Tuesday, October 27, 2009

Interesting reading

The markets were substantially weaker than the headline data suggested today. The Dow was propped up by IBM all day which gained on stock buyback news, but the NASDAQ slipped over 1.2% and the S&P 500 has violated technical support. Again, I'm not a believer in technical analysis, but it is driving the vast majority of fast money in the market so you need to be aware of this situation.

People keep citing the expiration of the homebuyer tax credit as a reason for the sell-off over the past couple of days. This is silly, the homebuyer tax credit, much like the cash for clunkers merely pulled forward demand. We stole from 2010 to feed 2009. The extension of this credit is only going to do more of the same. However, if politicians hear this story enough times "markets fall because of housing credit expiration" they might fall for the gimmick of the NAR and NAHB.

According to this Bloomberg story the tax credit is getting closer to an extension and expansion.

"U.S. Senate leaders moved closer to an agreement replacing an expiring $8,000 tax credit for first- time homebuyers with a smaller one that would expand access to so-called step-up purchasers, two people familiar with the matter said.

The deal would reduce the size of the tax credit to 10 percent of the sale’s price, capped at $7,290, the people said. The credit would be available on home purchases that are under contract by April 30, and borrowers would have 60 days more to close the sale. The existing credit is due to end Nov. 30.

The new agreement, which is still being negotiated and may change, would grant the credit to borrowers who have lived in their current home for at least five years."

What happens in April 2010? Do you think the housing market will have healed itself? Of course not. The builders and realtors will be back asking for another extension and expansion.

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Mrs. Grindstone calls this the tax consultant full employment act.... IRS to tax cheats: Be afraid.

"The Internal Revenue Service detailed plans on Monday to weed out wealthy, international tax cheats with renewed urgency.

IRS Commissioner Douglas Shulman said the agency recently formed the Global High Wealth Industry task force to target investors with assets "in the neighborhood of $30 million."

Max Baucus, D-Mont., chairman of the Senate Finance Committee, Rep. Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee, and other members of Congress announced Foreign Account Tax Compliance Act, which would force foreign finance companies to reveal information about U.S. account holders."

As I've said, tax revenues are plummeting thanks to job losses and falling corporate profits (note that the homebuilders are asking for a bill to be passed that will speed their ability to ask for a refund of taxes paid over the past 5 years) so the government could go after John and Jane Doe for deducting too much for charitable contributions last year or they can go after the big fish.

The risk is that the big fish start to leave the US. If you already have a home in NYC, Geneva, Shanghai and Rio maybe you might just chose to reside elsewhere.

Cheers!

1 comment:

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