The View From The Golden Dome

Views on the week's events plus some of mine.

Les Berman Weekly 6-20. Slippery Greece, Airlines Flushed, Taxing Questions


Today it was reported that some kids who had a cold drink stand on the road to the entrance to the golf US Open (Note: the real US Open begins 8/29 at Flushing Meadow NY) were cited by the County Police that comes with a $500 fine. They didn’t have a permit. Kids. Cold drinks. Gimme a break ! Oh, I’m sure that someone will say that the law is the law. My son used to pull a cooler loaded with cold sodas and sell them at local soccer games. He took the sodas to the parents. When the soccer league saw he was making money (I think he was 10 or 11 at the time), the parents set up their own booth and wouldn’t let him on the field.

Good day everyone.

And also in the news was the death of  Maynard Hill. You have heard of Charles Lindbergh. Hill also flew across the Atlantic – well, his model airplane did. It flew 1882 miles, non-stop, from Newfoundland (yes, that is in Canada) to the west coast of Ireland in 2003, and it too just under 39 hours. Fuel consumption: less than 1 gallon. And Maynard Hill, the builder of the model plane was retired, legally blind, and mostly deaf. No, he was not a passenger on the aircraft but it was radio controlled. His work was the basis for today’s drones that help the US military.

And the US government, in more aviation news, has ruled that airlines can not keep domestic passengers jammed into an aircraft on the tarmac for more than three hours. And international flights, more than four hours. Woo hoo ! That’s great news for the claustrophobic group. Oh yeah – and after two the airlines have to provide medical care, food, water, and get this, working toilets. Wow – I feel flushed just talking about this !!

And those little airline fees that have been added (and now have to be disclosed up front) gave the airlines an extra $57 Billion in 2010. Yes but the airfare might be lower 🙂

IN the financial world,  an industry observer wrote, “The nation’s banks did 29,000 HAMP loans, while we have over 4.2 million in foreclosure. That’s about 1/2 of 1 percent or 6% annualized. Since the Fed seems to finally admit it going to be a long drawn-out recovery, as opposed to prior Bernanke statements that it was contained. If servicers keep taking 800 days to foreclose, plus the several-year Freddie or Fannie restriction on new loans or buying, we are going to lose over 4 million buyers for 6-7 more years alone.” What will that do to home sales????

And that slippery slope called Greece. Why is it affecting what you and I are doing here in the U.S. of A.? Well, when people realize that we are in a world economy, and that the world consists of more than the lower 48 (wait – I thought that we had 50 states, or is it 51?),  they might realize that US big banks hold more than $40 BILLION of Greek debt, and there are billions more held by bigger banks all over the world. So when the bigger banks get hit, then it means that banks won’t lend money to each other, and when banks don’t lend money to each other, the big banks have to have more reserves (just in case the auditors knock on their doors) and that means they won’t lend money (not that they are now), and when they won’t lend money, we will be in phase 3 of this depression. And then will come Portugal, Spain, and Italy. Yes my firends, I’m seeing that  some people are saying that the Euro will no longer exist in five years. Yikes – can you imagine what fun the markets will have trying to revalue each countries currency. And then there will be the run on the US Dollar. So watch carefully – and make sure you are long on dollars !

Mortgage markets – rates continue to be really low. They will be going up – and no one knows when. Qualifying requirements are normal – the way they were before the feeding frenzy that began in 02 and 03. There is a stated hybrid program available if you’re short on tax returns and long on liquid assets, and a myriad of standard loans, with growing flexibility. So here it is my friends – it’s a great time to buy. I will get you approved so you can go shopping, or if you’re in a home already, let’s look at the term of your loan to see if you can pay off your house sooner. Call me at 818.305.4695 or send an email

Investment properties – I can now finance 10 homes for an individual,  and if you’re doing fix n flips, I can now provide financing on next day sales – no more waiting 90 days to sell.

And on a good note, – after the vandals trashed downtown Vancouver Wednesday nite, what the new reports did not tell you was that thousands of people voluntarily showed up the next morning, starting at 5 AM, to clean up the streets and clean off the graffiti. Why was that not reported – because good news does not sell newspapers !

Lots of great content today. Read below for information about  Taxing Questions for the Small Business Owner, and, of course, Lou Barnes.

Have a great week – and call me about your residential loan needs (I also work with private lenders on commercial property).

Les

Berman’s Factoids of the Week

How would you know a cherophobe if you met one? They’d be “afraid of having fun”.

How can you tell if an Amish man is married? He has a beard !

First California Mortgage
Provided to you Exclusively
By
Les Berman CMC
Les Berman CMC
Senior Mortgage Advisor
NMLS ID # 227675
First California Mortgage
Office: 310-271-1588
Cell: 818-305-4695
Fax: 877-707-8823
E-Mail: lberman@firstcal.net 
Website: www.firstcal.net/berman
Les Berman CMC
For the week of Jun 20, 2011 — Vol. 9, Issue 25
In This Issue… 
Last Week in Review: Events in Greece and inflation news made for a volatile week, but how did home loan rates fare?Forecast for the Week: A full week of reports is ahead, which will give us news on housing and the state of the economy. Plus, the Fed meets Tuesday and Wednesday.View: Planning to travel this summer? Check out these tips from Kiplinger.com on ways to save.
Last Week in Review 
“Greece is the word.” Last week, both renewed problems in Greece and inflation news dominated the headlines and made for some volatile trading. What happened, and what was the impact on home loan rates? Read on for details.In Greece, the riots continued as people protested further pay cuts and tax increases to help close their unsustainable budget deficit. Then on Friday, Greece announced some reshuffling within their Parliament and it also appears as though the country will receive some sort of bailout to meet near-term financing needs. With 20,000+ people rioting in the streets, the government had to do something to calm the markets, but the Greece story is far from over.Shaking up the Parliament won’t fix the long-term debt problems, nor is it likely that a short-term bailout, if it happens, will help Greece avoid some sort of debt restructuring, re-profiling or outright default. One impact of the volatility in Greece is that it has caused some flight to safety buying of US Dollar denominated securities like Treasuries and Mortgage Backed Securities, upon which home loan rates are based. This helped Bonds and home loan rates last week, which was a good thing, since signs of inflation also heated up last week and Bonds and home loan rates would have likely worsened on that inflation news.Remember, inflation is the arch enemy of Bonds and home loan rates, like Kryptonite to Superman, because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. And last week, both the Producer Price Index (which measures inflation at the wholesale level) and the Consumer Price Index (CPI) were both reported hotter than expected, with the Core CPI rising by 0.3%, which was the largest monthly increase in three years. While the Fed continues to say that the increase in inflation is transitory (i.e. short in duration, temporary or not persistent), more signs of inflation in the coming weeks and months could hinder Bonds and home loan rates from further improvements.The bottom line is that home loan rates still remain near some of the best levels we’ve seen this year, and it’s important to take advantage of these levels while they remain. If you have been thinking about purchasing or refinancing a home, call me at 818.305.4695 or email me to learn more about why now is a great time to benefit from today’s historically low rates. Or forward this newsletter on to someone you know who may benefit.
Forecast for the Week 
Another full week of economic reports is ahead. Look for:

  • A double does of housing news with Tuesday’s Existing Home Sales Report and Thursday’s New Home Sales Report.
  • The regularly scheduled Federal Open Market Committee meeting on Tuesday and Wednesday. Given last week’s hotter than expected inflation news, will the Fed still say inflation is transitory?
  • Thursday also brings another weekly Initial and Continuing Jobless Claims Report. Last week’s Initial Jobless claims fell 16,000 to 414,000 and while the decline is good news, this is the tenth straight week that Jobless Claims have remained back above the 400,000 level.
  • Rounding out the week on Friday are two important reports on the state of the economy: Durable Goods Orders, which gives us an update on consumer and business buying behavior on big-ticket items, and Gross Domestic Product, which is the broadest measure of economic activity.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates traded sideways last week, with inflation news keeping market improvements from the instability in Greece in check. I’ll be watching closely to see how world events and economic reports impact the markets this week.


———————–

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jun 17, 2011)
Japanese Candlestick Chart
The Les Berman Weekly View… 
What You Need to Know About Summer TravelWhether you fly or drive, it’s going to cost more to get there. But you can save on lodging, food and entertainment.By Susannah Snider, Kiplinger.com1. Take a bite of the Big Apple. “People know about beach-house rentals. But renting a place in the city can also pay off,” says Alexis de Belloy, of HomeAway.com. You can cook meals at home and use on-site laundry facilities — which means you can downsize your luggage and side-step baggage fees. HomeAway recently listed a two-bedroom, one-bath apartment, which sleeps six, in midtown Manhattan for $275 per night in mid July; the minimum stay is four nights.2. Rent a cabin in the woods. Accommodations at national and state parks can run the gamut from luxurious lodges, such as the Ahwahnee in Yosemite ($590 for a weeknight in mid July), to cozy cabins in the woods. Recently, a cabin that sleeps six in Letchworth State Park, in upstate New York, went for $344 per week (the minimum stay during the summer).

To book a room in a lodge in one of the national parks, go to Xanterra.com; for other options, such as campsites and cabins, go to www.nps.gov. And for lodging close to home, browse your state government Web site.

3. Take a mini vacation. Looking for a quick getaway? Adding a Thursday or Sunday night to a Friday-Saturday stay could slash your overall hotel room rate by as much as 20% to 35% per night, says Bob Diener, of GetARoom.com. Of course, you might save up to 60% off published prices at a name-your-own-price Web site, such as Priceline, as long as you’re prepared to book the room before you know the hotel.

4. Groupon on the road. Using group-discount sites on vacation can trim 50% off your entertainment and food bills, says Anne Banas, of SmarterTravel.com. Register for new accounts, or change your location settings on existing accounts, a few weeks before you take off. Banas also recommends doing a search for “restaurant weeks” plus your destination, visiting Goldstar.com for event tickets, and dropping by the local visitors bureau to scoop up extra discounts. Not visiting a major city? Check out state-sponsored Web sites, such as VisitFlorida.com, for discounts. And if you’re a member of AAA or AARP, don’t leave your membership card at home.

5. There is such a thing as a free breakfast. Rick Ingersoll, of FrugalTravelGuy.com, says that a complimentary breakfast in an expensive overseas location can cut his food bill in half. He eats one big meal late in the day in addition to breakfast, and snacks on store-bought food in-between. Many domestic hotel chains offer free breakfast, too. At Holiday Inns in the U.S. and Canada, kids under 12 eat gratis any time of day, and children under 19 stay free. Plus, summer is a great time for free summer concerts and local foodfests — such as Chicago’s Grant Park Music Festival and the Taste of Chicago — so check local Web sites for schedules.

6. Stretch your money overseas. XE.com has a currency converter that lets you see how the dollar is performing against the local tender. Ingersoll’s top three value destinations are Cambodia, Poland and Thailand. Diener recommends you pay for reservations in advance in U.S. dollars to hedge against currency fluctuations. “The worst thing is when you get there and the hotel bill is $50 more,” he says.

Reprinted with permission. All Contents ©2011 The Kiplinger Washington Editors. www.kiplinger.com.
————————–
Economic Calendar for the Week of June 20-24, 2011

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of June 20 – June 24

Date
ET
Economic Report
For
Estimate
Actual
Prior
Impact
Tue. June 21
10:00
Existing Home Sales
May
4.78M
5.05M
Moderate
Wed. June 22
02:15
FOMC Meeting
Jun
HIGH
Thu. June 23
08:30
Jobless Claims (Initial)
6/18
418K
414K
Moderate
Thu. June 23
10:00
New Home Sales
May
305K
323K
Moderate
Fri. June 24
08:30
Gross Domestic Product (GDP)
Q1
1.8%
1.8%
Moderate
Fri. June 24
08:30
GDP Chain Deflator
Q1
1.9%
1.9%
Moderate
Fri. June 24
08:30
Durable Goods Orders
May
1.0%
-3.6%
Moderate
The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.
As your trusted advisor, I am sending you the LES BERMAN WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.

Taxing Questions:

TO SELL OR NOT TO SELL …

TAXING QUESTIONS FOR THE SMALL BUSINESS OWNER

A  small business owner considering selling the company or planning ahead to retirement is often prompted more by worries about taxes than a desire to develop a solid succession plan.  Tax liability is actually an end result, an obstacle to be overcome, rather than the heart of the plan itself.  Unlike a family heirloom or a parcel of real estate, a business may not be divisible.  It does not run alone.  If the owner were to leave or if a new person should step up to the plate, a company’s shape and focus would change.  A business, then, must be treated differently than any other part of an owner’s estate.

             The process can vary from business to business; and, some of the steps include:

 Examining and clarifying the owner’s objectives and motives:  Are funds needed for retirement?  Does the owner need to provide for surviving heirs?  Would the owner like to continue working and be freed from some of the day-to-day worries of running a business?

  • Identifying potential buyers:  Oftentimes, family members are high on the list, especially if they are already involved in running the business; an aptitude and talent must be considered.  Sometimes key employees or an outside third party might be better suited for filling the owner’s role.
  • Determine the buyer’s financing:  Will family members need help in financing the purchase?  If a non-family member has made an offer, how secure is the payment?  What are the terms and what is the buyer’s financial integrity? Does the owner need a steady stream of income, or is a lump sum preferred?
  • Timing the succession:  Does the owner want to continue working as long as possible or retire in five or ten years?  Will the succession occur gradually, or does the owner want to walk completely away from the business?

Once the answers to these questions have been sorted, then obstacles like tax consequences can be addressed.  When the context is fully understood, lawyers, accountants, insurance agents and other professionals can help the owner minimize tax liability.  The heart of the matter is to know where the owner wants to go with the business and why. Finding clear objectives can be difficult.  Many business owners think of their companies as another child.  Like a good parent, they have spent considerable time and effort in developing the company and watching it grow.  The emotional, physical and financial investment is so high, just imagining stepping aside may be difficult.  Advisors often can help an owner solidify and prioritize objectives.  Sometimes an owner is simply too close to the day-to-day operations to be able to see a larger picture.  By providing an outsider’s perspective, financial representatives, lawyers and accountants can help the owner determine a future direction.  Once goals are established, a plan can be developed.  Tax liability, while a valid concern, need not impede an owner from accomplishing his or her dreams.  The most important step is to know exactly what those dreams are.

Thanks to  Jack B. Weinstock, CLTC for this informative article  Email insurance@jbweinstock.com  , web:   www.jbweinstock.com , phone 310.543-9156.

And now for Lou Barnes

Domestic data vied with the European circus for control of financial markets, for once pushing in the same direction. Down. Both stocks and rates.

Greece seems certain to default in some form this summer, and European efforts have switched to containing contagion in the aftermath. When Bear Stearns went down in March 2008, with some Fed safety net in place, no dominoes followed; six months later, when Lehman and AIG tanked, not even an all-out Fed and TARP could stop a collapse that we’re still living in. Hell of a thing: no way to find out if there’s water in the pool except by taking a triple gainer off the high board.

The US data were as important. The NY and Philly Feds released their indices for June: both expected to hold positive ground, instead both went negative to the same degree and for the first time in nine months. The 10-year T-note quickly reversed a run at 3.10%, back in the 2.90s. May retail sales were okay, ex-cars and gasoline (everybody’s got to eat, buy socks…); and new unemployment claims stopped rising.

Core CPI in May up to .3% is enough to paralyze any thought of new Fed stimulus for the moment, but is not really “inflation.” Prices of commodities and food have been driven up by wildly overheating emerging nations which are now slowing, all their central banks tightening. Here, incomes flat, higher prices are uncomfortable but not a spiral caused by money-printing, as so many fear.

The NFIB small-business survey confirmed all, down for a third straight month, the lowest index value since last September, led by softening plans to hire.

National economic policy is confronted with several damned-if-you-do, damned-if-you-don’ts. Cut federal spending before recovery? Or risk a
Treasury-borrowing wreck? Restrict credit to prevent any new bubble ever? But how to recover without credit?

Perhaps the toughest issue: after one of the great regulatory failures of all time, how to institute adequate regulation without paralyzing commerce?

Many moons ago, my beloved business partner of 20 years, now retired, shed some light. We had allowed an able loan processor a limited hunting license to make a few loans in addition to regular duties, supplementing her income without adding to our fixed cost. Sixty days later we discovered that our processing had slowed to a crawl, and our “limited” producer had booked more loans than any in the sales staff. Fixed that. But, a month later, different version: production again bloated, this time at the cost of processing quality. Stopped that. Then another month, and a third evasion.

Partner and I sat down to write a rulebook to head off any more misbegotten behavior. After a short while, partner said, “This is stupid. Why spend our time attempting to invent rules faster than a lousy employee can invent misbehavior?” She was dead right.

Any auditor will tell you: if the senior officers of a company intend to conceal fraud, they can — for a while, if not forever — no matter how good the auditor.

The Fed’s latest rules for mortgage underwriting are 117 pages of legal argle-bargle posted in the Federal Register, overlapping, circular, swat-fly-with-sledgehammer.

Get to the heart of the matter. We cannot repair and maintain our economy without principled people in corporate leadership. Everyone in financial markets (why stop there…) must accept and enjoy overriding duties to the society and the system. All risk taken must first survive that test.

Establish an ethical code. Get a forest of right hands in the air, taking the oath. Then energetic self-policing within and without each firm. And only one way to deal with miscreants: drop your shop or threaten the system, and you — Mr. CEO, Mr. CFO, and your directors — get lifetime bans from senior work in public companies.

No more of this absurd footsie, in which confessing stupidity is an adequate defense. You say that you thought the prices of houses would rise forever?

Sport, you are gone.

by: Lou Barnes

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June 19, 2011 - Posted by | Uncategorized

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