Housing Sales Decline in 28 States

It looks like the real estate market is beginning to be saturated with homes. This article identifies a number of states where housing sales have declined over a previous period. That doesn't mean houses aren't being sold, however. Alaska, Vermont, North Carolina and Texas have all had sales increases.

The writer speculates that booming areas a year ago are slowing, while previously stagnant areas are doing well.

While it most certainly is a buyers market now, some people are estimating the slowdown is through the worst already. What do you think?

Home Appraising Inflation

It has been awhile since I've posted. I've been enjoying the summer and dealing with some personal events. But during this time, I have not stopped thinking about how to educate people about dealing with money in an intelligent manner.

I've also begun to consider whether I should by a home here in Iowa. I've come across a lot of information and I'd like to share it with you over the next few days.

The first thing I'd like to post here is this article from the Arizona Central. The article covers a problem occurring around the nation with inflated home appraisals. It points out a conflict of interest between the buyer and the mortgage lender. The lender wants to have a high home value, so that they can have you approved for the loan. This, of course, allows the borrower to borrow more. When the house is re-appraised, it can be disastrous to find that your home is worth less than you thought.

How do you remedy something like this? I would suggest having a different appraisal in addition to the bank's appraisal. If the values are close, then there probably isn't a problem. If there is a wide discrepancy, then something is wrong.

Quote of the Month

“A tax cut is really one of the anecdotes [sic] to coming out of an economic illness.”

--George W. Bush

Government Repeals Tax on Long Distance Telephone Usage

My mom sent me this article about the IRS rescinding a more than 100-year old tax on "telegraphs and telephones." People will no longer have to pay a long distance tax and they can apply for a refund of all taxes paid since February 2003.

I'm guessing if you use Turbo Tax or Taxcut, this will be built in. The article can be found in the comments section.

More Millionaires Now than Ever

According to this article, there are now close to 9 million millionaires in the world. More interesting (but not surprising if you know about millionaires) is that they are investing aggressively in emerging markets around the world.

The ultra-rich (more than $30 million net worth) topped 85,700 around the world and grew at a faster pace than the overall number. The article points out that the fastest growing area is the Middle East and the leader is Dubai. Why? Low barriers to entry, no unions, cheap startup costs and no taxes.

Jim Cramer Crazy?

Interesting article here about how Jim Cramer, of CNBC, may have lost his mind.

Economy Update

5.3% (Q1) annual growth for the United States economy. The fastest growth in more than 2 years. Inflation holds steady at under 3%. Exports are also rising and have grown at 14.7% (annual). Housing spending is also up (3.1% instead of the estimated 2.4%). Looks like things are going good!

Quote of the Day

"You never get a second chance to make a first impression."

--Anonymous

Don't Put Much Faith in the "Experts"

John Stossel wrote an article about his Princeton economics teacher, Burton Malkiel. I have been reading, Mr. Malkiel's book and am almost finished. I'm quite impressed with his numbers concerning stock investment and his index-fund based investment strategy. I'll post more about the book when I'm finished with it.

Stossel talks about things I've already learned in the course of earning my MBA. Most experts cannot consistently pick stocks for a portfolio that beats the S&P 500. Sure every year there are lucky ones, but too many factors over the long run reduce even the most highly educated and savvy fund manager to scampering to beat the almighty S&P.

If you've been reading Cashtalk for awhile now, you already know this. Brett has posted an article about his own foray into the market (Brett would hardly call himself a savvy investor, but at least he tried!) and his recommendations for a stock market strategy here. And our stock market simulation game also proved that because of all the brokerage fees, picking and holding a stock would do just as well as buying and selling on a daily basis (or did it?).

So when you're deciding which fund to buy or which basket of stocks to hold, remember that odds are, buying the S&P 500 index fund will get you better or equivalent returns over the long run, with the bonus of having lower commissions and fees.

Stocks; Gold Fall in India: On Suicide Alert

Wow. The Mumbai exchange in India has lost almost 22% of its more than $600 billion value last week and beginning today. The Indian police are watching canals and rivers for brokers wishing to commit suicide.

No matter how bad you do in life with money, it certainly is never worth more than your life. Getting your priorities straight should prevent people from jumping out of buildings or tying a boulder to their leg and jumping off a bridge. Your family and values are way more important in life than money. Your dreams may be put on hold, but a short delay isn't worth the price of death.

Gold and other commodities are falling, too. Very strange. Some are recalling similarities to this crash and the 1987 "Black Monday" Wall-Street crash, citing fears about inflation and a sharp run-up of stock prices and weakness of bonds.

I'll keep you posted.

Time Value of Money: Buying a Car

I thought I would review the Time Value of Money after a friend of mine sent me a problem to solve.

Let's say you want to buy a new car valued at $25,000. Wait a minute! What are you doing? A new car loses almost a fifth of its value as soon as you drive it off the lot! Never buy a new car!

Okay...Let's say two guys with trench coats kidnap you at gunpoint and bring you to a new car dealership. They bring you to the smirking salesman and he says, "You have two deals: You can buy the $25,000 car for no interest and payments for 60 months or you can get a $4000 rebate today and pay 7% (yearly) interest on the balance for 48 months." Which is the better deal?

Your eyes dart across the street to the used car lot. You glance down at the "used car" section in the classifieds. Then you hear a "click" as the thug pulls back the hammer of his revolver. "Enough stalling! What's your decision!?"

First, let's figure out the payments. The first option (no interest 100% financing) would have a payment of $416.67 for 60 months. What's $416.67 x 60? $25,000.20.

The second option has payments of $502.87 for 48 months. That comes to $24,137.76. Seems a little cheaper, but remember that this includes a $4,000 rebate, so the number should be $21,000. The 3,137.76 is interest on the financing of the $21,000.

My friend suggested that I use the Present Value of money to solve the problem. Is this the correct approach? On the first option, the future value of his payments would be $25,000.20 after 60 months. The Present Value could be discounted at an alternative use of the money, say a CD at 5%. We can set up an algebra equation that looks like this:

PV(1st Option) = ($-416.67/0.004167)*[1 - 1/(1.004167)^60]

Notice how I've divided the 5% interest by 12 to get the monthly interest of 0.004167? This will give us a more accurate number.

If we solve for the first option's Present Value, we get $22,079.42.

PV(2nd Option) = ($-502.87/0.004167)*[1-1/(1.004167)^48]
PV(2nd Option) = $21,835.93

What does this tell us? Do we really care what an alternative investment would make? We want a car, darn it! Especially to appease these goons and their revolver pointed at your head. The answer is yes. This tells us that for 7%, 48 month financing option, plus rebate , if I invested $21,835.93 at 5%, I'd have the equivalent future value. If I invested $22,079.42 today at 5%, I'd have the future value of the 1st option.

So which one is better? The lower PV gets me the same car at "less"money. And since these guys are pointing a gun at your head, you should just take the 2nd option: the $4,000 rebate and 7% interest. You'll save $243.54.

There you have it. Easy peasy!

The Smell of Money

When I was in China, I would often try to stay current with world news by either reading the Economist or Newsweek (International Edition). In one issue of Newsweek, there was a "perpective" article written by a former resident of a town in Iowa with a lot of pig farms around. The person recalls how her father and her would drive into town and the locals would sniff the air and smell the horrible odor of pig manure. Her father would take a particularly big whiff and then say, "Do you smell that? That's the smell of money."

Not all jobs are highly desirable, but after beginning the "Millionaire Mind" by Thomas J. Stanley, it seems that many millionaires tend to gravitate toward low competition, undesirable businesses with high profit margins. That's something you should keep in mind when choosing your own career path. Pigs, while stinky, often pay well.

But I digress. I was reminded of that article when I read this article today. Apparently scientists at the University of Illinois have found a way to convert pig manure into crude oil. That's right. Millions of tons of pig manure could potentially be transformed into oil and used in vehicles or other applications. Ain't technology great? I guess in the future, there will be one more way for that smell to be the "smell of money."

Investing for Education

Two guys from SmithBarney in Houston, TX (actually they're Vice Presidents) wrote this article about investing for their children's education. They are adamantly against the 529 plans and any of the state educational savings accounts. Why? They claim that recent laws in Congress open the door for states to tax other states' plans. Not good.

They also correctly point out that in 2010, the 401(k), Roth IRA, and 529 plans tax laws will expire. They may or may not be renewed by Congress. I can't imagine any Congress would remove the tax sheltered properties of the 401(k) or other savings devices, but it is a risk, I suppose.

Their strategy is composed of putting half of an investment into a municipal bond and the other half into a few, dividend-paying, high return stocks (if only they had pointed out a few examples!). Their ideas intrigue me, but I'm a bit skeptical. I'd like to hear your thoughts.

Happy Birthmonth Cashtalk!

Cashtalk has been around for about a year now! We just wanted to thank everybody who has had the time to contribute an article or post a comment. And we also wanted to thank the people that read this site, too.

Our mission to help people learn more about money and business is going strong. We'll continue posting interesting information about business and economic life in the United States and ways to save and be smart with money. If you would like to contribute to Cashtalk, just send me an email or post a comment and I'll get in touch with you.

What Percentage of the Gas Price is Tax?

It seems like everywhere you turn, you're taxed for something. I'm sure if you added up all the taxes you paid throughout the year, it would come close to 50% of your income (unless you're lucky enough to be in the higher tax brackets, in which case it would be higher, too). One of the taxes consumers pay is the gasoline tax; both the federal and state (and sometimes even local or city).

This site shows how much you in your state are paying for the gasoline tax. Every state has a different system for taxing gasoline. Some have extremely high flat rates. Others have deceptively lower flat rates but then tack on a percentage sales tax. Check out the chart and find out how much you're paying in your location.

You can also compare the amount of tax you're paying with the amount of profit a gasoline company makes per gallon sold. ConocoPhillips makes $0.07 a gallon of profit. This site explains how much the companies pay for the crude oil and how much it costs to refine it. Most of this accounts for the rest of the price of gasoline.

So next time you're at the pump and thinking you're being bilked, remember who is doing the work to get you your gasoline, and remember who's taxing you to fill that car of yours. And don't forget that either when you hear your local politician want to punish the refined oil industry, too.

Average Gas Prices by County

This is a great site that takes the average gas prices per county and then shades them a certain color on a map of the United States. You can also click on individual counties to get further analysis.

With the increasing price of gasoline, it is important to watch those pennies! I think it's hillarious (and a bit sad) that the most expensive places in the U.S. are California and New York, two states with tough restrictions on gas quality and excessive taxes on gasoline. Yet another casue of government crowding out.

Both California and New York have had predictions or indications of slowing economic growth. New York's method of taxing gasoline (by the dollar instead of by the gallon) makes it the highest gas tax in the U.S. Hurting consumers in this way is certainly no way to boost or even maintain a strong economy. It is my own prediction that both of these states with already high costs in other things, like housing and commodities, will continue to see a slow down in their own economies as people try and find solace in other states.

Balanced Budget and Federal Deficit

Walter Williams discusses, very briefly, two worrisome aspects of the U.S. economy in an article last week. He talks about the federal deficit. He claims that people say the deficit is a way to borrow against the future, but he says different. Really, the government potion of spending ($2.4 trillion) is "crowding-out" private investment and spending. He cites some interesting examples.

He also doesn't like the idea of a balanced budget. If the government spent $6 trillion and taxed us $6 trillion to pay for it, would that be better than a $2.4 trillion spending paid for by $2 trillion in taxes (leaving a $0.4 trillion deficit, of course)? His solution (and mine because I agree with him) is to cut spending overall, but we all know that isn't likely to happen.

Outsourcing the Drive-Thru

I can see it now: a mob of McDonald's employees protesting outside of a suburban McDonald's. Protest signs reading "Don't Eliminate Jobs" or "Super-size me but don't Outsource me!"

McDonald's and CKE Restaurants (owners of Hardee's and Carl's Jr.) are experimenting with national call centers of highly trained customer service specialists that would take your drive-thru order the next time you visit their restaurant. They are banking on the fact that someone in Santa Maria, CA can do a better job than the person standing only 100 ft from you the last time you pulled up for a Happy Meal. And not only better, but faster. And in the fast food business speed translates into better service and more profit.

This may or may not work. The article from the New York Times mentions some problems with transmission quality between the pilot restaurants in Hawaii and the call center in California. Often the operators have to ask the customer to repeat themselves. I'm not sure how this is much different from the current setup but it may irk customers and cause bad will.

I have to say that I'm excited about the idea, though. I love the idea of companies becoming more efficient and therefore passing the cost savings on to the customer. But what if they don't pass them on? How could they not? In a competitive environment (like fast food) if you can get a cost edge on a competitor, you are most likely going to want to increase customers by decreasing prices. If your competitor can't match your efficiencies and therefore prices, they will go out of business. That leaves more customers for the innovative restaurant. And that means more profit. We'll just have to see how this turns out.

The Economy Continues to Grow Stronger

Two good pieces of news the other day: 211,000 jobs were added to the economy in March and consumer confidence is up.

Who Pays the Highest Taxes?

The internet is a wonderful thing. So much information is available, if only you can find it. I stumbled across this website the other day and thought I should share it with you. It is quite relevant at this time due to the impending tax deadline of April 17th.

The U.S. Census Bureau posted the receipts of taxes of the United States and the amounts taken in by all of the 50 states. It then divided the amounts received by the population of those states to give us the amount that each person in the state paid. Which state has the highest per capita taxes? Vermont. Followed closely by Hawaii and Wyoming. California is actually below Alaska, which I found surprising.

Of course this begs the question, "Which state has the lowest per capita taxes?" The answer proabably isn't as startling: South Dakota, followed by Texas.

My state, Iowa, paid $1,938.85 per person. This is $253.42 less than the average in the U.S. of $2,192.27.

Check out the site here and find out if you are in a high-tax state or not.