The Housing Bubble

There are too many democrats in the blog and they are not adding to the discussion besides findings fault with republicans. Don’t get me wrong I share their disdain for Republican party, but these same folks always seem to have excuses ready for any BS from democratic party. Let’s have some intellectual honesty in this blog.

Update:
We went 10 days for inspection contingency, not aware of how bad things would get after a real inspection. We thought we pretty much knew the caveats. We were wrong. We have asked for a 4 day extension to have a roofer, pool, HVAC, and FP quote, since those are the really big ticket items for fix. The Electrician was always a given.

So, we’ll know today if the extension is granted. We need to know these numbers, and of course, we will ask for a shallow discount to move forward, and they can tell us to jump in the lake. (We should be getting a deep discount, but that would blow the deal up, and inventory is zlich.)

Rental Watch
There are higher offers, but we are the only cash. If they have an FHA or Conventional Loan would they have to fix the roof? ( which might net them less with other fixes). The inspector said the roof would be a leaker this winter and not to put it off.

Having a cash deal on a problem house, you would think would be their best and cleanest deal. Any feedback anyone?

Amidst everything else, we have had a few attempts to talk about the whole concept of “lowering the rates while broadening the base” on federal income taxes. I came up with a brief list of broadening the base items - current deductions and/or credits that could be eliminated. Any others? Do you think these items of tax preference should be eliminated to allow for lower rates? Why (the fact that it wouldn’t impact your taxes is an honest, but not particularly useful reason)? And do you think that they could actually get through congress if they were proposed? And do you have any information about how much money eliminating any of these items would raise?

Housing related:
Eliminate the morgage interest deduction
Eliminate first $250K tax free for sale of residence for 2 out of last 5 years

Business:
Eliminate corporate R&D credit
Eliminate accelerated depreciation deductions of capital asset purchases.
Eliminate any amortization of purchases of capital assets - you wait to “deduct” the purchase price until you sell it
Eliminate carried interest rule
Eliminate deduction for business expenses of employees not paid for by employer over 2% of AGI

Health care:
Tax all employer provided insurance to all employees as income
Eliminate deduction for health care costs over 7.5% of AGI
Eliminate deduction for flexible spending accounts for health care
Eliminate HSAs (Health Savings Accounts that co-ordinate with high deductible insurance)

Kids and Education:
Eliminate additional child deduction/credits except for the standard exemption.
Eliminate tax benefits of the child school/college savings accounts
Eliminate life long learning tax credit
Eliminate flexible spending accounts for child care

Retirement savings:
Eliminate all tax preferences for retirement savings (no deductible IRAs, no 401(k), employer match of 401(k) contributions currently taxed, income earned in a Roth taxed as earned, no tax deferral for deferred income for executives, etc. - basically turn all these accounts into currently taxed savings/investment accounts

Charities:
Eliminate the deduction for donations to charities (including churches)
Eliminate tax exemption of charities (and all other tax exempt entities while you are at it)
Eliminate tax-free bonds

General:
Eliminate earned income tax credit
Eliminate deduction for state income taxes (or the alternate sales tax deduction)
Eliminate the standard deduction
Eliminate preferred tax rates for capital gains
Eliminate preferred tax rate for dividends

Is corporate R&D a credit or a deduction? Can you deduct/credit full or is there a limit?

Polly, that is quite a list and seems to be a significant expansion of one of your earlier like ones. My congratulations on putting it together.

I disagree with your R&D treatment but generally agree with all others. SRED, if properly handled, has been adding to the economic survivability of Canadian companies. With CRA’s newer approach it may not.

20% of qualified research expenses done in the USA (with minor exceptions) and it is a credit against taxes payable and can be carried forward. Most qualified expenses are for employees and often are audited before being granted. In Canada it is 35% federal and variable provincially for an SBDC, refundable. It is 20% for large and foreign corps and federally is not refundable. Both countries are redoing their SRED programs and both have seriously fallen behind other research oriented countries. Global companies practise migratory research for this reason.

I know you do not like government labour incentives, but I think at this juncture in the global environment it will be necessary ie direct labour support. Yes, I know there are a myraid of programs, but do you know one company who understands them all?

The problems with direct labour support are bountiful and there is leakage - but no where near as bad as what QE has had.

Again Polly - one of the best posts I have ever read on this blog.

Polly

In Canada we have a program where the government handles the payroll for an employee and you can have that university, college, trades graduate for up to eight months for free so that they can get related experience. We also have a program where a set amount is given for each such employee. However, it seems to be always out of money.

We have worked with many engineers / technologists over several years as a result of these programs and I can truthfully say none of them would have been hired otherwise. Surprisingly more than 80% of them are still employed by their sponsor company after their “free” period ends.

BTW, there is no “free” lunch when it comes to training new employees. But when you can take your time with their entry you are almost always surprised by gold nuggetts within the batch.

If you “knew” stocks were going to do badly in 2013, why would you stay 50% invested in the market? Why not go all the way down to 0%?

Aug. 31, 2012, 5:24 p.m. EDT

Stocks seem poised for trouble in 2013
By Jack Hough

The first years of presidential terms have historically been disappointing for stock investors.

That’s one of those patterns that easily could be a statistical fluke. But this election season, there is more than historical returns to give pause. Cautious investors might want to take some money off the table.

Over the past half century, during the first and second calendar years following presidential elections, the Standard & Poor’s 500-stock index has returned an average of 2.6% a year, adjusted for inflation. During the third and fourth years, it has returned 11.6% a year.

It isn’t clear why. “Politicians push hard to get new legislation through at the start of a new presidential term, and that causes turmoil,” says Jeffrey Hirsch, editor in chief of the Stock Trader’s Almanac.

In a working paper, economist Marshall Nickles at Pepperdine University suggests interest rates might play a role. Over the past 50 years, the federal funds rate has been about half a percentage point lower, on average, during the second two years of presidential cycles than during the first two. Falling interest rates can spur stock returns.

But Congress makes new laws, not the president, and the Federal Reserve sets interest-rate policy. Without a clearer cause-and-effect relationship, investors should look beyond election cycles to market fundamentals for guidance.

Those fundamentals look challenging. The mighty stock rally of the past few years has been powered in large part by equally mighty growth in corporate earnings. But that is changing.

Last quarter, earnings for the S&P 500 increased 8.4% from a year earlier. But they would have risen just 3% if not for Bank of America’s BAC+1.01% swing from a massive loss to a modest profit, according to Gregory Harrison, an analyst at Thomson Reuters.

This quarter, S&P 500 earnings are expected to decline year over year for the first time since 2009.

Earnings growth could accelerate if the economy picks up. But the economy expanded at an annualized pace of just 1.7% during the second quarter, down from 2% in the first and 4.1% in the fourth quarter of 2011. And the coming election could pave the way for even slower growth in the short term, no matter which party wins.

That’s because the president and Congress in 2013 will come under intense political pressure to do something about America’s mounting debt. That means higher taxes, lower government spending or both.

Any choice could subtract from growth in the near term, says Tim Steffen, director of financial planning at Milwaukee investment firm Robert W. Baird. “Someone’s going to get hurt,” he says.

Higher taxes could cut into the spending power of shoppers, denting profits for retailers, manufacturers, travel-and-entertainment companies and more. Government spending cuts could hurt profits for health-care companies, defense contractors, technology consultants and other groups that sell to Washington.

None of this is reason to flee stocks altogether, not least because the short-term pain of deficit reduction should yield longer-term stability and growth. But cautious investors might want to turn temporarily from their usual asset mix to a more cautious one holding, for example, 50% in stocks instead of their usual 60%.
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No end to the global housing market downturn is in sight, except probably in the US, according to a survey of global house price trends by the Global Property Guide. Asia is weakening, and house price falls in the worst-hit European crisis countries are dramatically accelerating.

Have you decoupled from the global housing market?

http://www.globalpropertyguide.com/investment-analysis/No-letup-in-global-housing-market-downturn-aggravating-European-crisis

Mr Bernanke reviewed four possible costs of additional asset purchases. He said they could damage the function of securities markets, raise inflation expectations, undermine financial stability or cause the Fed to make financial losses.

“I didn’t force your pension fund to only earn 1%; QE ’caused’ your financial losses.”

ft dot com
Last updated:August 31, 2012 6:25 pm

Bernanke signals Fed ready to act
By Robin Harding in Jackson Hole

Ben Bernanke sent a clear signal that the US Federal Reserve was ready to do more to support the US economy, saying that its condition was “far from satisfactory”.

Speaking at the Fed’s annual gathering in Jackson Hole, Wyoming, Mr Bernanke offered no direct promise of further intervention. But by spelling out the feeble state of the economy, the Fed’s intention to be forceful and its range of policy tools, he raised expectations of action in September.

“Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market conditions,” said the Fed chairman on Friday.

The clearest hint that Mr Bernanke is ready to do more came from his disappointment with the economy’s progress. He noted some recovery over the past few years but said that improvement in the labour market has been “painfully slow”.

He said “unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time”.

Much of the speech was taken up with a review of the Fed’s actions since the financial crisis. Mr Bernanke argued that large-scale asset purchases aimed at driving down long-term interest rates – known as quantitative easing, or QE – have worked.

“A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks,” he said.

Mr Bernanke reviewed four possible costs of additional asset purchases. He said they could damage the function of securities markets, raise inflation expectations, undermine financial stability or cause the Fed to make financial losses. He said those costs were uncertain, but concluded: “At the same time, the costs of non-traditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.”

Paul Dales of Capital Economics in London, arguing that Mr Bernanke had paved the way for a third wave of quantitative easing, said: “The speech comes across as a staunch defence of the effectiveness of unconventional monetary policy.”

By midday, the S&P had rebounded from a drop after Mr Bernanke’s comments, and closed up 0.5 per cent. The 10-year Treasury note rose, pushing its yield 5 basis points lower to 1.58 per cent, as markets decided Mr Bernanke’s comments did signal further easing.

Mr Bernanke argued that the Fed’s forecasts of future interest rates – it anticipates rates staying low at least until late 2014 – illustrated its resolve in supporting a recovery.
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