The Fed cut the key interest rates again yesterday, this time by 0.5 percent, following a 0.75 percent cut last week. For alternative investors that means a couple things:

1) The prime rate is now down to 6 percent, the lowest it has been in three years. Investors who are utilizing HELOCs and personal or business lines of credit are probably pretty happy right now, as borrowing is now much cheaper than before. Investors who were not utilizing this type of variable credit in favor of fixed rates are probably much less enthusiastic and might want to think about switching. The U.S. economy is not going to be recovering any time soon, so investors might as well take advantage of these low rates while they can. Chances are they will continue to go even lower before things turn around and the Fed starts hiking them back up again.

2) If you haven’t already started doing so, get out of the dollar now. What was left of the U.S. dollar was burned at the stake this week; the government has shown that they are willing to let the dollar die in favor of the chance that they might be able to fend off a recession. Things are likely only going to get worse though, as the U.S. is probably still going to see a recession, and inflation is going to start eating up people's U.S. dollar savings. If you want to learn more about the importance of the dollar's decline, see yesterday’s blog post: Ron Paul And The Fight To Save The U.S. Dollar.

If a recession does come, which it certainly appears it will, investors need to be prepared. There are profits to be made in good times, and even more profits to be made in times of recession--if investors know where to look. If you are trying to figure out some good places to put your money in the event of a recession, check out our Top 5 Recession Investments.

Labels: economy, finance, investments

Rudy Giuliani has dropped his bid for the Republican presidential nomination and endorsed John McCain. It seems as though his campaign strategy to ignore the early primaries came back to haunt him, although some Ron Paul fans probably like to think it was his bashing of Paul that did him in. It is now a four-man race for the Republican nomination. After a victory in the Florida primary, it appears McCain has taken the lead.

On the Democratic side, John Edwards officially dropped his nomination bid as well, leaving only Barack Obama and Hillary Clinton competing for that nomination.

With Super Tuesday--the day that 24 states hold their primaries--coming Feb. 5, voters had better get up to speed on the candidates, and fast. At the beginning of the month we did a quick blog on each of the presidential candidates and parts of their economic policy which could either help or hinder investors. Click your favorite candidate’s name below to check out the previous posts:

Barack Obama
Hillary Clinton
Mitt Romney
Ron Paul & Ron Paul And The Fight To Save The U.S. Dollar
John McCain
Mike Huckabee

Labels: economy

The latest foreclosure report issued by RealtyTrac showed a 75 percent increase in the number of foreclosures from 2006 to 2007, a startling number by most accounts. The 2006 numbers were not good either, so the fact that foreclosures continue to increase at this pace should be concerning. With all the other negative economic news, especially that affecting real estate, it seems that nowhere is safe. But while foreclosures are certainly increasing across the country, there are certain cities which offer a lower level of foreclosure risk.

First American Core Logic publishes a quarterly report that, among other things, details the markets across the U.S. with the highest and lowest foreclosure risk. The 10 markets with the highest risk, as expected, mainly consisted of California and Michigan markets. The markets with the lowest risk, however, were quite surprising. According to the latest report, the 10 markets (of the 100 largest) with the lowest risk of foreclosure were:

1) Baton Rouge, LA
2) Birmingham-Hoover, AL
3) Phoenix-Mesa-Scottsdale, AZ
4) Albuquerque, NM
5) Washington-Arlington-Alexandria, DC-VA-MD-WV
6) Virginia Beach-Norfolk-Newport, VA-NC
7) Bethesda-Gaithersburg-Frederick, MD
8) Richmond, VA
9) Salt Lake City, UT
10) Honolulu, HI

The biggest surprise for me, and probably for most of you as well, is seeing Phoenix on this list. The Phoenix real estate market, along with Las Vegas, has been the face of the real estate bubble (see our Top Overbuilt U.S. Markets article), which of course is still deflating. With the foreclosure numbers coming out of Las Vegas, one might think Phoenix wouldn’t be all that far behind. But lo and behold, somehow Phoenix is the U.S. market with the third least amount of risk for foreclosure.

If you want to check out their methodology for yourself, or if you want to see the top 10 riskiest markets, here is a link to the full report: http://www.corelogic.com/pressroom/core-mortgage-risk-monitor/200801-core-mortgage-risk-monitor-html/#top10

Labels: real estate

More than any other presidential candidate, Ron Paul stresses the need for the U.S. to save the dollar. Inflation is running rampant and the Fed, along with much of the government, doesn’t seem to care. The emergency meeting of the Fed to lower rates last week, along with the $150 billion economic stimulus package which passed the House in a landslide, are the latest examples of that. Today the Fed is expected to announce yet another rate cut. When will it stop, and when it does stop, what will the state of the U.S. dollar be?

According to Ron Paul’s campaign website, “Today, the federal government burdens us with one of the most dangerous taxes it can impose—the inflation tax. When the federal government finds that it cannot afford its out-of-control spending, and is unwilling to directly tax the public, it resorts simply to creating the money out of thin air.

Inflating the money supply is the easiest form of financing the government. The Federal Reserve, an unelected and unaccountable private organization, pumps more dollars into the economy whenever it chooses. Because the public is forced to accept these bills, the Fed essentially gets away with legally counterfeiting. We cannot possibly expect the government to control spending when it has a blank checkbook.”

Watching the government--and the Fed in particular--during the last month, it seems Ron Paul is right on in his assessment of how things are being run. In my opinion, it is a shame that his ideas have not gained more traction among U.S. voters. Ron Paul only won 3 percent of the vote in Florida's Republican primary last night, and really hasn’t shown well in any of the primaries. Until the citizens of this country stand up to the monetary decisions being made by their government nothing will change.

Sadly, right now what these officials see is the majority of U.S. citizens demanding further rate cuts and the further devaluation of the dollar. It makes sense, though, as America is the land of debtors; the more debt people have (in U.S. dollars), the more they cheer the dollar's decline. For the minority of Americans who are savers rather than spenders, they unfortunately have been and probably will continue to be forgotten and out of luck.

Unless by some miracle Americans get their act together and see that their futures, along with the futures of their children, are at stake here, the dollar will continue its monumental slide. For the savers out there, here are a few pieces of advice:

1) Start paying attention to the monetary positions of your politicians

2) Help make others aware of the issue

3) Get out of dollar holdings. For more info on potential ideas check out our article: Decline of the Dollar Spurs Diversification

Labels: economy

The new economic stimulus plan includes a provision that will allow for a one-year increase in the conforming loan limits of Fannie Mae and Freddie Mac. I talked a bit about this in a previous post: Fannie Mae and Freddie Mac Loan Limits To Rise In Economic Stimulus Package. Seeing that this new legislation will allow Fannie Mae and Freddie Mac to purchase riskier loans, I thought it would only be fair to discuss what would happen if either of these companies were to fail.

Fannie Mae and Freddie Mac are publicly traded companies, meaning that anyone can buy shares of the companies. However, not everyone realizes these companies are also essentially government backed: That means for all intents and purposes the U.S. government, although not technically required to do so, will ultimately cover the debt of Fannie Mae and Freddie Mac. The U.S. government--actually the U.S. taxpayers--would bail them out. I happened across a document that spoke to this point released by the Republican Policy Committee, which said the potential cost to U.S. taxpayers in the event that one or both of these companies failed could be in the hundreds of billions of dollars. “The implicit guarantee causes investors to continue to loan to Fannie and Freddie despite these risks because of the expectation that the Treasury would come to their aid in a crisis," the document said. "This encourages the management at Fannie and Freddie to take on more risk and more debt than they otherwise would.”

Those who can remember back few years will recall the major accounting scandals at these companies, which doesn't exactly reinforce trust in the management of these companies. In addition, these companies are already experiencing financial problems stemming from the credit crisis, and as a result have had to raise additional funds through stock offerings and dividend cuts. Now we are going to allow them to make additional risky jumbo loans. Are we sure this is the best thing for these companies and the U.S. taxpayers?

For people who live in the high-cost areas which stand to benefit from the increased loan limits, this legislation is still probably good news. The chances that the increased limits will stimulate local real estate markets is probably better than the chances that tax payers will have to bail out of either of these companies because of problems with the new loans. However, for people living in lower-cost areas--a vast majority of the U.S. population--this legislation is all bad news. They won’t receive any benefit but will still have to chip in tax dollars in the event of a bail out. Granted, high-cost areas were not getting their fair share prior to this change, since most people couldn’t qualify for conforming home loans because of the high price of real estate.

Regardless of where people live--whether a low-cost or a high-cost area--they should be worried about the potential for failure of Fannie Mae and Freddie Mac. There were already problems in both companies, and the increased loan limits add another potential fire. Hopefully management of these companies doesn’t get too crazy with the idea of increased revenue possibilities, or succumb to government pressure, and remembers to make wise business decisions. I will not be holding my breath.

Labels: economy, real estate

Thaksin Shinawatra was ousted as prime minister of Thailand by a military coup in 2006; Thailand subsequently lost a lot of foreign investor confidence. Now that Thailand has elected a new leader, one who desperately wants to revive foreign investment, how will the investment climate change?

The newly elected prime minister is Samak Sundaravej, an ally of Thaksin. If Samak is indeed able to get his new policies through, Thailand’s foreign investment climate should recover nicely--however that is a big "if." It will undoubtedly be hard for Thailand to regain investor confidence after the military coup, especially considering that a close ally of the ousted prime minister was elected. After all, what is to stop the military from doing the same thing over again?

Any time investors choose to invest in foreign countries, they face political risks. While it is likely to take some time for the new prime minister to regain the confidence of investors, this move is undoubtedly a step in the right direction. Any country being led by its military could make investors wary, so the mere fact that Thailand now has a prime minister will be a boost in and of itself.

In time, Thailand will likely regain the confidence and excitement foreign investors previously had for the country, but considering that Thailand is heavily dependent upon exports, and that the U.S. in particular is struggling economically, it could take some additional time for Thailand to see results. Thailand is an attractive country for tourists and investors alike, and the present time--while confidence is low--could prove to be a great time to buy.

Labels: international

As part of the new economic stimulus package being pushed through the House, the loan limits for Fannie Mae and Freddie Mac are set to be raised substantially in certain areas across the U.S. The new limit--anywhere from $625,500 to $730,000, depending on how the finalized legislation turns out--would be set for one year, according to The Wall Street Journal.

Fannie Mae and Freddie Mac are government-sponsored mortgage buyers, the two largest such companies in the world. These new limits are likely to have a positive impact on the mortgage markets in the affected high-cost areas because they could enable many people in these areas to qualify for conforming loans. The difference between the pricing on a conforming loan and a jumbo loan (loans with values in excess of conforming limits) it is typically substantial.

Furthermore, in today’s mortgage environment, banks are becoming less and less willing to even do jumbo loans: They are considered risky, and risky loans are being avoided like the plague by many investors and subsequently by banks. The previous conforming limit of $417,000 is simply a joke in places such as San Francisco. A single-family home in the San Francisco-Oakland-Fremont metro area has a median price of $825,400, according to the National Association of Realtors.. While these new limits could very well help stimulate some of these high-cost stagnant, or even declining, real estate markets, it is no guarantee that it will end up helping significantly.

For the people who can now qualify for conforming loans, they will probably save money on their mortgage. In addition, some people who couldn’t otherwise qualify for a mortgage will now able to do so. Any time buyers can get more house for their money, the potential number of buyers is increased, which tends to reflect positively on real estate prices. Thus there is certainly potential for good things to happen in those markets. However, we must also remember that many of these high-cost markets have bigger problems that won’t be cured simply by raising these limits, especially considering the country's overall economic situation. While this news can only be seen as good thing for these high-cost markets, people in these markets shouldn’t get their hopes up for a dramatic turn around simply because of it.

Labels: finance, real estate

To help fend off the looming recession, lawmakers have come together to create a new economic stimulus package. The main part of the stimulus plan calls for $100 billion in tax rebates. Most individuals will receive approximately $600, and most couples will receive approximately $1,200. People with children are set to receive an additional $300 per child. Individuals earning more than $75,000 per year and couples earning more than $150,000 per year will receive smaller rebates. Families earning in excess of $170,000 per year will not qualify for any tax rebate.

This tax rebate sounds good, but will this tax rebate really accomplish what it is intended to do? The purpose of this enormous stimulus package is of course to fend off recession, and the goal for these tax rebates is to encourage people to buy more stuff. The more money that gets cycled back into the economy, the less chance there will be for a recession. Will this stimulus plan, equal to about 1 percent of the total U.S. economy, be enough to ward of a recession?

I’m not sure if this plan will be enough to change the course the U.S. economy seems headed for. The other question in my mind is whether the recipients of these tax rebates will actually spend the money, as the government intends for them to do. That also seems questionable. The smart choice for most people would be to save and invest the money, rather than buy more stuff they don’t need in the first place.

I think many people are starting to realize that more rough times lie ahead. It is also my belief that the government underestimated the number of people who will decide to do the smart thing and save the money to help them though the recession. After all, even with this stimulus plan, there is no guarantee that a recession will be avoided. Maybe I’m giving the American people more credit than they deserve, considering their past savings habits (see American’s Negative Savings Rate), but I like to think they are beginning to learn their lesson.

The other part of the stimulus package includes changes in the conforming loan limits in certain areas. Look for more details on that in Monday’s blog post.

Labels: economy

Well, we knew sooner or later, space travel would be made available to the masses. Yesterday, Virgin Galactic unveiled their spaceship design that will allow travelers to take rides into outer space beginning in 2009. Richard Branson, founder of the Virgin Group, is truly paving the way to a new age with his latest entrepreneurial venture.

Traveling on the spaceship will not be cheap: Tickets cost $200,000 apiece. Despite their high price, Virgin Galactic has already sold over 100 of them. Once the prices begin to drop, as they always do when competition develops and the technology becomes more cost effective, watch out for the new millennium of travel.

What’s next--commercialized space stations, space amusement parks, space memorabilia shops, space hotels, space cruises, trips to the moon and beyond? It is mind-boggling to think about the potential in this untapped marketplace. It seems almost a given that there are going to be a lot of new businesses created in this marketplace, and a lot of money made by some savvy entrepreneurs and investors. No space business endeavor would be without risks, but the potential rewards could be almost beyond comprehension.

The space age is coming, but are we ready to embrace it? Most people still seem to think commercial space travel won’t happen in their lifetime. It is coming, though, and those who embrace it early on could find some great investment opportunities waiting for them.

Labels: investments

When people hear that the Fed cut interest rates by 0.75 percent, many think it is a wonderful thing, and that now they will be able to borrow the money they need. Unfortunately, it doesn’t quite work out that way, especially in today’s financial climate. The Fed funds rate is simply the rate at which banks lend money to each other at the Federal Reserve Bank, that’s it. It is true that the prime rate goes up and down along with the Fed funds rate, but the problem right now is not that interest rates to customers are high, but that many customers who want credit can’t get it. These Fed interest rate cuts are unlikely to change that.

Right now, banks are turning their backs on any kind of loan that smells at all risky. That means low down payment, low documentation, small business and start up loans, along with others considered “risky,” are still unlikely to get funded.

Loans that have little risk, such as conventional real estate loans, should continue to get funded with little to no problem. The main thing to watch for with those loans is that traditional 30-year mortgages could possibly start seeing rates go up. Even though the Fed is lowering rates, the rates on long term mortgages can still go up because they are tied to bonds. Since these are long term bonds, inflation rates are more important than short term Fed interest rates, and inflationary pressure will begin to rise when the Fed drops interest rates this quickly.

The Wall Street Journal recently published an article that covered some problems that small business owners were having getting loans: “A recent survey by the National Federation of Independent Business found that 7 [percent] of the small-business owners surveyed in December said they were having problems getting financing, up from 4 [percent] in November. ‘I'm sure that everybody is being a little more careful. Certainly the banks that were aggressive are being more careful now,’ says William Dunkelberg, the federation's chief economist.”

So, while the Fed lowered the funds rate by 0.75 percent and is likely to cut the rate again at the next scheduled meeting, investors shouldn’t get overly excited. The stock market will do better than it would have otherwise, and the economy might get a slight overall boost; lending, however, is unlikely to get any easier. Interest rates aren’t the problems in this case, so dropping the rates won’t solve the problems. Instead of investors getting excited about the rate cut, they might want to start getting concerned about inflation. Inflation is already higher than it has been in recent memory, and it might only get worse from here. The Fed is making it clear that they are more concerned about appeasing the market and limiting recession fears than controlling inflation.

Labels: economy, finance

The Fed just lowered interest rates by .75 percent, one of the single largest cuts in the history of the Fed. Naturally, many people are wondering just how this interest rate cut will affect their mortgages. Unfortunately most people are likely to be disappointed by how the system really works and are likely to receive little to no help with their mortgages. If you are curious about how this works, read through our previous blog post, “How do the Fed Interest Rates Really Affect Mortgages.”

Labels: economy, finance

Most people are familiar with what happened in Japan in the '90s. It even has its own name: the “lost decade.” This time represented one of the worst recessionary periods the world has ever seen. As the name explains, for economic purposes, an entire decade was essentially lost to this recession. During the recession, residential real estate values fell to 1/10 of their previous highs, and some office space fell to 1/100 of its previous levels. Is it out of the question to think that the U.S. might also experience something similar to Japan’s “lost decade?”

According to a recent article in The Wall Street Journal, “'Part of the problem is just not knowing,’ [University of Maryland economist Carmen] Reinhart says. ‘The longer the process of not knowing what the losses are takes, the longer the resolution takes.’ Japan was the extreme example, she says. Japan's inability to appropriately gauge the losses from the collapse of its 1990s real-estate and stock bubble led to a ‘lost decade’ of economic growth.”

But the same article also goes on to point out, “A critical difference between the U.S. and Japan is that the Federal Reserve has been cutting the target for its benchmark federal-funds rate and appears ready to cut it more deeply, whereas the Bank of Japan was still raising rates a year after Japan's bubble began to collapse. Also, Congress and the White House are both promising a fiscal-stimulus package, with Fed Chairman Ben Bernanke pushing for a plan that would help boost spending this year.”

In fact, in response to stock markets falling sharply worldwide because of fear of a recession in the U.S., the Fed made a rate cut of 0.75 percent this morning. This cut was "the biggest one-day move by the central bank in recent memory," according to the Associated Press.

Some of the same principles that drove the asset bubble in Japan--and subsequently the recession--are also apparent in the U.S., such as dramatic increases in real estate prices, and risky lending practices. However, it is probably too early to say that the U.S. is heading for a recession of this sort. It is likely that the looming recession will be more painful than ones in recent memory, but a recession of historic magnitude is probably a little far fetched, though not out of the question completely.

Labels: economy

It seems like, with each new report about housing starts, much of the media paints a dimmer picture. But is this news really such a bad thing? I argue that most investors should be grateful for the fact these numbers are getting worse.

When the media reports on the housing start numbers, they are doing so with the economy in mind. Naturally, the more houses get built, the more money cycles through the economy. In this way, housing starts are a powerful barometer of the economy's health.

For investors, though, the picture doesn’t look quite the same. Investors want to see the supply of homes equal to, or even short of, demand. When this happens, the price of homes go up. This is great news for investors who already own property. When housing starts get too high and create excessive supply, the prices of homes will drop, which is what has been happing lately in many real estate markets.

In markets such as Phoenix and Las Vegas, builders overshot housing demand by several years. Even though the economies of those markets are strong and growing rapidly, there just isn’t enough demand for the amount of available homes. For that reason, investors want to see as little inventory added as possible. The less new inventory is added, the more existing inventory will get used up, and the more valuable that existing inventory becomes.

So the next time you read a news report that cries about the fact housing starts are a record lows, instead of grabbing your box of tissue, reach for a nice bottle of champagne and celebrate the fact that less new home construction means more demand for existing homes--homes like yours.

Labels: economy, real estate

With the stock market readily dropping this week, and seemingly bad economic reports published one after another, does the U.S. economy need some help? That question is being discussed in depth by Fed chairman Ben Bernanke, President Bush and other government officials. Anyone can look at the economy and see that it is slowing down, even struggling, but at what point should we look at intervention? There is a cost to everything, so simply lowering rates or beefing up government spending will not be without consequence. What should we do?

From the sounds of things, the Fed is likely to drop the Fed funds rate another 0.50 percent at the next meeting. It is also likely that things won’t stop there; President Bush has also been talking about additional ways to spur the economy. So shortly, we could see several different actions taken by the government to help jumpstart consumer spending and the overall economy.

While this stimulus package will probably help boost the stock market for a little while, and might make everyone feel a little better in the short term, what are the potential long term consequences? Presidential candidate Ron Paul and other leaders have been openly opposing short term fixes such as these, because they see that ultimately such fixes just make things worse in the long run. With inflation already at its highest level in quite some time, what do they think lowering the Fed funds rate is going to do to that number? What about the spending power of the U.S. dollar? What about the millions of retirees on fixed incomes? What about the fact that wage increases have been nearly stagnant? There are many people who are very worried about the events taking place, and rightfully so.

Whether or not you are for a short term intervention, or even if you would prefer the government butted out of this thing altogether, we must remember that there will be consequences to whatever action is taken. Will the best decision for America’s economy be made, or will the actions taken lead to bigger and worse problems? Only time will tell.

Labels: economy

While John Edwards seems to be a distant third for the Democratic presidential nomination, well behind front runners Barack Obama and Hillary Clinton, he is not out of the game yet. We have discussed in previous posts how the Democratic candidates plan to let the Bush tax cuts expire, but Edwards wants to do more than just let them expire. His plan could have serious monetary consequences for investors.

According to Edward’s campaign website, the Edwards tax plan calls for an increase in the capital gains tax to 28 percent, while simply letting the Bush tax cuts expire would increase the capital gains tax to 20 percent. Obviously, this would mean investors would see a large increase in their taxes if the Edwards tax plan were to come to fruition.

Edwards does offer up some creative plans to help lower income families save for retirement, such as the “get ahead” tax credit. This credit would basically match up to $500 a year in savings for families earning less than $75,000 a year. He also is offering up other tax breaks for lower and middle class families, as is typical from Democratic candidates.

As we have brought up again and again in our posts, no matter which Democratic candidate you choose, they all want to bring higher taxes for investors. This is not really a surprise, though. Come voting time, Republican candidates will offer lower taxes, and likely offer more money in investor’s pockets, but a president should not be elected based on monetary stances alone. Voters should look at the complete picture before deciding which candidate represents the values they most desire for America. These blog posts were meant only to focus on potential economic issues that could impact investors, nothing more. Voters are encouraged to delve deeper to seek out the best candidate for them. Happy voting!

Labels: economy

After placing second in both the Iowa caucus and New Hampshire primary, Republican presidential candidate needed a win of more substance than his victory in Wyoming, a contest in which no delegates were at stake. Romney's decisive win in Michigan's primary yesterday kept him positioned as one of the frontrunners for the Republican nomination. Let's take a look at some of Romney’s viewpoints and see how they might affect investors.

As with the other Republican candidates, Romney plans to make the Bush tax cuts permanent, which is generally seen as being good for investors. Romney also promises another tax cut, which could be favorable for many investors. Romney plans to eliminate all taxes on interest, dividends and capital gains for anyone with an adjusted gross income of less than $200,000. While many investors won’t qualify for this zero percent tax treatment, Romney plans to lower taxes across the board as well. So it seems that if Romney is elected president, investors could look forward to lower taxes--always a nice thing.

In addition to cutting taxes, Romney emphasizes the relationships between the U.S. and Latin America and sees the importance of trade agreements between the U.S. and countries such as Panama, Peru and Colombia. Romney would like to see these relationships strengthened and the prosperity among our allies in Latin America increased. At the same time, though, he thinks we should take a hard line with anti-American dictatorships such as Cuba, and increasingly, Venezuela and Bolivia. For investors it seems that a Romney nomination could potentially help investments within our Latin American ally countries, while further stalling investments in perceived anti-American countries.

Labels: economy

As many analysts predicted, the price of gold has continued to rise in 2008 to new record highs, but when will the rise hit the brakes? Some have called for $1,000 per ounce gold, while others have set their eyes at $2,000 per ounce and beyond, but who should investors believe? A recent article published on SwissAmerica.com polled more than 40 financial experts to get their opinions on the future price of gold.

"When the price of gold goes over $1,000, the bull market will be in its bubble phase. The price may go far higher--depending on what else is going on in the economy and the markets. But this will be a time to be careful...when we stop adding to our positions and begin to reduce them. Gold is now cheap and almost hidden. People are buying it for the right reason: because it is cheap. We see signs, though, that gold is coming out of the closet and the financial press is beginning to notice," Bill Bonner editor of the Daily Reckoning said.

A good rule of thumb when it comes to investing is that, when everyone seems to be on the bandwagon with a certain investment, that is the time to get out. The price at which the gold bubble tops out remains to be seen, but when your friends start talking about how they are making a ton of money from their gold investments, you might want to think about taking your profits before the bubble bursts.

That being said, there are many reasons to be excited about investing in gold right now, and there are many ways to do so. One of the best ways to invest in gold is through a gold CD at EverBank. They offer exposure to the price gains in gold but guarantee your principal, which would provide you with protection in case the bubble were to pop sooner than you expected.

Labels: investments

Rudy Giuliani, a Republican presidential candidate, spent little time and money campaigning in Iowa and New Hampshire, which led to lackluster results in recent contests there. Giuliani finished third in the Iowa caucus and fourth in the New Hampshire primary. But this was actually Giuliani's plan, according to a Bloomberg article. Giuliani chose instead to save his resources for more important states. Still a strong candidate for the Republican nomination, Giuliani should not be overlooked, especially as he is offering some of the most favorable tax policies for investors. The following is a summary of Giuliani’s tax policy from his campaign website:

“Mayor Giuliani plans to simplify the tax code by introducing the Fair and Simple Tax (FAST) form. The FAST form gives American taxpayers the option of filling out their taxes on a single page, while cutting the current six brackets in half and preserving the major deductions that Americans depend upon--mortgage interest, charity, state & local taxes, the child tax credit, the personal exemption and the new health care exclusion.

Rudy’s plan also cuts the corporate tax rate from 35% to 25% to keep America competitive in the global economy. In addition, the Mayor proposes giving the death tax the death penalty, cutting the capital gains tax from 15% to 10% and indexing the Alternative Minimum Tax for inflation and eventually eliminating it.

In addition, the Mayor’s proposal eliminates the double-taxation of personal saving accounts, reinstates the Research and Development Tax Credit and makes the current Bush tax cuts permanent.”As far as investors are concerned, these measures should sound great. Lower corporate taxes will obviously benefit business owners and lower capital gains taxes will benefit almost all investors. Will Giuliani have a chance to demonstrate his progressive tax plan? Or might his decision to overlook the Iowa and New Hampshire primaries come back to haunt him? Only time will tell.

Labels: economy

As we wrap up a week of playing “what if” scenarios with some of the presidential candidates, we thought we would share a few brief thoughts.

There is no way to truly do justice to any particular candidate or their views in a blog post of a few paragraphs. Rather, we attempted to summarize what we thought were key points as they relate to investors in order to facilitate a discussion. Some of the comments were fantastic discussion points that brought in multiple points of view, clarification of candidate’s platforms and even citations of informational resources.

It is encouraging to us that in our sound bite culture, there is still an undercurrent of the population that desires a more thorough examining of the candidates and the specifics of their proposed solutions to our economic problems.

The civility of the comments was exemplary and a welcome surprise. Civil disagreement is one of the fundamental building blocks of a democratic republic. It forces thoughts and ideas to be verbalized, challenged and honed. We applaud the audience that cares enough about their country to invest the time to share their perspective and add to the discussion.

Some thoughts based on the comments we received:

We believed we would have to reject comments designed to pick fights and detract from the discussion. As it happened, only one comment was rejected. It was rejected solely for being self-promotional without adding informational value.

It is clear that the internet is marshalling forces concerned with our monetary policy and the way in which we are taxed.

There were no comments, as of this writing, for either the Obama or Clinton posts. Perhaps the posts were drowned in the sea of media coverage following Clinton’s recovery in the New Hampshire primaries.

Ron Paul and Mike Huckabee received the most comments. How much of this might have to do with the specificity of their proposed economic and tax reforms?

Stay tuned--we’ll be covering some additional candidates next week.

Fresh off a victory in New Hampshire, John McCain’s camp must be feeling good right now. McCain is one of the front runners to win the Republican nomination, so it is not too much of a stretch to ponder how things might look for investors if McCain were to become the next president of the United States.

McCain plans on keeping the Bush tax cuts, doing away with the alternative minimum tax (AMT) and making it harder to raise taxes in the future, according to his website. The following excerpt from McCain’s campaign website essentially sums up his plan for investors:

“Reward Saving, Investment and Risk-Taking: Low taxes on dividends and capital gains promote saving, channel investment dollars to innovative, high-value uses and not wasteful financial planning. John McCain will keep the current rates on dividends and capital gains and fight anti-growth efforts by Democrats.”

Campaigning in Michigan leading up to that state's primary, McCain told a crowd in Grand Rapids that he was "aware of the economic difficulties here in the state of Michigan," according to the Boston Globe. "I am aware that you have high unemployment. I'm aware that the state of Michigan has lost jobs and that there are tough times, tough times here in the Heartland of America."

McCain suggested utilizing community colleges for education and retraining of workers, and "offered instead the prospect of introducing retraining schemes, particularly in potentially new green technology jobs," according to the Guardian Unlimited.

Thus it appears things would likely turn out okay for investors if McCain were to become our next president; he does not plan to increase taxes. If nothing else, investors can expect things to at least remain about where they are now.

Labels: economy

One of Democratic presidential candidate Hillary Clinton’s major campaigning issues is the need to strengthen the middle class. Most Democrats want this, but Clinton, who staged a comeback from her third-place finish in the Iowa caucus last week by winning the New Hampshire primary Tuesday, has focused heavily on this point. She plans to do the following in order to strengthen the middle class, according to her campaign website:

· Lowering taxes for middle class families.
· Providing quality, affordable health care to every American.
· Making college accessible and affordable.
· Confronting the growing problems in the housing market.
· Bolstering retirement security by promoting savings and investment.
· Returning to fiscal responsibility and moving towards balanced budgets.
· Harnessing innovation to create the high-wage jobs of the 21st century.
· Creating a $50 billion Strategic Energy Fund to jumpstart research and development of alternative energies.
· Strengthening unions and ensuring our trade laws work for all Americans.

While campaigning for a stronger middle class will surely garner votes come election time, the real question is how these policy changes will likely affect investors.

As with most Democrats, Clinton will likely let the Bush tax cuts expire, causing an instant tax hike for most investors. In addition, she wants to impose more taxes on businesses, which will also negatively affect many investors. The bottom line for investors with any of the Democratic candidates is essentially that if a Democrat is elected, investors can expect to see increased taxes.

The Bush tax cuts were advantageous for investors, who happen to be some of the wealthier people in the country. Since most Democrats emphasize equality and better distribution of wealth in their platforms, most investors would likely be better off voting Republican, based solely on economic factors.

However, money isn’t everything to everyone, so financial motivations may not be the only factor voters look at. Warren Buffet has criticized the Bush tax cuts as being too favorable to the wealthy, and he is one of the people who benefited from them most.

Labels: economy

The biggest economic change that Republican presidential candidate Mike Huckabee, who finished third in New Hampshire's Republican primary yesterday, is vying for is the FairTax. He wants to see everyone taxed on consumption rather than the confusing taxation that goes on now through the IRS. In essence he wants to do away with the IRS, which obviously would be a major change to the current tax system. Some would say that anything that calls for the disbanding of the IRS can’t be all bad, but let's take a look at a couple opposing views.

On the subject of the FairTax plan, Huckabee’s website said, “Our current progressive tax system penalizes us for working harder and becoming more successful. As we climb the ladder, the government lurks on each rung, hungry for a bigger bite out of our earnings. The FairTax is also progressive, but it doesn't punish the American dream of success, or the old-fashioned virtues of hard work and thrift, it rewards and encourages them. The FairTax isn't intended to raise any more or less money for the federal government to spend - it is revenue neutral.

Expert analyses have shown that the FairTax lowers the lifetime tax burden of all of us: single or married; working or retired; rich, poor or middle class.”

On the other side of the debate, here is one of several potential problems, presented in a recent article in the Boston Globe:

“Prices will rise. Finally, FairTax supporters assume away many of the problems with their plan by asserting that prices will fall by 22 percent once all income taxes are abolished. Prices at the checkout would be about the same with the FairTax as they are now, they say, but everyone would come out ahead because their net wage will now equal their gross wage.

If this were so, it's hard to see why the rebate is needed, since there seems to be only winners and no losers under the FairTax. In reality, for prices to fall by 22 percent, business costs would also have to fall by 22 percent, which means that all workers would have to take a 22 percent pay cut.

It's unlikely that workers would agree to this. It is far more likely that the FairTax will raise the price of everything by 30 percent. This has been the case in every country and every state with a sales tax. The idea that prices will fall is just a pipe dream.

The FairTax is unworkable. It is a fantasy to think otherwise.”

Will the FairTax really work, or is it just a pipe dream Huckabee is preaching? If Huckabee is elected president, maybe we will find out.

Labels: economy

Barack Obama is one of the leading Democratic candidates in the 2008 presidential election. He scored a decisive win in last week's Iowa caucus, receiving 38 percent of the votes on the Democratic side. How might things look for investors if Obama became our next president?

The biggest issue that most investors will have with Obama--and most Democratic candidates--is the fact he doesn’t support President Bush’s tax policies. As such, Obama would probably, at a minimum, let them expire. The most significant of these changes for investors will be how capital gains and dividend income are taxed. Bush’s cuts dropped the capital gains tax to 15 percent; when that expires in 2010, the tax rate will go back to 20 percent. Tax on dividend income, which was lowered to 15 percent under Bush's tax cuts well, would revert back to ordinary income status come 2010. For most investors, these tax increases would be painful; however, Obama is also proposing to use this new tax income to offer tax cuts to middle class families. It is possible that some investors will benefit from such tax cuts, although it is not clear how many would qualify.

An increased minimum wage, which Obama supports, is another economic policy that could impact investors. Not only does Obama want to increase the minimum wage, he wants to index it for inflation and ensure that it adjusts on an ongoing basis. This, of course, could be a problem for many businesses that hire minimum wage workers, especially small businesses. On the other hand, it would benefit workers, who would hopefully then spend that money elsewhere, helping to restore the balance.

Obama also supports further alternative energy reforms. According to his campaign website, he wants to see the U.S. produce at least 25 percent of its energy from renewable sources by 2025. This is great for the environment, alternative energy companies and probably farmers as well, but it is also possible that these forced reforms could cause energy prices to increase dramatically.

There are many that feel Obama has refreshing ideas on ways to improve the U.S. government, but it is likely that most investors would probably end up paying a little extra in order to support these ideas. Whether or not the changes are worth it remains to be seen, but if Obama is elected president, we will find out soon enough.

Labels: economy

Ron Paul has some of the most extreme views out of all the presidential candidates. Because of these views, Paul has gained many loyal followers; however, they also make him potentially vulnerable. Though he is not the frontrunner in the race to win the Republican nomination--he came in fifth in last week's Republican caucus in Iowa, garnering 10 percent of the vote--let's look at how things might turn out if Paul is able to win the Republican nomination and become president.

Paul is heavily in favor of free market ideas and he strongly opposes taxes. His campaign website touts the fact that he has never voted for tax increases during his term as a congressman in Texas. In fact, most of his proposed polices call for cuts in taxes. According to those who believe in Reaganomics, these tax cuts would likely spur the economy further and end up benefiting everyone. However, there are those who would argue that such policies would only lead to an increase in the deficit--the exact opposite of Paul’s monetary policy stance.

Paul’s monetary policy stance is that we as a nation need to halt our spiral of debt, hold the Fed accountable for their actions, curb inflation and save the value of our currency. While these are worthwhile goals for the country to aspire to, the pain this process could create during the transition period would not be looked upon fondly by the general public. As Americans, we tend to favor instant gratification.

Fixing America’s monetary problems will involve some serious belt tightening on the spending side for an extended amount of time, considering our deficit. In order to curb inflation, the Fed would need to raise interest rates and stop dumping money into the system. This would likely send the financial markets into a tailspin. Based on the negative uproar from investors when Ben Bernanke dropped interest rates by only 0.25 percent at the last Fed meeting, it is unlikely that raising rates would gain popular support.

Unfortunately, most Americans prefer the easy way out and would rather have us continue to lower rates and deflate our currency, thus allowing us to pay back our debt more cheaply, while artificially increasing the markets.

Ron Paul has built his campaign on the premise that we must stop paying our economic problems forward. Paul has impressive grass roots support which, regardless of whether he wins the nomination, could indicate that financial responsibility is becoming an important issue for an increasing number of Americans.

Labels: economy

Many investors have seen infomercials telling them that they can make a ton of money buying tax liens and tax deeds, but is that really true? The truth, as with most infomercials, is that the presenters leave out a big chunk of information--namely all the cons to the investment.

First off, investing in tax liens and tax deeds can get complicated. Each state is different, so before you even think about investing, make sure you understand how the process in your state works.

Secondly, tax liens and tax deeds can often require you to wait a long time before paying out. This investment is cash intensive up front, requiring you to purchase with all cash, but it can sometimes be years before you see any money.

Thirdly, these auctions can be competitive; thus, getting incredible deals like the ones they talk about on TV is far from the norm.

As with most investments, though, there is money to be made if you know what you are doing and are willing to put time into due diligence and research. By no stretch, though, is investing in tax liens and tax deeds as easy as some promoters make it seem. For more information on investing in tax liens and tax deeds, read through some of our relevant articles:

Investing in Tax Liens and Deeds
The Benefits of Tax Deeds in Texas
How Texas Tax Sales Work
Georgia Tax Deeds

Labels: investments

Oil topped $100 a barrel for the first time in history yesterday, but what does that mean for investors? In the world of stocks, it means harder times for those industries reliant upon oil, and even better times for those companies that tend to benefit with oil price increases, namely alternative energy companies. The longer the price of oil stays high, the more companies and governments will spend to find oil alternatives. It also means that energy sources which were not economically feasible before may get more attention (see our article about Rocky Mountain Oil for an example).

For alternative investors, it means that oil exporting countries stand to make even more money. Real estate in Alberta, Canada is already booming, but with oil prices like these, prices might just continue to push upwards. Investing in Edmonton Alberta real estate is something that investors may want to consider. However, the main drawback to this strategy right now is clearly the weakness of the U.S. dollar.

Investors might also want to consider upgrades to their investment properties not only to save money on utility bills, but also to increase the marketability of their properties. By achieving certain “green” classifications, investors can actually increase the value of their property and appeal to buyers and/or tenants who otherwise may not have been interested in the property. Some classifications investors can look to attain for their properties are issued by the Leadership in Environmental and Energy Design (LEED). “Green buildings generate 3.5 percent higher occupancy rates, 3 percent higher rental rates and have a 6.6 percent improved return on investment,” according to Ashley Katz, communications coordinator at the USGBC.

Labels: economy

Investing in platinum is something many people are beginning to consider. Platinum continues to set record highs and it seems unclear when, or if, the price will come down. Typically, when everyone is jumping on board with a particular investment, that is the time to jump ship and move on. However, platinum has some traits that might just support these new highs.

First off, platinum is scarce, so supply is severely limited. Secondly, it is used extensively in commercial products--most notably catalytic converters. For those who are not car savvy, catalytic converters help to limit the amount of pollution cars produce. Since the world is only heading towards tighter environmental regulation, it is unlikely that catalytic converters are going away any time soon. Lastly, platinum is used in jewelry, where it is quite the status symbol.

On the other side of the debate, one could strongly argue that the price of platinum is being artificially inflated because of the current hostile climate in the main mining areas. In addition, the argument could also be made that, as the price of platinum continues to increase, manufactures will look to platinum alternatives for catalytic converters. Palladium can also be used in converters, but it does not work quite as well as platinum. The price differential between the two metals could possibly lead to a switch in the future, though. Once a manufacturer has made the switch, it may not be easy to switch back later if the price of platinum becomes more reasonable, which could possibly lead to a major drop in platinum's price.

Platinum, as with most precious metals right now, is experiencing a bull market. There certainly is a case to be made for a continued bull market in platinum. On the other hand, it can also be argued that the metal is overvalued. Only time will tell, but if you are interested in learning more, read our article about Platinum Investment.

Labels: investments

Looking back and learning from successes--and, more importantly, mistakes--is something that every investor should do on a regular basis. If you haven’t already done so, now is the time to look back at last year. How did it go? What mistakes did you make? What are you going to do differently going forward? Where did things go well for you? How can you continue that success, and make it even better this year?

One lesson many investors learned this last year involved real estate: Despite what people say, real estate does not always increase in value. A logical investment resolution for the new year for many investors would be to pay more attention to cash flow and carefully evaluating exit strategies.

Another lesson investors learned in 2007 was that the U.S. dollar isn’t all its cracked up to be. It lost value against just about every other non dollar pegged currency out there. What should we do differently in 2008? Make sure our portfolio diversification includes currency diversification.

Now it’s your turn: What lessons did you learn in 2007?

We hope that 2007 was great for you, and that 2008 turns out even better. Either way, though, we wish you a happy New Year.

Labels: investments