had time for dinner with the family on Wednesday.

"I think that obviously means a lot to him as a father," Gibbs said.

It was back to business for daughters Sasha and Malia, too, who returned to classes at the private Sidwell Friends School on Thursday.

The girls were allowed to play hooky Wednesday after a late-night scavenger hunt at the White House that ended when they opened a door and found their favorite band, the Jonas Brothers.

But two days of frivolity was, apparently, enough. First lady Michelle Obama has worked hard to maintain a strong routine for Sasha, 7, and Malia, 10.

"I know the family's moved now three times in only a few weeks. But if you know them and you know their family, they've had a routine for a long time," Gibbs said. "This is a monumental testament to Michelle."

The monumental testament to her husband? He won the BlackBerry battle.

Gibbs joked that the development was "almost as exciting as the presidential dog." He poked fun at the White House press corps for stirring at the news during his briefing. "Let's make sure the pen still works."

But the BlackBerry victory is a big concession. Obama said earlier that he was working with the Secret Service, lawyers and White House staff to keep the device.

Gibbs said the president will limit its use, and security has been enhanced to ensure that Obama can communicate in a way that's protected. Only a small number of senior staff members and personal friends would be given his e-mail address.

Previous presidents chose not to use e-mail because it can be subpoenaed by Congress and courts and may be subject to public records laws. And Gibbs said the presumption from the White House counsel's office is that Obama's e-mails will be subject to the Presidential Records Act, which requires the National Archives to preserve presidential records.

But he also said there are exceptions for "strictly personal communications."

Obama has often been seen checking his e-mail on his handheld device, even when it meant getting his hands slapped by Michelle during his daughter's soccer game.

Presidents George W. Bush and Bill Clinton didn't e-mail while in office, although Bush was an active e-mailer before becoming president.

That was before the era of the BlackBerry, a device now ubiquitous in Washington and precious to Obama. When asked by The Associated Press about his worst habit during the campaign, Obama responded, "Checking my BlackBerry."

Gibbs said the president believes that using the device is an effective way to keep in touch with people without "getting stuck in a bubble."

He said Obama's e-mails to him personally have ranged "from something that's very strictly business to, why did my football team perform so miserably on either any given Saturday or any given Sunday?"

Those who have access to the president's e-mail will be briefed about appropriate communications, Gibbs said, without offering specifics.

So the president who gave up smoking — mostly — managed to avoid withdrawal from his other addiction — mostly.

All in all, Gibbs said, Obama looked comfortable in his new surroundings.

"They're very much the same four people that I met five years ago when I went to work for them," he said, before conceding, "Obviously, it's a little different."

Mad off

As a fund manager, its been hard for me not to weigh in on the Madoff scandle, but as a human, I find it hard not to. Option collars are a very simple (to the savvy) way to control losses and moderate gains. Berrnie Madoff was a very bight man, in fact he was once the chairman of NASDAQ, but why isn't he in jail?

Bernie Madoff's investment fund may never have executed a single trade, industry officials say, suggesting detailed statements mailed to investors each month may have been an elaborate mirage in a $50 billion fraud.

An industry-run regulator for brokerage firms said on Thursday there was no record of Madoff's investment fund placing trades through his brokerage operation.

That means Madoff either placed trades through other brokerage firms, a move industry officials consider unlikely, or he was not executing trades at all.

"Our exams showed no evidence of trading on behalf of the investment advisor, no evidence of any customer statements being generated by the broker-dealer," said Herb Perone, spokesman for the Financial Industry Regulatory Authority.

What perplexes me is that I can not get a non-solicitation past FINRA, but they missed this? The key to this scam was verticle integration. Madoff was a market maker, and he controlled the accountants, the brokers, the compliance department, and even the exchange. This is asad day for roberbarrons; it looks lik ethey are all theives.