Happy Holidays

The Holiday season is in full force and spending numbers are up (which is great for a retail sector that really needed it.) If we see follow through purchasing numbers post-holiday, it could trully signal the end to the paralysis that has gripped our nations wallets this past year. Once again, get out their and do your part. Go Buy Something!!

Payback Time

Most of the largest US banks that accepted TARP money are now in the process of trying to pay it back at all costs. I am sure that this is due to the administrations move to limit compensation and deny bonuses to executives....It's amazing what a honey and stick approach can accomplish. Even with some of the elite earners in our society.

Dollar Strengthening

A strengthening dollar means that the US $$ will have greater purchasing power. The administration and the Fed have made an effort to devalue the dollar and allow the stock market to strengthen. If the Fed raises rates because of the dollars "growth" we could be in for a stock market move to the downside.....Stay nimble with your trades through the holidays!!

Shop til You Drop

Holiday shopping season is underway and the numbers are looking good. This economy really needs to see healthy numbers from consumers to continue to push forward. I know that I (aka my wife) am doing my part to spend us out of this recession and hope that you will also. Great deals on tech merchandise are rampant so shop til you drop!!!

Bubbles

We talked a lot about asset bubbles on the show this week and expressed our opinions on any current bubbles.....What are your thoughts on if we have any current bubbles in the marketplace and where???

The term “asset bubble” is the talk of the town right now. According to material on Bloomberg.com the topic is being addressed by economists and investment strategists around the globe as world stock, bond, and commodity markets continue to rise with apparent impunity. An asset bubble occurs when the value of an assets class, such as real estate, stocks, bonds or commodities rises in price far beyond what can be justified by supply and demand forces or basic economic fundamentals. Asset bubbles are almost always connected to some type of economic or monetary policy imbalance that is often undetectable while it is occurring. For example the asset bubble in housing that burst in late 2007 was connected to a simultaneous asset bubble in credit that was in turn was connected to a policy of artificially low interest rates following the 9/11 attacks and dot.com bubble collapse. The dot.com bubble collapse refers to the NASDAQ stock market crash in internet and technology stocks that occurred in 1999-2001. The bubble in technology companies was driven in part by venture capital firms who were able to get access to cheap capital as a result of the low interest rates following the Asian financial crisis of 1998. The problem with asset bubbles is that they always eventually pop. And when an asset bubble pops, the results have been historically catastrophic for the rest of the real economy as well. I’ve come to the conclusion that bubbles never look or feel the way that you think they should. I’ve been through two major asset bubbles in my career, the dot.com and the credit crisis, and while hindsight is of course 20/20, I have learned that it is very difficult to discern an asset bubble while it is actually occurring. That’s because bubbles occur when irrational greed (or sometimes fear) completely overshadow logic, reason and balance. While the asset class in the US that would be highest on my list for potential bubbles right now would be US Treasury securities, I do not actually believe that we are experiencing an asset bubble in the US at this time. While Treasuries may be overpriced right now, it would actually be an unlikely place to find a true bubble. Globally if I had to pick a bubble it would definitely be the Chinese stock market. But with that market off 40% from its peak value in late 2007, it’s a little difficult to compellingly make that case as well. The reason however, that this topic is being discussed around the globe right now is because remember that asset bubbles are typically connected to an underlying economic imbalance. While these imbalances aren’t always clear, right now the economic imbalance is quite clearly identifiable. I, like many investment strategists, believe that the aggressive actions to stimulate the economy by the Fed and the Federal government are laying the perfect foundation for the next asset bubble. Knowing that this bubble could be out there I believe that investors should take extra caution and remain extra vigilant in their portfolio strategies for the foreseeable future. I know the financial markets look attractive right now, but they need to be managed with care.

Channel 56 Auction

With two guys that are famous for having "faces for radio," we enjoyed the auction and hope that you bid early and often. Thanks for supporting a great cause. Channel 56 and The Lakeshore 89.1 are Northwest Indiana's public media option.

Taking a Closer Look at the Lehman Sale

I always thought there was something stinky regarding the way Barclays managed to take the sweetest peice of Lehman for what looked like a steal. Well Lehman's largest creditors are thankfully taking up the banner and the fight. Looks like there's plenty of corruption to go around with this deal, and Lehman's customers and bond holders obviously want their money. Check out this Yahoo link to the New York Times. http://finance.yahoo.com/banking-budgeting/article/108122/did-barclays-get-a-remarkable-bargain-on-lehman?sec=topStories&pos=6&asset=&ccode=

Lectures from the Chinese

It's no secret that the US government is increasingly indebted to the Chinese, so I guess its reasonable that we should have to take some financial planning advice from them as well. But are the Chinese in the position to be lecturing the US. I've never thought so, check this out. http://finance.yahoo.com/tech-ticker/article/368426/China's-Premier-Warns-Obama-to-Get-America's-Deficit-to-an-%22Appropriate-Size%22?tickers=FXI,TBT,TLT,PGJ,UDN,%5EDJI,%5EGSPC

New Guest to the Show--Dale Clapp, Executive Vice President, Citizens Financial Bank

Thanks Dale for your deep insight into Region Banking......Dale can be reached at CFS bank at 219.513.5158

Is the poor jobs data finally hurting the market?

We have lived with this "jobless recovery" for the last 6 months with the stock market moving forward. It is without a doubt that this country needs the consumer to take action and start spending in order for corporate profits to pick up. Can we do that while American's are still losing jobs? I am curious to find out what you think.

Dr. Glen Mueller

Dr. Mueller's insight into the U.S. real estate market was a great addition to our show this week. I have been a long-time follower of his and enjoy his quarterly updates on that segment of our economy. If you would be interested in also reading the wealth of knowledge that Dr. Mueller has to offer, send me a quick email and I will be sure to pass along his quarterly commentary and analysis....Thanks for listening. Mike Barancyk

Now that the Olympic dream is dead. What's next?

There are two issues that are still looming large....Healthcare reform and Environmental Protection. Which is more important to you??

Olympics. YEAH or NEH

Let us know your opinion on the costs and benefits of bringing the Olympic games to the USA and Chicago.

Healthcare Debate

The Healthcare Debate is heating up and we should have some resolution soon. I am interested to find out some of our listeners opinions. Please send us your comments or Blog on our site....Thanks

Region High School Football

Make sure that you tune in to 89.1 for Region coverage of HS football games.

This week's show

1st-Please don't hold the technical difficulties from this week against us. 2nd-Wasn't it a fun show 3rd-Discussion on this weeks show centered around this country's debt and how we get a handle on it. I am worried that if we can't curb pork spending and focus on the truly important social programs, then our debt will continue to balloon and our children will end up paying the price. Lastly- I welcome any comments or debate on this topic.

New Guest on The Show

Listen in next week when our guest Kevin Huseman, CEO of Point Imaging, discusses the ramifications of the proposed healthcare bill on both the consumer and the business owner.

It's Time for "Show Me the Money"

This week ushered in the beginning of “show time” for the stock market in the form of earnings reporting season. On Thursday aluminum producer and Dow component Alcoa kicked off the show when it reported its second quarter profit results. Stock markets rise and fall for innumerable reasons, but in the end stock values as a whole are linked to corporate profitability above all else. Recent performance indicates that the rally that raised stock indexes almost 40% from their March is taking a break, but most strategists attributed the rally to two primary factors. The first factor was the belief that the worst of the financial crisis was behind us. With the government taking unprecedented actions to stabilize the financial system investors apparently felt Armageddon had been averted and in this context stocks looked to present a buying opportunity. But the less dramatic story was probably the more important. And the less dramatic story was that corporate profits in the first quarter, while dismal, were really not quite as bad as Wall Street expected. So the market rallied. But stocks cannot rally in a vacuum, and ultimately real profits must support stock prices. The most basic and undoubtedly important measure of stock prices is the price of a stock divided by the per share profits of the company the stock represents, this is known as the price to earnings ratio (P/E ratio). Stock market indexes can also have an average price to earnings ratio based upon all the stocks that make up the index. The S&P 500 has historically traded at a price to earnings ratio between roughly 12 and 20, with ratios above 15 historically being considered to fully valued or if looked at in a vacuum, fairly neutral. It is interesting to note that the S&P 500 currently has a P/E ratio of 16, which perhaps incidentally is the same level the index was at near the market top in late 2007. The reason the index can be at the same ratio when the value of the index remains roughly 40% lower is that corporate profits have contracted by roughly the same percentage. An index P/E ratio of 16 does not by itself provide a lot of guidance, but many strategists would say that a P/E at that level would be more indicative of a market top than an opportunity. So this begs the question, if stocks are fairly valued what would it take to restart the rally? The answer is earnings. If earnings reported in the next few weeks are higher than last quarter, the market may track earnings at their current P/E ratio and go higher. Or if earnings don’t actually rise, but come in better than expected the average P/E ratio could actually go higher as investors express confidence that the recession is abating. But reality is that expectations for earnings are pretty low, so investors may in the end decide to disregard current news that is expected to be bad and attempt to read between the lines. When companies report their profits they will also release analysis of their sales and operations. Investors will be combing these releases for signs of light at the end of the tunnel. It is my expectation that the next few weeks will be quite volatile because earnings and guidance will provide no clear or coherent conclusion for investors. And in this spirit we are back to Alcoa, who presented better than expected numbers in the form of a smaller loss than anticipated. It might be easier to read tea leaves.

1st Time Home Buyer Credit Questions Answered by Mike Barancyk

I appologize for the length of this blog, but I wanted to get this information all out at one time. I pulled these questions and answers straight from the Federal Housing Authority website which means that they should be about 90% accurate. Who is eligible to claim the tax credit?First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. What is the definition of a first-time home buyer?The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer. How is the amount of the tax credit determined?The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000. Are there any income limits for claiming the tax credit?Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts. What is "modified adjusted gross income"?Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits. Can you give me an example of how the partial tax credit is determined?Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply. How do I claim the tax credit? Do I need to complete a form or application?Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. What types of homes will qualify for the tax credit?Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.It is important to note that you cannot purchase a home from your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse. Please consult with your tax advisor for more information. Also see IRS Form 5405. I read that the tax credit is "refundable." What does that mean?The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed). Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. Is a tax credit the same as a tax deduction?No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800. I bought a home in 2008. Do I qualify for this credit?No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 14 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here. The Secretary of Housing and Urban Development has announced that HUD will allow "monetization" of the tax credit. What does that mean?It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.Under the guidelines announced by HUD, non-profits and FHA-approved lenders will be allowed to give home buyers short-term loans of up to $8,000.The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.In addition, approved FHA lenders will also be able to purchase a home buyer’s anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.More information about the guidelines is available on the NAHB web site. Read the HUD mortgagee letter (pdf) and an explanation of the FHA Mortgagee Letter on Tax Credit Monetization (pdf). An FAQ about monetization (pdf) is available at the NAHB web site. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount. Now is the time to take advantage of this opportunity if you can navigate the restrictions that the gov't is imposing. Make sure that you consult a true mortgage professional to help determine if your a fit.

July 2nd Column, College Tax Planning

Summer is nearly half over and this means that students and parents of college bound children have money on their mind. The good news is that the government has made education assistance a priority and has a number of programs designed to take the edge off of these expenses. While the IRS publication dealing with these programs is 86 pages long, I’ll try to highlight a few of the widely available tax benefits that college concerned families need to look into. In my opinion the best type of tax benefit is a tax credit. This is because a tax credit can reduce the amount of income taxes payable on a dollar for dollar basis. The two primary Federal tax credit programs are the Hope Credit and the Lifetime Learning Credit and the State of Indiana also has its 529 contribution credit. We’ll review all three. The Hope credit provides a tax credit for 100% of the first $1,200 of qualified education expenses and 50% of the next $1,200 for a maximum tax credit of $ 1,800. The Hope credit is non-refundable which means that the maximum benefit is limited to the amount of Federal income taxes that the individual or family actually owes. The Hope credit can also only be claimed when you or your supported student are completing their first two years of undergraduate study. After claiming the credit for two years, it is no longer available for that student, but expenses for other supported children may be claimed. The Lifetime Learning Credit is a more flexible tax credit for 20% of qualified education expenses for a maximum credit of $2,000. Unlike the Hope credit, there is no limit to the number of years that the Lifetime Credit can be claimed. Also unlike the Hope credit, the qualified education expenses incurred in order to claim the Lifetime credit do not have to be in the context of pursuing a degree, but can be incurred for other reasons such as improving job skills. Both tax credits cannot be claimed for the same student in the same year and both credits begin phasing out at relatively modest income levels ($48,000 for single filers and $96,000 for joint filers). If your income is too high to qualify for these credits, you can still take many education expenses as a deduction on your federal return. The State of Indiana also has an attractive tax credit associated with the state’s 529 education savings plan. Indiana will provide a credit against your state income tax liability for up $1,000 if you contribute money to the UPromise Indiana 529. The money can be contributed to the 529 plan and then withdrawn to pay expenses in the same year as long as the 529 account stays open with a small balance. So if you qualify, being aware of these credits can provide as much as $3,000 in annual education support for college bound students. As in all things tax related, there are a ton of details associated with these plans and I would highly recommend that you consult a qualified tax advisor.

Sneak Preview TODAY!

Tune into The Lakeshore, 89.1 FM today at 4:30pm for a listen to the guys chatting about finances with "Lakeshore Drive" host Len Clark.

Radio Show starts July 6th!

Tune into The Lakeshore, 89.1 FM at noon on Monday, July 6 for the debut of Your Mind on Money!