prognostications of journalists + tax brakes?

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reposted from my other blog!

prognostications of journalists + tax brakes?

Does anyone think that it’s a good idea to follow the prognostications of journalists and their interpretations of what’s going on in the U.S. Economy? I sold my Dow stocks yesterday. I doubt we’ll see a new high point this year. This is a secular bear market (see a real economist: www.frontlinethoughts.com I think his grip on the market is excellent, and well argued.

Not the Rah-Rah-Rah stuff of most journalists such as this geezer. “This is tremendous news. It should kick the Dow to 13,000 during the next 12 months … if Bernanke doesn’t get too carried away … a 6% Fed funds rate WOULD throw the market into reverse. The more important barometer, the S&P index, now hovering at 1325, might make a new high during the next 12 months, too. (The S&P’s all-time high is 1527, reached in March, 2000.)”

Tax breaks might help in the short term to create a new high, but I doubt that they will make much difference in the longer term. You might call it the sign of a frothy top of the market. The ‘Big Players’ are getting tax breaks so they can push up the market, sell, pay less tax than the average Joe, and get out.

Then they will wait as smaller investors who read stuff like this report buy thinking the tax breaks are for THEM. Call me skeptical. Hah! The ‘Big Players’ bought because stocks were cheap, they have made their $$$. You don’t buy stocks just to get a tax break, do you? So I think we can call this the top of the market for a while!

Kenneth

namepros.com

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Assets vs. Liabilities

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A reprise of Rich Dad Poor Dad. There has been much discussion of the authenticity of RDPD’s and the background of the author. You can read about that at other blogs: Rich Dad, Poor Dad, Liar Dad, Thief.  However, one criticism of the book is below along with my own interpretation of RDPD’s theories.

Jeff writes – “You tried to demonstrate that a house is a liability because you pay property tax on it. That is irrelevant. You also have to pay a tax on your car (license fee). Does that make your car a liability? You pay taxes on your income. Does that mean that earned income is a liability?”

Actually, RDPD clearly defines an asset as something that puts money in your pocket and a liability as something that takes money out of your pocket. So, if you live in your house, you pay a mortgage, taxes, etc., it is effectively a liability because the money comes out of your salary to pay this stuff. In other words, the house is costing YOU money.

Whereas if you rent out a house to someone who pays rent, as long as the rental income covers ALL expenses (inc. taxes) plus a little, the house becomes an ASSET, ie. it is making money for you.

In truth, this is a simplification of the situation, as in a balance sheet, a house with a mortgage would be recorded twice, as an Asset and a Liability. Anyway, he makes an interesting point that our passion for buying houses to live in really isn’t such a great way to make wealth (except through capital gains) as it produces no regular benefit.

But I do think he makes an interesting point: somethings that we attribute as having asset value aren’t really assets at all. A Car is a quickly depreciating asset, and if you are paying car loans, some of the time, the net difference between the value of your car and your outstanding loan may turn it into a clear liability on your personal balance sheet, esp. in the first six months where you haven’t paid anything off, and the car has suffered the sharpest decline in its value.

“A house is an asset, period. ”

Another point that RDPD makes is that yes, the house is an asset, but the question is whose? If you buy a house and its price decreases, your mortgage (assuming you have one) shifts into negative equity position, ie. if you sold, you would still have to repay the amount of the loan beyond the sale price of the house. Could it be said to be an asset then?

And if you don’t believe, do you honestly think that housing prices will keep heading up as they have been doing so ‘Mmm’.

Does this clarify things a little?

What I admire is RDPD’s ability to string simple observations out to a whole book! That’s quite an achievement. I did enjoy playing the game, though it is pricy.

Kenneth