US Finance World

WATER IS THE VERY STUFF OF LIFE, VITAL TO all creatures. And it also might have a property that would interest ITT shareholders: the potential to help boost the company’s stock price.

The White Plains, N.Y., outfit, whose shares (ITT) have been held down by the discount the market often applies to companies perceived as defense conglomerates, is the worldwide leader in pumps, which its CEO, Steven Loranger, says account for $50 billion of the revenue in the $425 billion global water-infrastructure market. Pumps aren’t high-margin products, but ITT’s position in that market reflects the company’s aim of boosting its commercial operations, which generally are more profitable than those tied to the military.

Nearly 60%, or $6.3 billion, of ITT’s $10.9 billion in revenue last year came from its defense segment. But this segment also includes products and services for cyber security, air-traffic control, space-based weather-forecasting and other non-defense applications that account for about 25% of its business.

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It seems like a no-brainer: All things being equal, you pick the exchange-traded fund with the cheapest fees. But, it turns out choosing an ETF based on the lowest annual expense could end up costing you more.

ETFs, of course, hold a basket of stocks or other investments and track an index. Many investors buy them assuming that all they’ll pay is the annual fee. But a growing number of pros are warning that some ETFs have hidden costs for trading them, which vary based on the ETF’s volume. In general, the more active the ETF, the cheaper it is to trade. “The bigger, the better,” says Jim Holtzman, a Pittsburgh-based adviser who has sought better ETF deals.

The iShares MSCI Emerging Markets Index fund (EEM) has $35 billion in assets and is nearly three times more expensive than its rival ETF, the $36 bil­lion Vanguard Emerging Markets ETF (VWO). But traders flock to the older iShares product because it has almost six times the average daily trading volume. “EEM is

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Selling the taxpayers’ big 7.7 billion share stake of Citigroup (C) a little at a time at market prices during trading hours has its appeal as being cheaper in terms of investment banking fees, but the “dribble-out” plan risks having the U.S. Treasury miss out on booking a profit. The U.S. Treasury accumulated all these shares when it converted its $25 billion Troubled Asset Relief Program (TARP) preferred stock investment into common stock with other investors in July. At the closing price of $4.17 on Monday, March 29, 2010, it looked like this stake was worth $32 billion.

Because stock prices are so volatile in the short run, stock investing is for long-term investors. Short-term investors, like taxpayers holding Citigroup shares, stand a good chance of exiting at a loss even if the stocks are expected to rise substantially. Short-term options predict that Citigroup’s stock price will randomly move up and down much more due to chance than due to the well considered risks that investors are taking by investing in the company.

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Part of being a smart mutual-fund investor is making sure you walk away with as much profit in your pocket as possible. This means avoiding load funds (usually, anyway) and funds with ridiculously high expense ratios.

Most readers of SmartMoney.com are already aware of these pitfalls, but one area where many wise fund investors still stumble is with taxes. For starters, many investors don’t pay close enough attention to a fund’s tax efficiency. And that isn’t the only common mistake. Here are a couple often-overlooked ways to reduce the tax hit to your mutual fund shares:

1. Are You Invested in Foreign Stocks or Mutual Funds?

The foreign tax credit is intended to keep those who worked in a foreign country from being taxed on the same income by two different countries. But if you simply invested in some international mutual funds, you may also be able to claim this valuable tax break. Why?

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David Wessel reports that Greg Mankiw has declared himself in favor of narrow banking:

MHow Much Leverage Do Banks Need to Be Useful?: The conversation between Alan Greenspan and some of then nation’s most prominent economists at the Brookings Panel on Economic Activity on Friday was deemed “not for attribution” by the organizers. But Greg Mankiw, the Harvard economist, has posted his response to Greenspan on his web site. You can read it here. He largely agrees with Greenspan, but differs on one key point:

The issue concerns the importance of leverage to the viability of a financial intermediary…. Alan proposes raising capital requirements and reducing leverage, but he suggests that there are limits to how much we can do so. If we reduce leverage too much, he argues, financial intermediaries will be not be sufficiently profitable to remain viable. He offers some back-of-the-envelope calculations that purport to show how much leverage the financial system needs to stay afloat. I thi

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Market Wrap-Up

The Lowdown

Stocks and most exchange-traded funds finished mostly flat Tuesday thanks to a rising dollar. The major indexes rose early but gave back gains despite domestic data showing home price declines have eased and consumer confidence picked up in March.

The Dow Jones Industrial Average rose 12 points to finish the session at 10907. The S&P 500 ended flat 1173, and the Nasdaq closed up 6 at 2411 ahead of Research In Motion’s (RIMM) earnings release Wednesday.

The euro fell after the International Monetary Fund said that Germany’s economic recovery is exposed to “substantial downside risks” caused by weakness in its banking sector. The U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2%.

Investors said the report on Germany came as little surprise and that light trading volume at the end of the quarter was likely causing more of the market’s dips.

“To the more sophisticated participants in the market, it’s pretty well known the German banking sector is still suffering through problems,” said John Brady, senior vice president at MF Global. “

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Just over a month ago I warned about higher interest rates, noting that the question wasn’t whether interest rates would rise, but when. Now we know the answer: last week.

Weak demand at Treasury auctions last week pushed the ten-year rate to 3.9%, even though the Federal Reserve said it would keep short-term interest rates at rock bottom lows for an “extended period.” But actions evidently spoke louder than words: the Fed confirmed that it’s ending its $1.25 trillion purchases of agency mortgage-backed securities, which enabled Fannie Mae and Freddie Mac to help keep mortgage rates low by buying mortgages. The Fed’s “special liquidity facilities” – which lent out funds to buy up securities backed by commercial mortgages and auto loans, among other assets – will also be shuttered. That’s the last of the Fed’s extraordinary interventions to support markets due to the financial crisis, all made possible by the “improved functioning of financial markets.”

This is good news for everyone except investors excessively dependent on exceptionally low interest rates. It’s time to implement so

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Paul Krugman writes:

Don’t Be Narrow-Minded: I see that Greg Mankiw seems to favor narrow banking: require banks to hold all their deposits in liquid, short-term assets, thus obviating the risk of financial crises…. I’d argue that this is all wrong, on two levels: if it were possible, it would do away with the main purpose of banks, and anyway, it’s not possible….

I think of the whole bank regulation issue in terms of Diamond-Dybvig, which sees banks as institutions that allow individuals ready access to their money, while at the same time allowing most of that money to be invested in illiquid assets. That’s a productive activity, because it allows the economy to have its cake and eat it too, providing liquidity without foregoing long-term, illiquid investments. If you were to enforce narrow banking, you would be denying the economy one of the main ways we manage to reconcile the need to be ready for short-term contingencies with the payoff to making long-term commitments…

Let me focus on Krugman’s first objection to narrow banking. It help

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