Home Market Trends in U.S.A

An interesting graph that I saw in New York Times shows a history of home prices in this country from nineteenth century onwards. According to the graph, the market price of homes have been appreciating at an average rate of 5% but in the last decade home prices show sharp upward and downward spikes. In the first part of the last decade home prices showed unprecedented highs and some cities saw prices appreciating by as much as 20 to 25%. Then began the sharp downward trend.
Experts have been arguing about how much of the bubble and bust has been caused by the subprime crisis. Alan Greenspan's policy of loosening the credit markets certainly contributed to the bubble. Fueled by the increased liquidity due to securitization of mortgage market, lenders have been giving loans right and left, most of them to borrowers with doubtful credit history. When the bubble burst, most of these borrowers defaulted and thus resulted the first recession in U.S in the twentieth century.
Hopefully the home prices would pick up their upward trend soon enough.

Kellog Recalls Cereal

The Kellogg comapny, makers of the popular brands of breakfast cereal including Kellogg's, Keebler and Pop-tartsissued a recall notice for select packages of Kellogg'sCorn Pops, Kellogg's Honey Smacks, Kellogg's Froot Loopsand Kellogg's Apple Jacks.

The company issued a voluntary recall after some customersof an uncharacteristic off-flavor and smell. TheBattlecreek, Michigan based company warned customersagainst eating the recalled cereal since the products do not meet their quality standarsbecause of possibletemporary symptoms like nausea and diarrhea. The recalledproducts pose no serious health hazards, according to thecompany.

David Mackay, president and chief executive officer,Kellogg Company apologized to the customers and assuredthem that the company is "working diligently to ensure thatthe affected products are rapidly removed from themarketplace". The recalled products were distributednationwide. Products distributed in Canada are not affectedby the recall.

Following are the products which are affected by therecall. Only products with the letters KN following theBetter If Used Before Date are included in the recall. The recall does not affect products with a KM designation.

Kellogg's® Apple Jacks®
•UPC 3800039136 1: 17 ounce package with Better if UsedBefore Dates between APR 10 2011 and JUN 22 2011
•UPC 3800039132 3: 8.7 ounce packages with Better if UsedBefore Dates between JUN 03 2011 and JUN 22 2011

Kellogg's® Corn Pops®
•UPC 3800039109 5: 12.5 ounce packages with Better if UsedBefore Dates between MAR 26 2011 and JUN 22 2011
•UPC 3800039111 8: 17.2 ounce packages with Better if UsedBefore Dates between MAR 26 2011 and JUN 22 2011
•UPC 3800039116 3: 9.2 ounce packages with Better if UsedBefore Dates between APR 05 2011 and JUN 22 2011

Kellogg's® Froot Loops®
•UPC 3800039118 7: 12.2 ounce packages with Better if UsedBefore Dates between MAR 26 2011 and JUN 22 2011
•UPC 3800039120 0: 17 ounce packages with Better if UsedBefore Dates between MAR 26 2011 and JUN 22 2011
•UPC 3800039125 5: 8.7 ounce packages with Better if UsedBefore Dates between MAR 26 2011 and JUN 22 2011

Kellogg's® Honey Smacks®•UPC 3800039103 3: 15.3 ounce packages with Better if UsedBefore Dates between MAR 26 2011 and JUN 22 2011

Concerned customers can contact the Kellogg ConsumerResponse Center at 888-801-4163 from 8 am to 8 pm Easterntime for clarifications and for replacement coupons.

Apple Overtakes Microsoft as the largest Technology Company

Apple Inc finally overtook Microsoft as the largest Technology company. The market capitalization of Apple Inc on May 26, 2010 was $222 billion, while that of Microsoft was $219 billion. Read the whole story at Apple Overtakes Microsoft.

So finally, Apple is the new Microsoft.. The question is, will it use the same monopolistic tactics that Microsoft used?

Income Limit for Conversion to Roth will be Lifted in 2010

Currently people with AGI of $100,000 or more are not eligible to convert their traditional IRA to Roth. This income limit will be lifted in 2010, providing you a unique investment opportunity.

If you are a married individual filing jointly with your spouse, you are not eligible to contribute to Roth IRA if your combined income exceeds $176,000. If your income is between $166,000 and $176,000 the amount that you can contribute is proportionately reduced until it reaches $176,000. If the income is below $166,000, you are eligible to contribute the full $5000($6000 if you are 50 or older). This phase-out limits for single individuals are $105,000 and $120,000 for 2009.

Now, investing in Roth is quite advantageous to anyone and if your income is just above these limits, you are losing a golden opportunity. The 2010 Traditional IRA conversion opportunity gives us a useful loophole though. If you do not have a traditional IRA, you can set up a new one and contribute the full amount to it. In 2010, when you are eligible to convert it to Roth, you can convert the traditional account to Roth IRA in 2010 and bingo you have a Roth account. Better still, if you are not claiming a tax deduction for your contribution, you need not pay any conversion tax for the contribution amount.

This is useful if you do not own a traditional IRA now. If you already own one and it has a size-able amount built up in it, this trick may not be so useful. From what I have read, when you convert, you pay conversion tax on the full amount in all the traditional IRAs put together, not just the one you are converting.

To learn more about converting a Traditional IRA to Roth, see my article in suite101.com

Saver's Credit aka Retirement Savings Contributions Credit

I was browsing the net and came across some useful information for saving tax. It is actually useful if you fall in the low-to-middle income category especially if your filing status is married filing jointly.

There is a tax credit known as Saver's Credit applicable for low and middle income families when they save for their retirement. The tax credit is non-refundable, which means that it is adjusted against the total amount of federal tax that you have to pay. You can get as much as $1000 as tax credit ($2000 for married filing jointly).

Eligibility Requirements For Saver's Credit

The first requirement is that your income should fall in the low-to-middle income category. The Adjusted Gross Income limit for 2009 is $55,500 if your filing status is married filing jointly, $41,625 if the filing status is head of household and $27,750 if you are single, married filing separately, or qualifying widow(er). If your AGI is above these limits, you are not eligible to claim the credit.
You should be 18 years of age
You should not be a full-time student
No one else (for example your parents) should claim an exemption for you in their tax returns.
If you take any distributions from your retirement account during the year in which the tax credit is claimed and also the two year period preceding the same, the amount of credit that can be claimed will be reduced by the distributed amount.

Retirement Contributions that are Eligible

Contributions to a Roth or Traditional IRA accounts
Contributions to a 401 k plan
Other salary reduction contributions like a SIMPLE IRA plan, a 403(b) annuity, a governmental 457 plan etc
Contributions to a section 501(c)(18) plan

Income Limits for 2009

Credit Rate	Married filing jointly	Head of household	Other category of filers
50%	Up to $33,000	Up to $24,750	Up to $16,500
20%	$33,001 – $36,000	$24,751 – $27,000	$16,501 – $18,000
10%	$36,001 – $55,500	$27,001 – $41,625	$18,001 – $27,750
0%	$55,501+	$41,626+	$27,751+

As the income goes up, the tax credit gets reduced. For example a married person filing jointly with an annual AGI of $32000 can claim $2000 if he has contributed $4000 or more to his retirement plan (50% of $4000). The same person can only claim $800 if his AGI is $34000 (20% of $4000).

As you can see, the Saver's Credit is a great incentive for low and middle income families to save for their retirement.

Investment Ideas For the Recession

The same article has appeared in http://www.bizcovering.com/Investing/Investment-Ideas-for-the-Recession.365917. Go on, read it, and make me some money!

There's an old Wall Street adage that says 'Buy on bad news and sell on good news'. For people with secure jobs and ample savings, the current economic downturn may well turn out to be a golden opportunity. This is the perfect time to buy a new house or a car or that stock you have been planning to purchase for a while. You will find that people are actually eager to do business with you and you can snap up a few bargains on the go. The icing on the cake is that if you have a good credit history, this is also a great time to borrow. Interest rates are at the lowest and they might still go lower if the Fed continues to cut rates.

Painful as the recession is, it opens up some wonderful opportunities to the right investor. Here are some great investment ideas to take advantage of the recession-

1. Invest in a house
From 2000 to 2006 the value of the houses were steadily going up and a lot of builders had started building projects, but by the time their projects were finished we were suddenly in a recession. The fear that this is going to be a long recession has led many people to put off their purchases, especially something as important as buying a house. The increasing level of unemployment and layoffs has also forced many homeowners to sell their homes and move to another location where they are offered a job. All of this has resulted in situation where there are a lot of homes for sale, for which there are few buyers. So prices are falling and the sellers are forced to offer more attractive prices.

In addition to the falling prices, you may be pleasantly surprised to find that with demand going down, you suddenly have the power to dictate the terms of the deal. Your real estate agent may be willing to cut her commission or the seller may agree to make some modifications in the house at his own expense.

Due to the sub-prime crisis lenders may have tightened their norms, but for people with good credit history it is still easy to get a loan. With lower mortgage rates and better pricing, this is the perfect time to purchase your dream house.

2. Invest in a car
The U.S. car and light truck sales in 2007 marked the worst sales year in a decade. With oil prices at an all-time high and a bleak outlook on the job market, most Americans are putting off automobile purchases. Worried about the dip in the sales, auto makers are cutting into their profit and have started offering rebates and other deals.

There are also a lot of used vehicles for sale in the market. If you are worried about the depreciation of a new car, it might actually be a good idea to buy a used car. Demand for used cars is also waning due to the overall low demand and you may be able to get some very good deals in this buyers market.

3. Invest in stocks
With bad news after bad news, it might seem that the bad times will continue forever, but every recession has an end and better times will eventually return to the economy. Wise investors can actually use these bear markets to pick up high-quality companies that are selling for cheap. As a matter of fact, the stocks in the S.& P. 500 are now worth about half of what they were at their peak.

If you are worried that the recession is going to last for a while (the great depression lasted 10 years; but normally recessions last for one to two years at the most), then you can start a systematic investment plan, which will allow you to invest small amounts of money every month. A systematic investment plan is great because it allows dollar-cost averaging, or the ability to distribute the cost of purchase over a period of time.

Of course, it goes without saying that in tough times like these you must exercise due diligence. If you are fearful of loosing your job or does not have an emergency fund, then this is not the time to go buying that fancy car or a summer house. At the same time if you are financially sound or have been putting off that purchase just because you could not get the right price, then this is the perfect time to splurge!

But have we learned enough?

Here's an article reproduced from the NY Times by N. GREGORY MANKIW

LIKE most economists, those at the International Monetary Fund are lowering their growth forecasts. The financial turmoil gripping Wall Street will probably spill over onto every other street in America. Most likely, current job losses are only the tip of an ugly iceberg.

But when Olivier Blanchard, the I.M.F.’s chief economist, was asked about the possibility of the world sinking into another Great Depression, he reassuringly replied that the chance was “nearly nil.” He added, “We’ve learned a few things in 80 years.”
Yes, we have. But have we learned what caused the Depression of the 1930s? Most important, have we learned enough to avoid doing the same thing again?
The Depression began, to a large extent, as a garden-variety downturn. The 1920s were a boom decade, and as it came to a close the Federal Reserve tried to rein in what might have been called the irrational exuberance of the era.
In 1928, the Fed maneuvered to drive up interest rates. So interest-sensitive sectors like construction slowed.
But things took a bad turn after the crash of October 1929. Lower stock prices made households poorer and discouraged consumer spending, which then made up three-quarters of the economy. (Today it’s about two-thirds.)
According to the economic historian Christina D. Romer, a professor at the University of California, Berkeley, the great volatility of stock prices at the time also increased consumers’ feelings of uncertainty, inducing them to put off purchases until the uncertainty was resolved. Spending on consumer durable goods like autos dropped precipitously in 1930.
Next came a series of bank panics. From 1930 to 1933, more than 9,000 banks were shuttered, imposing losses on depositors and shareholders of about $2.5 billion. As a share of the economy, that would be the equivalent of $340 billion today.
The banking panics put downward pressure on economic activity in two ways. First, they put fear into the hearts of depositors. Many people concluded that cash in their mattresses was wiser than accounts at local banks.
As they withdrew their funds, the banking system’s normal lending and money creation went into reverse. The money supply collapsed, resulting in a 24 percent drop in the consumer price index from 1929 to 1933. This deflation pushed up the real burden of households’ debts.
Second, the disappearance of so many banks made credit hard to come by. Small businesses often rely on established relationships with local bankers when they need loans, either to tide them over in tough times or for business expansion. With so many of those relationships interrupted at the same time, the economy’s ability to channel financial resources toward their best use was seriously impaired.
Together, these forces proved cataclysmic. Unemployment, which had been 3 percent in 1929, rose to 25 percent in 1933. Even during the worst recession since then, in 1982, the United States economy did not experience half that level of unemployment.
Policy makers in the 1930s responded vigorously as the situation deteriorated. But like a doctor facing a patient with a new disease and strange symptoms, they often acted in ways that, with the benefit of hindsight, appeared counterproductive.
Probably the most important source of recovery after 1933 was monetary expansion, eased by President Franklin D. Roosevelt’s decision to abandon the gold standard and devalue the dollar. From 1933 to 1937, the money supply rose, stopping the deflation. Production in the economy grew about 10 percent a year, three times its normal rate.
Less successful were various market interventions. According to a study by the economists Harold L. Cole and Lee E. Ohanian, both of the University of California, Los Angeles, and the Federal Reserve Bank of Minneapolis, President Roosevelt made things worse when he encouraged the formation of cartels through the National Industrial Recovery Act of 1933. Similarly, they argue, the National Labor Relations Act of 1935 strengthened organized labor but weakened the recovery by impeding market forces.
LOOKING back at these events, it’s hard to avoid seeing parallels to the current situation. Today, as then, uncertainty has consumers spooked. By some measures, stock market volatility in recent days has reached levels not seen since the 1930s. With volatility spiking, the University of Michigan’s survey reading of consumer sentiment has been plunging.
Deflation across the economy is not a problem (yet), but deflation in the housing market is the source of many of our present difficulties. With so many homeowners owing more on their mortgages than their houses are worth, default is an unfortunate but often rational choice. Widespread foreclosures, however, only perpetuate the downward spiral of housing prices, further defaults and additional losses at financial institutions.
The Fed and the Treasury Department, intent on avoiding the early policy inaction that let the Depression unfold, have been working hard to keep credit flowing. But the financial situation they face is, arguably, more difficult than that of the 1930s. Then, the problem was largely a crisis of confidence and a shortage of liquidity. Today, the problem may be more a shortage of solvency, which is harder to solve.
What’s next? Perhaps the most troubling study of the 1930s economy was written in 1988 by the economists Kathryn Dominguez, Ray Fair and Matthew Shapiro; it was called “Forecasting the Depression: Harvard Versus Yale.” (Mr. Fair is an economics professor at Yale; Ms. Dominguez and Mr. Shapiro are at the University of Michigan.)
The three researchers show that the leading economists at the time, at competing forecasting services run by Harvard and Yale, were caught completely by surprise by the severity and length of the Great Depression. What’s worse, despite many advances in the tools of economic analysis, modern economists armed with the data from the time would not have forecast much better. In other words, even if another Depression were around the corner, you shouldn’t expect much advance warning from the economics profession.
Let me be clear: Like Mr. Blanchard at the I.M.F., I am not predicting another Great Depression. We have indeed learned a lot over the last 80 years. But you should take that economic forecast, like all others, with more than a single grain of salt.