Friday, June 30, 2006

Will the Fed "pause" in August? Yes.

As all sane people had expected, the Fed hiked their fed funds target interest rate by a quarter-point to 5.25% on Thursday. The great uncertainty remains what the Fed will or won't do in August. A lot of people acted quite surprised on Thursday. Some had expected a half-point hike and many had expected that the Fed would "signal" that a hike was more likely in August. The Fed took the wind out of the sails of both of those camps, without actually "signalling" that a pause was a high probability for August. The Fed essentially said "maybe, maybe not", depending of course on the data. My forcast is that inflation will moderate a bit over the next month and permit the Fed to commit to at least a temporary pause as the past hikes work their way through the economy.

Personally, Id like to see another hike to pump up the yield on all the cash that I've accumulated in the past month for my rainy day fund.

Fed fund futures point to 5.50% in August, but enough of that is likely simply a hedge so that we can't be sure how many people are really betting on that outcome. Besides these hedges and bets can shift rather quickly, even overnight.

BTW, Fed Chairman Bernanke is doing a great job and doesn't get enough of the credit that he truly deserves. The economy continues to poke along, neither booming nor busting, and that's what Bernanke's charter is at this stage. Inflation is high enough to cause the Fed to want to push it down a bit, but not so high as to cause any great harm or be a great risk.

-- Jack Krupansky

Thursday, June 29, 2006

Almost six weeks at Microsoft

I'm finishing up my sixth week as a full-time employee at Microsoft this week as a Software Design Engineer in Test (or SDE/T or SDET) and still having a lot of fun at it. The work is interesting and challenging and gives me access to a lot of interesting people, technology, and toys, not to mention an interesting amount of money. It's not the same as working on your own or at a startup, but the energy level is still definitely "there".

-- Jack Krupansky

Quarter-point Fed rate hike still likely followed by a "pause"

Some people still feel that the Fed might hike by a half-point at today's FOMC meeting, but I feel that a quarter-point is a virual certainty. I also feel that the Fed will in fact pause after this hike, although it might be a temporary pause pending the evolution of the economy. Fed funds futures are still predicting anoher quarter-point hike to 5.50% in August, but that may be more of an insurance hedge than an outright bet.

There may be a lot of sentiment that a hike in August is "likely to be needed", but my feeling is that the data will probably unfold in a manner that incrementally gives the Fed more confidence to stand pat by the time the August FOMC meeting unfolds. Also keep in mind that we now have 4.0% of hikes whose effects have yet to fully unfold.

The no-brainer Fed move at this point would be for the Fed to explicitly pause after the hike to 5.25% with the caveat that hikes will continue if inflation doesn't taper down by the end of the year.

-- Jack Krupansky

Tuesday, June 27, 2006

Finally moved into my new apartment in Bellevue, Washington

Sunday I finally took possesion of my new apartment in a brand new high-rise apartment building in Bellevue, Washington, which is the next town southwest of Redmond. Actually, it's more of a city. My building is 23 stories tall and isn't even close to being the tallest building in downtown Bellevue. The Westin hotel occupies the first 19 floors of a 42-story building and there are a bunch more tall building as well.

I'm only on the fourth floor, but the building is on a slight hill and gives me a nice view of Mt. Rainier. There are plenty of restaurants and lots of shopping here in downtown Bellevue. It definitely has more of an urban feel, which I miss since I moved out of New York City. Downtown Redmond has more of a "sleepier", suburban feel.

My apartment is so new that there are half a dozen unfinished work items including shelves and installation of a microwave oven.

The rent isn't too bad. I only have a studio, but it is a decent size. It has built-in washer and dryer and air conditioning. There weren't many places that had studios when I was looking around, so I would have had to get a one-bedroom apartment and pay more than the brand new studio I got.

I'm going to stick with dial-up Internet access until I pay off a big chunk of my back taxes. That may be another year, but I'm not into all the video and music stuff that forces many people to be dependent on broadband.

-- Jack Krupansky

Tuesday, June 20, 2006

More money for my rainy day fund and a Roth IRA contribution

I spent a number of hours working on my budget this past weekend and finally decided that I had enough excess cash to save away a big chunk in my rainy day fund as well as to make a modest contribution to my Roth IRA account, both of which are at Muriel Siebert & Co. and will be in cash for the next year or so, currently yielding over 4% for my taxable account and over 4.5% for the Roth account. Once I get over a moderate threshold I may switch to Treasuries, or maybe a short-term bond fund once the Fed stabilizes short-term interest rates, but money market funds are actually paying a decent rate of return, especially given the low risk.

Unfortunately, my detailed budget spreadsheets don't show me making more than modest contributions to either account in the next few months. Still, I have made a good start.

-- Jack Krupansky

Monday, June 19, 2006

Raising my company Roth 401(k) contribution from 10% to 15%

After getting my second paycheck I recalculated the amount of money that I could afford to salt away for retirement and raised my Roth 401(k) contribution rate from 10% of my base pay to 15%. The company (Microsoft) will then contribute a 50% match on the first 6%, for a total match of 3% of my base pay (in any pay period). I've elected to invest 100% of these contributions plus 100% of any dividends in company stock. The contributions are made to an account administered by Fidelity and permits fractional shares.

I'll be keeping cash elsewhere, probably in my Siebert Roth IRA. It remains my intention to target an asset allocation or 20-25% cash and 75-80% in company stock (Microsoft). My contributions will be uneven in allocation from month to month, especially in this first year. There is also the possibility that I might buy or sell some stock if the allocation gets out of line, but such transactions are unlikely in the first year or two of my plan.

It will be my intention to continue to contribute to my non-company Roth IRA account for the foreseeable future. That will probably stay as cash (money market or Treasuries).

Unfortunately, I have another "investment" which soaks up a significant chunk of my monthly income and competes for my financial attention: back taxes, but they will be fully paid off within three years on installment plans. I could opt to pay them down much more aggressively, but it's better to exercise a significant level of discipline to save for retirement and rainy days. Nonetheless, I'll make extra payments whenever I feel that I have a little extra cash at hand. Just last week I made such an extra payment to our beloved IRS. Hey, I'm just doing my part to help tap down the federal budget deficit.

-- Jack Krupansky

Fed rate hike still likely at June FOMC meeting followed by a "pause"

Fed funds futures now indicate a near-certain belief that the Fed will hike to 5.50% in August before pausing its interest rate hike campaign, but it's still a bit premature to accept that belief as gospel. My assessment remains that the Fed is more likely to pause after June's hike to 5.25% than to continue hiking. The data in July will be determining whether the Fed does or doesn't hike in August. There is of course the possibility that the July data could continue to show excessive inflationary pressure, but it could easily trend the other way as well. It's simply premature to judge July. Besides it is actually too soon to judge the cumulative effect of the rise of interest rates over the past year.

Although recent inflation data has not been so benign, the effects of energy and commodity price hikes earlier in the year are likely to moderate and dissipate somewhat in the coming months, giving the Fed a little breathing room, for now. Commodities prices have continued to moderate lately after the recent run-up, which was driven primarily by feverish speculation rather than actual real demand growth by end users.

As always, the last hike indicated by futures prices (i.e., the likely hike in August) is usually an insurance hedge rather than an outright bet.

The economy is hanging in there nicely, neither booming nor busting. Goldilocks would be proud of the Fed.

-- Jack Krupansky

Sunday, June 18, 2006

Growth trend of the economy

I'm not reading all the economic reports that I did before I took on a full time job in May, but I still get the Weekly Leading Index (WLI) from the Economic Cycle Research Institute (ECRI) every week. Their six-month smoothed growth rate has trended downward since a near-term peak in February and may continue to trend down for a few more weeks, but the weekly data has been trending up since a near-term low in late May. All of this data is still positive, albeit not as strong as back in February. In other words, the economic growth signals are confused and inconsistent, but that is consistent with an economy that is shifting to a more moderate and stable rate of growth. The economic growth signals work best when the economy is sharply accelerating or sharply decelerating since they are measuring acceleration of the rate of growth and not the rate of growth itself. The leading growth signals will be more volatil and bounce around when the rate of growth is changing only modestly. The real bottom line is that the upwards pressure on the economy is still positive, albeit only modestly.

None of this suggests any problems and is completely consistent with what the Fed is trying to do: keep the economy growing at a sustainable pace. Or as I keep saying: neither booming nor busting.

-- Jack Krupansky

Saturday, June 17, 2006

More Microsoft stock

My new Roth 401(k) company retirement plan did in fact kick in on Thursday, June 15, 2006 and is investing 100% in Microsoft stock. The company matches 50 cents on the dollar up to 3% of my base pay, which I also put 100% into company stock.

This will effectively be a dollar-cost averaging investment plan with an investment every pay period (twice a month).

-- Jack Krupansky

Friday, June 16, 2006

Bill Gates and Microsoft

It will be quite interesting to see how the market, money managers, mutual funds, and investors in general respond on Friday to the big news from Thursday after the market close that Bill Gates will be relinquishing more of his day-to-day responsibilities of running Microsoft over the next two years and assuming a part-time role at the company as he spends the lion-share of his time at the charitable foundation that he shares with his wife, Melinda. As a shareholder and employee, I wish Bill great luck and am not worried in the slightest about the prospects for the company with Bill in his new role.

The truth is that Gates has had a much smaller role at the company for a number of years now, especially since Steve Ballmer assumed the position of CEO a few years ago.

As a shareholder, and employee, I don't in any way feel that Bill's shift in focus will in any way diminish the present and future prospects for the company. Steve Ballmer is going strong and can be expected to charge forward as strongly as he has in the past. Ray Ozzie is a very strong technologist who will probably offer even better technological leadership than Bill himself has provided over the years. Overall, Microsoft has an incredibly strong team in place.

Sure, there may be a knee-jerk negative reaction by the cynics, as there always is, but that should never be a big concern of true, long-term investors.

I'd invest more heavily in Microsoft myself, but I've already elected to put 100% of my Roth 401(k) contributions into Microsoft stock. Just this morning I had made the election to reinvest my 401(k) dividends in company stock as well.

This is truly an exciting time. The competition between Google, Yahoo, Microsoft, Linux, Open Source, Web Services, and a zillion small, agile startup companies will end up producing a greater amount of business and stimulate the kind of spending that provides an enormous engine of growth for the entire U.S. economy.

I actually had a ringside seat, literally, for a big part of the show today. Not at the press conference, but at the much larger employee "town hall" meeting where Gates and Ballmer went much deeper into the evolution of the company and its philosophy over the years and what it will be like going forward. I won't try to go into specifics, but just say how Gates and Ballmer emphasized that people have continually underestimated the company and its patience, persistence, and tenacity and the way people at Microsoft "keep on coming." Ballmer emphasized quite strongly that "innovation is our top priority." Needless to say, Gates got a standing ovation.

To be very clear, Gates is *not* walking away from the company, even after the two-year transition period. He will continue to be Chairman and he says that he will continue to participate in projects on a part-time basis. As the company press release states, "after July 2008 Gates would continue to serve as the company's chairman and an advisor on key development projects." His "genius" in the past was not so much in managing the day-to-day affairs of the company of being heavily involved in technical product decisions, but in offering key insight on key issues for key projects at key points in time. Even on a part-time basis, he'll continue to have opportunities to do so even after July 2008.

Gates may have a unique figurehead status, but Ballmer is an amazing character to see in action.

The amazing thing about Microsoft is to see so many young but really smart "kids" who are so extremely capable and so extremely energetic and so extremely motivated to carry on the Microsoft tradition.

-- Jack Krupansky

Thursday, June 15, 2006

Eating dogfood at Microsoft

One of the most common words used by many people at Microsoft is: dogfood. Except they mostly use it as a verb. They refer to "dogfooding products" or "helping to dogfood" some new product or a mobile SmartPhone is known as a "dogfood device". A long time ago someone said that software developers "need to eat their own dogfood", meaning they have to use the software they are developing for other people, they have to test it themselves. Somebody just interviewed the CIO of Microsoft who discussed "Eating Dogfood at Microsoft". Take a look at the video:

-- Jack Krupansky

Wednesday, June 14, 2006

ShareBuilder investment

I have re-enabled my small monthly dollar-cost averaging investment plan with ShareBuilder and it now invests 100% in Microsoft stock on the second Tuesday of each month, so in theory it purchased a small slug of MSFT for me on Tuesday. I'm sure it did, but I've been too busy to check. The next investment will be on Tuesday, July 11, 2006. ShareBuilder will automatically debit the funds from my checking account the previous evening (Monday), but I haven't seen that debit hit my checking account yet as of Tuesday evening. This is rather convenient and only costs a $4.00 commission.

My Roth 401(k) plan will be investing 100% in Microsoft stock as well. My first contribution may occur on Thursday, but it may take another pay period or two (pay periods are the 15th and last day of the month) before it kicks in. The company matches 50 cents on the dollar up to 6% of my base pay. My employee stock purchase plan (ESPP) starts taking money out of my pay on July 15th and then buys company stock at the end of September at a 10% discount.

Meanwhile, I transferred a big pile of cash into my Sharebuilder account to keep as cash for my rainy-day fund. I'll keep it there until I figure out where I really want to keep my rainy-day fund. I'm still considering Fidelity, but I'll consider other options as well. In fact, I'll probably eventually distribute it in at least three or four different places based partially on convenience and better return (and protection from identity theft). The guiding rule: out of sight, out of mind. If I don't see the cash in my checking account or main savings account or main brokerage account, I'll be less likely to consider it as "available" for other purposes.

-- Jack Krupansky

Sunday, June 11, 2006

Fidelity core money market interest rates

I was considering opening a Fidelity brokerage account as a place to park cash for my rainy-day fund. I already have a brokerage account that pays a decent interest rate on cash (4.17 at Siebert), but had seen an online ad for Fidelity that promised 4.65%, which is about what Siebert pays on my Roth account (4.67%).

I naively presumed that this meant I could just deposit cash in a Fidelity account and that was the interest rate I would get. It turns out that that is not quite true. If you simply deposit cash in your Fidelity brokerage account you get the Fidelity FCASH interest rate, which was about 2.95% on Thursday. That is much worse than what I get by default in my Siebert brokerage account.

In order to get the "Fidelity Cash Reserves" interest rate of 4.65% (the only interest rate that they advertised, you have to explicitly transfer your cash into the FDRXX fund. Granted, you can set up an automated investment plan to transfer cash on a regular, timed basis, but you can't set up the account to automatically sweep all cash to FDRXX on a daily basis as it is deposited. That sucks. I don't have that burden with my Siebert account.

FDRXX is what Siebert uses for cash in my Roth IRA. Siebert uses Fidelity Prime Reserves (FPRXX) for "core" (default) cash.

The bottom line is that if you blindly open a Fidelity brokerage account and deposit cash, you will not get the advertised interest rate.

In my book I'd call this classic "bait and switch" advertising sleaze. The web site "pitch" says "Fidelity Cash Reserves" in a way that strongly suggests that this is what your cash yields, with not even a footnote to warn you that your cash really gets the "FCASH" yield. I call this sleazy. Fidelity: do the right thing and tell prospective customers right up front the yield and the proper fund name for cash deposited in the account.

I may still use my Fidelity brokerage account to park cash, but I'm really annoyed that Fidelity is making me do extra, manual steps and that they resorted to this sleazy marketing.

Here's the Fidelity web site where I saw the misleading advertising pitch:

It turns out that I had a Fidelity brokerage account and didn't even realize it. This happened automatically since I selected Fidelity to administer my employee stock purchase plan (ESPP) stock distributions. There is a separate account for the ESPP itself, but they created a brokerage account as well.

I've had a rollover IRA account with Fidelity since 1999, but had never done non-retirement business with them. Actually, I've been indirectly doing business with them since Siebert uses National Financial Services to administer their accounts and NF is a subsidiary of Fidelity.

I may also stick with the Fidelity account since I should be able to do direct deposit for savings and actually link it to a bank checking account to do free transfers to and from my checking acount, in addition to having checks and a debit card for the brokerage account. I haven't verified any of this, but this is what Fidelity has led me to believe. Even though Fidelity automatically opened the account for me, I've heard not a peep from them with regards to checkwriting or getting an ATM card, let alone how to do free transfers to and from my bank checking account. Not even a single email "spam" message. It's as if they don't want my business. I have $2,500 cash sitting in my bank checking account earmarked for a Fidelity account, but now I'm not so sure that Fidelity deserves my business.

Fidelity should have mailed or emailed me a welcome message and given me a menu of account options to choose from. I'm in the process of incrementally navigating through their web site to find all of the features one by one, but they should have given me an easy path and notification about this process right up front.

-- Jack Krupansky

Fed rate hike likely at June FOMC meeting followed by a "pause"

Based on the available information, it appears that the Fed is quite likely to raise the fed funds target interest rate by a quarter point to 5.25% at the FOMC meeting at the end of this month. The Fed is also likely to "pause" after this hike. It is rather unlikely that we would see a further hike to 5.50% in August, although a lot of people who should know better will continue to chatter as iff such a hike were likely.

Although recent inflation data has not been so benign, the effects of energy and commodity price hikes earlier in the year are likely to moderate and dissipate somewhat in the coming months, giving the Fed a little breathing room, for now.

Fed funds futures prices indicate a hike in June and a moderate chance of a hike in August. As always, the last hike indicated by futures prices (i.e., the hint of a hike in August) is usually an insurance hedge rather than an outright bet.

The economy is hanging in there nicely, neither booming nor busting. Goldilocks would be proud of the Fed.

-- Jack Krupansky

Saturday, June 10, 2006


I've been experimenting with ShareBuilder for two years now and coincdentally my latest career move has led me to rent an apartment in the same small city as ShareBuilder's headquarters: Bellevue, WA. They're on 120th Avenue NE and I will be living on 112th Avenue NE (a new highrise in downtown Bellevue). I work in the next small city to the northeast of Bellvue: Redmond.

I have re-enabled my small monthly dollar-cost averaging investment plan with ShareBuilder that will now invest 100% in Microsoft stock on the second Tuesday of each month, the next investment being on Tuesday, June 13, 2006. ShareBuilder will automatically debit the funds from my checking account the previous evening. This is rather convenient and only costs a $4.00 commission.

-- Jack Krupansky

Thursday, June 08, 2006

Stock market and money market mutual fund yields

I've lost track of how many days (weeks) it's been since I checked up on the stock market on a regular basis. That's the way it's supposed to be for true, long-term investors.

I re-enabled my ShareBuilder monthly dollar-cost averaging investment plan which buys a small amount of stock (fixed dollar amount) once a month. My plan will now buy 100% Microsoft (MSFT) stock on the second Tuesday of each month, so my next investment will occur automatically next Tuesday (June 12). This plan is still only a small amount of money, but it gets rid of a lot of the effort and anxiety of investing.

I've also parked a moderate pile of cash (from my signing bonus) in my ShareBuilder account where it will earn a semi-reasonable money market yield (4.22%) until I decide how much of it to place in my Roth IRA account. My Roth money market fund is presently yielding 4.66%, with another quarter-point Fed rate hike quite likely at the end of the month. I have some other housing related expenses coming up over the next month (I might be in rather expensive temp housing until my new apartment is ready sometime in July), so I'm not sure how much "free" cash I really have right now. That's a big difference from where I was financially two months ago.

-- Jack Krupansky

Monday, June 05, 2006

Microsoft stock

I have tentatively decided to put 100% of my non-cash investment money into Microsoft stock (MSFT).

This decision is not based on any inside information or any short-term market considerations, but given that the stock has been beaten down so excessively over the past two months without due consideration of long-term economic and business factors, it does seem like a rather attractive entry price, to me. My decision would probably be the same even if the stock hadn't been beaten down, but the lower price makes the decision even easier.

A year from now I will review this decision and decide whether to diversify. I expect that I'll continue this path next year, but it always makes sense to periodically review decisions. One decision that could well change every year is to buy or sell stock to maintain a desired asset allocation.

I will be accumulating a fair amount of company stock by maxing out by contribution to the company employee stock purchase plan (ESPP) at 15%, putting 100% of my Roth 401(k) money into company stock, and restarting a small monthly dollar-cost averaging investment plan with ShareBuilder that will put 100% into Microsoft stock. I'll also be getting a small amount of company stock vested each year for the next five years from a stock "award" that I received with my employment.

I'll be saving as much cash as I can as well for a "rainy day" fund. That will constitute my "diversification", for now. Two years from now I would expect to have 25% of my assets in cash and 75% in Microsoft stock.

Putting all of your eggs in one basket (or even 75% of them) is always risky, but excessive diversification can be risky as well. Having a lot of different investments waters down the amount of attention that you can give to any individual attention, raising risk due to lack of focus.

I have a lot of confidence in the future of the company and I will have a dual interest in making sure I continuously evaluate the company's prospects: to protect my investment in stock, and to protect my investment in my career and source of employment income.

Years ago (back in 1992) I bet 100% of my retirement fund on Microsoft... the sock promptly went down 25% over the next year... but then rose by 700% over the next six years. I have no expectations as to the stock performance over the next ten years, but I don't feel more confident in any other company (including that other "search" company) or investment asset class over the coming ten years.

I am not making a stock pick or recommendation for other investors (or traders or speculators), but simply elaborating on my own thinking and decisions. Each investor should consider the available data and make their own investment decisions.

Please write to me... not to tell me your stock "picks", but tell me the company or companies that you really want to work for (over the long term) and belive would provide the best career and income opportunities (over the long term). If a company is a great career investment for the long-term, it might just be a great financial investment.

BTW, I am thoroughly enjoying my new job, even after many years of being self-employed.

-- Jack Krupansky