Sushi Money

So the market has dropped about 50% from its 2007 highs, and nearly 25% across the board from the November 2008 elections.  We’re in a heck of a recession and everyone’s throwing in the towel.  Seriously, people are running for the hills, buying gold and stuffing the mattress with the rest of their money.  

Have you been along for the downward ride the whole time?  Most folks with mutual funds and employer retirement funds have.  Buy and hold was the mantra that worked for many years… but it didn’t help over the past six months at all.  Diversification is the other mantra we hear about.  That didn’t help much at all in late 2008, but diversification has helped people this year, somewhat.  And yet on days like today, February 23rd, when the market sells off 250 points on the Dow, it’s just a mess across the board.

Is it time to bail out, give up and save what cash you have left?  If you’ve ridden the market down this far, I think the answer is no… it’s not the time to sell.  Why?  Because you’ll probably be selling close to the bottom somewhere.

Oh, that doesn’t matter to you anymore?  Well then fine, go ahead and sell.  Especially if you need the money. But if you’re redeeming that 401(k) or IRA to get to the cash, don’t forget about possible penalties and taxes you may have to pay.   Seriously- think hard about your employment status and if you can afford to keep the money there.  

Nobody knows when the market will stabilize or better yet when it may begin to recover.  But it will- eventually.  The problem is folks are downright scared by this recession.   I’ll admit straight up I’m worried too- but more about the direction of the nation itself.  I know the current administration and Congress are doing what they think is necessary to get us back on track, but it doesn’t inspire a lot of confidence.

The stimulus package doesn’t do a heck of a lot towards short-term immediate help.  What they tried to build into it was some help, and even more about a strong wind of political spending for years to come.   People are wondering what is going to help change the short term- what’s going to get us back on track?  Some folks think we’re moving fast toward socialism… I don’t know about that, but it bothers me to see so much government involvement in the free market.

“When the government has its dirty little fingers on vital elements of our economy, it has its hands around the throat of capitalism itself, and it’s squeezing hard…”   Glenn Beck

Personally I think the market panic has more to due with consumer confidence and faith in our financial system than any other thing.  Without it, we have no legs to stand upon and people are scared to death about how to plan for the future.  How can anyone invest confidently if they think the market is full of crooks and that the government is going to continue taking over institutions?

Honestly, with the President and Speaker of the House running around preaching crisis and disaster the past two months, is that really helping Americans look towards a positive future for the nation?  No.  It’s time for leadership and standing tall, regardless of the institutions or business sectors that you like or don’t like.  We can’t be pulling the rug out from under business and at the same time hope that they will prosper, hence that the market and employment will grow. 

One of the provisions of the stimulus bill helps the unemployed get an extension on COBRA coverage.  If someone has been laid off as far back as September ‘08 for example, it looks like they can get an extension for another year.  COBRA health coverage is very expensive, and the stimulus now requires employers to pay for 65% of that COBRA coverage- for all the employees laid off who choose it.  That may be doable for larger corporations, but it’s a heck of cost for a small company.  Will the government pay them back for providing those funds for former employees?  Probably, a little at a time over the next few years in the form of tax credits.  It’s great that those unemployed can get the help, but it seems a little heavy handed in terms of government mandates.

But the business cycle will return eventually.  People will save money and begin to spend again at some point.  Employment numbers will pick up and profits will begin to grow again.   It may not be for another year or more, but it’ll come.  And when that happens I’m going to be invested and ready to go. 

Some people believe this is the buying opportunity of a lifetime.  A lot of us thought that was true a thousand points ago on the Dow.   They may be right… if I had some extra cash to invest there’s some great companies out there right now.   Smart people with smart money are picking and choosing the best of them.

Update 2-27-09:   The National Surface Transportation Infrastructure Financing Commission is recommending that the U.S. government taxes drivers by the mile!  This commission was created by Congress to explore options to raise money, and says the current 18.4 cents a gallon gas tax and 24.4 cents a gallon diesel tax are not raising enough money to keep pace with transportation costs…

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I didn’t think it would come to this, but a ground-swell of opposition is mounting for huge government programs and regulations.  If you’ve ever wondered what it would be like to have government looking over your shoulder at every turn- the next few years may show us what that could be like- literally.

How about a device in your car that monitors every mile you drive- anywhere- and taxes you on the amount of miles you drive every month?  Or in a year?  Is that incredible?   The new U.S. Transportation Secretary wants to tax you on the miles you drive in your car.  It won’t matter if you drive a high-mileage Honda, a big ‘ole cement truck or a motorcycle… you’ll still pay taxes on the miles you drive.   For someone who lives near their job, or in a metropolitan area that might not be a bad idea.  But what about millions across the nation who commute to work? Or millions more who live in rural America?  And what if your job depends upon driving many miles? 

Can you imagine anything that would provide more disincentives for economic growth and consumer spending across America?  They think people are not spending money now, if I knew I would be taxed at every turn for driving my car why would I drive to the small town down the road for ice cream?  What would happen to travel and tourism?   Too many negatives associated with that… and I have to wonder who in their right mind thinks of these things.   Personally it’s just not the American way.

I’d love to know what the U.S. Commerce Secretary thinks of this idea.   Travel and transportation serves as the basis for trillions worth of commerce in the United States…

Okay, time’s up.  Raise your hand if you’re a supporter of the bailout, or the stimulus… at least to the degree that it once was?  The hands are becoming fewer as the bailout and stimulus have currently been shaped.  In fact, it’s hard to decide what to really support with the current stimulus debate, other than a strong desire to see our elected leaders get their act together and stop preaching catastrophic disaster every other day.   How about a little leadership?  Working with each other quietly and confidently, reminding the nation of our strengths and showing how we can overcome these challenges in a strong, united fashion?  Alas, that’s not what we’re seeing.

I mean really… does it inspire anyone to see the President and other folks pushing their version of the stimulus package so ardently that they believe resorting to scare tactics is in the best interest of the nation?  Taking the scare parade on a national circuit? Yes, they must really believe what they say.  Which is even scarier.   We are all concerned, and we all feel for those most affected by the economic crisis.  But town hall meetings across the nation to drum up support for the stimulus?  A lost decade? 

“The plan is not perfect. No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans,” he [President Obama] said.

All I want to know is why the President and the Democrats think, with complete confidence mind you, that their plan is the best plan?  Don’t get me wrong- I like the fact that our government is working hard to do something, but what that something is has people staying up at night.

It’s enough to make you think that the “do nothing” side of the debate has merit, as in “First do no harm…”   But the harm has already been done by action or inaction, depending upon your viewpoint.   We don’t need more potential harm.

In my view, a super giant political spending bill code named a “stimulus plan” isn’t something that seems appropriate for the crisis at hand.  How President Obama can defend Senator Pelosi’s grand ambitions is beyond me.   We’ve been there before, and instant replay isn’t going to make it better.  And the Honorable Ms. Pelosi’s party has been in power since the 2006 elections after all.

“In the afterglow of President Obama’s inauguration, it’s easy to forget that Mrs. Pelosi’s similarly historic elevation to the speaker’s chair just two years ago had its own elements of a coronation — and its own claims of change we were to believe in.”

“The way Mrs. Pelosi handled Iraq has some interesting parallels to the way she is now handling the stimulus. In the early months of her speakership, the Democratic Congress faced its first test on Iraq in the form of a war funding bill. Mrs. Pelosi’s response? To lard it up with billions in unrelated domestic spending — including a now infamous provision that would have spent $74 million for peanut storage.”

Honestly I think there are some positive, constructive things we can do- and that both political parties should have a stake in crafting this enormous legislation.  But adding billions of tax-payer dollars for “do-good” initiatives and “nice-to-have” goals is not something that’s going to make a difference in the immediate future.  Why not focus on the crucial and necessary things… and then examine and revise as you go along?  Why spend decades of our children’s futures all at once?  Why risk making things worse? 

 ”If you find yourself in a hole… the first thing to do is stop digging.“   Texas Bix Bender

That’s my greatest concern… we’re going to exacerbate the problems and prolong the recession… or worse, foster an economic climate that leads to the Big D.   None other than Jim Rogers sees precisely that, and believes our leaders will indeed make things worse.

Rogers said Geithner, who was president of the New York Federal Reserve Bank, “has been dead wrong about everything for 15 years in a row,” and so was President Barack Obama’s economic advisor Lawrence Summers, who acted as Treasury Secretary at the turn of the century.

“It is mind-boggling to me, if I were on your show 15 weeks in a row and was wrong, you’d probably never invite me back. These guys have been wrong year after year after year consistently and here they are making the same mistakes again. This is not going to solve the problem, it’s going to make it worse.”

He said he was not contemplating investing into financials, as bankruptcies were still possible, and banks were still trying to find out how affected they were by the crisis.

“What’s happening is they’ve all panicked, cutting back everything, trying to see what they’ve got,” Rogers said.   “Everybody is frozen, trying to figure out ok, what are we worth, what do we do?”

In addition, the recent shifts towards protectionism are harmful, Rogers warned.   “This is very dangerous, that’s what caused the great depression in the 1930s. If it happens again, then you’d better sell all the stocks, you’d better sell a lot of everything and bunker down,” he said.

“We already have a lot of social unrest developing. If protectionism comes back, you’d better be really, really careful.”

Oh boy… with opposing views like that it’s hard to swallow the President’s “complete confidence” statement.   And although the Fed Chairman is pledging transparency (it’s about time…), many believe that won’t make any difference. 

And even Treasury Secretary Geithner’s plan… whatever it really is, hasn’t been very well received.

“Investors greeted Mr. Geithner’s speech with dismay and the Dow Jones Industrial Average shed 300 points. Lawmakers Monday night, on being briefed by Treasury officials, were also irked by the lack of details, according to people present.”

“The absence of detail speaks to the thorny issues that lie at the heart of the financial crisis: how to value the toxic assets causing banks to report losses and how to shuffle aid to homeowners and stem the rise of foreclosures. Many of the potential solutions come with a host of fresh problems, which Obama officials have grappled with much as their predecessors did.”

But there are some potential winners and losers in the stimulus plan, and money is sure to go to a lot of places we don’t really understand.  Whether those places really do anything to help us climb out of this economic pit is the real question.  I’m not holding my breath.

With tax season here, many of us are pulling out the shoeboxes full of receipts and sorting through 1099’s this month. I don’t usually have all the necessary forms until mid-February or beyond, but getting a start now makes things a lot easier.

Once again it’s time for TurboTax… software I’ve been using for over 20 years. I almost dropped the program this year and switched to H&R Tax Cut when Intuit jacked up charges for extra returns and printing functions. Fortunately a loud outcry by TurboTax users convinced Intuit to reverse plans for increasing fees. 

Overall it’s decent software, and makes filing your taxes much easier.  I’m glad that I can import last year’s tax file to save a lot of typing, but filling out tax forms is never simple in itself- even with software.  It’s a tedious annual ritual that most of us faithfully perform.  Of course it would be nice to have a few of the perks of our vaunted leaders in Congress.

For example, a GOP Congressman from Texas has intoduced a bill that would eliminate IRS late fees. What a grand idea- it’s called the “Rangel Rule” after House Ways and Means Committee Chairman Charlie Rangel, D-N.Y:

Rangel, who writes the country’s tax policies, acknowledged last fall that he failed to pay thousands in real estate taxes for rental income he earned from a property in the Dominican Republic.

As of September 2008 the Harlem Democrat reportedly paid back more than $10,000 in taxes but that did not include any IRS penalties.

“Your citizens back home should have the same rights and benefits that come to you as a member of congress. You shouldn’t be treated any differently under the law than your citizens back home,” Congressman John Carter, R-Texas, said.

He added that citizens should receive the “same courtesy” that the IRS is allegedly granting Rangel and Treasury Secretary Tim Geithner, who also recently acknowledged a failure to pay taxes.

Will the bill pass? Probably not, but maybe it will bring a little attention to issues like this. Carter, a former judge, said he is trying to focus in a what he believes is a double standard and add some levity to the debate.

“I am raising this issue not so much to just push the issue but to open the discussion. I don’t think it’s wrong for us to start having a free discussion in congress and with a certain amount of humor in it about how should people be treated in congress,” he said.

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Sounds like a good idea. I think when folks get into Congress they forget what it’s like for the average American.  And the average American has become quite upset at the recent nomination of high-profile people who haven’t figured out how to pay their taxes properly. 

“An overwhelming number of Americans are outraged by tax cheats, according to an Internal Revenue Service poll released after two top US administration nominees withdrew over tax scandals.”

“The 89 percent of Americans who find it “not at all acceptable” to cheat the agency was the highest recorded since the survey of taxpayer attitudes began in 2002, the IRS said.”

“The poll was released after President Barack Obama’s candidate to become Health Secretary, Tom Daschle, abruptly withdrew Tuesday after it was revealed he had paid more than 120,000 dollars in back taxes.” 

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Whatever your situation, the most important thing about tax season is to file your taxes! Everyone has fears about tax season, most of which are unfounded. But putting off filing taxes, or not responding to IRS notices just makes things worse. Here’s a quick look at 7 Tax Terrors and what you can do to overcome them, and TaxHelpOnline has a more thorough look at helping solve and figure out tax problems. The first line is a good one:

“General Accounting Office studies have shown that IRS correction notices are wrong half the time. The common correction notices include claims that made an error in your return, that you failed to file a return or underreported the income in your return. If you get a correct notice from the IRS that you do not understand, there is a good chance it was issued in error.”

You never know- but one thing is for sure: Avoiding responding to the IRS will not help you resolve the problem. I’m not using a CPA at present, but you can be sure that if my taxes become too complicated or I’m concerned about doing them correctly, that I’ll find one pretty quickly.

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Taxes aren’t the only issue where most Americans face challenges that our leaders in Congress don’t understand. Take the global warming debate for example- President Obama and his party want to pass a host of climate legislation that is quite a mess based on divergent geographic needs and interests. This could not only affect real jobs and manufacturing, but also impact the average American’s energy bills each month, and overall U.S. economic growth. Over time we may have to pay a lot higher prices for our energy needs in winter, especially for folks living in the midwest.

“By coincidence or design, most of the policy makers on Capitol Hill and in the administration charged with shaping legislation to address global warming come from California or the East Coast, regions that lead the country in environmental regulation and the push for renewable energy sources.”

“That is a problem, says a group of Democratic lawmakers from the Midwest and Plains States, which are heavily dependent on coal and manufacturing. The lawmakers have banded together to fight legislation they think might further damage their economies.”

I’m one of those midwesterners who depends upon a diverse mix of resources to supply our energy needs- and I can assure you our monthly bills are high enough. Personally we already do everything we can at present to lessen our use of energy in winter at home. There’s only so much more you can do- and at some point we’re just going to pay higher taxes and fees because someone has a grand plan to “lessen our dependence” on the need for certain resources.  That debate is just getting started…