July 20, 2017, BUY YOUR PRINCIPAL RESIDENCE NOW!

July 20, 2017, BUY YOUR PRINCIPAL RESIDENCE NOW before it’s too late.  Home values will be going up soon and interest rates have been at historical lows.  Download this book from Amazon, “THE SIX MILLION DOLLAR RETIREE” for more information:

https://www.amazon.com/Six-Million-Dollar-Retiree-retirement-ebook/dp/B073XTL47J/ref=sr_1_4?s=digital-text&ie=UTF8&qid=1500564096&sr=1-4&keywords=didosphere

Brian Lund, freelance writer wrote this article on July 19, 2014, “The Worst Investment You Can Make: Buying a Home”.  http://www.dailyfinance.com/2014/07/19/the-worst-investment-you-can-make-buying-a-home/ .

In his article, Lund claims that you will end up saving $3 million if you rented a comparable house instead of owning one for $350,000. That is, if you invested the savings you will realize by renting instead of owning a comparable house. Lund adds, “Of course there are numerous tweaks you can make to this scenario -– for example, factoring in your home’s price appreciation or the tax benefits -– but no matter how you slice it, owning a home doesn’t come anywhere close to making financial sense.”

I can cite a few problems with his article:

  1. He uses a 30 year fixed rate at 4.5% interest. Today you can get a much lower rate for a 15 year fixed.
  2. He assumes that the rent for a comparable dwelling is 75% of the monthly principal and interest payment and has no provision for rent increases over a period of 30 years. This is ridiculous.
  3. He does not factor in the loss of interest mortgage deduction and real estate tax deduction that will generally put the homeowner into a lower tax bracket. Conversely, he does not consider the fact that there is capital gains tax on the interest the renter’s savings earns, so it can put the renter in a higher tax bracket increasing his marginal tax rates, perhaps from 15% to 25% to 28% to 33%.
  4. He assumes zero appreciation for your home. There is no way to predict if housing is going up or down but assuming zero appreciation over 30 years is unrealistic. According to the National Association of Realtors (NAR) existing homes appreciated 5.4% annually from 1968 to 2009 on the average. The nationwide average annual increase of existing homes from 1987 to 2009 according to the Case-Schiller Index was 3.4%. Also, at the time of writing, there is a $250,000 ($500,000 couple) capital gains exclusion on the profit realized on the sale of a principal residence. See IRS Publication 523, https://www.irs.gov/taxtopics/tc701.html
  5. Check on the above mentioned IRS website to see if you qualify for the exclusion. On the other hand, long term capital gains are currently taxed at a rate of 15%, see IRS Publication 551, https://www.irs.gov/taxtopics/tc409.html
  6. He neglects to consider that after 15 years when your house is paid off, you pretty much live rent free. Yes, you will still pay for real estate taxes, upkeep and higher insurance and utilities than a renter pays but the house is yours. Real estate taxes will continue to reduce your taxable income even after mortgage payments end if you itemize.
  7. Finally, he fails to consider that many people will not save the savings they will realize by being a renter. They will find a way to spend it.

In his article “Five Things You NEED to Know before Buying a House”, James Altucher declares, “I hate buying houses. I don’t “hate” many things. But I’ve lost millions of dollars buying houses. The stress is unbearable when you need to sell. And you have no money when you need it. It’s a prison. The white picket fence is the prison bars. The bank is the guards looking in. And the need to protect your family keeps you in a solitary confinement of guilt and anxiety and stress.”  Wow James you’re a real loser!  Who can lose millions of dollars in real estate?  The truth is James is really telling the truth.  He really had a string of bad luck that most people will never experience.  No one can lose millions of dollars in real estate without really trying.  Especially not if the subject real estate is your principal residence.  James Altucher indeed lost at least $2 million in real estate. He was unlucky enough to buy at the wrong place at the wrong time.  Real Estate burnt him that is why he hates real estate and won’t go near it anymore. As the story goes, Mr. Altucher bought a $1.8 million condo in the Tribeca section of Manhattan which is in the downtown area not far from Chinatown.  Then he put in $1 million in renovations. Shortly thereafter, the 9/11 attacks happened. He ended up selling his condo for $1 million.  So I guess he was not exaggerating after all.  Contrast his luck with that of a distant relative of mine who is in the advertising industry and claims NOT to know anything about real estate.  Let’s call her Jane.  She bought a pre-construction 2-bedroom condo at the Orion building near the Port Authority bus terminal in NYC.  Jane went into contract in 2006 for a pre-construction sale price of $900,000.  When the unit was ready for occupancy in late 2007, its value had already increased to $1.2 million. Moreover, the building had a long waiting list of buyers. For some reason not disclosed to me, 3 years later, Jane went into contract to buy another 2 bedroom unit at the just completed Rushmore building on Riverside Blvd in the upper West Side.  The pre-construction price of her unit was $1 million.  To make a long story short, she sold her Orion unit for $1.7 million and bought the Rushmore unit for $1 million. How is that for buying low and selling high to make a hefty profit?  And here’s the kicker. She got a 3% 15-year fixed mortgage loan and her 2 bedroom condo which is now worth at least $2 million. Call it fortuitous timing or the luck of the Irish, but certainly, real estate treated Jane much better than it did James.

I admit I’ve lost thousands (not millions) of dollars in rental properties which is why I will NOT recommend them, but rarely can you go wrong in owning your home.  Do the math and make sure to consider all the different factors and you will see that typically, owning your home is cheaper than renting a similar dwelling.  With regard to Altucher’s calling a house a prison, an apartment is also a prison only smaller. The landlord is the warden looking in.  You can be thrown out of jail within months if you do something the warden does not like.  On the other hand, maybe you can stay for 3 years in your house even if you stop paying the mortgage. It takes a long time for banks to go through the foreclosure and eviction process and on top of that there are many delaying tactics you can employ to delay foreclosure and eviction. Even after foreclosure the bank may have a hard time throwing you out on the street.

June 16, 2017 – Do you notice the Yield Curve narrowing?

Do you notice the Yield Curve narrowing?

Hi Folks,

As I’ve explained in my book, “Dow to Drop 80% Soon?” one of the best predictors of a recession is a negative yield curve.  The yield curve is inverted when long term yields are lower than short term yields. The yield curve inverted just prior to every U.S. recession in the past 50 years.

https://www.amazon.com/Dow-drop-80-soon-Protect-ebook/dp/B01KPQB0OS/ref=sr_1_3?s=digital-text&ie=UTF8&qid=1497621601&sr=1-3&keywords=didosphere

As of June 15, 2017, the yields between the 10-year and 30-year treasuries have been narrowing, i.e. 10-year is now 2.16% and 30-year is now only 2.78%.   See the government website below:

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

When the yield becomes negative or inverted, market sentiment suggests that the long-term outlook is poor and the yields offered by long-term fixed income will continue to fall. It also spells trouble for the financial sector as what started happening in late 2006.  The incentive for depositors to leave their money with the bank for longer periods of time, say 5 to 10 years is to earn a higher interest rate. If the interest rate of return is the same or less for 5 years compared to 1 year, this incentive is gone.   This means that profit margins fall for companies that borrow cash at short-term rates and lend at long-term rates, such as hedge funds, banks and mortgage companies.  Equity lines of credit and adjustable rate mortgages (ARMs) which are periodically adjusted usually go up since they are based on short-term interest rates.   Debtors who got stuck with these loans will need more money to pay for additional interest.  They will need to tighten their belts since they will have less money to spend on consumer goods that is why recessions follow an inverted yield curve.

Although we are at record high territories in the stock market, with the Dow trying to breach the new resistance level of 21,700, we live in dangerous times.  I see the Dow can quickly lose 3,000 in just a period of 10 to 20 days.  The reason for this stock market high is the pro-business stance of this administration even though not very much has come to fruition yet, i.e. the talk about curtailing burdensome regulations, lowering corporate, capital gains and repatriation taxes and increasing the defense and infrastructure budgets.  Investors are optimistic that Trump’s government technocrats will continue to develop policies that will increase our GDP which should keep recession farther away in the horizon.

 

 

Correction territory

May 17, 2017 –  We are in correction territory!  As I have written on my March 24, 2017 blog, stocks are poised to lose 10% to 30% in this correction mode.  It may take a while but a dysfunctional White House and the strange behavior of Pres. Trump will hasten the correction.  Here is the pattern I see:  The Dow may lose 300 pts. today, may gain 200 pts. tomorrow, may lose 300 pts. the day after, gain 200 pts. after that and so on.  The Dow may not drop by 2,000 points in one day but it’s coming.  As you have seen the behavior of the market, after the Dow initially breached resistance level of 21,000 it did not get back up there for a long period of time. Perhaps only briefly on certain days.  What should we do?  We have to watch the market carefully. The economy, business and Wall Street are so intricately related that cause and effect are oftentimes hard to define. When investors pull their money out of stocks, where will the money go?  When will investors go back to stocks?  Will the current gloom and doom news in politics and world events affect consumer spending?  The last question is really the most important one because an interruption in consumer spending = recession.  And guess what folks?  Stocks may drop 60% during the bear market that follows a recession.  There is no big problem if you stay in stocks and bonds during periods of corrections since the market should recover relatively quickly.  But it will be a total misery for you if you lose 60% of your retirement savings.  The stock market will crash, but when?   Read the eBook, DOW TO DROP 80% SOON?

https://www.amazon.com/Dow-drop-80-soon-investment-ebook/dp/B01KPQB0OS/ref=sr_1_7?s=digital-text&ie=UTF8&qid=1495038329&sr=1-7&keywords=didosphere

You will find out when to get out of equities before the next recession and when to get back into stocks before the start of the bull market that follows a recession.

 

01/10/2017 – When will the Trump bubble burst?

Dear Readers,

The Dow is really trying to surge through the resistance level of 20,000.  It may do it this week or there may be a 5-20% correction before breaking through that resistance level.  Many stock market experts have turned bearish pointing to the longevity of this bull market, overvalued stocks, Trump’s tweeting habits and what many political pundits consider as dangerous casual comments about serious global problems such as US, Russian relations and North Korea’s threat to continue to develop nuclear weapons capable of reaching parts of the USA.  Trump’s reply in a tweet, “it won’t happen”, is considered by many as proof of Trump’s lack of experience in dealing with global matters. Many investors are poised to bail out of stocks before inauguration day. Many stock market experts and some respected economists are even predicting a recession this year. Most investors will stay and weather the bumpy ride through the first 100 days of Trump’s presidency. There will be wild fluctuations but I predict there WILL NOT be a recession in 2017.  Be reminded that in general, stocks will lose 30% to 60% of their value during the bear market that follows a recession. When will it happen?  When should you get out of the stock market?  Read my exit strategy in, “DidoSphere LIVING RICH AND LOVING IT”.

Correction before Dow 20,000?

Correction before Dow 20,000?

Dear Readers,

Just like I said in my previous post, we may experience a 5-10% correction before breaking through the resistance level of Dow 20,000.  It has been 2 weeks now that the Dow has been hovering around the resistance level of Dow 20,000 but has not closed above that. We may be in dangerous waters although in the long run I still feel bullish about stocks. Read my book “Living Rich and Loving It”, to find out when you should really get out of stocks and put your money into a money market fund.  Merry Christmas, happy holidays and a prosperous New Year!!!

Don’t mix investing with politics

November 22, 2016

As of today’s closing, all the U.S. stock market major indices reached record highs.  The Dow closed above the resistance level of 19,000.  In the short run, the stock market will not have a “stairway to heaven” type of climb. I guarantee there will be dips at the slightest whiff of any bad news. Remember the first quarter of this year when the price of crude dipped below $35 per barrel? Moreover, there will be profit taking by the Gnomes of Wall Street.

The new resistance level we are looking for on the Dow is 19,500.  There may be a 10% correction before reaching this resistance level.  The climate has suddenly changed with the election of Trump.  The Gnomes of Wall Street, or perhaps we should call them the shepherds leading the flock suddenly decided that a Trump presidency is good for the economy.  Does anyone even remember that the Dow futures were 800 points down on election night as Trump started winning the battleground states one by one?  What was that all about?  Even though the market opened higher on the day after Election Day, my friend Jake got out of the market as soon as it opened at 9:30, Wednesday morning and put his entire portfolio into a money market fund. He voted for Hillary and was afraid that Trump’s victory would precipitate a global equity sell-off because he believed that Trump is an unpredictable, unstable and unqualified leader who’s the laughing stock of the whole world.  Even after the Dow gained 1,000 points, my friend Jake is still out of the stock market.  He told me last night he “cannot believe why the market keeps going up”. Don’t mix investing with politics, folks. Happy thanksgiving!!

Consumer spending keeping the stock market up

The 3rd quarter earnings report of most of the reporting companies in the S&P 500 beat analysts’ estimates.  This is due to a combination of higher sales due to more consumer spending and reduction of expenses because companies have become more efficient.  This combination of more revenue and less expenses is giving many companies a healthy cash flow that should find its way into capital investments and stock purchase.

What is fueling consumer spending?  It seems that Americans are resigned to a Hillary Clinton presidency and they think it won’t be so bad.  There also has not been any terrible news lately. In addition to the good earnings reports, oil is holding at about $50 per barrel and copper price has been hovering around $2 per pound. The doom sayers are wrong again about the big stock market crash that they predicted would happen before the U.S. presidential elections.  The BIG CRASH will happen but it will not be before November 8.  Folks, it may not even happen until 2018.  I see the road to the next recession as a slow bleed not a heart attack. We are due for a 10-20% correction since the last correction was in the middle of February this year.  We will discuss this on the next blog.  Stand by.

Elections & the Stock Market, What Me Worry?

If you have been following my articles, you know too well that I am a fiscal conservative.  I had been tough on President Obama from the time he took office but I must admit that I made a lot money since 2009.  Many of my readers have written me emails asking how the stock market will react if Hillary wins, if Trump wins.  First of all I agree with Larry Kudlow that in the short run Trump’s tax plan of reducing individual, corporate and capital gains taxes is good for the economy and for stocks as was proven by JFK, Reagan and Bill Clinton.  Reducing tax on foreign capital is also great for the economy because repatriation of foreign earnings is money that will find its way into the stock market.  Folks, remember my example on the basics of the law of supply and demand which is again repeated below:

Imagine you are 1 of the 5 remaining finalists on the CBS show SURVIVOR.  You have not eaten any solid food in 5 days.  Jeff Probst, the host brings out a slice of pizza and gives each person $100.  He asks the players to bid an amount for the slice of pizza and the highest bidder wins.  Since there is only one slice, it is safe to say that each player would scramble to bid $100 for that single slice even though that slice normally costs only $2 in any fast food court because once that slice of pizza is gone, it’s gone.  What if there are 6 or 7 slices?  What if there are 20 slices?  Then the bidders will not have to bid so much because there are more than enough slices to go around. Everyone can get a slice even with a low ball offer.

How does this relate to the stock market?  Well, if billions of dollars keep entering the U.S. economy, where will it go?  Investments, new business ventures, real estate and yes the stock market.  Very little of it will go into treasuries, due to low interest and some of it will go into bonds.  But a great amount of it will find its way into the stock market.  Having said that, the polls indicate Hillary will win.  Hillary’s plan to increase taxes on those earning over $250,000 and increase tax on corporations from 34% to perhaps 40-50% and reduce estate tax exemption from $5 Million to $3.5 Million will have a negative effect on the economy in the short run.  In the long run, economists have long argued whether or not more money in the hands of the private sector is really better than more government spending.  Will $100 million in the hands of the board of directors of Procter and Gamble really be better than giving it to welfare recipients?  Procter and Gamble would probably invest the money on new equipment, increase hiring, salaries and bonuses and the recipients will spend the money thereby putting more money into the economy.  Welfare recipients would probably spend the money on food and household necessities thereby putting more money into the economy.  Your thoughts.

 

 

 

Countdown to the next stock market crash

We did it once before in 2007, we can do it again!  The countdown has begun to the next bear market, a 10% to 20% correction.  The Dow reached an all-time high on August 15, 2016 of 18,723.  Since then it has not breached that resistance level.  A 10% correction from this resistance level would bring the Dow down to 16,851 and a correction of 20% would bring the Dow down to 14,978.  Friends, I do not think we will experience a correction that will breach the 52-week low of 15,451.  It may breach this support level if the interest rate curve inverts which portends a recession in which case the Dow may lose 40-60% of its value.

I just don’t see it yet folks, no matter what the gloom and doomers say.  The interest rate curve is not flattening, the economy is sluggish and the Feds will not soon raise interest rates.  But even if the Feds raise the interest rate by 100 basis points right now, it is still sustainable in this current economic climate and it will not cause a negative yield curve.

Standby folks.  Those who made a lot of money in 2009 just by following my posts, will do it again when the next recession hits.  Meanwhile, be happy to be earning 4-8% with your money invested in VTSAX and other S&P 500 Index funds just like many other investors.  When the bear market that follows a recession hits, that is when we will make our real money.

Follow this blog and we will keep monitoring economic indicators that may cause the breach of the resistance and support levels in the Dow, S&P and NASDAQ.

Happy fishing!!!!

 

Living Rich & Loving It

The book I wrote, "Living Rich & Loving It" which is available on Amazon Kindle strives to develop a vision that being rich is not only about achieving financial independence.  It’s about living a happy, healthy, simple, balanced and fulfilling life with minimal stress.  This is a cradle to grave guide to life book.  If you have goals, dreams and aspirations in life, you have a sense of direction but you still need a road map to take you from here to there. I hope this book will serve as that road map for you.

Learn how to:

  • Find a job you love. If you cannot wait to get up and get to work every morning, then you’ve found the job you love.  Otherwise, you need to read the chapter, “Find a Job You Love” and the chapter, “Increase Your Income with these Ideas”.
  • Create a budget so that you will always have a surplus at the end of each month.
  • Maximize contributions to your retirement account and accumulate more than a million dollars for retirement.
  • Determine if converting to a Roth IRA or Roth 401k is right for you. Ed Slott, the IRA guru says converting your IRA to a Roth IRA is tantamount to moving your account from “accounts that are forever taxed to accounts that are never taxed”. WRONG!  See Chapter, “Your Retirement Plan”.
  • Never lose money in the stock market by using “The KISS Principle” and “Auto-Pilot Strategy”.
  • Predict the next recession by watching the “yield curve”. It is so simple yet so effective.
  • Calculate the amount of life insurance you need. Insurance brokers will hate this chapter. The answer will surprise you.
  • Avoid Veblen Goods – the savings will amaze you.
  • Shop around for everything. If you are struggling to make ends meet, this chapter will show you why.  Learn how to save more and spend less.
  • Purchase your primary residence – Pros and cons of owning vs. renting. The analysis chart shows the clear winner which will surprise you.
  • Distinguish good debt from bad debt---when borrowing makes sense. Analysis table proves that some debts are good.
  • Never take unnecessary risks. Don’t do anything stupid. This chapter shows that stupidity is the great equalizer in life.  Doing any of the things on the list may change your life or worse may end your life in the blink of an eye.
  • Stay away from rental properties. This chapter tells you why it is not worth being an absentee landlord.
  • Handle emergencies without an emergency fund. The analysis chart shows why you should not have an emergency fund. The figures will astound you. This chapter also shows the reader where to get cash for emergencies once you get rid of your emergency fund.
  • Never ever listen to Suze Orman that 401k loans are taxed twice. 401k loans are not taxed twice. This chapter proves it.
  • Plan for college. How will you pay for your children’s college education? Read the many different ideas in this chapter on how to increase your children’s chances of getting offers from good colleges and universities.  See the 9 simple steps you can take in chapter, “Planning for College”.
  • Increase your income. Make more money in your spare time with these ideas. When you read the money-making ideas in this chapter, you will scratch your head and say, “why didn’t I think of that?”
  • Create a document storage and retrieval system. So simple yet so effective. It will free up a lot of your limited living space.
  • Implement a stress-free personal time management system. This system will organize your day and free up plenty of your time for use at your leisure.
  • Store and safeguard passwords – Simple trick will help you create and remember strong passwords.
  • Maximize your Social Security benefits – In light of the elimination of “File and Suspend” and “Restricted Application” strategies, the chart shows claiming strategies for 1) Single never married, 2) currently married, 3) married at least 10 years, divorced at least 2 years, currently single, 4) divorced, has remarried and currently married, 5) widow/widower, 6) surviving divorced spouse, married at least 10 years, currently single or remarried after the age of 60.
  • Find the best places for retirement – Some of these retirement communities are surprising. Some viable locations have ½ the cost of living of most U.S. cities.
  • Pay for nursing home and long-term care. The cost of nursing home and long term care can wipe out your entire estate.  Read this chapter for solutions.
  • Qualify for Medicaid benefits for LTC. You do not have to spend down your savings.  This chapter explains many different ways other retirees have been dealing with the “spend down” dilemma.
  • Establish estate planning. How to protect your estate from estate tax and inheritance tax.
  • Enrich Your Life by Exploring the World – Travel as soon as you can while you are still young. This chapter discusses why the money you spend traveling and exploring the world is money well spent.
  • Stay Healthy and Fit as You Age – There are a few minor behavior modification changes that you can put into practice that will keep you healthy throughout your retirement years.

Ready to live a Rich, Happy, Healthy, Simple and Balanced Life?

Buy this book here!