The problem of a fiscally responsible homeowner

Maybe it’s just me, but I’m feeling very frustrated of late. It is the talk of the tax credits and benefits for new home buyers and those facing foreclosure. I just can’t help but be annoyed.

As a homeowner, I am listening to how the Government wants to give so much money to people who over-extended themselves. They want to make it so easy for people buying a new house. And those are good things. But for those of us with a home and paying our mortgage, well we just are being ignored.

There is no benefit to me for paying my mortgage on time. I get no accolade, nor tax break or credit beyond whatever has already existed. Yet I too am suffering. Maybe not as much as those that made bad decisions, or came upon unforeseeable problems. Still this economy is no joyride.

The Obama Administration wants to give a $15,000 tax credit to new home buyers. Those in default or foreclosure get to re-negotiate they mortgages, and/or Government aide. That’s a huge amount of money, individually or as a group. Yet because I am fiscally sound, because I made decisions that would provide me the ability to pay my obligations as I agreed to, I am effectively penalized.

The penalty is not just that I receive no benefit from the Government or via my mortgage. The money that has been spent, and will be spent in the near future, is money that will have to be repaid via taxes. That’s coming out of my pocket. Add to that the fact that since I have no adjustment, and I will have to be paying for what others are receiving for bad decisions I am effectively paying their mortgage and my own.

If I wanted to own another house, I would have bought one. But what I am getting is my home, and another place that I have never seen, cannot live in, and gain no benefit from. It’s almost as if the Government is saying

“You have a nice house. This family will be moving in with you. Oh, and you will pay them to do it. Thank you for being reliable and fiscally sound.”

But maybe it’s just me. Though I imagine that anyone that is renting would be even more upset as they don’t even have the benefit of a home, yet they are paying for someone else’s in spades.

So how do you feel about this?

Repost - My New House pt 2 - the developing interior

This post is originally from my Black Entertainment USA blog.

As I mentioned a day or two ago (I've kind of lost track) I purchased a new home. Since I have shared my experiences on getting approved for the mortgage, as well as my thoughts on most every other subject, I thought you might want to know more about the house (or at least see inside).

The house is 2005 sq ft (which I plan to expand to 3500 sq ft due to the attic and basement). It's a 1910 brick house in relatively excellent condition. The house is filled with American Cherry wood, which I am told you cannot find anymore. Each closet is big enough to house a college student (litterally they are almost as big as some apartments I saw in New Brunswick back when I was in Rutgers). It has 2 floors and attic and basement - which run the full length of the house. The rooms are all large to above average in size. I have a small yard (which needs a bit of work). There is a small garage and behind that a shed too.

The house has 3 enterances, solid wood doors, and original skeleton keys in place. The lights are all original ceramic sconces (the white ones) and brass sconces. [I plan to sell the ceramic sconces on eBay if anyone is interested] The carpets you see are all going to be removed, and the hard wood floors below are in fantastic shape. All the furniture is newly purchased - and I picked out everything myself [I think I did a good job]. Not sure what I will do with the chandilier in the dining room, but it is also original and has haind painted glass. The dining room has pocket doors and the embedded trophy case has leaded glass. The fireplace is fully functional.

Now don't think there is no work to be done on this. I have work to do on the roof, yard, painting all the rooms, replacing some fixtures and a couple of 100 year old pipes. Oh, and curtains too - God they are expensive. Oh and still a few more pieces of furniture too.

And I have a few odd bits that I will be selling, like an antique (circa IBM 1950)iron desk, an old possibly handmade table saw, some light fixtures and such. The porcelian sink stays.

Of course I will be making the attic a master suite with its own bath (adding about 750 sq ft to the house). I also plan to add a sauna and hot tub to the basement after I finish the ceiling there.

All in all its a hopefully 2 year project, though I could easily live here without major change now. But my point in sharing this is that if I can do it (being single, not rich, with my own money, and never owning anything bigger than a futon before) you can do it as well. And if you plan and work hard from the start I bet it won't take you til you are 40 - my age - to get it.

Now the pictures of some of the rooms. If you have suggestions or comments let me know.















And because I know some one will ask





While that's not every room or every detail I think you get the idea of the insides. I hope you have enjoyed peeking at this moment in my life. I'm glad to have shown it to you all and hope you go out and get the same or far better for yourself.

Best wishes to you my readers, I'll be back to writing in a day or so.

Taxes: the real Presidential candidate issue

With all the attention being place on oil and energy in the past few days I thought I’d take another look at taxes. One of the least popular issues that every Presidential race focuses on. And consistently the public has the same request, lower taxes.

For 2008, the ‘election of change’ [a dumb concept considering that is a fact], we have 2 very explicit views. I say explicit, but if you don’t listen carefully or check any other details you may be distracted of confused by the polispeak that each candidate employs. So I want to take a moment, before the rhetoric switches back after the energy issue stops catching headlines, to look at their stances clearly (as found at The Tax Foundation).

Deferring to experience I will start with Senator McCain.

Originally opposed to the President Bush tax cuts, Senator McCain now is in support of this tax plan. He also favors cutting corporate taxes by 10%. For those that suffer from estate taxes he plans to implement a move to only 15% tax on estates over $10 million. He wants to remove the alternative minimum tax, which affects many middle-class families which it was not intended to tax, and he is strongly against any increase in taxes related to Social Security.

Now for Senator Obama.

While he has already voted to increase taxes for anyone making $31,850 he has publicly stated that he will only repeal the Bush tax cuts for the top 1% of the nation. How such a law could be enacted is unknown, and considering that proposals and campaign promises of a similar nature have never occurred his repeals may include more people. He has also promised to eliminate taxes for all seniors that make less than $50,000. When it comes to corporations Senator Obama has stated he will “close loopholes”, which means whatever you wish it to. He has no expressed plan for estate taxes or the Minimum Alternative Tax, presumably leaving them both in place. But he does have a defined plan for the Social Security tax, which he plans to increase – directly coming from wages. There may be an exemption for those above $102,000 but it isn’t clear.

Senator Obama also has several other plans related to taxes that Senator McCain has no comparable for. Senator Obama will create several ‘credits’ for various Americans. One credit will apply to those that work and make over $8,100 – the credit will be for $500 or $1,000 for families. He would also create a 10% credit for all homeowners with a mortgage. This mortgage owner credit would amount to about $500. There would also be an earned income credit for those making minimum wage and working full-time for $555, if children are being supported “responsibly” [how and who determines that?] then another $1,110 is available. For those in college up to $4,000 can be forgiven. Lastly Senator Obama wants the IRS to issue tax forms that are partially pre-filled to reduce the time in filling out the forms.

Now I’m sure both plans have their appeal points, and many with children like the comments by Senator Obama. But let’s look at this in total.

Senator Obama has already voted to increase taxes of most Americans 3%, which he publicly stated he would not do. Because of that I feel every other statement about taxes he has made is in question. In addition every attempt to isolate any singular group of Americans to pay higher taxes has failed. Inevitably Americans not expected to be paying higher taxes do so.

I agree with the concept of excluding taxes for senior citizens that are making enough money to survive on their own. I do not agree on the fixed price or the cap. While $50,000 may sound comfortable today, not long ago $30,000 sounded the same. Any provision that does not take into account the increase of cost of living, nor the cost of medications (which older Americans have higher budgets on disproportionately) fails those it is meant to help.

While spouting polispeak about corporations and their earnings is a winning strategy with unions and newspaper headlines, it is not an effective tax plan. There are some loopholes in the corporate tax code that should be removed, but the real boost to the economy is decreasing tax rates. This allows businesses to increase the number of people employed, or raise their pay, or fund research, or expand to increase scales of economy. Whichever is done the economy for the nation receives more revenues in multiple areas that were stagnant prior. Raising corporate taxes has the opposite effect.

Estate taxes are a special situation that most Americans don’t fall under. Even so, for those that do have to deal with these taxes, they are huge. While most like to point out the multi-million dollar estates, those with far less pay the same tax now. Again this limits gaining revenues on these funds from other sources that could stimulate the economy. But I don’t have a strong opinion on this point.

Social Security is commonly called the “third rail of politics” and it is aptly named. Older voters are sensitive to anything that might affect their money. Considering that most voters are older, and this number is about to swell as baby-boomers age, this is an issue that none want to be on the wrong side of. Then again, younger voters have little interest in funding a program that they in all likelihood will never receive a dime from. SSI is a flawed program that has never worked exactly as planned. Increasing money by raising taxes on those that can’t afford it does little to help anyone beyond actually pushing its problems onto either another administration or generation. Senator Obama’s plan sounds exactly like that.

Senator Obama’s plan for college students sounds eerily like the short-lived plan proposed from then-potential candidate Senator Hillary Clinton. This plan forgives money instead of providing it though. A major question is this though, who will pay the $28.8 billion that this plan would absolve each year. [That assumes that only 7.2 million Americans go to college - and would this include those who take college courses online?] The money from this would have to come from somewhere, which means higher taxes.

I like a 10% credit for mortgages, as I will soon own a home. But in reality I don’t need it. My home purchase is based on the fact that I can well afford the mortgage, and that it is a fixed rate. Those that prepare properly for a home purchase have no need of a credit. Those that do not will not be saved by what would amount to maybe 2 months payment on their obligation. If this plan were less polispeak, it would be designed to help stimulate the economy – especially since 96% of all mortgage holders are paying on-time.

I can’t think of anything more to ask about a credit for those that have children [specifically it seems targeted to fathers paying child support] than who and what criteria equate to responsible. How would this be enforced. Under it’s current wording this implies that the Government would be involved actively in raising every child in America, under arbitrary and politically motivated rules. And what happens if the Government claims you are not being responsible? Do they take the children from the parents, or incarcerate them, publicly ostracize them or penalize them in some other way? Considering that the Government can’t balance a checkbook or check out foods for potentially deadly diseases I don’t trust their opinion on what is “responsible” in child rearing.

And lastly the IRS tax forms. It’s a nice polispeak rabble rouser. It gets headlines. It sounds great, until you think about it. How long do you think it will take to mail out tens of millions of printed tax forms? How will those who have never filed a tax form prior file? How much will this cost to be made? Especially since each and every form will be individual so scale of economies will never take place (never mind the fact that it would likely cost more each and every year – like stamps).

And perhaps most importantly, how will the Government ensure that every document is sent out to the proper person. Because if even one were to be mishandled, or one employee were paid off, identity theft would be rampant. Some would counter that the government send out documents now though no numbers exist on how many are improperly delivered. But the counter would accurately be that the Government is inefficient in every department, what would cause the IRS to suddenly become so?

So in honestly reviewing the tax positions of Senator Obama and Senator McCain, on balance I see McCain with better plans and more effective for the nation. You may not agree, and if so I’d love to hear where I got it wrong. And if I got it right let me know. [please remember I’m not an economist so don’t get too technical on me.]

Chinese stock market after the U.S. interest rate cut

As the 23rd of January started in China, a surge of anticipation and excitement took over the feelings of despair and impending doom. Poetic imagery indeed, and it even has a ring of truth to it. More likely the collective held breaths were let out and nervous tensions eased a bit, after the U.S. Federal Reserve cut rates a massive .75 point on the first trading day of the week following the Martin Luther King holiday. The rate cut helped buoy they U.S. stock markets which had opened 450 points down, to only have lost roughly 1/4th that amount by the close.

The impact has been felt on the other side of the planet, and China has rebounded well in the early trading. The Shanghai Composite Index move sharply in the first 5 minutes of trading to gain nearly 2%, ending a 6 day plunge that has totaled some 17% off the Index. Hong Kong Monetary Authority has followed the U.S. Fed dropping rates to 5% from 5.75%, and Chinese banks were expected to do the same, though not necessarily as deep a cut.

Several sectors performed well in the wake of this action. Mining stocks, and particularly those with gold, stood out with better than average gains. This is no doubt due to the combination of continued demand from India and China, the weaker Dollar, and the hedge that gold provides in instable and volatile markets.

BHP Billiton Ltd., the worlds largest mining stock had a dramatic start rising more than on any single day in the past 2 decades already. Bank of China Ltd. was also moving ahead after posting a profit that reversed the expected loss due to sub-prime mortgage loans.

Expectations of a further .25 basis point cut from the Fed at it’s month-end meeting helped to fuel further gains, and increase speculation about the future of the U.S. markets.

Now take a moment to absorb all that.

The Chinese markets have felt the same pain that the world markets have endured, and the relief that America has brought. But that relief may well be conditional and temporary. As mentioned, expectations are for an addition rate cut in the coming days are high, and the future outlook on the American economy is murky at best at this moment.

According to Marvin Fausto, Manila-based chief investment officer at BDO Unibank Inc.,

“Until economic data show the U.S. is out of a recession, sharp gains in equities will not be sustained.”

Add to that the mystery of the Chinese banks losses from sub-prime loans, because Chinese banks aren’t required to announce those losses until April, and things look even shakier.

“We don't have a good read" on the current value of mortgage holdings at Bank of China and other Chinese lenders, said Charlene Chu, a senior director at Fitch Ratings China.”

Now add in the fact that China will allow, on a trial basis, commercial banks to own stakes in insurance companies. And don’t forget the Olympics are coming mid-year.

What do you get?

That is the current state of Chinese stocks. One thing that can be presumed is that the potential recession woes of the United States is far from over in its impact on the world markets. Continued losses due to bad mortgage loans, high oil prices and a rush to gold are all going to have major impacts on the global economy.

PetroChina may well have a bounce that extends further into the year, and mining stocks can see continued interest from hedges with gold and the increased demand from India and China. Financials and insurance may get further interest as banks seek to acquire positions, offsetting potentially bad loans and adding assets to their balance sheets. Transportation, communication, and service industries are still all expected to have a boost from the Olympic games.

Considering the volatility in the world markets so far in the first month of the year, 2008 will keep everyone on their toes.

Thoughts on the economic outlook of early 2008

Well now that everyone has finished the turkey (minus a few leftover sandwiches), let it digest, and worked off the extra weight running around shopping at every store with a discount sale it’s time of me to get back to work. There has been a lot worth writing about, but let me start with a simple thought. The economy.

The economy is perhaps not the simple part of the thought. It has far too many factors involved, and minds far greater than mine have debated endlessly about what will and does make it move up and down. But as a man who pays attention to the events and has a decent hold on current events I’ll throw my 2 cents in.

I had a friend recently ask me what I thought would be happening to the economy, and my answer was it’s going to get bad. Perhaps recession bad. And I added that the current group of Democratic candidates may only make it worse.

I say this because of several factors. Not the least of which are, the housing crisis, the financial sector, the cost of oil, and potential tax ramifications based on the current plans announced by candidates.

Let’s look at the housing crisis. While there are estimates that state the maximum reach of the crisis is on 5% of homes, I think it fails to take a couple of things into account. While only 5% of home mortgages have failed now, I would expect these are the early defaulters. I would guess that there are another 10-15% of homes in danger of default. Given that the Fed has lowered rates, these homes on the edge have gotten a bit of extra time, but that does not fix their problem.

This leads us to the financial sector. Already several major banks are claiming huge losses due to the bad loans they have made. In order to recoup their losses and in hopes of preventing more credit is being crunched. This means that large- and mid-sized corporations will have less capital available to them, and some short-term loans may be called or canceled. That does nothing to stimulate growth. Plus variable loans to the riskier ventures will invariably go up to offset the losses in the home sector. Thus the purchase of houses must slow, the real estate markets will cease top be a haven for a while and money will have to flow into new areas for investment.

Now when you consider that the corporations are getting higher cost for loans, or being denied, this is happening at the same time that costs for fuel are going up. A lot. That hits profit centers fast. Thus profit margins shrink at the same time that retail is hitting its greatest need for the annual shopping rush of the holidays.

Keep in mind that small companies will be cut off from loans by banks since their credit and assets are too weak in a tight credit market. Add the higher cost of transportation and several small companies will fail to make it thru the end of the year, I expect. That will hit all the businesses that supply and help them operate.

Also keep in mind that as I recall the market virtually never rises, or even maintains its level without the positive performance of the financial sector. As I mentioned that sector is already failing. As the dominoes fall I expect them to perform worse near term. Thus that is direct downward pressure on the market. And while the holiday sales will help retailers absorb the cost of higher fuel, the consumer will likely spend less (or buy items with greater discounts) because the cost of heating their homes and electricity and mortgages are all up.

What’s the last piece of this puzzle? The Presidential race. We have a critical election where several nation defining events will occur. Already several Democratic candidates have expressed expanding entitlement programs. Those programs, like nationalized healthcare, must be paid for via taxes. Those taxes will come from companies making less profit and citizens with less discretionary income. (And a bailout of the mortgage crisis costs even more that needs to me recouped from taxes) This is beyond the fact that when Democratic candidates are elected (which could happen in 2008 – which is a bad thought) the markets normally react poorly initially, when looked at historically.

Add all that up and you have a stagnating market, with reduced sales, higher costs, shrinking profit margins, higher taxes, horrible bond rates, and depressed real estate values. I call that a real problem. Especially if the tight credit, higher fuel costs, and higher taxes cause more home mortgages to fail than just the 15% low-end estimate I posed earlier.

What’s the best plan? Well I used to tell my clients (back when I was a broker, years ago) that we can assume these events as facts and plan for the worse. Set up a plan to sit and wait for a couple of the trends to reverse, and take advantage of market overreactions where possible (the market is more emotional than fact driven even in the best of markets). Is that the best plan for you? I have no idea.

Discuss this with your financial professionals, read what better minds than I say, and make up your own mind. Just remember, it’s all connected, and there is never a perfect answer.

** This can also be seen at Economist Blog where I am an occassional contributing author.**