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Our September 15, 2006 Newsletter Edition
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IN THE NEWS:
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TATA TEA ANNOUNCES $677 MILLION US ACQUISITION
By Sameera Anand - August 25, 2006
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Tata Tea to acquire 30% of America's Energy Brands for $677 million in
the largest cross-border acquisition by an Indian private sector
company to date. India's Tata Tea has announced it is acquiring
30% of Energy Brands Inc, USA for $677 million from private equity
firm, TSG Consumer Partners. This is the largest cross-border
acquisition by an Indian private sector company to date. Energy
Brands was formed in 1996 and introduced its main brand, the Glaceau
brand of enhanced water beverages in 2000. Glaceau has 3 main product
lines - Vitamin water, Fruit water and Smart water (Glaceau). It was
launched in New York, where Energy Brands is based, but distribution
was quickly extended to LA, Miami, San Francisco and Chicago following
a good response. It has registered 200% CAGR since launch. Currently it
is available in 48 states. Earlier this year Pepsi had unsuccessfully
tried to acquire the Glaceau brand. Pepsi's Propel fitness water has an
estimated 35.7% market share making it the leader in the category while
Glaceau at number two has a market share estimated at 16.8%. However,
industry sources say Glaceau has been showing much higher growth.
.
http://www.financeasia.com/article.aspx? CIaNID=36263
.
EDITORS NOTES:
I bet you never heard of an Indian Company called Tata - have
you? Guess what? They own Tetley Tea brand found in most US
supermarkets. Now they beat out Pepsi to buy another American
Company to gain access into the US bottled water market. The
point of all this is to consider the changing economics in the world
today and how that contrasts to what we may believe in terms of ideas
or preconceived notions. Which is to ask: Who is the third
world country now, and who is the wealthy country with all the cash
buying up assets in the poorer nation? I think the question not
so foolish considering the current contemporary economic climate.
.
.
SOME CHARLOTTE PROPERTY TAXES GO UP 700%
By Brandon Gunnoe - 8/31/2006
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CHARLOTTE COUNTY: This week homeowners in Charlotte County got some
sobering news in the mail - their TRIM notices. Property taxes in the
area went way up. In fact some people saw increases as high as
700-percent. Earl Smith owns an empty lot next to his home. Last
year the property was assessed at $175,000. This year it's up to $1.4
million causing his property taxes to skyrocket. The taxes have
gone from a little over $2700 to a little over $14,000. This is just
unbelievable. To tax people at these crazy prices is just wrong. It's
going to drive people out of our market, said Smith. Real estate
agents say the increasing taxes are also trickling down to renters.
.
http://www.nbc-2.com/articles/
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TAXES, SENIORS - Friday, September 1, 2006
.
After reading Mr. Reber's comments on taxes, he definitely doesn't
understand how taxes affect seniors. If he lived next door to me, he
would be paying three times the amount he currently pays in property
tax for rural Leavenworth County. Senior citizens in Lawrence who own
an affordable home have found the appraised value of that home has
doubled or tripled. That is where the problem starts. It took two
incomes to buy our home for $114,000, and in 12 years, with the same
square footage, it now appraises at $190,000. This appraised value is
of no financial gain to seniors until one of two things happens: they
sell or die. By the end of 2006, our property taxes will have almost
tripled. Some seniors have the financial ability to pay more in
property taxes; others do not. It sickens me to think of an elderly
person selling their home for property taxes they couldn't afford to
pay.
.
http://www2.ljworld.com/news/2006/sep/01/taxes_seniors/
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AFTER 64 YEARS, A HOME IS LOST IN TAX BATTLE
By Dale Heberlig and Eric Harkreader, Sentinel Reporters, September 1, 2006
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Not long ago, 86-year-old Herman Willis would have laughed at the idea
that he would not spend the rest of his days on the remote homestead,
which he owned and had been his home for 64 years. But all that
has changed. The house in Southampton Township, Cumberland
County, has been seized and sold. Willis already has been thrown out
once and likely will soon be thrown out again. No one is happy, but the
law has taken its inevitable course. They're going to take it
all, Willis said of the 103-acre Ocker Farm, where he and his
54-year-old son, Leonard Willis, live -- for the moment. The
elder Willis seems uncertain why they have tried numerous times to
evict him and his son, including enlisting state troopers to charge the
two with criminal trespass. But the reality is clearly spelled out in a
stack of documents at various county offices. The farm was sold
in September 2003 to a Montgomery County man's corporation after a Tax
Upset Sale in which it was listed among properties with unpaid taxes.
Willis stopped paying property taxes in 2000, county officials
confirm. Mr. Willis never did anything to take care of the taxes.
(And) he never took any steps to address the situation after the sale,
says Carlisle attorney Wayne Shade, who represents Jacob A. Singer, 45,
of Ambler, the principal in the purchasing firm Bedrock
Investments. Although he wouldn't elaborate on why Singer
purchased the property, he says Singer has no plans yet for the tract.
A check of courthouse records found no development applications on file
for the property. Shade says he tried repeatedly to contact
Willis but received no response, so Shade visited him at the farm in
April. I told him at that time that we wanted to work with him,
and that we did not want to put him out of the property, Shade
says. But he left us with no choice. Two days after the
visit, Shade and Singer offered in writing to allow Willis to remain on
the property for the remainder of his life at a nominal rent.
Willis says he was asked to pay $600 a month, which, he says, is more
than my Social Security check. Shade was unavailable to confirm that
the rent request was for $600. Court documents trace the Willis
family's history on the farm to at least March 1938, when Robert M.
Willis purchased it for $5,000. At the 2003 tax sale, the property sold
for a little more than $114,000 even though its fair market value is
$436,920. It was a good deal... the best deal I've ever seen
here, says Melissa Mixell, director of the county's Tax Claim Bureau.
.
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CAMERON COUNTY - PROPERTY TAXES GOING UP
By Andrea Conklin, Aug 31, 2006
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In the next two weeks--the cost of your home could be going up.
Cameron County Commissioners are preparing to set the tax rate...and
that could mean higher property taxes. Dagobert Barrera brags...
He's got the nicest yard in the neighborhood. But as proud as he is of
his home... he thinks it's getting over-valued. I didn't find any
gold. I don't have any swimming pool. The land didn't expand or
anything, so why should they charge me more? His complaint is a
common one. This year, the average Cameron County homeowner saw
their home's value go up 10 thousand dollars. More than twice as much
as they did the year before. It's up to county commissioners to
decide how much money they'll collect for each $100 dollars your
property is worth.
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http://www.team4news.com/Global/
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BUDGET WILL TAKE BIGGER BITE IN PROPERTY TAXES - Jackson council introduces $37.9M spending plan for '06 - By Dave Benjamin, Aug. 31, 2006
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The news that Jackson residents had been waiting to hear for weeks was
delivered on Aug. 22 when Mayor Mark Seda and the Township Council
introduced a $37.9 million budget for 2006. The spending plan as
proposed carries an increase in the municipal tax rate of 19.6 cents,
from 59.9 to 79.5 cents per $100 of assessed valuation. The proposed
budget is an increase of $5.3 million over the 2005 budget that totaled
$32.6 million. In order to help pay for everything Jackson needs
to operate this year, officials will raise $22.4 million in local
taxes, an increase of $6.5 million from the $15.9 million that was
raised in local taxes a year ago. Property owners will feel the
bite of the budget in their municipal taxes this year. The owner of a
home assessed at $200,000 will see his municipal tax bill rise from
$1,198 to $1,590 (up $392). The owner of a home assessed at $400,000
will see his municipal tax bill rise from $2,396 to $3,180 (up $784).
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http://tritown.gmnews.com/news/2006/0831/Front_Page/012.html
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EDITORS NOTES:
Remember the political quote from the last newsletter: We need
the money. We've got to take what we can take, so said Councilwoman
Patty Suedkamp. She was talking about property tax increases, by
the way. What does the above article say again - Homeowners
in Charlotte Country got their TRIM notices? They sure got
trimmed, no doubt about it. From Missouri to Florida, from New
Jersey to California, the stories are the same. And for the
elderly 86 year old Mr. Willis with the US$600 a month Social Security
check, he is being thrown out of his home of 60 plus years and
why? Because he cannot afford the annual municipal property taxes
and what does Ms. Melissa Mixell, the director of the county's Tax
Claim Bureau say about the 86 year old mans property (estimated to be
worth a half million dollars) being sold off from underneath him for
roughly US$100,000? She says: It was a good deal - the best
deal I've ever seen here. Good deal for whom and how callous are
government bureaucrats, with an almost glib remark about the
situation? Granted, the elderly gentleman may have some fault for
not visiting the government offices and addressing the matter, but on
the same token, they could have handled this in another way. They
could have done what the government does in the Dominican Republic,
which is to simply collect the money when the property is sold later on
(instead of forcibly taking away his home). It makes you
wonder. If they are willing to allow an elderly man to be removed
from his home and put on the street, what are they willing to do to
you? George Washington said that: Government is not reason;
it is not eloquent; it is force. Like fire, it is a dangerous servant
and a fearful master. He also said: Arbitrary power is most
easily established on the ruins of liberty abused to
licentiousness. Judge Andrew Napolitano has recently said in one
of his current books titled Constitutional Chaos: Unless you sell to
it, are employed by it, or get a check from the welfare system,
Government is not your friend.
.
First it was eminent domain, and the excuse to forcibly take private
property away from honest law abiding citizens so they (local municipal
government) can turn it over to some commercial developer and increase
the property tax revenues accordingly. Now, due to the housing
bubble and inflated real estate prices, or better stated because
Century 21 says your home is now worth US$450,000 (considering you paid
US$180,000 for it a few years ago and all this is only imaginary paper
gains) your annual real estate taxes are being doubled, maybe even
tripled - and many elderly senior citizens especially could end up
losing their homes as a result. Want to know a secret?
Politicians just love inflation as it pertains to taxation. Know
why? Because many of the taxes you pay are based on transaction
or estimated value. Gasoline taxes, sales taxes and real estate
taxes are just some examples. Let us consider sales taxes.
Last year you bought an item that cost US$20 and the local sales tax is
a flat 6 percent (which means you paid $US1.20 in sales tax when you
made the purchase). Today, that same item sells for US$28, due to
inflation. So, now you pay US$1.68 in tax on the same thing (and
the government gets to collect even more tax revenue without lifting a
finger). The politicians can say: Don't become angry with
us, we did not raise the taxes - Blame the Arabs, Blame the Chinese,
maybe even blame the big corporations. However, I ask you ladies
and gentleman - who has direct control over the money supply (how much
paper money is printed or not - and much devaluation or inflation
results), fiscal policy (manipulation of interest rates), and
government spending? Is it some foreign boogey man or is it
someone right in your own backyard? Think about it.
.
Also, here is another bit of probably useless yet entertaining trivia
for you (and anyone that knows me, also knows I do not cater to
conspiracy theories, but I do find certain arguments and information
fascinating to say the least, as a study of human nature and
society). Do you know what the highest placed statue atop the US
Capital building in Washington, D.C. is? Can you guess? It is the
statue of Persephone, wife of Hades, which makes Persephone Queen of
the Underworld, Queen of Hell, Queen of Evil - if you prefer.
Hades is the enemy of all life, gods, and men - in the modern
vernacular, he represents evil, or the Devil if you prefer, and
Persephone, is his queen. The Persephone statue was sculpted in
Rome and placed on the Dome of the Capitol on December 2, 1863.
Accordingly to accepted legal definitions and practice, the act of
standing upon property is an aggressive legal demonstration - an
ultimate proof of ownership in adverse possession. What does all
this have to do with anything? Probably nothing, but could they
not find something better to act as a predominant symbol on top of the
building conducting daily political affairs of the nation? If for
nothing else, go ask your coworkers and neighbors the same question
(what statue sits high above all the politicians as they go about their
daily activities). I will bet they do not have a clue, so you can
shock them and amaze them at the same time with the correct
answer. I hear people arguing all the time about putting God back
into the schools and government, or those that argue for separation of
church and state, either way a focus on God, the enlightened and loving
higher power. One may certainly pose the question: Maybe it is
not God, but rather the OTHER guy (or gal in this case) we should be
worried about? Anyway, as I said, perhaps a worthless bit of
trivia, but certainly the act of taking away the home of an 86 year-old
man trying to survive on a measly US$600 per month, and being glib
about it in the bargain, is no act of heavenly grace no matter what
religious affiliation you have.
.
Many naïve people will say that individuals who open offshore bank
accounts in other countries, establish companies or foundations abroad,
or even seek a second citizenship (and passport) are nothing more than
social malcontents. Perhaps better said, selfish tax protestors
who supposedly want to shirk their so-called social
responsibility. In conjunction with that, many people think that
the fate befallen to 86 year old Mr. Willis is a mere anomaly,
something that could never happen to them. They think and believe
it, right up to the day their bank accounts are frozen or their homes
taken away. Right then, after that, they become
enlightened. What is that old boy scout motto - Be
Prepared?
.
.
FED CHIEF CHALLENGES A WORLD IN TRANSITION
By Edmund L. Andrews - The New York Times - August 25, 2006
.
The Federal Reserve chairman, Ben Bernanke, urged governments Friday to
help people cope with the disruptions of new competition arising from
globalization and to ensure that the benefits of economic integration
were sufficiently shared. In a speech at the Fed's elite annual
retreat here, Bernanke said the pace of globalization today is faster
and more sweeping than at any other time in history, a trend that is
forcing the Fed and other central banks to change the way they think
about how they manage the world economy. The emergence of China,
India and the former Communist-bloc countries implies that the greater
part of the earth's population is now engaged, at least potentially, in
the global economy, Bernanke said. There are no historical
antecedents for this development. Governments and policy makers,
he said, needed to acknowledge the downsides of the rapid pace of
globalization in terms of lost jobs, disrupted livelihoods and
wrenching change. The challenge for policy makers, he said, is to
ensure that the benefits of global economic integration are
sufficiently wide-shared - for example, by helping displaced workers
get the necessary training to take advantage of new opportunities -
that a consensus for welfare-enhancing change can be obtained.
Previous expansions of global activity, from the Roman Empire to the
opening of the Suez Canal and European colonialism, shared many common
themes with the trends of today, he said. These included the role of
new technologies in trade opportunities, and social and political
backlashes from groups whose lives were disrupted by new
competition. Though he did not mention the practical implications
for monetary policy and central banking, other experts gathered for the
retreat were scrutinizing major changes in global capital movements
between rich and poor countries. One of the most startling
changes, which has helped fuel American growth and keep interest rates
low, is that the United States and other wealthy industrialized
countries are attracting huge volumes of capital from poorer countries
in Asia, Latin America and the Middle East. Today, the world's
largest economy, that of the United States, runs a current account
deficit, financed to a substantial extent by capital exports from
emerging market nations, he said.
.
Bernanke has previously argued that the United States' large debt was
merely the flip side of a "global savings glut" caused by the lack of
investment opportunities in other countries. Other analysts take
a darker view. Kenneth Rogoff, an economist at Harvard University,
warned in a paper at the retreat that the United States was becoming
dependent on developing countries that may soon start using their
excess savings for themselves. Even if these favorable trends
continue, there are massive budget problems that most of the developed
world is going to face as its populations age, Rogoff cautioned. The
Fed and other central banks, he said, need to prepare for the risk of
an eventual slowing down or reversal of the so-called savings
glut. Bernanke steered clear of that issue, and he stayed away
from the battles at the top of the Fed's agenda - rising inflation,
soaring energy prices, a plunging housing market and worries about a
possible recession.
.
http://www.iht.com/articles/2006/08/25/business/fed.php
.
EDITORS NOTES:
So, Ben says that governments need to acknowledge the downsides of the
rapid pace of globalization in terms of lost jobs, disrupted
livelihoods and wrenching change. In other words, the Federal
Reserve Chairman now admits that Americans (not American companies mind
you, but rather average middle class citizens) are worse off under
NAFTA, CAFTA, SHAFTA and whatever other globalization efforts are under
way? Am I interpreting this correctly or am I reading too much
into it? Not only that, he claims there is a savings glut -
everywhere else that is but inside the US. He also claims foreign
money is or at least has been coming in to the US for lack of other
viable investment opportunities (such as financing the US government
deficits by buying US government debt). The man has got to be
kidding. On the one hand he admits the equity and the money is
elsewhere (or we can say the new wealthier countries really, and the
places where economies are growing and whereby citizens have NON
BORROWED cash to spend are the so-called former Third World emerging
markets) and that these foreigners want to invest in the US for lack of
better ideas. Maybe so, for now, but will the money stay there if
things turn down? Will foreigners want to continue propping up
the US deficits by loaning even money if the economy heads south?
Do you honestly believe foreigners want to invest in a country with a
devaluing currency, inflated real estate prices, which are now
deflating by the way but of course not in terms of tax calculations,
and interest rates that may not offer a decent return (to make up for
the inflation at least)? Because of the devaluation, America has
gone on sale, albeit not in all sectors. Making a strategic
business acquisition (at bargain prices) may make sense for some
foreign companies (see news story above regarding a company from
India). However, buying into a real estate market on the skids is
not on the table (and with deflating prices to boot). Continuing
to buy bonds paying 5 percent when the true or real inflation rate is
probably double that is not a sensible investment plan either.
What Ben has not told you is that they HAD to raise rates less the
foreigners yank their money out, sending the bond markets into a tail
spin. Also, Ben has not told you that they have been having some
trouble lately selling those US government bonds in the financial
markets as well. Want some predictions? Watch for those
Third World investors (the ones with all the cash these days, the ones
that have a savings glut) to start moving out of investments that could
be hurt by inflation (bonds) and into investments that at least act as
a hedge (the buying of US companies, especially commodity
producers). In other words, IF they are going to hold US Dollars,
they will rather do it some other way than simply via bonds, which are
investments that typically tend to loose ground in an inflationary
environment. Considering the US national savings rate has turned
negative, which in turn means American have no savings to lend, what
are they going to do should all those foreigners refuse to loan more
money? Funny that Ben should mention parallels to the Roman
Empire. Oddly enough, we have the Greco-Roman goddess of evil
sitting atop of the capital building. Is there a
connection? It all makes for some interesting cocktail party
conversations to say the least - Don't You Think?
.
.
GLOBALIZATION SAID NO GUARANTEE OF LOW INFLATION
By Ros Krasny - Aug 26, 2006
.
When it comes to central bankers and their success in controlling
inflation, past performance is no guarantee of future results, a top
economist said on Saturday. Kenneth Rogoff, an economist at
Harvard University, said central banks -- including the U.S. Federal
Reserve -- have looked good on controlling inflation partly because of
the rise of low-priced imports. Globalization has, by and large,
provided an extremely favorable backdrop for monetary policy over the
past 20 years, Rogoff said in a paper presented at the Kansas City
Federal Reserve's annual retreat in Jackson Hole, Wyoming. Cheap
imports from places such as China smooth the trade-off between growth
and inflation that central banks must juggle through monetary
policy. This flattening, in turn, makes commitments to low
inflation more credible and more durable, he said. But Rogoff, a
former chief economist with the International Monetary Fund, warned
that the deflationary forces created by globalization must not be taken
for granted -- and neither should the persistent inflow of capital from
developing countries into the United States. Addressing a more
current issue, Rogoff said central banks might choose to allow
temporarily higher inflation when their economies are hit by an
unfavorable shock -- such as the persistently near-record crude oil
prices. This approach is generally considered best practice by
most central banks, he said.
.
http://today.reuters.com/news/
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EDITORS NOTES:
Globalization has brought on deflation? That is what happened
during the Great Depression of the 1930s - deflation, real wages going
down, real estate prices going down, that kind of thing. The man
says: Central banks might choose to allow temporarily higher inflation
- This approach is generally considered best practice by most central
banks. Say it isn't so? Helicopter Ben has been lying to
us? I cannot believe it (actually, I can). Best practice is
to allow inflation rather than have the deflation. But wait one
minute - - that is not what he has told us before. What's going
on here? Methinks the politicians and public officials are speaking
with forked tongues.
.
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FED FACES A DILEMA: HOW MUCH DOES GLOBALIZATION EASE PRESSURE FOR RATE HIKERS? By Kevin G. Hall - McClatchy Newspapers
.
Conventional wisdom has long held that a hot economy and rising energy
prices spark inflation that must be quelled by interest-rate increases
to slow economic activity. But a growing number of thinkers now
believe that free trade and global competition are taming inflation by
limiting businesses' ability to pass along rising costs and that
interest rate hikes may not be as necessary as they were in the
past. If they're right, it means that the Federal Reserve's
aggressive attack on inflation, with 17 straight interest-rate hikes
between June `04 and June `06, may have been overkill, slowing the
economy, particularly the vital housing sector, more than was
necessary. Inflation is the measure of rising prices across the
economy. Think of it as the financial equivalent of termites eating
away the spending power of your paycheck. Inflation reached a
post-World War II high of 13.5 percent in 1980, before Federal Reserve
Chairman Paul Volcker used aggressive rate hikes to subdue it. The rate
increases sent the U.S. economy into its worst recession since the
1930s but ultimately wrung out inflation. Surging oil prices now
threaten to reignite inflation. The 30-month run-up in global oil
prices, from $29 a barrel in February 2004 to more than $70 a barrel
today, drove consumer-price inflation to 4.1 percent over the 12 months
ending in July. That's the highest it's been since 1991. The Fed
said the risk of inflation appeared to be shrinking. Economic growth
had slowed to a 2.5 percent annual rate from April to June, down from a
sizzling 5.6 percent rate from January through March. That alone
reduced inflationary pressure. The Fed also wanted to pause to gauge
the effects of the rate hikes because they affect the economy only
after a lag. But there's more to the story.
.
Fed Vice Chairman Donald Kohn told bankers in June that the dynamics of
inflation are changing due to the increasing integration of U.S.
business in the global economy, and the rise of China and India.
Kohn acknowledged that traditional inflation measures may be dated and
that free trade and global competition may be doing some of the work
previously done by interest rate hikes. But just how much of a brake
globalization is placing on U.S. inflation is impossible to
measure. Unfortunately, huge gaps and puzzles remain in our
analysis and empirical testing related to these effects, Kohn
said. The Fed understands that it doesn't understand, said Ed
Yardeni, chief strategist for Oak Associates, an investment fund
manager in Akron, Ohio in the late 1970s, when oil producers withheld
product, oil prices soared and sent inflationary waves across the
economy. Businesses raced to pass along their rising prices and wages
rose to keep pace. The result was an inflationary wage-price spiral
upward. Today, there's no such wage-price spiral, despite the
run-up in oil prices. Businesses increasingly face global competitors,
no longer just local or national ones. That limits their ability to
raise prices even as their costs go up. And that, in turn, keeps
pressure on wage growth. Over the last 20 years, workers have
felt tremendous pressure from globalization, felt job insecurity, seen
much slower increases in real wages than the general growth of the
economy, said Kenneth Rogoff, a Harvard University economist who was
among the first to recognize the changing dynamics of global
inflation. I don't particularly view that as a wonderful
development, but it's one of the reasons it's been easier ... to
control inflation.
.
http://www.mercurynews.com/mld/mercurynews/news/politics/15333911.htm
.
EDITORS NOTES:
Ed Yardeni, chief strategist for Oak Associates, says: The Fed
understands that it doesn't understand. Come again? The Fed
admits they do not know what they are doing? Mr. Kenneth Rogoff,
a Harvard University economist says: Over the last 20 years,
workers have felt tremendous pressure from globalization, felt job
insecurity, seen much slower increases in real wages than the general
growth of the economy. You think? Talk to any average
middle class citizen, they could have told you that. They, the
middle class, already know it - they live it and no university degree
was required to figure it out. Now, twenty years later, they
finally figure out you have been screwed and that is why the middle
class is disappearing, or struggling today. Thanks for letting us
know. Oh, and thanks for selling us on and pushing through
globalization, which now has brought us a Depression - sorry - not a
politically correct term. I should have said - deflationary
economic anomaly. No matter what you call it - it still hurts
just the same (just as a garbage man is still someone that collects
refuse, even if it sounds nicer to call him a sanitation engineer).
.
.
RECESSION WILL BE NASTY AND DEEP, ECONOMIST SAYS:
Housing is in free fall, pulling the economy down with it, Roubini argues
By Rex Nutting, MarketWatch, August 23, 2006
.
WASHINGTON (MarketWatch) -- The United States is headed for a recession
that will be much nastier, deeper and more protracted than the 2001
recession, says Nouriel Roubini, president of Roubini Global
Economics. Writing on his blog Wednesday, Roubini repeated his
call that the U.S. would be in recession in 2007, arguing that the
collapse of housing would bring down the rest of the economy.
This is the biggest housing slump in the last four or five decades:
every housing indicator is in free fall, including now housing prices,
Roubini said. The decline in investment in the housing sector will
exceed the drop in investment when the Nasdaq collapsed in 2000 and
2001, he said. And the impact of the bursting of the bubble will
affect every household in America, not just the few people who owned
significant shares in technology companies during the dot-com boom, he
said. Prices are falling even in the Midwest, which never experienced a
bubble, a scary signal of how much pain the drop in household wealth
could cause. Housing has accounted, directly and indirectly, for
about 30% of employment growth during this expansion, including
employment in retail and in manufacturing producing consumer goods, he
said. In the past year, consumers spent about $200 billion of the
money they pulled out of their home equity, he estimated. Already,
sales of consumer durables such as cars and furniture have
weakened. As the housing sector slumps, the job and income and
wage losses in housing will percolate throughout the economy, Roubini
said. Consumers also face high energy prices, higher
interest rates, stagnant wages, negative savings and high debt levels,
he noted. This is the tipping point for the U.S. consumer and the
effects will be ugly, he said. Expect the great recession of 2007
to be much nastier, deeper and more protracted than the 2001 recession.
.
http://www.marketwatch.com/News/
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EDITORS NOTES:
The definition of a recession is when your neighbor losses his job (and
maybe his house because he cannot afford to pay the taxes). A
depression of course is when you loose yours. What do you
do? What do you want to do? That perhaps is the
question. And by the way, despite a possible worsening economy,
your taxes are going up (just in case you were not paying
attention). Well, for starters get out of debt and reduce your
living expenses. How do you do that? Relocate to a lower
cost (and lower tax) environment. That could mean moving to another
state, or it could mean moving to another country completely. I
do find it interesting to note, that by simply relocating to another
country, such as the Dominican Republic, the money saved in annual
property taxes alone could very well pay for many monthly living
expenses (monthly electricity bill, telephone bill, etc). Many of
our clients have sold their US based homes for US$400,000 bought a very
equivalent property in the Dominican Republic for US$150,000 - put the
difference in the bank, AND cut their annual real estate tax bill by
thousands of dollars per year. Ben Franklin used to say that a
penny saved is a penny earned. Good old Ben Franklin knew what he
was talking about.
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READERS WRITE IN:
.
Dear Sir: I am a Brit who became a US citizen about 10 years ago. I
have earned very well and paid my taxes, etc. However, I have an
opportunity to work in the Bahamas. For business reasons it will
benefit me to become a Bahamian citizen. Can you tell me, if I apply to
renounce my US citizenship, what is my situation for continuing to keep
my home in the US and visit it whenever I want?
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EDITORS REPLY:
Well, from my own experience, expect quite a bit of bitterness and
slanted facial expressions when you tell them you want to renounce, but
by the way, you want to keep your US real estate plus come and go as
you please. I do not know what specific benefits you gain by
becoming a Bahamian citizen, especially assuming you still have British
Citizenship, but you know your own situation better than I do. I
will say, if you think you are going to get any tax advantages, think
again. By continuing to own US real estate, you are still going
to be assessed taxation based on the fact you have a physical residence
there. Not all nations have this mindset, but it is certainly a
common theme in many of the high tax welfare
countries.
.
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ANOTHER READER WRITES:
.
From a Radio Broadcast in Denmark - Sent In By a Reader:
.
In 2006 the gap between rich and poor in USA is on the same level as
during the great depression in the 1930s. Even though USA is the
richest country in the world, 12.5 % of the American population or 40
million people are on, or below the limit of poverty, 25 Million
depends upon Food Stamps and 40 Million Americans do not have medical
insurance! Many millions of these people are not as expected
unemployed, but have full time jobs and still live on or below the
limit of poverty. The official limit of poverty is set to USD
17,463 a year, while a full time minimum wage is only USD 10,000!
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EDITORS REPLY:
Thank you for the information (and I am sorry to admit, all 100 percent
accurate). Interesting that they point out the gap between
wealthy and shall we say, not wealthy, is at the same levels as during
the so-called great economic depression of the 1930s. Why is
there so much talk and reference to the economics of the 1930s all of a
sudden? Could it be that we are we in a depression now, or are
heading for one very quickly, and they are remaining mum on the
subject, or in the least talking about it without being direct?
Could it be that the only difference between then and now is that the
Fed is running the printing presses?
.
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ANOTHER READER WRITES:
.
Hello John. I thank you for your informative newsletter. I
always read it and find it outstanding as a source of unbiased
information. I do have a question on Dominican Republic
commercial paper investing. In the commercial paper investment
field how do you find these opportunities? Are the companies
marketing these investments directly or thru another company? How
does this work if I was to invest? What type of interest rates
gain will I get? Are these investment secured enough, although
there is risk in all investment ventures, how tolerable is the
risk? Is this market centralized as in a specialized banker or
broker to mediate this process? Any information would be
appreciated.
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EDITORS REPLY:
Thank you for your comments. I do not know how unbiased I am (in
fact, I am probably more opinionated than I should be), but the truth
is, in the least, I try to offer information not found in too many
other places (for what it is worth). In any event, to answer your
questions about commercial paper, it is true that commercial paper will
usually offer higher rates of return in terms of interest, than bank
time deposits. Of course the question is - what is commercial
paper? It is very simply a very short-term corporate bond (30
days, 90 days, 6 months - anything less than a one year
maturity). That being the case, such investments are either
publicly traded and or available from local securities brokerage
firms. When investing in such things, you the investor must make
a decision about risk. Which is to say, do you feel more
comfortable loaning money to a large blue chip company that has been
around for fifty years - or a younger, smaller company that may or may
not have cash flow issues? You have a very large commercial paper
market in the US, but most individual investors are not aware of it
simply because such investments are issued in blocks of US$500
Thousand, One Million and so on. So, the buyers of commercial
paper in the US (which are basically 90 day corporate bonds issued by
companies such as Pepsi, Ford, General Electric, etc. and so on) tend
to be money market funds and insurance companies. In the
Dominican Republic, the minimum amounts are lower, which is to say
US$10,000 for USD commercial paper and RD$100,000 for Pesos, although
some issuers have a higher minimum when offering higher rates as well
(perhaps 30K or 50K in USD and perhaps RD$500,000 Pesos or whatever if
in Pesos). Normally, local brokers handle such investments and
the interesting thing is that the investor pays no commission (in the
US, the company pays a brokerage firm an investment banking fee, and
then the broker gets another commission when they sell the bonds to
individual investors - this is not happening in the DR). Also,
interest is usually paid monthly and can be direct deposited to your
local bank account as well. We do assist our clients with both
banking and commercial paper in terms of helping them set up a bank
account or a brokerage relationship with one of the larger local
brokerage firms as well. In addition, investments into commercial
paper can offer a smart way to both have diversity in terms of your
overall invested funds, and have the opportunities for higher rates as
well. However, just as with everything else, do not put all your
eggs in one basket and consider any such investment as one of many
options for your personal savings.
.
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ANOTHER READER WRITES:
.
Hi John: I would just like to point out a minor factual error in your
latest Ascot Advisory News. After discussing the new
requirement for US citizens receiving Medicaid to prove citizenship,
you wrote: First and foremost, in terms of lashing out at new
immigrants or the new idea to prove citizenship in order to be eligible
for welfare benefits, the issue is obvious. The welfare state, as
we know it, is going broke, and now there is a new social outcry -
social welfare benefits for CITIZENS ONLY.
.
(The Reader Says) In fact, the new Medicaid requirements do not affect
non-citizens with satisfactory immigration status, which presumably
means people who are legally present in the US. They still get
Medicaid. See:
.
http://www.health.state.ny.us/health_care/medicaid/publications/docs/gis/06ma015.pdf
.
Previously, somebody who looked/sounded American just had to state he
was American, and probably show a driving license and Social Security
card. Now, somebody who claims to be American has to prove it.
That's the only change. Non-Americans always had to prove they
were present legally, as well as having ID.
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EDITORS REPLY:
Thank you for your letter and your comments. Well, you are
correct in that in the past such persons needed to demonstrate some
form of identification supposedly offering proof of residency in that
state, and presumably this was de-facto proof of citizenship as well
(at least that was the interpretation of what it meant to have a
driving license in the past). Since we know it has been quite
easy for illegal immigrants to get a driving license in many US states,
the new issue is a question of raising the bar, so to speak, in terms
of proof. So, you are not entirely incorrect but this new change
is exactly the point. Which is to say, to demonstrate the change
in attitudes and to offer some analysis. I still hold to my
statement in that I do think many Americans feel, correctly or
incorrectly, that they are competing for an ever smaller financial pie
of government social welfare benefits (competing with those who are
not, as they say, true citizens for government disbursements) but they
really do not know why (why the pie is smaller, why there is not enough
money). The same holds true in Canada, although what I pointed
out were issues involving government expenditures to rescue dual
citizens (who are I suppose, not true or 100 percent citizens in the
eyes of some). The final point is what? When the social
benefits dry up, when the school districts do not have enough funds and
when the social security pension benefits are cut - who is to
blame? Many would like to blame the fact that there are maybe up
to 20 Million illegal immigrants running around, many who might be
partaking in social services of one kind or another, and thus bleeding
the welfare state bank account more than it would be otherwise.
To be sure, such persons do put some additional economic strain, but is
THIS the REAL reason that the school districts do not have enough funds
or the refusal for the US Congress to fund the highly touted
prescription drug program (which the mainstream media forget to report
on by the way)? Or is it the case, the government social welfare
system is BROKE or maybe nothing more than a Ponzi scheme that has run
its course (and this the real or true reason for non-funding of the
prescription drug program, not to mention all the rest), and illegal
immigrants or so-called non-citizens just an easy scapegoat? I
tend to think that US politicians are playing a clever game of
diverting attention. God help them should the vast majority of
middle class Americans ever figure it out.
.
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ANOTHER READER WRITES:
.
I'm finally living outside the US full time. As good as the US was to
me, it's good to be in a country where you don't have to be looking
over your shoulder anytime that you want to make a cash transaction. As
the quote goes, Get out of the country with your money before the
country gets the money out of you.
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EDITORS REPLY: You are preaching to the choir. Can I get an Amen?
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