May-June 2022 Newsletter
FIRST, THE GOOD NEWS: Our Insurance Annuities have done two incredibly positive things this year. They halved the penalty term from ten years to five years and the interest rate is now guaranteed from 4% to 5%. One annuity begins at 6 ½% for the first year. Think of it as a Certificate of Deposit earning interest that was once paid 20 years ago instead of 1%, banks and savings-loans now pay on long-term jumbo deposits. Keep in mind that there are no taxes on the income until withdrawn. After the first year, 10% of the principal or all the earnings can be withdrawn annually without penalty. Invested principal is always guaranteed.
NOW THE BAD NEWS: Bitcoin is down 60% this year. Elon Musk bought a big position of the market and drove prices up. Now. he has unloaded and lost ½ BILLION on the gamble. Gasoline is up 63%. Nasdaq Composite is in Bear territory down 30%. S&P has joined the bears at negative 20% this year and the DJIA following at only negative 15%. All energy prices are up at least 30%. It is worth noting here that the S& P fell 55% during the last recession of 2007-9. Much of the recent stock market increase was simply replacing the lost value.
The DJIA closed on 7-5-2022 at $30,967. One year ago, it was 36,953. That is -15% in the last year.
Residential Real Estate values have completed their wonderful climb and are now turning down. Mortgages currently are 5.7%, fifteen-year mortgages are 4.9%- and a five-year ARM [Adjustable Residential Mortgage] today is 4.31%. Commercial property values [related to building lease % and rates] have been very uncertain from Covid-19 with many vacancies, and now expiring leases, with many professionals finding working at home more accommodating. Meantime, residential properties have broken their stall at the apogee of the roller coaster and are now coming down. Zillow is three months behind the curve, but eventually the trends become real.
A client approached me with a life insurance program that will buy life insurance policies from seniors who desire to cash them in. He has also offered leveraged insurance programs.
THE COMING RECESSION: Interest rates on commercial loans and mortgages have been unusually low by historic standards resulting in a real estate boom of values exaggerated by a shortage of housing. It does not compare with the easy mortgage money which caused the boom and bust of the early 2000 years. But there is a common thread holding both together –
the forced availability of either artificially low interest rates or the artificial subprime lending activity. BOTH were connected directly to government financial policies. This is a dangerous economic era, and the payoff is inflation and recession.
CALIFORNIA IN THE NEWS: A new agency, the Future of Abortion Council is, on the way to create another First Haven for California as the Abortion Capital Sanctuary of the USA. $125 Million has been requisitioned to pay for additional abortionists, recruitment and retention at clinics, patient travel and lodging. The overturn of Roe V Wade is seen as a surge of opportunity for California to outreach for more liberal business from other states. Yahoo News, the source of this article also commented that our Governor Newsome might be using the abortion opportunity to help position himself for a White House run in 2024.
ELECTION NEWS FROM CALIFORNIA: A tax refund check of $350 to $1,050 will be sent to millions of Californians shortly before the coming November Election. This is a refund of sorts of the $100 Billion budget surplus from overtaxed stimulus payments flooding the economy these past two years. The WSJ calls this Street Money paid to get out the vote as inflation relief. Gasoline costs $1.40 per gallon more than the US average.
SHORTER WORK WEEK IN CALIFORNIA: The WSJ published an opinion about a bill moving through the California Legislature to shorten the normal workweek to 32 hours from 40. Workers who put in more than 32 hours would be paid overtime. Working less hours is believed to increase morale and efficiency. Can Tesla manufacture as many cars in the missing eight-hour day?
A NEW FEDERAL TAX INCREASE: As the war on oil progresses a new Interior Department move has dramatically increased costs, taxes, and prices for crude oil. Oil drillers were required to pay royalties of 12.5% on the value of oil found and produced on federal lands now a 50% increase to 18.75% for the tax. Meanwhile, the moratorium on new leases on federal lands by President Biden remains in place
The silent tax increase is inflation that pushes taxpayers into higher tax brackets. This may have been caused by increased panic spending by the Federal government. The Federal Reserve is now increasing interest rates to slow things down. Meanwhile, the Biden Administration is still pursuing a $2.5 TRILLION increase in taxes. This could be deadly to all.
Finally, our inflation rate as of June 30 was 9.1%, the highest rate in 40 years, dating back to December 1980.
NEW MILEAGE RATES FOR BUSINESS TRAVEL: The new deduction for business travel will be $.625 per mile. That is up from $.585 for the first half of this year thru 6-30. and the higher rate from July 1st. If you have business auto travel, we will ask you to give us mileage for each half of 2022.
INSURANCE ANNUITIES: Conservative investors and clients not inclined to invest in the stock or bond market at this time should consider short-term five-year insurance annuities. I will be available to meet with any clients who are interested in learning about why these investments are safe, tax deferred, principal guaranteed, and paying particularly good interest rates. Currently, four to five times the rate available at your local institution.
CLIMATE CHANGE EFFECTS: Everybody with a home periodically checks under the eaves or gutters for wasp nests. These things have an ugly sting and do not like to be disturbed. I remember blasting the nests with the hose and carefully stomping on the creatures when they hit the ground. I have not seen a wasp nest in years...until this week.
We were cleaning out the gutter on the side of the house which had a tree that deposited leaves there for many years. During the process, my helpers exclaimed that there were wasp nests in the debris. With the help of a CO2 fire extinguisher, we froze them and finished the job. The wasps have migrated to the top of the gutters instead of being sheltered by them under the eaves of the roof. A sign of global warming as it never rains any more in the Summer and the nests are no longer endangered. Beware: check and keep your eves clean because the missing wasps may be closer than you believe.
WHY WE BOUGHT TESLA SOLAR UNITS: Yes, we did. The economics were twisted because the price of the panels declined but the overhead to install them increased. They still penciled out economically, but we thought the new units with excess capacity and a battery backup unit would satisfy our future demand for electricity. A recent Reuters News article predicted California will have a capacity shortfall of 1,800 to 5.000 MW in three years. Therefore, an annual price increase of 4-9% soon is expected. Let us hope there is no Enron in the future.
WORLDCAT CATALOGUE SERVICE: My granddaughter Sarah did a library search early this year to see if my first book, American Independent Business published in 1985, was still in circulation. She found out that there are 68 universities in the States and globally. These are the following 68 Universities that still have a copy available. Maybe, you went to one of these schools.
1} University of San Diego, Copley Library
2} University of California, Los Angeles
3} Arizona State University Library
4} Stanford University, Graduate School of Business
5} San Francisco Museum of Modern Art
6} Brigham Young University, Harold B. Lee Library
7} University of Utah, J Willard Marriott Library
8} Southwest Kansas Library System
9} University of Texas Libraries
10} State Library of Kansas
11} The University of Texas Rio Grande Valley
12} Lamar University, Mary & John Gray Library
13} Saint Cloud State University
14} University of Louisiana at Lafayette, Edith Garland Dupre Library
15} University of Northern Iowa
16} Illinois State Library, Gwendolyn Brooks Building
17] University of Mississippi
18} Eastern Illinois University
19] University of Illinois at Urbana Champaign
20} University of Minnesota Duluth, Kathryn A Martin Library
21} Birmingham-Southern College Library, Charles Andrew Rush Learning Center / N. E., Miles Library
22} Carmichael Library, University of Montevallo
23} DePaul University Library
24} Middle Tennessee State University, James E. Walker Library
25} Northeastern University Illinois University, NEIU Libraries; Ronald Williams Library; El Centro Library & Learning Center; CCICS Library
26} University of Alabama
27} University of Louisville, Belknap Campus, Edstrom Library
28} University of Notre Dame, Hesburgh Library
29} University of West Florida, John C. Pace Library
30} Vanderbilt University Library, Jean, and Alexander Heard Library
31} Auburn University
32} Georgia Institute of Technology
33} HathiTrust Digital Library
34} University of Georgia, University of Georgia, Main Library
35} University of Michigan-Flint, Frances Wilson Thompson Library
36} University of Rio Grande, Jeanette Albiez Davis Library
37} Salem Libraries
38} Western University, Western Libraries
39} North Carolina AT&T State University, F.D. Bluford Library, Fernand Douglass Bluford Library
40} North Carolina State University, NC State University Libraries
41} Redeemer University Library, Peter Turkstra Library
42} University of Central Florida
43} University of North Carolina at Chapel Hill, University libraries, UNC University Libraries
44} University of North Carolina at Greensboro, University Libraries
45} Cornell University Library
46} Florida International University, Green Library, Modesto A. Maidique Campus
47} Library of Congress
48} Patrick Henry College Library
49} University of Baltimore Library
50} University of North Carolina Wilmington, William Randall Library
51} Newark Public Library, Main Library.
52} Rutgers University Libraries
53} Universite d’Ottawa
54} Central Connecticut State University, Elihu Burritt Library; Burritt Library
55} Fordham University, Fordham University Libraries
56} New York Public Library System
57} Pace University-Pleasantville, Edward & Doris Mortola Library
58} Harvard University, Harvard Library
59} Merrimac Valley Library Consortium
60} Acadia University, Vaughan Memorial Library
61} Erasmus University Rotterdam Leeskabinet, ISS Library, EUC Library, Sanders Law Library, Medical Library
62} Kokushikan University Library
63} Bibliothek der Freien Universlitat Berlin
64} IE University Library
65} Universitatsbibliothek Passau
66} De La Salle-College of Saint Benilde, Br, Fiudelis Leddy Center for Learning Resources
67}Ben-Gurion University of the Negev
68} Library, Dalat University, Thu’vien Truong Dai hoc Da Lat
At this time, I am writing a new book, “Trust Me” which hopefully will be out before year-end. This book is about an international fraud using the clients of a local savings & loan.
I am inviting those who have questions about taxes and investments to call for an appointment to our office. I offer a complimentary one-hour consultation on portfolio analysis or financial planning.
Phillip B Chute, EA