Asset Planning, Inc Blog

Many homeowners were shocked to see an increase in their property tax bills from last year, given the widespread drop in housing prices. Most homeowners saw their bills increase because the assessed value of their property is often different than the market value. This is due to Proposition 13 which rolled property assessments back to 1975 levels and capped the annual increase at 2 percent. A property can be reassessed if it changes hands or the living area is enlarged. Under Proposition 8 – (a 1978 initiative, not this years gay marriage initiative)- counties are required to reassess a property when the market value falls below the assessed value, but many times it is not automatic.

If you purchased your home when prices were much higher, chances are your assessed value is much higher than the current market value. Every county assessor's office offers a process to appeal your property assessment. The Los Angeles County website is: www.lacountypropertytax.com and the Orange County website is www.ac.ocgov.com/newpage/taxinfo.asp Theses websites are very helpful and have the forms and instructions for you to follow.

BEWARE: There are private companies posing as government agencies offering to lower their property tax for a fee. This is a SCAM, there is no fee for the county to review the appeal application.

It looks like good news for those taxpayers who are 70 /12 and older. Congress approved legislation that includes a one year suspension of the RMD for 2009. It is expected the president will sign it shortly. In short, you will not need to take the required distribution from IRAs and employer provided qualified retirement plans that are defined contribution plans. The next required distribution will be required in 2010. This applies to employees, IRA owners and after-death distributions to beneficiaries.

The provision is effective for calendar years beginning after December 31, 2008. The provision does not apply to any required minimum distribution for 2008 that is permitted to be made in 2009 by reason of an individual's required beginning date being April 1, 2009.

If you have any questions, please be sure to contact us or your tax professional.

Sandy

We are finally moving into our new offices. On Tuesday and Wednesday, the furniture and mounds of boxes are moving. Our telephones and email are expected to be working on Thursday, December 11th. Our telephone number is the same. The new address is 10833 Valley View Street, Suite 470 Cypress, Ca 90630. The office is just off the corner of Katella and Valley View, behind the El Torito.

Bear with us in responding to missed telephone calls and emails during our move.... we will respond as quickly as we can.

Sandy

Chase and Citibank are canceling credit cards that have not been used for a six month period or longer. Chase bank sent a letter to card holders, explaining that the cards have been canceled, after the fact. Citibank cards are being canceled without notice to the cardholders. This could be very embarrassing to people that use a card and find out it has been canceled. I believe the companies are worried over the looming credit card debt as the unemployment numbers rise. I am sure Chase and Citibank are not alone in this new practice.

I advise clients to always have three to six months net (take home) pay available, via cash or CDs, life insurance cash value or a home equity line. Many clients keep a credit card unused for emergency purchases or cash advances. These are the very cards that are in danger of being canceled, without the client knowing. The quick fix: go charge a purchase on any dormant credit cards you have. The charge will keep the card active and buying something will help the economy!

Sandy

The market likes certainty. The Big 3 were told to come back with a new plan, leaving the bailout question hanging for two weeks. When Henry Paulson changed direction and announced he would not spend more of the TARP money until January, the market turned negative and went south. That drove the market to new lows.

One client told me she is now addicted to turning on the TV at 12:30 daily and watching the market for the last 30 minutes. "It's like watching a building fire- horrible and irresistible to view. " Today, the fires were extinguished.

President Elect Obama announced Hilary Clinton as the new secretary of state (third woman in a row) and Tim Geithner as the new Treasury secretary. Ah, finally we see some decisive action! The market likes an action plan, a road to success or a least a path out of the destruction. The market rebounded 494 points on the Dow in the last hour. Less talk, more action!

Sandy

Were the insurance companies next? Yes, they were. Within days of writing that blog, they began to suffer the relentless panic selling, driving the companies down 40% within days. Some are down 80% year to date, the same as the banks that were taken over.

Why is the market still selling off? The Big 3 auto makers thought they would get their bail out money within days of the three CEOs appearing before Capital Hill. Instead of playing Show Me the Money, they were asked to Show a Plan for viability before they get the money. They have been given until December 2nd to introduce a bailout proposal plan. Why is this so important?

If one or more of the auto makers fails, it would render millions without jobs and retirees without benefits. This is the big fear driving the market down. Unemployment could easily reach 10%. It is said that for every person on the line in the factory, there are five more jobs supported from the auto line. It may be in auto parts, sales of the car, car repairs, etc. The trickle down effect would be great.

Many people blame the union for keeping plants at 80% production even when the autos are not selling. The benefits that unions have demanded equal $71 per hour. I listened to many hours of testimony from the head of the UAW and the three CEOs. Based on their testimony, I would not give them the money at this stage or they will be back in three months, needing more. They need a better plan to go with the request if they really want the money.

I think it is the necessary evil. The big three need to receive a bail out but their contracts also need to be rewritten, some of their car lines sold and most made more fuel efficient. The money also needs to stay in the US, not invested in their China factories.

The S&P is now down 52%- a level not seen since 1938. Most of the stocks are trading higher in after hours trading. Let's hope that translates into a rally tomorrow.

Treasury Secretary Paulson is sending mixed messages. The summary of his recent speech: we needed the money for the bail out, the bill finally passed and now he has changed his mind on what to do with the TARP funds. They will buy assets, no they won't, yes they will. We do know that AIG was the first asset purchase for the funds. On November 10th, $40 billion of assets were purchased from AIG, the troubled insurance company. This is after a loan of 85 billion was given to AIG for a two year period.

Five weeks have passed since the bill was passed. Asset managers have not been hired, nor have assets been outlined as purchases. TARP was sold to Congress as a way to buy, and thus remove, the worst assets from the bank's balance sheets. Instead, we have focused on giving the bank's capital instead of taking an ownership role. I would prefer the assets be purchased and we would have some upside in the asset when the industry returns to a profitable status.

The banks appear to have stabilized at their current levels but capital is not flowing to the consumers yet. Now the auto makers are asking for a bail out and that is proposed to be a separate tax bill of 25 billion. Next in line are the insurance companies and many were downgraded by Goldman Sacs research earlier this week. The life insurance companies have issued more annuities with life guarantees than they may have the capital for payout. If their assets fall, their credit rating will fall, and customers begin to withdraw assets as they fear the company might go into bankruptcy. We have already seen the banks play musical chairs and most of them were left standing when the music stopped and they are out of the game.

The market posted a nice gain yesterday of over 550 points. However, it was a swing of 900 points intraday and enough ups and downs to make me feel like I was on a teeter totter.

Please, Mr. Paulson give us some insight on your plan and actions.

Sandy

Welcome to our blog- our newest way to communicate.

On November 4th, Barack Obama was elected as our newest president. He is expected to move quickly to announce his selections for the top economic posts, including a new Treasury secretary. We could see Paul Volcker, the former Federal Reserve chairman, in this position.

There are a number of problems facing our nation. Unemployment is currently 6.1% and will probably rise over 7% in the coming months as more layoffs are being announced each day. There is no doubt we are in a recession. How long will it last? Will it be deep and prolonged like the 1981-82 recession, which lasted 16 months and unemployment was 10.7%? The last recession of 2001 was eight months long but consumers used their home equity as ATM machines to spend their way out of the recession. Interest rates were low so spending continued. I believe this time will be different. Home equity has been wiped out by falling home prices and home equity loans have been tightened or canceled.

The global liquidity crisis that had gripped banks around the world seems to be improving. Cash is beginning to flow and loans are being made. Home sales did pick up last month. Dr Adibi, economist of Chapman University, believes real estate values will fall another 10% as the Alt A mortgages begin to default. The majority of the five year arms (adjustable rate mortgages) will reset in 2009 to 2011. I would look to buy real estate in mid 2009.

Where do we go from here? The volatility of the market is unsettling and it seems to overreact to any bad news. We do not yet know how the new administration will impact our taxes and capital gains rates on investments. We are currently reviewing year end summaries of each managed portfolio for gains, losses and taxes.

For the short term, do not focus on the daily or weekly news and stock fluctuations. Investments are for long term horizons and trying to time a market top or bottom is nearly impossible. We have plans in place for purchases on a global level for several great companies that have been undervalued. Moves in the market happen quickly, including rallies on positive news. Look ahead to 2009.

"Be fearful when others are greedy, and be greedy when others are fearful" Warren Buffett

Sandy