Treasury Sells 10-Year Notes At Record Low Yield

A new landmark was set Wednesday for U.S. Treasury bond supply. A sale
of $21 billion, 10-year notes were offered at a yield below 2% for the
first time ever.

The auctioned yield, or the rate the U.S. government pays to borrow
cash in capital markets, was 1.9%. That smashed the 2% yield from the
10-year sale in September.

The Treasury received bids totaling $69.04 billion and accepted $21.00
billion. Primary dealers were awarded $9.29 billion, while indirect
bidders--a category that includes foreign central bankers--were
awarded $8.04 billion.

2012 stock markets started strong

Stock markets started the year on a positive note, buoyed by strong
manufacturing data from America, Britain and China. Investors will be
hoping that 2012 proves kinder than last year, when most markets fell.

It was no surprise that the Euro area's benchmark index fared badly in
2011, though the once-hot stock markets of Brazil, Hong Kong, China
and India did even worse. One of the world's best performers, oddly
enough, was Venezuela's main index.

British regulators fine PricewaterhouseCoopers

Britain's regulators said Friday they have fined accounting firm
PricewaterhouseCoopers $2.2 million for turning a blind eye on client
assets at JPMorgan Chase.

The accounting firm failed to inform JPMorgan that more than $8
billion of their clients' funds were mixed up with the bank's own
funds in seven years of reports filed with the Financial Service
Authority, beginning in 2002.

The New York Times reported Friday the fine, imposed by the
Accountancy and Actuarial Discipline Board, was the largest ever meted
out by that regulator.

"The tribunal found that P.W.C. had committed misconduct in respect of
each allegation in the disciplinary complaint before it. The tribunal
found the misconduct in this case to be very serious," the regulator
said in a statement.

However, the disciplinary board also said it had handed out a lower
fine than originally assessed due to the firm's cooperation with the
inquiry.

Why Businesses Need Bookkeeping?

The job of bookkeeping can be very time consuming. With no exceptions, every monetary amount that is paid or received must be recorded. Additionally, accuracy is of the supreme importance, making keeping the books in a quick manner a very bad idea. As business owners are often lacking in time, many choose to hire bookkeepers to keep company records well maintained.

Certainly bookkeeping is necessary and beneficial to business owners. According Pettir.com Proper bookkeeping can help businesses effectively manage cash flow, stay well-informed on company performance, and develop plans for the future. Moreover, accurate bookkeeping is required by both federal and local tax agencies.

A company's books are used to determine the amount of taxes the company must pay. They are also used in preparing tax returns. Sometimes, a tax agency may decide to investigate the information reported on a tax return or other type of tax-related document. In such cases, business owners are required to present accurate records for the tax agency's inspection. In the United States, for example, the Internal Revenue Service requires business owners to keep financial records that are complete and up-to-date. State and city tax agencies may require businesses to maintain accurate records as well. Failure to observe acceptable bookkeeping practices may lead to significant monetary fines, penalties, or in severe cases, imprisonment.

New IRS 1099-K Tax Form

The 1099-K is a new form for tax year 2011 that shows gross sales reported to the IRS.  The IRS has introduced a 1099-K form requiring all Payment Settlement Entities (Credit Card providers including banks, PayPal, and others) to report all qualifying payments made to individuals during the 2011 calendar year. This includes payments by credit cards, debit cards, and stored-value cards (including gift cards).

To prevent duplicate reporting to the IRS, the 1099-MISC form from the small business owner must now exclude the payments types listed above; however, it must still include Cash, Check, EFT, ACH, and Direct Deposit payments.

Online sellers who have $20,000 or more in gross sales and 200 transactions or more in the calendar year will receive the 1099-K from their third-party payment networks such as PayPal. Sellers will need to check the information on the form to ensure the reported income is correct.

Sellers will also be responsible for documenting expenses that were associated with that reported income, so that they only pay taxes on the profit, not the gross sales as reported on the 1099-K form. That's important because the gross sales totals do not exclude expenses like transaction fees or returns, which are important deductions to a small businesses' net income.

Micro credit supports under-served markets

The idea of micro lending, sometimes called micro-finance, is more typically associated with loans in amounts as little as $25, disbursed to impoverished people in developing countries, ideally helping them to generate their own income to climb out of poverty.

But more recently, microcredit has become a mainstream practice in the U.S., and even though the average Small Business Administration (SBA) microloan size is $13,000, the SBA's program shares a similar mission as traditional microloan programs.

While the microloan program is open to all entrepreneurs, the program especially supports underserved markets. This includes borrowers with little or no credit history, low-income borrowers, and women and minority entrepreneurs who generally don't qualify for conventional loans or larger SBA guaranteed loans, said Pravina Raghavan, director of the SBA's New York District Office

Most banks, large or small, do not bother granting business loans of less than $50,000 because there’s not enough profit to balance the risk. By contrast, microfinance programs in the United States typically lend $35,000 or less to small businesses with five or fewer employees. They charge more than traditional banks, of course, with interest rates ranging from 5 to 18 percent.

When President Obama signed the American Recovery and Reinvestment Act into law in February 2009 to create jobs and promote spending, the law included $56.1 million for microloans for small businesses, to be doled out through the SBA through September.

Targeted toward start-up, newly-established, or growing small businesses, the microloans are short-term loans up to $35,000 each for working capital or inventory and equipment purchases. The intermediary lenders who distribute the loans can choose to lend more than that limit.

Read the full article of Microloans help small businesses on dLoewi Consulting.

Jeremy Siegle’s Bet on Stock’s Long-Run Outperformance

In the late December Jeremy Siegle published an article about his defense on his claim about long-run performance of stocks. It is based on his original article made public on his website jeremysiegel.com in the last summer. It specially responded critic threw by Jason Zweig, a well-known journalist and financial writer for the "Wall Street Journal".

It is always interesting to follow this debate, as it can broaden our perspective and deepen our understanding about long run performance of stocks. The following is the article published on Yahoo.com.

Last summer Jason Zweig questioned the quality of the early 19th century stock data that I used to support the long-run case for stocks. Although he has no problems with my data or my analysis of the stock market since 1871, he claims that the data from 1802 through 1871 is "rotten with methodological flaws." Furthermore, he claims that I inexplicably raised the dividend yield during that period from 5 percent, when my data were first published in academic journals in 1992, to 6.4 percent two years later. This unwarranted increase, Zweig claims, juiced my stocks returns in the early period and gave a much more favorable cast to long-run stock returns.

One could argue whether any of my (or other researchers') conclusions about the superiority of stocks as long-term investments is at all dependent on data that are nearly two centuries old. But I take his challenge to my data and research seriously, and I believe it very important to set the record straight.

Early Returns

My first studies were based on the path-breaking research of Prof. William Schwert of the University of Rochester, who published a paper in 1991 titled "Index of U.S. stocks prices from 1802 to 1897". In that paper, Schwert assumes a 5 percent dividend yield on stocks, borrowing the yield that researchers found in later data, and he admits that he has no evidence to prove whether 5 percent is correct for the early sample.

My first published article on long-term returns in 1992 used Schwert's 5 percent dividend yield. But when I began sampling the dividend yield on stocks from that period, I found that many stocks had a higher return, and I used an average of those returns to make my case.

New Data

Admittedly, Schwert's early data, first compiled in the 1930s by Professors Walter Smith and Arthur Cole, have flaws. But since then we have been graced with some superb research that strongly supports the returns that I used. Two of the top researchers in the field of U.S. stock returns, professors Will Goetzmann and Roger Ibbotson of Yale University. published an article in 2001 titled "A New Historical Database for the NYSE 1815 to 1925: Performance and Predictability". This work is by far the most thoroughly documented research on early U.S. stock returns, collecting monthly price and dividend data on more than 600 individual securities over more than a century of data.

This was a prodigious effort. They reported that it took their research team more than a decade of effort to track down individual share prices and dividends, mostly from original publications found in Yale's Beinecke Rare Book Library. The data that they collected is free from the survivorship bias and other problems that Zweig cites in his critique of Schwert's data.

Ibbotson and Goetzmann determined that the biggest source of uncertainty in these early stock returns is the dividend yield, since many of the sources from which they obtained stock prices did not report dividends. As a result, they formed two series of dividend yields, one assuming that those stocks for which they could not find dividends had zero dividends (their "low income" estimate), and another which uses the dividend yield of those stocks for which they could find dividends (their "high income estimate"). They write:

"The low income returns from the pre-1871 period is 3.77 percent per year. .... When we consider only the dividend paying stock during that era, however, we estimate much higher income returns -- 9.27 percent per year. This higher income return estimate is consistent with the practice of paying out profits to keep stock prices in the early period trading near par values. The true dividend return to a capital-weighted investment in all NYSE stocks is undoubtedly somewhere in between these two extremes."

This midpoint of their high and low estimates is 6.52 percent, higher than the dividend which Zweig criticizes as too high. Furthermore, their estimate of the capital gains for stocks during the period is actually slightly higher than the 0.3 percent per year estimate that I used. So recent research suggests that my estimate of stock returns in the early period is actually quite conservative.

Long-Run Outperformance

Zweig sharply criticizes my statements about long-term stock returns. He points out that "U.S. stocks have underperformed long-term Treasury bonds for the past 5, 10, 15, 20, and 25 years" and it is likely that 30-year under-performance is near. Well, Zweig can scratch 25 years as the market rally has pushed stocks ahead of bonds over that period. And if stocks return only 4 percentage points more than treasury bonds next year (which I consider extremely likely), he can scratch 20 years from his list as well.

The last 30-year period in which bonds beat stocks was from 1831 through 1861. Furthermore, stocks, in sharp contrast to bonds, have never suffered negative after-inflation returns over any 20 year period or longer. That is quite a record, and Zweig does not disagree with either of these statements. Nor does he disagree with any of my analysis of the data over the past 130 years. Nevertheless, he claims that history cannot tell us whether stocks will beat bonds over the long run.

Final World

With a final knock on my research, Zweig proclaims, "Another emperor [Jeremy Siegel] of the late bull market, it seems, has turned out to have no clothes."

On the contrary, I will be most happy to bet my wardrobe against his that stocks' 30-year returns will keep their century and a half record of outperformance over bonds intact in future years. If he takes the bet, I have no doubt that Jason, not I, will be the one running around naked.