I have now completely funded my IRA for 2010 from my main taxable account. I have not added any funds to the taxable accounts since 1984, and I believe my total contribution to them was less than 50 thousand altogether. There are benefits to being a conservative and experienced plodder, a tortoise rather than the hare. For 2010, my maximum contribution is $6,000 based on my age. I split that sum by contributing 4 thousand to the Roth and most of that has now been invested with some recent purchases. The remaining $2000 went into the regular IRA. This was not done for the tax deduction. If the tax deduction issue was the only significant criteria to consider, I would have placed the entire sum into the ROTH, as I did in 2009, since I regard myself to close to 70 1/2 to continue funding the regular IRA. IRA Withdrawal Rule I would prefer to forego the deduction and to fund the Roth instead. Most likely, I will never disturb those funds, and that is another benefit to me of the ROTH IRA. There is no time limit on when I have to make a withdrawal which is of course the case with the regular IRA. So, in my planning, the ROTH IRA is my last defense against total abject poverty. And, consequently, it will be the most conservatively managed by me.
The reason for adding some to my regular IRA has to do with the benefits of a ROTH conversion for assets pummeled during a market downturn. I transferred most of my regular IRA funds to the ROTH, starting in October 2008 and continuing until March 2009, in several partial conversions. This could not have worked out better. I received the benefit of the IRA deduction for the original contributions, and the meltdown gave me the means to execute the Roth conversion at a substantially lower tax consequence. I allowed all of the transferred asset to fully recover in price after the conversion and then some before selling them. I see some benefit of investing in a few, slightly more speculative or volatile securities in the regular IRA and then using the same ROTH conversion technique in the event of a significant fall in price.
1. Bought 50 TAXI in Regular IRA at $7.99 Yesterday (See Disclaimer): I discussed this Business Development Corporation in an earlier post: /Bought 100 TAXI at 8.17 The yield at my cost is about 9.5%: TAXI Fund Quote - Medallion Financial Corp See general Description at Medallion Financial (TAXI)
2. Bought 100 AUY at $10.55 in Roth IRA yesterday (see Disclaimer): This brings my total Yamana Gold shares to 200 with the other shares held in the main taxable account and bought at a higher price on the Toronto exchange. Yamana has declined from a closing price of $12.71 on 1/11/ 2010 to yesterday's close of $10.57. AUY: Historical Prices for YAMANA GOLD INC - My prior trade in the retirement account was to buy AUY at $8.98 and to sell those shares at $11.4: Item # 3 /Sold Some AUY I also previously sold 100 of Yamana on the Toronto exchange at 14.2 Canadian: /SOLD AUY I view Yamana as a trade and a hedge for the bond heavy retirement accounts.
3. News Corp (own NWSA): News Corporation reported results for its 2nd quarter of the 2010 fiscal year, earning before extraordinary items 25 cents per share compared to 15 cents in the year ago quarter. Revenue increased 10%. Analysts were expecting 20 cent. CNBC Avatar was released by News Corp.
4. MET Life (own METPRA only): MetLife reported operating earnings of 96 cents, the estimate was 95 cents, and 35 cents after investment losses. Revenues increased 14% over the year ago quarter.
5. Mueller Water (MWA)(own-LT category): Mueller Water Products lost 7 cents a share in its first fiscal quarter for 2010 (Q/E 12/31/09) on revenues of 313 million. Free cash flow was 51.4 million. The CEO said in the earnings release that the improvement over the year ago quarter was due to increased demand for repair and replacement spending on water infrastructure systems. The company has not seen a pick up demand at U.S. Pipe as volume continued to decrease, though the rate of decline has "generally" been slowing. The demand for Anvil products continues to be adversely impacted by the slowdown in non-residential spending. Since January 2009, Mueller has reduced its debt, which I viewed as the main problem when I initiated my Lottery Ticket position, by 392 million. Bought 50 MWA as a Lottery Ticket at $3.62 And, MWA repaid 40 million of its term debt in January 2010. The E.P.S. number was in line with estimates, while MWA missed the revenue projection by 11.6 million. I expect slow progress with this LT as the economy recovers, and I realize that patience is the operative word.
6. Savings Rate: The Commerce Department reported earlier in the week that the savings rate increased to 4.8% in December. Consumer spending rose .2% after increasing .7% in November. www.bea.gov/ 2010/pdf I view increases in the savings rate to be necessary, as consumers need to repair their balance sheets and to deleverage. Figure 3 in the following linked document shows how the savings rate declined in the U.S. during the Age of Leverage which I define as starting during the 1st term of the Reagan Presidency, for both the government and the average U.S. citizen: www.invescoaim.com/pdf/ Along with the decrease in the savings rate, Figure 1 of that document clearly shows another cause of the Near Depression, as household debt as a percentage of disposable income increased from 64% in 1985 to a high of 133% in 2008. It is going to take a few years to repair this damage caused by widespread profligacy. I would say 2 to 3 years as a minimum type of projection. This is one reason, as previously explained, why I expect the long term secular bear market to continue to what I would consider a normal or average 15 year time span, starting in 1997.
7. ADP Jobs Data: ADP, which tracks private sector employment, reported today that private sector jobs declined 22,000 in January, less than the 30,000 expected. The December number was revised to show less job losses. The service sector added 38,000 and small businesses continue to shred jobs. This is a link to the full report: www.adpemploymentreport.com/ January_10.pdf
8. O2Micro (owned LT Category): Some of my recent purchases of small tech stocks as Lottery Tickets have not been working out so far. O2Micro reported a 46% increase in revenue to 33.1 million and a gross margin of 60.6%. The company did manage to report a small GAAP profit. The company ended the quarter with 113.3 million in unrestricted cash or $3.13 per share. OIIM closed yesterday at $4.75 and was trading up slightly in this morning's trading. Book value was $4.96 per share as of 12/31/2009.
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