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What the experts say

Perks and perils of principal trading; Citigroup down but not out; Remodeling for high returns

Perks and perils of principal trading
Your brokerage may soon be asking permission to engage in “principal trading” with your account, said Anne Tergesen in BusinessWeek. Such trading, which allows firms to buy securities from their own inventory, “had been effectively off-limits” in advisory accounts operated by such services as Merrill Lynch Personal Advisor or Schwab Private Client. That changed this September, when the Securities and Exchange Commission lifted the ban “in part to give investors better access to hard-to-find securities.” Since firms can combine individual investors’ orders with those from institutions, principal trades can mean better prices for investors. “On the flip side, consumer advocates warn that brokerage firms may have incentives to push securities in their inventories.” If you do give consent, keep a “watchful eye”—and keep in mind that you can revoke permission at any time.

Citigroup down but not out
Shares in Citigroup look like a bargain to me, said Jack Willoughby in Barron’s. Some “disenchanted” investors think the banking giant has gotten too big, and the recent resignation of CEO and Chairman Charles Prince III didn’t boost their confidence. But these problems are only temporary. The company’s biggest individual shareholder, Saudi Prince Alwaleed bin Talal, remains bullish. Former Treasury Secretary and current Citigroup Chairman Robert Rubin is leading the search for a new CEO. “The most important task will be sorting out the subprime mess until shareholders have more clarity on Citi’s full exposure to the problem.” In the meantime, Citigroup stock was recently selling for just seven times cash flow and about eight times estimated 2008 earnings—making it “a good long-term bet.”

Remodeling for high returns

Homeowners working on remodeling should shelve full-blown makeovers and concentrate on more practical projects, said Amy Hoak in Marketwatch.com. The projects most likely to bring returns are those that ease the burden of home maintenance and improve energy efficiency, according to Remodeling magazine’s annual Cost vs. Value Report. Topping the list of money-savvy projects are midrange window and siding replacements, as well as midscale deck additions and minor kitchen remodelings. On average, owners can recoup about 80 percent of their costs with such changes. The trend toward practical amenities represents a big change from the height of the housing boom, when owners could expect a full return—and then some—on major improvements.

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