Living Large

One way that companies expand is by extending their brands into new areas. And often this makes sense. Bose makes great speakers, so it was not a leap for me to believe they make great headphones. A little more of a leap…..Caterpiller makes wonderful heavy equipment, so I might be convinced they would make good heavy duty work boots. Some things would make absolutely no sense. Pfizer is a world-class pharmaceutical company, but I would not want to eat a Pfizer-burger.

Many corporations simply license their brands, and while this might seem like easy money, it presents significant risk to the core brand. If I buy a pair of $75 Armani Jeans made by a Chinese manufacturer under a licensing agreement with Armani, and they fall apart the first time I wash them, I would be hesitant to buy a $2000 suit from the real Armani.

So whether you are expanding or licensing your brand, you need to be sure you are protecting the core brand by assuring that consumers have a consistent experience between brands and expanded brands. But we are in a brand expansion world, and unfortunately many companies want to reap the benefits of their brand without taking the responsibility. Case in point…

I used to do a lot of business with US Bank. Like most banks, they expanded over the years to be much more than a bank, offering a full slate of investment services. Since working with one institution was easier for me, I tried out these services, but ultimately decided to just work with them on their core banking capabilities. During this process I had a big problem with their investment division. They essentially broke a contract with me, and have yet to pay me as the contract specified. When I complained to my business banker, I was told that “he had absolutely no control”. “Different division and we don’t communicate” he said. The problem with this is that they sold me the investment services based on their core brand and the convenience of working with one institution. And the result? As the consumer I just see one US Bank logo. Since I am unhappy with one division, I certainly won’t work with another unless they all get together to protect their core brand and do the right thing, and ultimately they lose all my business.

With the benefit of brand expansion comes the responsibility of brand management, and companies are foolish to expand without a plan to keep the consumer experience consistent.

Stephanie Madoff, wife of Bernie Madoff’s son Mark, is having her and the children’s names legally changed from Madoff to Morgan.  She wants to spare her family the “embarassment, harassment, and endangerment” of having the notorious name.

This got me thinking about all the other Madoff’s unrelated to Bernie that have also been Bernie’s victims.  The phone book in New York lists 12 Madoffs, and most major cities have a couple Madoffs, so one can assume there are dozens across the US that have had their name dragged through the mud.  A little like being named Hitler or Mussolini after World War II.  You also never meet anyone named Ponzi, Himmler, or Judas.

By the way, if you just can’t get enough Madoff, there is a blog devoted to covering all things Bernie,  aptly named “Swindler’s List” – http://www.jewishjournal.com/swindlerslist/.  At the blog you can keep up on Bernie’s latest jailhouse fights, but most interesting, they list Bernie’s possessions that are up for auction, so you can perhaps find a little bit of Madoff for your own home.

I stayed at my first Aman Hotel about fifteen years ago (http://www.amanresorts.com).  We were travelling in Asia, and a friend recommended we try the new Aman resort in Phuket, Thailand.  It was a unique and wonderful experience, and since then I stay at Aman’s whenever I can.  Every property is different and unique.  The resorts are romantic, small, and luxurious, filled with wonderful local art, and always have an incredible restaurant and spa.  The experience is more akin to staying at a rich friend’s luxurous mansion.   The staff will know you by name and personalize the visit to fit your tastes.   All the rooms are suites or bungalows, and you never need to worry about getting a bad room. You are never presented with a check – they know who you are and bill your account.  You won’t find locations in big cities. The resorts are typically in remote and facinating places that beg to be explored.  When you arrive at an Aman, you tend to stay there as much as possible and enjoy the place.  Most of their properties are located in Asia, but they opened their first American property a few years ago in Jackson Hotel, and a few months ago they opened a property in Utah which we will be visiting in  a few weeks.

We stayed at the Jackson property last summer, and it was a typically wonderful Aman experience.  Perched on a hill outside Jackson Hole, it had a breathtaking view of the entire valley.  From the moment they picked us up at the airport in a new BMW 4 wheel drive, it was an incredible experience.

Of course, all this comes at a price, and be prepared for some sticker shock.  But when you compare to Four Seasons and other five star hotels, it is right in range.

Over the last decade the networks have essentially lost the programming war to cable television.  Network officials decided to choose cost control over quality (and we have been living in reality show Hell ever sense).  HBO was the first to prove that great television doesn’t have to only exist in network Prime Time, and lately cable start-ups have risen from obscurity to the home of some of most innovative, highest quality programming on TV.  I am particularly amazed to see cable networks like AMC reinvent themselves with incredible original programming like Mad Men and Breaking Bad.  The FX Network has grown from a weird little rerun network into a programming powerhouse with original programs that include Rescue Me, Sons of Anarchy, Damages, the just departed and twisted Nip Tuck, and I am looking forward to their newest program that starts in a couple weeks, Justified, based on the character created by Elmore Leonard.

One of my favorite new shows is a another great illustration of the decline of NBC. The terrific crime drama Southland premiered last year on NBC, but was suddenly dropped from the lineup to make room for Jay Leno’s debacle.  Another network primarily known for re-runs, TNT, picked up the show, re-ran the initial episodes, and this week rolled out all new episodes with the original cast.  Also interesting to note… when Ray Romano wanted to return to series television after his long running hit Everybody Loves Raymond he certainly could of chosen a major network, but instead he also went to TNT for his wonderful new show Men of a Certain Age.

If you aren’t watching the above shows you really should be.

Like it or not, if you are in the upper-income brackets you should probably brace yourself to pay more taxes at both the State and Federal level in 2011.  Until the Washington Brain Trust (and of course I mean that facetiously) makes their final decision, it is anyone’s guess as to what will happen on a national level, but here is a little input from my friends at Northern Trust as to the most likely scenarios -

1. If your household income exceeds $231,300 (or if you are single $190,650) the tax rate will likely increase from 33% to 36%.
2. If your household income exceeds $373,650 the highest 39.6% tax rate will likely take effect.
3. If you are in those top two brackets the long-term capital gain tax is likely to increase from 15% to 20%, with interest income taxed at the income rate.
4. You should also anticipate a lowering of value on charitable deductions.  It is likely that deductions would be limited to 28% for those in top brackets.

The above would point towards doing some good tax planning during the balance of the year.  For instance, consider maximizing long-term capital gains (2o10 might be a good year to sell your company!), and maximize your gifts to charities this year.

Scientists at MIT are close to perfecting the hydrogen-powered house. Since I have no real talent for science I am incapable of giving you the technical overview, but here is the layman’s explanation. They have developed a mini-hydrogen power station that would replace your current household power supply. It would utilize some solar power to produce the small amount of electricity needed to combine with water to create a hydrogen power plant. No more fossil fuels needed. No more pumping pollutants into the atmosphere. The only output is water. And this hydrogen power plant  in your house could also be used to fill up your hydrogen-powered car someday, eliminating our other nagging fossil fuel drain, and the need to  build a huge hydrogen punping station infrastructure.

According to MIT, the technology works now, and would be practical and cost-efficient for wide distribution within ten years. Honda is currently testing hydrogen-powered cars on a relatively large scale in California, so the automotive technology should exist within that time frame.

This means that in a decade or so you could be living in a home that has no power bills and creates no pollution, and driving a car that doesn’t require stopping at gas stations, and instead of exhaust emits water from its tailpipe.

Terrorists seek to disrupt through fear. And the more afraid they make us the more apt we are to act emotionally and irrationally because of this fear. Since 9/11 we have acted irrationally when it comes to air travel, and the failed Christmas plot has really driven us into frenzy that is causing us to take ridiculous actions. If next time terrorists threaten a shopping mall, then I assume we would develop irrational fears and actions to protect malls. And soon the terrorists are essentially in control, as fear has driven us to change our lifestyles. There is a big difference between taking reasonable methods to protect our security, and completely altering our lifestyles because of fear.

I would argue that there is a more subtle, but perhaps even more dangerous kind of terrorism going on courtesy of the American media. Unfortunately fear drives viewership, and the media thrives on any story that makes us afraid. Consequently most of our legitimate journalists have been replaced by these new media “terrorists” that seek ratings by filling us with fear, anger, and distrust. They operate from both the left and the right, spewing rumors and innuendo that keep people glued to the screen. When much of the population is convinced that our President is actually a socialist foreign-born Muslim that favors killing off the elderly, people naturally get afraid. It also spreads panic when people are convinced that the world will end in the next few months due to global warming, that Pakistan and North Korea are preparing nuclear strikes, and that the flu vaccine is deadly. Certainly global warming, nuclear weapons, and public health are important issues that need to be discussed, but the terrorists in the media are less interested in public discourse than they are sensationalism.

I think it is quite possible that the ranting and fear mongering that now typifies mass media is having an incredibly negative long-term impact on society. The truth is that for most of the world, this is the best possible time to be alive. While the human race is far from perfect and we face many massive problems, the large majority of mankind lives happier, healthier lives than those that came before us. But that doesn’t make good news. Nor does all the incredible work that is going on around the world that will solve these big problems.

These media terrorists might not blow up airplanes or plant roadside bombs, but I suspect they are even more effective than Arab terrorists at destroying optimism and people’s spirits. Luckily these kinds of terrorists are easier to identify, and easier to eliminate than the ones that live in caves in Pakistan. We need to eliminate them by turning the dial, refusing to buy their ridiculous books, complaining to the companies that support them with advertising, and flatly rejecting their terrorist messages designed to crush our spirits.

Several states are currently debating the legalization of marijuana, and given the current fiscal issues and relaxation of policies pertaining to medical marijuana use it looks quite feasible that we will see legal pot use in the next few years.

The Federal Government and almost every state in the union are frantically searching for new revenue sources, and as is always the case, the pros and cons of any new tax are heavily debated.  In Oregon there is a move to tax the rich and add corporate taxes.  Of course, corporations and the rich argue this will hurt business, and ultimately result in less tax revenue.  I suspect the truth is somewhere in the middle.  But all this makes the legalization and taxation of marijuana particularly appealing right now.  After all, it is already being sold, just not taxed, and most users would have no objection to a better distribution system that in all liklihood lowers prices and guarantees quality while feeding the economy.  Certainly anti-drug activists would have legitimate arguments against society essentially endorsing more drug use, but the numbers and the argument that “people would do it anyway” are too compelling to ignore, and there is certainly enough societal experience with marijuana to refute some of the “gateway drug” and the other “reefer madness” arguements.  Unlike most potential tax sources, there are few that would argue against taxing it, the issue is simply the legalization.

I was suprised to learn that there is a major effort by otherwise staid and conservative economists to legalize pot based purely on economic impact.  According to a study conducted by Professor Jeffrey Miron, legalizing marijuana would save $7.7 billion per year in state expenditures on prohibition, and if pot was taxed similar to tobacco it would generate $6.2 billion dollars in tax revenue.  We would also free up enormous space in prisons, and arguably free people that don’t really belong behind bars. Another possible positive impact pertains to the costs and hassles protecting our borders. Huge amounts of time and money are spent trying to stop pot smugglers on the Mexican border, and it is a constant source of crime.

The move to legalize is even endorsed by dozens of economists, including three Nobel Laureates; the late Milton Friedman, George Akerlof, and Vernon Smith.  I used to think that conventions for economists must be among the most boring gatherings imaginable, but now I must rethink that position.  Perhaps they have Cheech And Chong perform at the cocktail party?

In any case, a $13 billion dollar plus savings warrants some serious discussion.

The Dark Lord of the religious right, Pat Robertson, sunk to new lows this week,  and also gave us a glimpse into his evil black heart, when he self-rightously claimed the devastating earthquake in Haiti was a result of the country’s ”pact with Satan”.

Though I am certainly no expert on Christianity, I seriously doubt that Jesus would look at a disaster that left tens of thousands dead and in misery and happily proclaim “you guys had it coming”.

But isn’t that the problem with any kind of religious fundamentalism.  Finding a purpose and spirituality in life is a good thing.  But any group that feels they are God’s chosen ones and everyone else should go straight to hell is really an enemy of spirituality.   I much prefer the people from any religious persuasion the believe “God is Love”, as opposed to those that think religious affiliation is some kind of path to moral superiority.

In the midst of all the debate over taxes, healthcare, Kanye West, national security, and Tiger Woods’ career, I somehow lost track of how our legislators are handling the estate tax.  Luckily a few days ago I received a bulletin from the estate planning experts at uber law firm Davis Wright Tremaine, which left me a little surprised.  Rather than me explain (and if you are like me you will get a little lost in the woods reading this), here is the email:

From Davis Wright Tremaine

Congress failed to address pressing estate and generation-skipping transfer tax matters before it adjourned in December. Consequently, as of Jan. 1, 2010, the provisions of 2001 federal tax legislation (the “2001 Act”) will cause the federal estate and federal generation-skipping transfer (GST) taxes to be repealed for one year, starting on Jan. 1, 2010.

For 2009, there was a $3.5 million exemption for each tax and a 45 percent top tax rate for each tax. Under the 2001 Act, the federal estate and GST taxes will come back into effect on Jan. 1, 2011, but with only a $1 million exemption for estate tax, a $1.1 million exemption for GST tax (indexed for inflation), and a top rate of (generally) 55 percent for each tax.

Although the U.S. House of Representatives passed a bill in December to extend the 2009 federal estate and GST tax rates and exemptions, the U.S. Senate did not act to provide any similar extension. A number of Senators have made statements regarding their intent to address this issue early in 2010.

There is no way to predict when, or if, the House and Senate will act in 2010. It is not clear whether any action by Congress during 2010 would or could be retroactive to Jan. 1, 2010. We will continue to monitor developments as the tax picture evolves.

Gift tax

The repeal of the federal estate and GST taxes does not repeal the federal gift tax, which will continue in 2010 with a $1 million exemption, but will have a top rate of 35 percent, rather than the 45 percent top rate that existed in 2009.

Current action

Meanwhile, depending on the action taken by Congress and whether such action is retroactive (and, if retroactive, whether it will be constitutional), there may be opportunities in early 2010 to make gifts at a lower gift tax rate, and to make GST tax-free transfers to grandchildren that would otherwise be subject to GST tax.

Moreover, it is important to be aware that the repeal (and assumed reinstatement in 2011) of the federal estate and GST taxes will affect many estate plans now in place. This is so because many wills (and living trusts) describe gifts in terms of estate and GST tax “exemption” amounts or other formulas tied to federal estate tax terms. Elimination of the taxes (and hence the exemptions) and the reinstatement of the taxes, but with smaller exemptions, could affect the operation of a will (or living trust) in ways that were not intended.

This would be a good time to review and adjust estate plans to be sure the one-year repeal of the taxes and its (assumed) reinstatement will not adversely impact the intended plan. There may also be non-tax related reasons to review your estate plan.

“Carryover basis” for income tax purposes

As part of the 2010 repeal of the federal estate and GST taxes pursuant to the 2001 Act, the income tax basis for property acquired from a decedent will be the lesser of the decedent’s adjusted basis or the fair market value of the property at the decedent’s death. This “carryover basis” is a significant change from the “step-up” in basis that has historically occurred at the decedent’s death.

There are two exceptions to the carryover basis provisions that allow an executor (i) to allocate up to $1.3 million to increase the basis of assets and (ii) to allocate an additional $3 million to increase the basis of assets passing to a surviving spouse or to a qualified trust for the benefit of the surviving spouse. The carryover basis law is scheduled to be in effect only for 2010.

Further changes in January 2011

As noted above, under the 2001 Act, the federal estate and GST taxes come back into effect in 2011 with a $1 million exemption for estate tax, a $1.1 million exemption for GST tax (indexed for inflation), and a 55 percent top rate. (There is also an additional 5 percent surtax for certain large estates.) The federal gift tax exemption of $1 million will continue in 2011, but with a 55 percent top rate. The carryover basis described above would not apply with regard to estates of decedents dying after Dec. 31, 2010.