Harry Newton's In Search of The Perfect Investment
Technology Investor. Harry Newton
9:00 AM EST, Friday, February 13, 2009. The
House votes on the stimulus package. Seems somehow appropriate that the vote
happens on Friday the 13th The Stimulus Package provides $1.10 per day
in tax relief to America's workers, while saddling every American family with
$9,400 in extra debt.
The Stimulus Package won't buy you a decent color TV.
there's nothing in the bill that will benefit any of us significantly. Don't
believe me? Here's a piece from today's New York Times. The piece would
be funny, if it weren't serious:
in the Bill for You By RON LIEBER
All the talk
the last couple of days about the stimulus bill was about compromise and
slimming down. What is left, though, is a huge spending bill, with well
over $100 billion in tax breaks and handouts for individuals.
And most of
us will be able to use at least one of them, though it will be difficult
to get much money immediately, unlike the stimulus checks that went out
is a list of some of the biggest provisions in the bill that will hit you
directly in the wallet. Keep in mind that the language in the measure isnt
quite final and the Senate and House still have to vote to approve it.
TAX: In 2009 and 2010, there is a tax credit of up to $400 for individuals
and $800 for married couples filing their taxes jointly. You calculate your
credit, subtracted from other federal taxes you owe, by taking 6.2 percent
of your earned income.
for this credit begins to phase out if youre an individual with an
adjusted gross income over $75,000 or a couple with income higher than $150,000.
may end up adjusting tax withholdings on paychecks so that this credit trickles
into your bank account over the course of the year. People who are self-employed
can adjust their quarterly tax filings to account for the credit.
is refundable, according to a summary of the stimulus bill that the Senate
Finance and House Ways and Means committees released Thursday. That means
that even if you have no federal income tax liability, you will still get
Normally, you pay federal income taxes on federal unemployment benefits.
In 2009, however, you wont have to pay taxes on the first $2,400 in
benefits you receive.
INSURANCE: If you get fired, your company is required, thanks to a law
known as Cobra, to allow you to pay to keep your health insurance, generally
for up to 18 months.
is, it can cost you $1,000 a month or more to keep the coverage.
Now, the federal
government will subsidize 65 percent of the premium for up to nine months.
To be eligible, you need to have been forced out of your job between Sept.
1, 2008, and Dec. 31, 2009. Also, your income in the year you receive the
subsidy cannot be more than $125,000 for individuals or $250,000 for married
couples filing their taxes jointly. ...
SECURITY: In 2009 a number of retirees and disabled people, including
Social Security recipients, will receive a $250 refundable tax credit. The
money would arrive within 120 days of the bills signing.
TAX DEDUCTION: For the rest of 2009, youll be able to deduct the
state and local sales and excise taxes you pay on the purchase of a new
(not used) car, light truck, recreational vehicle or motorcycle. ...
for this tax break begins to phase out for single people with adjusted gross
income over $125,000 or $250,000 for married couples filing jointly. And
the deduction does not apply on spending above $49,500.
According to a summary from the office of House Speaker Nancy Pelosi, the
maximum Pell Grant will increase by $500, to $5,350 in 2009 and $5,550 in
2010. The grants are generally for low-income students.
EDUCATION TAX CREDIT: This credit covers up to $2,500 of the cost of
college tuition and other related expenses in 2009 and 2010. Youll
need to spend at least $4,000 in a single year to get the full credit. The
credit begins to phase out for individual taxpayers with adjusted gross
incomes over $80,000 or $160,000 for married couples filing jointly.
of the credit is refundable, which benefits low-income students paying their
way through school (who may owe no federal income taxes).
EXPANSION: When you withdraw money from a 529 college savings plan,
you can use it for tuition, room, board, books and other college expenses.
In 2009 and 2010, families can also use the money for computers and computer
technology, which could include educational software and Internet service
for students living at home.
HOME BUYER CREDIT: First-time home buyers are eligible for a refundable
tax credit equal to 10 percent of the purchase price of their home, up to
$8,000, if they made the purchase after Jan. 1, 2009, but before Dec. 1,
Unlike a similar
credit that Congress provided last year, you dont have to pay this
one back over 15 years. The new credit, however, does phase out for individuals
with incomes over $75,000 or married couples with incomes over $150,000
who file their taxes jointly. Also, you forfeit the credit if you sell the
house within three years.
ACCOUNTS: If you commute to work via public transportation, your employer
may allow you to set aside pretax money from your paycheck to pay for the
bus, train or parking. Currently, you can put aside only $120 a month for
mass transit while those who drive and park can save $230. This year and
next, those who take mass transit will also be able to put aside $230 each
PATCH: Each year, Congress creates a temporary fix to keep millions
of people from paying the alternative minimum tax. This year, the patch
is part of the stimulus bill. If you didnt pay the A.M.T. last
year, you probably wont this year, said Mr. Stretch of Deloitte.
For most people, this is a nonevent. They didnt even realize
they were in danger of being shot in the head by the A.M.T.
bank stocks are going to zero: I've said
this so many times I sound like a busted record. Today the New York Times'
Steve Lohr writes:
Some of the
nations large banks, according to economists and other finance experts,
are like dead men walking.
A sober assessment
of the growing mountain of losses from bad bets, measured in todays
marketplace, would overwhelm the value of the banks assets, they say.
The banks, in their view, are insolvent.
None of the
experts research focuses on individual banks, and there are certainly
exceptions among the 50 largest banks in the country. Nor do consumers and
businesses need to fret about their deposits, which are federally insured.
And even banks that might technically be insolvent can continue operating
for a long time, and could recover their financial health when the economy
a cure for the problem of bad assets, the credit crisis that is dragging
down the economy will linger, as banks cannot resume the ample lending needed
to restart the wheels of commerce. The answer, say the economists and experts,
is a larger, more direct government role than in the Treasury Departments
plan outlined this week. ...
a professor of economics at the Stern School of Business at New York University,
has been both pessimistic and prescient about the gathering credit problems.
In a new report, Mr. Roubini estimates that total losses on loans by American
financial firms and the fall in the market value of the assets they hold
will reach $3.6 trillion, up from his previous estimate of $2 trillion.
Of the total,
he calculates that American banks face half that risk, or $1.8 trillion,
with the rest borne by other financial institutions in the United States
United States banking system is effectively insolvent, Mr. Roubini
friends are saying the only solution is nationalization.
monthly's latest cover story is worth reading: Summary:
Things are changing. It will be painful. Don't go with old ideas. Blaze new
ones. The cities will boom. The suburbs are good. Renting has its charms.
We'll make it. We always have.
From the long
Scott Reynolds Nelson has noted that in some respects, todays crisis
most closely resembles the Long Depression, which stretched,
by one definition, from 1873 to 1896. It began as a banking crisis brought
on by insolvent mortgages and complex financial instruments, and quickly
spread to the real economy, leading to mass unemployment that reached 25
percent in New York.
crisis, rising industries like railroads, petroleum, and steel were consolidated,
old ones failed, and the way was paved for a period of remarkable innovation
and industrial growth. In 1870, New England mill towns like Lowell, Lawrence,
Manchester, and Springfield were among the countrys most productive
industrial cities, and Americas population overwhelmingly lived in
the countryside. By 1900, the economic geography had been transformed from
a patchwork of farm plots and small mercantile towns to a landscape increasingly
dominated by giant factory cities like Chicago, Cleveland, Pittsburgh, Detroit,
This time, Detroit
may become a ghost town.
major city in the U.S. today looks more beleaguered than Detroit, where
in October the average home price was $18,513, and some 45,000 properties
were in some form of foreclosure. A recent listing of tax foreclosures in
Wayne County, which encompasses Detroit, ran to 137 pages in the Detroit
Free Press. The citys public school system, facing a budget deficit
of $408 million, was taken over by the state in December; dozens of schools
have been closed since 2005 because of declining enrollment. Just 10 percent
of Detroits adult residents are college graduates, and in December
the citys jobless rate was 21 percent.
To say the
least, Detroit is not well positioned to absorb fresh blows. The city has
of course been declining for a long time. But if the areas auto headquarters,
parts manufacturers, and remaining auto-manufacturing jobs should vanish,
its hard to imagine anything replacing them.
disappears, city populations dont always decline as fast as you might
expect. Detroit, astonishingly, is still the 11th-largest city in the U.S.
If you no longer can sell your property, how can you move elsewhere?
said Robin Boyle, an urban-planning professor at Wayne State University,
in a December Associated Press article. But then he answered his own question:
Some people just switch out the lights and leaveproperty values
have gone so low, walking away is no longer such a difficult option.
has reached a tipping point, and will become a ghost town.
And New York?
In the short
run, the most troubling question for New York is not how much of its finance
industry will move to other places, but how much will simply vanish altogether.
At the height of the recent bubble, Greater New York depended on the financial
sector for roughly 22 percent of local wages. But most economists agree
that by then the financial economy had become bloated and overdeveloped.
Thomas Philippon, a finance professor at New York University, reckons that
nationally, the share of GDP coming from finance will probably be reduced
from its recent peak of 8.3 percent to perhaps 7 percentI suspect
it may fall farther, to perhaps as little as 5 percent, roughly its contribution
a generation ago. In either case, it will be a big reduction, and a sizable
portion of it will come out of Manhattan.
undoubtedly lie ahead for New York. But perhaps not as lean as youd
thinkand certainly not as lean as those that many lesser financial
outposts are likely to experience. Financial positions account for only
about 8 percent of the New York areas jobs, not too far off the national
average of 5.5 percent. By contrast, they make up 28 percent of all jobs
in Bloomington-Normal, Illinois; 18 percent in Des Moines; 13 percent in
Hartford; 10 percent in both Sioux Falls, South Dakota, and Charlotte, North
Carolina. Omaha, Nebraska; Macon, Georgia; and Columbus, Ohio, all have
a greater percentage of population working in the financial sector than
New York does.
New York is
much, much more than a financial center. It has been the nations largest
city for roughly two centuries, and today sits in Americas largest
metropolitan area, as the hub of the countrys largest mega-region.
It is home to a diverse and innovative economy built around a broad range
of creative industries, from media to design to arts and entertainment.
It is home to high-tech companies like Bloomberg, and boasts a thriving
Google outpost in its Chelsea neighborhood. Elizabeth Currids book,
The Warhol Economy, provides detailed evidence of New Yorks diversity.
Currid measured the concentration of different types of jobs in New York
relative to their incidence in the U.S. economy as a whole. By this measure,
New York is more of a mecca for fashion designers, musicians, film directors,
artists, andyespsychiatrists than for financial professionals.
conclusion is positive:
economist Paul Romer famously said, A crisis is a terrible thing to
waste. The United States, whatever its flaws, has seldom wasted its
crises in the past. On the contrary, it has used them, time and again, to
reinvent itself, clearing away the old and making way for the new. Throughout
U.S. history, adaptability has been perhaps the best and most quintessential
of American attributes. Over the course of the 19th centurys Long
Depression, the country remade itself from an agricultural power into an
industrial one. After the Great Depression, it discovered a new way of living,
working, and producing, which contributed to an unprecedented period of
mass prosperity. At critical moments, Americans have always looked forward,
not back, and surprised the world with our resilience. Can we do it again?
your competitors are retrenching, it's a great time to grow your market share.
The whole Atlantic
piece is worth reading. How
the Crash Will ReShape America.
to a new, faster laptop. There are some darling
bargains in Lenovo's
Outlet Store. My preference is for the ThinkPad X61 or the X200, both
of which I own. Make sure you buy the machine with the 2.6 GHz processor.
Sometimes you'll get an error message. But go back in. A bargain is worth
a little patience.
CDs are paying less and less. I got 2.25%
for nine months from TD Bank and 2.60% for 12 months from the Gibraltar Bank.
Most other banks are offering less. Is your bank FDIC-insured? Go to the FDIC's
web site. You need its real name and its headquarters. Many banks
have similar names.
Lynch paid out handsome bonuses: In 2008, 696 Merrill employees
received bonuses of $1 million or more, for a total of $3.6 billion before
Bank of America bought it. For the full details, read the letter from Andrew
Cuomo, New York Attorney General, to Barney Frank, chairman, House Committee
on Financial Services.
Night On Broadway. Neat idea. On the first
Tuesday and Wednesday or each month, kids (6-18) for free when accompanied
by a full-paying adult. Lot of great shows -- including Phantom of the Opera,
Chicago, Mamma Mia! Go here.
Wall Street Sold Out America. From September
22, 2008 issue of Time Magazine (prescient?):
this new world will require adjustments by millions of Americans. We all
will have to start living within our means or preferably below them.
If you don't overborrow or overspend, you're far less vulnerable to whatever
problems the financial system may have. And remember one other thing: the
four most dangerous words in the world for your financial health are "This
time, it's different." It's never different. It's always the same,
but with bigger numbers.
+ The US has made a new weapon that destroys people but keeps the
building standing. Its called the stockmarket.
+ What's the
difference between a guy who lost everything in Las Vegas and an investment
banker? A tie!
+ The problem
with a bank balance sheet these days is that on the left side nothing's right
and on the right side nothing's left.
+ I want to
warn people from Nigeria that if you get any emails from Washington asking
for money, it's a scam. Don't fall for it.
Mother decided to trim her household budget. Instead of having a dress dry-cleaned,
she washed it by hand.
Proud of her
savings, she boasted, "Just think, Fred, we are five dollars richer because
I washed this dress by hand."
Fred replied. "Wash it again."
recession's toll -- Part 1
Starbucks profits are down so much that in the last few months
theyve had to close over 200 stores. And thats just on one block.
-- Conan O'Brien
recession's toll -- Part 2
Judge Judy to prostitute : "So when did you realize you were
Prostitute, wiping away tears: "When his check bounced."
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
is . You can't
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