"America" Just Doesn't Fit Anymore

Times have really changed and so it seems appropriate to really start making some changes. Just yesterday, S&P downgraded the AAA rating of the U.S. to AA+.  Something that has held steady since 1917!  It seems our leadership (both parties included) keep playing a game of "kick the can down the road" and providing short-term fixes based on personal biases and self-interest.  America is ailing BIG time from short sightedness, individualism and partisanship.  There is truly now only "me" and "i" in America.  The "we" for which it stands is no longer evident to its citizens and the world at large.  Whatever happened to making decisions based on the common good and the very foundations by which this country was founded?  It's definitely time to make some changes!  Let's make the biggest change of all and put the "we" and "can" back into America.  "Wemerican" seems like a good nomenclature to get things rolling!

Is Self Taxation Better Than Government Taxation?

Government budget deficits and spending overruns are finally receiving some major attention from politicians and governmental bodies over crys from the general public.  We ALL know this is long overdue!  With the Democratic and Republican parties heavily entrenched in a political battle over increasing the debt ceiling above $14.3 trillion by August 2nd it seems like a good time to discuss a shift in "taxation" that likely will grow exponentially in the coming years:  self-imposed fees, charges, contributions, donations, etc. to provide services and support to things that are dear to us.  Our politicians are wise to this fact too!  They recognize if they cut in areas that the public can directly feel and experience (schools, parks, public safety, etc.), then the public is likely to find other means to keep those areas going with zero or decreased governmental funding. 

It's almost trickery to so degree by making campaign promises of "no new taxes" and then cutting the very services that have more of a tramatic impact on our daily lives - we become "tax assessors" upon ourselves to provide these very services historically provided by our traditional tax dollars.  For example, here in El Dorado County, parents, the community and the Buckeye School District have rallied around the newly organized Buckeye Education Foundation to provide incremental funding to support classes and services recently dropped or severely cutback at the respective schools.  In California and Nevada, Raley's is helping to save California parks from closing come September by committing funds raised through a program to donate at its 133 grocery stores.  The state is planning to close as many as 70 historic parks as part of the state's massive budget cuts.

These and many other "vehicles" for keeping things important to us will be created to keep what we cherish operational.  This is capitalism at it's finest though!  We pay for what we want to use and support and those things that are not important to us do not receive our time, energy and all important dollars.  It further places the obligation of cost directly upon those that are to receive or obtain the most benefit.  I have to believe that Americans will find solutions whether it is through private enterprise, establishing non-profits, volunteering without compensation, donating or the like to protect our quality of life.  It's not necessary to have government involved in everything!  We will find ways to make it work.

However, it is unfortunate that there will be higher governmet costs too (through increased taxes - likely to go up and not down) regardless of what we do to solve these current cutbacks.  Entitlements, personnel costs, interest payments on debt service and our national defense will be huge drains on our tax revenues for as far as I can see.  The real issues that befall our government have narily been addressed.

Neighborhood Stabilization Program - What's Going On Here?

I recently received a $500.00 compensation payment for a closed escrow on an REO property in Folsom, CA I was assigned in February 2011.  Unfortunately, the $500.00 was approx. one-tenth the commission I would've earned had the property sold to a buyer in a traditional MLS sale.  I had the property listed at $232,560 and had multiple offers with some as high as $220,000 which in my opinion were above market value considering the work that needed to be done.

However, the bank elected to sell the asset through a federal government sponsored Neighborhood Stabilization Program (NSP) to a "non-profit" buyer at a substantial discount.  The tax records reflect the sale to the buyer at $182,500.  The closing HUD reflects the sale price to the seller at $232,560 with a "purchase price adjustment" line amount of $50,226 being deducted.  The buyer has since improved the property with new paint, flooring, roof and other items. I estimate they spent roughly $25,000 in repairs.  The property is back on the market in 22 days and is listed for $279,900.

My preliminary investigations into this NSP is "grantees" can acquire properties with federal government grant monies at a minimum 15% discount, repair them and resell them to low-, moderate-, and middle-income homebuyers.  My questions run deep on this one!!

Why would a bank sell an asset in this program at that kind of discount without being compensated in some way for the difference?  Is the government using TARP funds to compensate them?  Do they get a full tax benefit for the higher value identified on the HUD than what the market was even willing to pay?

How does repairing a property with $25,000 and upping the price 20.3% benefit a "targeted" buyer? How does something like this really stabilize a neighborhood? Why does there appear to be so much profit being generated for a "non-profit" entity? Does this neighborhood in Folsom really need to be stabilized? The questions could go on...

I'm more concerned by what might be really going on here than I am about losing my commission difference.  I see many other properties being taken off the market in light of this program depriving other bonefide homebuyers the opportunity to acquire the property and benefit by the upside after improving it.  In the case of this asset, many of the buyers that offered on the property were owner occupants.  I have a feeling I will be writing more about this one.

National Association of Realtors - They Just Don't Get It!

It seems the real estate industry association leader NAR is at it again.  Time and time again, they push an agenda that seems to promote housing stability, fairness and equality under the auspices of homeownership rights and protection of property values for everyone.  Seems to me it's more about stoking the fire that fuels more sales of homes thereby generating greater commissions for its Realtor(r) members than anything else.  If they truly were about these principles, they would actually stand behind initiatives that bring long-term success to housing, goverment and the economy thereby providing the same to its members.

Their latest push to their huge membership base is for its members to contact Congress and stop their push to require buyers to put 20% down for a home purchase.  Apparently our regulators see that the lax lending standards in the past helped to contribute to a huge housing bubble that crashed and cost so many "good" homeowners, savers and long-term investors their home equity and likely more.  Good for the regulators for trying to fix the problems that lead to instability.  Shame on the association that I'm a member of that seems to be short-sighted and focused more on self-interest policies than anything else.  Come on NAR leaders, rise above any personal agenda and look out for what are truly better ways to bring long-term success for all.

This Inflationary Scare Has No Real Engine

Gold, silver, oil, coffee beans, lean hogs, you name the commodity, and it's likely soared in price recently causing many to believe inflationary times are just around the corner.  It's hard not to jump on-board the "rising prices" express train as we all  feel the pinch at the grocery store and gas pump.  Heck, gold is up 25% this past year after rising over 32% the previous 12 months.  Crude oil prices are once again approaching their 2008 highs having already exceeded the highs achieved in the early 1980's. Coffee is nearing a 12 year high and even lean hogs are earning much fatter payouts at the slaughter house these days. 

So, what's going on?  Has demand really increased that much thereby putting undue pressure on "limited resources" to drive up prices?  Simple economics tells us supply and demand are the key drivers to any marketable commodity valuation analysis.  So, doesn't it seem that with huge jumps in prices in nearly all commodities that there would be a corresponding jump in demand and/or a relative contraction of supply?

Well, I have to dismiss the contraction arguments as simply not possible.  Certainly, there may be short-term interruptions in supply (like when an oil fire occurs at a refinery) but those are temporary and short lived.  Believe me, there is no more of a shortage of oil reserves identified today than what was identified a few short years ago.  And, with gold at these levels, plenty more will be unearthed to offset any perceived shortages;  crops are more and more technologically engineered thereby increasing production yields.  So, just in the past few years we've not seen any significant longer term limitations of supply that might account for the large swings upward in commodity prices.

That leaves demand as the key driver to commodities having rocketed in price if there is any substance to the increase besides outright speculation.  Higher demand is caused by either:  increased consumption as a result of different uses (as when corn is used to produce ethanol) or increased consumption from population influences (certainly a combination of both as well).  My take is when you look at all the different commodities, we've not seen either of these come into play.  It's not like the latest tablet craze consumes so much gold that there is huge demand because of its advent.  Further, it's not like the world added a billion people in the past few years or that the world's population now consumes substantially more on a per-capita basis lets say of coffee.  Sure there are a few countries that are prospering well and consumption is up (China, Germany, etc.) but there are equally those that are not and consumption is down. I admit that I have over simplified much of the economics behind the rise in commodity prices but that's about as complicated as it needs to be especially after most economies are still below pre-recessionary growth and prosperity levels.

Inflation is only a speculative scare which will be derailed by deflationary pressures as the world learns to cope with less demand for everything.  Stay tuned!

Time to rethink what makes homeownership a smart choice

Everyone knows housing has historically been cyclical with good money to be made during the boom cycles and often financial calamity during the bust years.  Whether housing appreciation is driven by steady demand, hyper-inflation or ultra-easy liquidity (e.g., stated income loans, teaser adjustable rate debt qualifying, etc.), it can make home ownership seem like a great investment ... or a huge mistake when the tide turns. Having previously survived a boom-to-bust period myself, I know first hand that a home should be more than an investment in of itself.  It must serve a purpose in my life beyond helping my net worth stair-step to the financial stratosphere.

When I purchased my first single family home in June 1989 in the Bay Area only to have the housing market peak a few months thereafter I was seeing stars - and, not the ones I thought I would see having joined the ranks of homeownership.  It took nine years for my property to recover it's original purchase price and that's not including the years of sweat equity and the mountain of Home Depot receipts I accumulated along the way. It was certainly nice that I didn't lose too much on my first home purchase once I sold but unfortunately there are many that do.

So, if everyone can take a step back and simply view a home beyond investment terms ... as something that provides shelter, safety, freedom, comfort, personal choice, privacy, security, a sense of belonging and identity, then it's time to realize it's true worth.  Think of it in terms of utility value ... what you get out of it on a truly personal level that can either enhance your lifestyle or set you back.  Think long term as well and buy something that doesn't keep you married to the mortgage owed to the bank.  After all, you want to be the owner not simply the mortgagor.  The more the bank has invested in your home (via debt you owe) technically the less you "own" of it.

Now's the time to be thinking of homeownership for what it's really meant to be.  Think of all the emotional benefits rather than any potential financial outcome.  Given that perspective, homeownership is a smart choice.

Trouble ahead for the greenback

Imagine buying a commemorative plaque that included a certificate of authenticity and had been issued in a limited quantity to uphold its future market value.  However, what if the plaque manufacturer then started freely distributing without limit, and possibly even giving the plaques away after you've been one of the earlier purchasers of the special commemorative piece - what do you think might happen to that value for the one you're holding?  If you said it would drop in value, then you are correct!  It wouldn't take long for those holding such plaques to realize they've become practically worthless or at least certainly diluted in value to the point of being much less than the price originally paid to acquire it.

Well, that is what is happening with our once mighty greenback.  Yes, the US dollar, being the reserve currency of the world, and no longer backed by huge quantities of gold but the good faith and trust of the US government and its people.  Yet, once again, we are squandering that trust with our monetary policy to print dollars to buy US Treasury bills and bonds on the open market. Our policy makers are of the belief that diluting the value now to stimulate the economy will provide greater rewards for dollar holders in the future by way of increased economic activity, a more economically stable America and therefore a stronger greenback.  Unfortunately, we all know better than to trust such large scale trickory and in particular its attempt to manipulate human behavior without much of any substance behind it.  Just because the government wants everyone to feel good and start buying/hiring, etc. doesn't mean we're going too!

The US continues to act as poor stewards of the world's reserve currency and I believe we will pay the price for it.  Not only will QE2 not work with stimulating the demand of the American economy but it will further depress the value of the dollar in the not too distant future.  Basically, the US dollar is being secured by IOU's of the US which is like being insolvent and acting as the guarantor of your own debt as security for others.  For now, it's not likely to have much more impact of depressing the dollar after its widely anticipated $600 billion purchase announcement unless the Fed decides to do more than that.  But, in subsequent years, when the true ramifications of the measures come into play, it will wreak havoc on the currency. 

For now, there is much hope that it will stimulate demand in America but likely there will be soverign debt issues of other countries in Asia and Europe that will provide support for the US dollar before such debt troubles spread to the US and cause the selling of US dollar like there is no tomorrow.  Just be prepared to diversify when the dollar gets much of its strength back momentarily.