Source: Investment News Briefs Thursday, August 13, 2009

Unfortunately, it’s too late to reverse course for America. President Obama’s spending program is speeding up the collapse, not slowing it down. Right now, 21 cents out of every $1 paid over to the feds in income tax goes to paying off the interest on the national debt. Soon, it will be almost double that amount. It doesn’t take a genius to work out that this is unsustainable.

It doesn’t take a genius, either, to figure out that higher spending and higher debt mean higher taxes and a weaker dollar. Here are just some of the shocking forecasts James makes in this explosive report:

• No matter who you are, your taxes will go up. The government will continue to raise taxes in an attempt to keep its spending programs alive. The Obama administration is already planning to raise corporate taxes, already the second highest in the world. The costs of this will be passed on to you whenever you buy something.
• The US dollar is already being undermined as the world’s reserve currency as US debt holders led by China, Russia, India and Brazil move to protect themselves against dollar depreciation. Soon the dollar will lose its reserve currency status.
• The Social Security Ponzi scheme will collapse. The government will be unable to borrow the funds it needs to replace all the money it has already spent from the Social Security trust fund.
• Interest rates in the U.S. will rise to 6% plus as the government needs to raise the rate to stimulate foreign demand.
• Excessive government borrowing will push up mortgage rates and trigger another leg down in the housing market. Huge numbers of prime borrowers have already begun to default on their mortgages, triggering what is destined to become another wave of toxic asset writedowns at banks.
• The government will default on Social Security payments and Medicare and Medicaid obligations. It will not do so in an open way. Instead, it will fail to accurately index-link Social Security benefits to the cost of living… it will ration hospital stays and doctors visits… and it will deny expensive treatments and medication to state-insured patients (beginning with the elderly)
• The US will enter a long period of economic stagnation coupled with inflation.
• In years to come, the period between 2008 and 2018 will be known as America’s “lost decade.”
• Oil prices fall to $25 a barrel before breaking through their July 11 2008 high of $147.90 a barrel.
• Unemployment rates will rise to 20%.

James is a personal friend. And he’s one of the best thinkers about the global economy we know. Back in 1993, James sent out a similar warning to investors. His forecasts, 14 years before the subprime collapse was ever heard of, were scarily accurate…

· I see at millions unemployed or in make-work public assistance jobs.

· I see millions more homeowners “upside down” – with a mortgage bigger than the value of the home.

· Banking industry problems will prove too big for the government to paper over.

We strongly urge you to read James’s latest report. Of course, he could be wrong. The nearly $12 trillion national debt could just keep on growing to infinity with no serious repercussions for America’s economic standing in the world. The breakneck increase in the money supply since the outbreak of the economic crisis may not trigger a dangerous inflationary cycle. And President Obama might pull a white rabbit out of a top hat instead of increasing taxes to pay for his bloated budget. But we doubt it. As we like to say here at Notes, “Smart investors hope for the best, but they prepare for the worst.”

The Congressional Budget Office (CBO), the non-partisan federal agency responsible for providing economic data to Congress, knows the game is up, too. This from the CBO’s director’s blog:

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. […]

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

We believed in Santa as a kid. But we don’t believe that Team Obama is going to decrease spending “sharply” or otherwise. So “revenues” (aka taxes) will have to rise.  And to soften the blow, you can count on the administration reneging on its Social Security and Medicare obligations.

What Barack Obama and Joe Biden just don’t get is that too much taxation drove the American Revolution. And with the federal government now consuming about 28% of GDP and state and local governments another 15%, tax hikes are inevitable. In fact, they are already here. This from well-known fiscal conservative Pat Buchanan:

Obama plans to repeal the Bush tax cuts and take the income tax rate to near 40%. Combined state and local income tax rates can run to 10%. For the self-employed, payroll taxes add up to 15.2% on the first $106,800 for all wages of all workers. Medicare takes 2.9% of all wages above that. Then there are the state sales taxes that can run to 8%, property taxes, gas taxes, excise taxes and “sin taxes” on booze, cigarettes and, soon, hot dogs and soft drinks.

Comes now national health insurance from Nancy Pelosi’s House. A surtax that runs to 5.4% of all earnings of the top 1% of Americans, who already pay 40% of all federal income taxes, has been sent to the Senate. Included also is an 8% tax on the entire payroll of small businesses that fail to provide health insurance for employees.

One thing you can be sure of is that the world’s economic mandarins are slow to learn from the mistakes of history. This from the Daily Reckoning:

After the expansion comes the contraction. After the bubble comes the clean-

up. After the storm comes the sun.

But what is going on in China? What comes after the biggest export-led
bubble ever? Another bubble?

It doesn’t seem possible. China’s number one customer is broke. It has far too
many factories for those that are left. It should be closing up shop…and
waiting out the bad weather. And yet, China is growing. A combination of hot
money…and hot financial policy…is falling on everyone’s favorite green shoot
like Miracle-Gro. Its trade surplus and foreign direct investment – the usual
source of reserves of foreign currencies – are only half what they were last
year. But the speculators are coming in…and they are bringing cash. This has
boosted Chinese reserves past the $2 trillion mark…and provided the liquidity
for another round of bubble-like conditions. Trading volumes in Chinese
stocks, for example, are running three times last year’s.

The world’s investors and economists think they are looking at the Second
Coming. Chinese growth will power the world out of its slump.
Hallelujah…we’re saved! Things will be ‘back to normal,’ soon. Stocks rose
yesterday in anticipation – with the Dow up.

Daily Reckoning readers are warned: this too shall pop.

Source: Investment News Briefs Friday, July 10, 2009

Rather than subprime or lair loans being the culprits, Mr. Liebowitz illustrates that zero equity lead to the mortgage meltdown.

The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began — the third quarter of 2006 — during which more than 4.3 million homes went into foreclosure.)

And the policy implications from his research are huge.  As Obama and our favorite asshat, Barney Frank, feebly attempt to stop the bleeding, Mr. Liebowitz says the current policy approach is vastly misguided.  And why the Federal Housing Financing Agency’s new plan to allow Fannie and Freddie to accept refinancing with 125 loan-to-value ratios simply won’t cut the mustard.

Although the government is throwing money — almost $2 trillion and counting — at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted. While Federal Reserve actions have succeeded in reducing mortgage interest rates, low interest rates induce refinancings more than they do home purchases…

…Other government policies are likely to be even less effective in reducing foreclosures. The Obama administration’s “Making Homes Affordable” plan focuses on having the government help lower obligation ratios (the share of income devoted to house payments) down to 31% from levels somewhat above 38%. But my analysis finds that mortgages having such obligation ratios at closing did not later experience high foreclosure rates. This suggests that reducing these ratios is not likely to significantly improve the foreclosure problem.

So what’s the solution, you ask, other than abdicated Barney from his thrown?  It’s not stricter regulation on subprime lenders but rather stronger underwriting standards and higher down payments.

If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell.

Hopefully, our elected officials will heed Mr. Liebowitz’s warnings.  But we aren’t counting on it.

This will put the brakes on refinancing and any broader real estate recovery. As our friends at the Stansberry & Associates Investment Research noted on Thursday:

Yesterday [Wednesday], the rate of 30-year fixed-rate mortgages hit 5.79%, up from 5% two weeks ago, and lending activity has already fallen off a cliff. Advisory firm FTN Financial says the jump in rates will cut the number of borrowers with an incentive to refinance (generally rates 1.5% to 2% below your current rate constitutes “incentive”) in half. JPMorgan, the third-largest mortgage originator this year, said refinance activity is already “really down” since rates started rising, and noted 4.75% “seemed to be the switch” that spurred activity.The Mortgage Bankers Association (MBA) says refinancing activity is at its lowest level since last November.

Accounting for the two-week increase in mortgage rates, the average homebuyer will pay $100 more per month, about $36,000 over the 30-year life of the mortgage, on a $200,000 loan. Mortgage loan application volume is already down 7.2% from a week earlier.

Meanwhile, a tsunami of losses is gaining strength in the commercial real estate sector. We’ve been banging the drum about the coming catastrophe in commercial real estate. It’s only a matter of time before this becomes reality.

One big problem is the $179 billion in so-called partial-interest only loans that were written between 2005 and 2007 and packaged into bonds. These allowed owners to delay paying principal for the first several years of the loan. Now these principals are coming due. This from Bloomberg:

With soaring vacancies and falling rents, some cash-strapped borrowers will fail to cover the higher costs, said Andy Day, a commercial mortgage-backed securities analyst at Morgan Stanley in New York. About 87 percent of mortgages sold as securities in 2007 allowed owners to put off paying principal for several years or until maturity, compared with 48 percent in 2004, Morgan Stanley data show.

“The worst is yet to come,” MetLife Inc. Chief Investment Officer Steven Kandarian said yesterday in a Bloomberg Television interview. “Typically there’s a lag between when the economy softens and when the defaults actually occur.”

“Investors have already seen prices on top-rated senior debt drop below 70 cents on the dollar from 95 cents a year ago,” according to Aaron Bryson, a commercial mortgage-backed securities analyst at Barclays Capital in New York.

• The U.S. economic downturn may be slowing, but conditions remained weak in almost half of its regions, the Federal Reserve reported in its Beige Book business survey. “Contacts from several districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year,” the central bank said in the report. But the words “stable” or “stabilize” appeared in some form more than 60 times in yesterday’s (Wednesday’s) report,according toBloomberg. Many district banks reported that homebuilding “appeared to have stabilized at very low levels,” and some regions said “manufacturing employment levels may soon stabilize.” The Fed report reflects information collected through June 1 and summarized by staffers at the Cleveland Fed bank. It is published two weeks before the next Federal Open Market Committee meeting.

• Home Depot Inc. (NYSE: HD) yesterday (Wednesday) raised its 2009 profit forecast and said economic indicators signal the worst of the U.S. housing correction has passed. The company, which has been upgrading services and products in its stores to win back market share from rival Lowe’s Co.’s Inc (NYSE: LOW), said earnings could be flat this year, rather than falling as it previously forecast.  Admitting its sales were hit hard by the housing market slump and recession, the nation’s biggest home-improvement chain said it sees better margins this year through improved efficiencies,Reuters reported.

• Total home loan applications were driven down by spiking U.S. mortgage rates last week as demand for refinancing shriveled to the lowest level since November, the Mortgage Bankers Association said yesterday (Wednesday).  Borrowing costs have soared as bond yields have risen, even as the Federal Reserve has purchased hundreds of billions of dollars in bonds to keep rates low and stimulate the housing market, Reuters reported. The average 30-year fixed mortgage rate jumped 0.32 percentage points in the week ended June 5 to 5.57%. That’s nearly a full point, about 100 basis points, above the record low rate of 4.61% in March, the trade group said.

• Legislation introduced in the Senate yesterday would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers, Bloomberg reported. Senator Johnny Isakson (R-Georgia) is co-sponsoring a bill that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.  It would eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit and extend it to owner-occupied, multi-family units.  “The housing market continues to be a drag on the economy,” said John Castellani, president of the Washington-based Business Roundtable, which represents the interests of more than 100 large-company CEOs. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”

• Citigroup, Inc. (NYSE: C) yesterday (Wednesday) began a $58 billion recapitalization process that will make the U.S. government the company’s largest shareholder, MarketWatchreported. The Treasury will exchange up to $25 billion of the bank’s preferred securities for interim securities and warrants. The recapitalization would create roughly $58 billion in new common Citi shares.

• Oil prices have eclipsed $70 a barrel for the first time in seven months, and now analysts say escalating energy costs could inhibit global recovery, MarketWatchreported. “As if the U.S. consumer didn’t have enough to worry about,” said Peter Boockvar, equity strategist at Miller Tabak, referring to gas prices, which are rising to their highest levels since last fall. The U.S. government reported an unexpected decline in supplies last week. “If gasoline prices stay elevated, it will dramatically dilute the tax-cut portion of the Obama stimulus plan,” said Boockvar, adding that for every dollar the price of gasoline rises, “it’s an extra $140 billion more in consumer spending at the pump.”

• Euro Pacific Captial, Inc. President and Chief Global strategistPeter D. Schiff is considering a run for the U.S. Senate on the Republican ticket, Reuters reported, citing his Tuesday appearance on Comedy Central’s “The Daily Show.” He would challenge Connecticut Sen. Christopher Dodd. Supporters have launched schiff2010.com to encourage Schiff to run. Schiff is an occasional guest columnist for Money Morning.

Source: Investment News Briefs Thursday June 11, 2009

Last week, the February Housing Starts report handily beat estimates. While this may only be a temporary spurt, it was a positive surprise. The growth was primarily focused in the Northeastern states, but again, any increase in this dismal sector is a positive.

On Monday, I surmised that the Existing Home Sales report for February would beat estimates when announced, and sure enough it did. Foreclosures are driving down prices to the point that the market is now ‘affordable’ again to first-time buyers.

This past weekend I spoke with my father. He is a realtor in Ann Arbor, Michigan, and he mentioned something that is being overlooked, the first-time homebuyer tax credit. This year the rebate doesn’t have to be re-paid, and is worth up to $8,000. The company he works for feels this will be a significant driver of sales this year, as homes are finally affordable again to those priced out a few years ago, and the tax credit makes purchasing all the more appealing.

Something else I thought about too: with the moratorium on foreclosures and the Obama administration’s never-ending search for a solution, we may see the number of foreclosures slow significantly. This means less inventory, a slowing in the price declines, and eventually, an up-tick in prices.

Combine all of this with mortgage rates that are the lowest since WWII (albeit difficult to qualify for) and we may be starting to see the light at the end of the tunnel.

Source: Is The Porch Light On In The Housing Market?

• Warren Buffet’s Berkshire Hathaway Inc. (BRK.A, BRK.B) is investing 3 billion Swiss francs ($2.6 billion) in Swiss Reinsurance Co. (ADR: SWCEY ). Swiss Re, which is expecting a net loss, said it is also seeking another 2 billion francs on the capital markets, the Associated Press reported.

• Renowned global investor Jim Rogers said he’s keeping his money out of weakening Russia – saying there is “a good chance Russia will continue to disintegrate into more than one country” in a Bloomberg Television interview. “I am not optimistic about the continuous stability of Russia,” Rogers said.

• Ford Motor Co. (F) is talking with China’s Geely Auto Holdings Ltd. (PINK:GELYF) about unloading its unprofitable Volvo unit, several sources told Bloomberg. Ford has also contacted China’s Chery Automobile Co. and Chongqing Changan Automobile Co. about Volvo, the people said.

• LVMH Moet Hennessy Louis Vuitton SA (ADR:LVMUY) said net income dropped 4.2% to $1.5 billion (1.14 billion euros) in the six months ending in December, missing analysts’estimates for second-half profit, Bloomberg reported.  The world’s largest luxury-goods maker said higher handbag sales failed to offset slumping demand for Hennessey cognac and Moet champagne. The financial crisis has crimped demand for even the most expensive luxury goods, eroding sales in the $230 billion (175 billion-euro) luxury goods market.

• U.K. Prime Minister Gordon Brown signaled he won’t block bonuses to executives at Royal Bank of Scotland Group Plc (ADR: RBS) as lawmakers stepped up pressure to adopt a U.S.-style plan capping pay. While he told reporters he supported President Barack Obama “strongly” on the need to change the way bankers are rewarded, he twice refused to say he’d ban bonuses at RBS, Bloomberg reported.  The U.K. government is taking a 70% stake in RBS after the Edinburgh-based institution tapped part of the Treasury’s 50 billion-pound recapitalization fund.

• U.S. mortgage rates jumped to their highest levels since December this week, frustrating efforts to bring mortgage rates down to levels that will spur demand and help the hard-hit housing market begin to recover, Reuters reported. Interest rates on U.S. 30-year fixed-rate mortgages rose to 5.25% for the week ending February 5, up from the previous week’s 5.10%, according to a survey released Thursday by home funding company Freddie Mac (FRE).

• The National Retail Foundation said current economic stimulus legislation might not do enough to spur consumer spending and repeated its call for a series of temporary sales tax holidays. The retail trade group estimates that the proposed tax holidays would save consumers about $20 billion, or $175 per family, reported. The U.S. government would reimburse states for the lost revenue.  The proposal comes as the NRF forecasts a 2.5% drop in retail sales in the first half of 2009.

Source:  Global Investing News Briefs Friday, February 6th, 2009

If you’ve got money, credit and patience, today is your cheapest opportunity buy or refinance a house in at least 38 years.

The 30-year fixed-rate mortgage carries a rate of 5.01% this morning, the lowest rate of its kind since at least 1971, when Freddie Mac started keeping track. Since the peak of the credit crisis in late October, the 30-year mortgage has plunged almost 1½ percentage points, even past its 5.8% average this time last year.

Yet mortgage applications are only at a six-year high, according to the American Bankers Association. Rates will probably get even lower, consumers suspect, at least until there are some signs of home price stability here in I.O.U.S.A. We agree. The government has already set a goal of 4.5%, and with news like you’ll read below, the market won’t put up a fight.

Friday’s jobs report was even worse than it seemed. For starters, the retail sector shed 66,600 jobs in December — what should have been the best month of the year. Instead, retailers posted their worst December sales growth since 1969, and cut jobs for the 13th month in a row. If they couldn’t profit during Christmas… ummm… the first quarter of 2009 could be horrible.

Also, we note the world’s top two oil service companies — Schlumberger and Haliburton — have announced their first sizable job cuts of the credit crisis.

“That’s bad,” Byron King somberly explains.

“We already have an aging work force in the energy industry. Over 50% of the work force is eligible to retire within the next 10 years. So it’s imperative that the industry hire and train new people. But SLB and HAL are doing the opposite. If you get rid of the oldsters (they’re old & expensive), you lose the corporate knowledge that you need for training. If you lay off the ‘last hired’ (they’re young and don’t know squat), then you don’t have anyone left to train. Something’s gotta give here…

“It’s not like Schlumberger and Halliburton don’t know this. So would they be laying off people if their forecasts were sunny for the coming months or the next year or two? No. If things looked like they were picking up, they’d keep the people so they have enough work force to do the work. They’re laying off because they see a significant period of slow business. Which if you’re SLB or HAL, means less well drilling. And that’s bad for U.S. energy output. Fewer wells mean, eventually, less output, which means scarcity and higher prices.”

And which companies will profit from such an environment? Look no further than Byron’s Energy & Scarcity Investor.

Elsewhere in the oil patch, Russia’s gas dispute with the Ukraine is over for now. After almost a week without Russia’s precious fuel, the EU essentially forced Ukraine to make a deal. The exact terms of the agreement are yet to be revealed — they may never be — but we feel safe jumping to this conclusion: The whole ordeal began when Russia accused Ukraine of stealing gas and demanded higher prices, and we suspect the Ukraine yielded on at least one of these matters.

“Energy, too, is its own kind of capital,” Dan Denning notes. “Vladimir Putin is reminding everyone of that again. Russia supplies Europe with 25% of its natural gas, and 80% of that gets to Europe via Ukrainian pipelines. The Russians say the gas is being siphoned off illegally and then sold at a higher price. Maybe it is. Maybe it isn’t. Who knows?

“The real issue is control of the energy resource and the network for transporting it. One is no good without the other. Both are critical, and happened to be owned by competing interests. And if you’re at the tail end of a long energy logistics network (like, say, the UK), you’ve got troubles.”

Yet for all the troubles in this world, oil is markedly cheaper today. From around $50 two weeks ago, it’s back to just $38 a barrel this morning.

The Dow ended down 1.6% Friday after another dismal jobs report. For the week, most indexes fell 4-5%. The Nasdaq managed the “best” week of the index bunch, down 3.8%

By one metric, the future shouldn’t be TOO terrible for U.S. equities. Check out this chart, sent over by Rob Parenteau of The Richebacher Letter:

“The contraction of the total value of the equity market relative to GDP,” notes Rob, “has reversed nearly the entire premium introduced during the New Economy bubble years.

“If there is a reversion-to-the-mean process under way with respect to the equity market capitalization-to-GDP ratio, the most violent part of the move must be behind us. Given the severe recession developing before our eyes, however, we are in no rush to be buried beneath a landslide of earnings shortfalls, employment reductions and bankruptcy announcements.

“A fiscal push in early 2009 may help stabilize or improve the near-term earnings growth expectations held by professional equity investors, which are already much lower than those offered by brokerage house equity analysts. But the larger question remains: If financialization is not going to be the growth driver for the U.S. economy, what will take its place? If credit booms and busts are going to be restrained by a stripped-down financial system, especially one that is heavily regulated, what will drive earnings growth?”

In 2009, the savvy investor will “confront the reality that is, not the one that should have been,” opines Bill Gross in his monthly investment outlook.

Gross says the key to profits this year is to “shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond. Anticipate, then buy what they buy, only do it first: agency-backed mortgages, bank preferred stocks and senior bank debt; Aaa asset-backed securities such as credit card, student loan and auto receivables.

“These have been well-advertised PIMCO strategies over the past six months, but there are others in clear sight. An Obama administration will quickly be confronted by the need to provide those hundreds of billions of dollars to states and large municipalities. Their requests total nearly a trillion dollars and to think California or NYC would be allowed to fail is, well — unthinkable. Municipal bonds then, selling at historically high ratios relative to U.S. Treasuries, offer attractive price appreciation potential, or at the very least a defensiveness with high carry that a 2½% 10-year Treasury cannot…

“As an additional strategy, global bond investors should recognize the value in high-quality investment-grade corporate bonds in many markets. Yields of 6%-plus for intermediate maturities are still common and readily available.”

Dollar buyers seem unfazed by the U.S.’ precarious future. The dollar index rallied steadily through the weekend, from Friday’s low of 81.6 to 83 as we write. The media pundits tell us this morning that the dollar is stronger because Friday’s jobs report wasn’t as wretched as many feared.

So gold is being punished for the dollar’s latest strength. The spot price took a dive at the opening of the New York market today, falling to $830. That’s about $35 short of Friday’s high.

In our mailbox today: A staggering hodgepodge of some truly bad ideas.

“If there must be a refund and/or stimulus check given to the American people,” writes a reader, “then it shouldn’t be for some lousy $500. What is that going to accomplish? If you really want to get things up and running, then give every taxpaying household and those on permanent disability a check for $150,000. Most people would either pay down or pay off their mortgages and other loans, which then, in turn, would help the banks and lending institutions. The money would get back in the system where it needs to be. And if it doesn’t work? Well, at least we had fun trying to jump-start America. Kind of like a last call on the Titanic, eh?”

“Instead of giving that tax rebate,” writes another, “to be used only for American-made products, as your reader mentioned, due to the fact it doesn’t help out most retailers, give every taxpayer $600 in the form of a gift card just like sold at most retail stores these days. Let’s call it a ‘Stimulus Card.’

“The government would issue through a TARP recipient bank (they owe the taxpayers huge already). The card would have no cash value, so can be used only for purchases or deposits on products (food, restaurants, down payment on a car, toys, clothes, ANYTHING — but due to the nature of gift cards, they can’t be banked, so they wouldn’t be used to pay existing bills, just by the nature of the card (most people, including myself, used the last $600 government stimulus check to pay bills, not spend on new items).

“Put an expiration date of three-six months max on them… to be sure people spend them timely. 100% bang for the buck. To prevent mail theft, the card has to be activated from the phone number used on your tax return or by calling and giving information only Uncle Sam knows. If lost or stolen, just call and cancel and government can reissue a new one, just like stores do already. The systems are in place. Now that wasn’t so tough was it?

“Here’s a way,” suggests our last, “to come to grips realistically with the housing foreclosure scenario that is getting worse nationally: Let the federal government put every house that has a mortgage in line for a federal reserve mortgage. The present owner signs over his house to the FRM agency and is relieved of paying off the mortgage, but has the lifetime right to occupy the property as his principal residence, provided he pays all property taxes and maintenance costs to meet neighborhood standards. The homeowner has given up the right to sell or rent or gift or will the property; the FRMA owns the property. The original mortgage lender takes the loss for tax purposes.

“Of course, many tweaks to the above would need to be in order. But the ultimate justice would be that the mortgage lenders have to live up to the market risks, just as the homeowners unable to pay the mortgage loan will have to forego whatever they paid into the date of federal takeover. All such property becomes publicly owned, a national asset against the national debt. My guess is that this kind of bailout would be acceptable to the American public.”

The 5: $150,000 in cash, a $600 gift card and a “free” house. What could possibly go wrong?

Source: Mortgage Rates, Scary Jobs Details, Investing in 2009, Russian Gas Dispute, and More!

Beijing said the new stimulus package will benefit 7.5 million low-income urban families and 2.4 million households located in the more remote countryside.

China pumped $387.5 billion into real estate development over the first 11 months of the year, up 22.7% from the same period in 2007. However, residential sales fell 18.8% year-over-year, despite the investment.

Beijing is now trying to reignite the once red-hot real estate sector by implementing the following reforms:

• Owners who have owned their home for two or more years can now sell it without paying business taxes.
• Owners previously had to wait five years before selling their home tax-free.
• Owners who have owned their home for less than two years will now only be required pay taxes on their profit, not the total sales price. The tax rate of 5% remains the same.
• People with “smaller-than-average” apartments can now buy a second apartment under more favorable loan terms, with size limits being set on a region-by-region basis.

Financial institutions are also being encouraged by Beijing to make more funds available for mergers and acquisitions among property developers.

The new regulations are temporary, valid for only one year, and their effects aren’t likely to be seen until the second half of 2009.  Still, they are expected to work in concert with other measures to stabilize the real estate market and help maintain a high level of broad economic growth.

Previous measures earlier this year included cutting mortgage rates, taxes, and down payments for first-time home buyers.

“Recent measures taken by the nation to boost domestic consumption and revive economic growth have had a positive impact on the real estate market as transaction volumes have rebounded,” the State Council said in a statement. “We need to take more forceful measures to ensure investment in real estate and its healthy development.”Sales volumes increased in November from the previous month in cities including Beijing, Shanghai and Shenzhen.

The government also recently unveiled a $585 billion (4 trillion yuan) stimulus package that to boost investment in infrastructure projects, such as water and energy projects, airports, disaster relief, and $ new railroads over the next two years.

Source: China Unveils Plan to Bolster Real Estate, Ensure Growth