US Migration - Victim Of The Housing Market

Over the past 30 years Americans have gotten ahead by moving to a new city/region. Most of the cities losing people have been the 'Rust Belt', those cities gaining have been in the 'Sun Belt'. Just last week the US Census Bureau reported that Dallas-Fort Worth had more people move to it over the past year than any other city.

To the left is a graphic (from CNNMoney.com) listing the top ten metro areas with the biggest population growth in the US. Of the top ten cities, eight are in the 'Sunbelt'. From CNNMoney:

The Sunbelt is the fastest growing part of the country because in large part thanks to its lower cost of living - from housing and groceries to taxes. The region has been one of the fastest growing for years now, says Frey and, "growth breeds more growth." As more people move to an area, there is increasing demand for goods and services, which creates more jobs.

Frey expects to see growth continue in the Southeast - expanding further into the less developed parts of South Carolina and Tennessee - and into the West, particularly in the interior parts of California, Arizona, and Colorado.

The U.S. Census bureau grouped counties into 363 metropolitan areas across the country. Those metropolitan areas contained 251.9 million people, or 83.5% of the nation's population.

While the actual number of people moving specifically for job related reasons is not known, one can assume that most of the movement is due to people wanting to improve their quality of life. Why stay in cold and snowy Michigan as an auto worker, when you could move to sunny California and work as a mortgage broker. (Both people might be out of a job, but at least its nicer weather in California.)

Impact Of Housing Market

The migration numbers for 2007 were a 27% drop from the numbers in 2006. The New York Times reports:

With homes changing hands easily in a booming market, interstate migration reached 2.2 million people in 2006, excluding the effects of Hurricane Katrina. As the economy and home prices began to unravel in 2007, however, interstate migration plunged to 1.6 million people.

One of the biggest problems is that when people move to another city, they are having a hard time selling their older home. The idea of having to carry two mortgage payments for six months to a year is so daunting that it is making people reluctant to move. The NY Times article noted some employers are finding '...employees reluctant to move, even for a raise and a promotion.'

If people do make the move, sometimes families are split up. The spouse with the new job will move onto the new city while the other spouse (and kids) stay behind to watch over the old house. This scenario has got to put the family under a certain amount of stress.

The problems in the housing market are also preventing older retired people from selling their home. They have spent most of their life in the house and are reluctant to sell it for less than they think that it is worth. This prevents them from downsizing their home, moving to an assisted living homes, or moving to sunny Florida.

Cost of Lost Opportunities

What will the impact to the economy be due to by people not moving because they can not sell their home? I imagine that the long term impact will be minimal, especially compared to all of the financial loses. But what about the intangible things like happiness and quality of life?

Source:
'Unsold Homes Tie Down Would-Be Transplants', by Louis Uchitelle, NY Times
'Dallas-Fort Worth tops population growth', by Catheine Clifford, CNNMoney.com

Financial Records - Paper Work Storage

Probably one of the biggest tasks for anyone managing their personal finances is how to manage all of the paperwork associated with the accounts. It seems that each account generates about 15-20 statements or mailings a year. If you have several accounts, by the end of the year you could have a pile of papers stacked up waiting for you to deal with them.

How do you know which pieces of paper to keep and which to discard? How long do you need to keep the paperwork for? Where should you store everything? Hopefully, this post will be you begin to organize you financial paperwork.

First Contact

When you get the mail this is your first chance to help organize you financial paper work. Take a few minutes to review the mail and discard any random catalogues or mailings that are not addressed to you. These mailings typical are addressed to 'Our Neighbor", 'Resident' or some other pleasant nondescript word. Next pass is to separate the personal letters, bills and account statements from other pieces of mail actually addressed to you. Open the bills and account statements and get rid of any extra paperwork (advertisements, the used envelops) included in the envelop. I can't tell you how many advertisements I have thrown out after opening a credit card bill. Once you go through this step put the actual bills and account statements in an In Box so you can deal with them later.

On the final pass through the mail, go through and discard any other random mailing you are not interested in reviewing further. It is best to review anything I have pulled out soon after doing this. If not I will usually let it sit around until I throw it away. A good thing to do is to shred any credit card applications or other things that have personal information. Can't be to careful about identity theft, read my post on identify theft.

In Box

The In Box can be anything you want; a box, a bin, a file folder, an envelop, etc. just as long as it's only use is for mail you need to deal with. Depending on the type of person you are, you may empty out the In Box everyday or twice a month. Some people may want to deal with everything in one sitting, while others may stretch it out over a couple of days. Whatever works for you is what you should do, as long as it is consistent. As you go through and resolve the items in your In Box, send them to the Out Box.

Out Box

Just like the In Box, the Out Box can be anything you want, just as long as it's only use is for the mail you need to file. Again, you can determine when to empty your Out Box on a schedule that works best for you. I usually skip this step and after dealing with the In Box and go directly to file.

File

At this point, you can separate bills from account statements. Bills get put into a folder and kept until the next monthly bill. You should verify that the previous months payment was credited correctly and then shred the old bill. Quite a few people may want to keep their monthly bills, I am just not one of them. If you want to keep you monthly bills, it would be best to keep an expanding file with a minimum of 12 sections, with each section representing a month. Some bills you may need to keep to help determine the cost basis when you sell the item, or if you need to prove the value of an item for insurance purposes.

Account statements get filed in a three-ring binder with tabbed sections, each tab representing a individual account. Some accounts (bank accounts/trading accounts) produce just monthly statements, so you should keep each of those. Other accounts (401k accounts/mutual fund accounts) produce monthly, quarterly and/or yearly statements. In terms of keeping the amount of paperwork to a minimum you should just keep the statement with the longest time period. For example if your mutual fund company issues all three types of statements, just keep the yearly statements.

Sometimes you may need to keep some random or loose items that are shaped a little strangely. You can always add zipper binder pocket to store those items.

Archive

Three ring binders can be expensive and sometimes take up a lot of shelf space, so after a year you can transfer the statements into a pressboard binder. You can transfer all the statements along with the divider tabs into these binders and store them somewhere. It would be good to write the year on the front cover of the binder.

You can also store your binders in boxes to free up space in the bookshelf.

Last Contact

How long do you need to keep your financial records? Check out this post which covers which financial paperwork to keep and for how long. Once you have determined that the documents are no longer required, you should destroy them by shredding. Most of these statements have sensitive information that you may not want others to be able to see.

Electronic Storage

A lot of financial companies offer the opportunity to receive your statements electronically or the ability to download them in PDF. Some companies even charge you for a paper statement. The question is, should you keep hard copies of your financial records if you receive electronic copies?

One huge benefit to electronic statements is that your paperwork is greatly reduced. You would still need to be organized, but it can be easier to 'file' electronic statements then it is to file paper statements. One huge problem with only electronic statements is what happens to all of your information if your computer crashes? I think that it is best to either have a paper copy or back up the disk drive often.

I think that for most types of accounts, paper statements will eventually go the way of the checks bank use to return to you. Most companies would prefer to do this. Just think of the money they could save by not having to print and mail documents to account holders. I still like to have a paper copy of account statements. Mainly because I will spend more time reading them then if I have to review them on the computer.

Reduce

One way to help reduce the amount of paperwork you have to deal with is to remove you name from mass mailers and pre-approved credit card offers. Not only will this reduce your hassle factor you will do something good for the planet. Here are a couple of facts about junk mail from The Center for a New American Dream.

• More than 100 million trees’ worth of bulk mail arrive in American mail boxes each year – that’s the equivalent of deforesting the entire Rocky Mountain National Park every four months. (New American Dream calculation from Conservatree and U.S. Forest Service statistics).

• In 2005, 5.8 million tons of catalogs and other direct mailings ended up in the U.S. municipal solid waste stream – enough to fill over 450,000 garbage trucks. Parked bumper to bumper these garbage trucks would extend from Atlanta to Albuquerque. Less than 36% of this ad mail was recycled. (U.S. Environmental Protection Agency)

• The production and disposal of direct mail consumes more energy than 3 million cars. (New American Dream calculation from U.S. Department of Energy and the Paper Task Force statistics)

• One study says Americans throw away 44% of bulk mail unopened, yet still spend 8 months per lifetime opening bulk mail. (Consumer Research Institute)

Below are some links to use to reduce your junk mail.

• Credit Card Offers > https://www.optoutprescreen.com/?rf=t
• Junk Mail > https://www.dmachoice.org/MPS/mps_consumer_description.php
• Catalogs > Email abacusoptout@epsilon.com with your full name and current address.
• Larger List > http://www.privacyrights.org/fs/fs4-junk.htm

Source:
'Just the Facts: Junk Mail Facts and Figures', New American Dream

Financial Records - What To Keep

While it may not be necessary to keep every bill, receipt or statement, there are a couple that are worth holding on to:

Income Tax Returns

You should save all of your paperwork related to you Federal tax return for a minimum of three years. The IRS has up to three years from the filing date to audit your tax return, and in some cases has up to 6 years. Depending on the complexity of your tax return, this could be a rather large amount of paperwork. You should check with the state that you also file taxes in to see how long they have to audit your return.

W-2 Forms & Other Income Statements

You should retain these for as long as you keep your income tax returns. Also every year you should compare your last W-2 statement to your Social Security Statement earnings record. These statements are sent out to anyone over 25 years of age and with earned income around their birthday. For more information check out this link.

Brokerage/Mutual Fund Statements

Keep these documents for as long as you have the money invested in the accounts. This will allow you to calculate your cost basis at any future sale. Once the investment has been sold, the documents should be retained for as long as you keep your tax return for the year in which you sold the investment. If you are applying for a loan, part of the application process may require that your provide copies of your Brokerage/Mutual Fund statements.

Bank Statements

Depending on your comfort level, you could keep these for as short as it takes you to balance the account. The general advice for holding onto these statements is to keep them for at least a year. If you are applying for a loan, part of the application process may require that your provide copies of your bank statements. Again, anything related to income tax returns should be kept for up to three years.

Receipts

Keep receipts for all big ticket items, like jewelry, computers, cars, boats, appliances and home improvements. These records will help you prove the value of these items in case of loss or damage. For certain items, like home improvements these records should be kept for as long as you own the item. These costs can be used to help determine the cost basis if you need to report a capital gain or loss on the items.

Bankrate.com has a good article on additional items which should be saved on for how long.

Source:
'Publication 552 (2005), Recordkeeping for Individuals' , IRS
'Publication 523 (2007)', Selling Your Home', IRS
'What financial records to keep, how long to keep them', Bankrate.com

Are Commodities The Next Bubble?

Over the weekend Barron's had an article on the boom in commodities markets and that it is probably about to suffer a correction. The article stated that most of the rise in the commodity markets are due to ETFs and Mutual Funds (MF) which are exempt from position limitations put in place by the CFTC (Commodity Futures Trading Commission). These limitations (for every long position there is a short position) are in place to protect the market from excessive speculation due to the limited size of the markets.

The ETF and MF money (every $9 out of $10) is not directly invested with the commodity exchanges, but with dealers that belonging to the International Swaps and Derivatives Association (ISDA). The dealers act as market makers for the commodity markets that the ETFs & MFs are investing in, by hedge the risk they have incurred back onto the commodity markets. What happens when all of the dumb money wants to sell their ETF or MF after the market drops 10-20%? There is too much leverage in the market to facilitate an orderly exit for all of these positions. Below is a chart providing a snap shot of the commodity markets and positions.

A Sucker's Bet

The Barron's article provides a nice little synopses of the issue:

'Here's the problem: The speculators' bullishness may be way overdone, in the process lifting prices far above fair value. If the speculators were to follow the commercial players -- the farmers, the food processors, the energy producers and others who trade daily in the physical commodities -- they'd be heading for the exits. For right now, the commercial players are betting on price declines more heavily than ever before...'

The ETFs & MF have taken almost 60% of the bullish (long) positions. Most commercial dealers have taken bearish (short) positions, betting against the continued rise in prices. These short positions are running almost 30% higher than the previous net-short record in March of 2004. The commercial dealers are the guys who have been in this business for a long time and have seen boom and bust cycles. It would make sense to watch what they are doing.

Everything I Know About Trading, I Learned From the Movies

How many times do you get to quote 'Trading Places' ?

Louis Winthorpe III: Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series - they don't know what pressure is. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?

Billy Ray Valentine: Yeah, we got to kill the motherf... - we got to kill 'em!

Will It Last?

From Barron's, 'Index funds offer investors an easy, inexpensive way to gain exposure to a segment of the commodities markets or a broad-based basket of commodities. Result: The funds have drawn many private investors who have never ventured into futures, along with pension funds and other institutional players looking to diversify. But for all the virtues that the funds hold as a way of spreading bets across commodity markets, they take only long, or bullish, positions, avoiding short-selling. In other words, they trade on the naïve and potentially fatal assumption that commodities have the same tendency as stocks to rise over the long run.'

No and yes. In the short term think that the speculative money will run out at the first signs of trouble. The commodity market experienced a 5-10% drop in prices during the past two weeks, but has firmed up. Looking at the charts above, due to the drop in prices it looks like some of the speculative money has started to leave, or at least some have taken profits. Things that might cause the bubble to pop are:

• China / India - these countries have experienced a high rate of economic growth. Any slow down in this growth will affect commodity prices.
• Dollar - the dollar is at historic lows. Commodities are priced in dollars making it easier for other currencies to buy more of the commodities. If the dollar increases in value this discrepancy is negated.
• US - most consumers are spending on goods from China. If the US consumer starts to reduce their spending this will effect the demand for raw materials to make those goods.
• Lack of Buying - who is left to buy? Once there is a lack of buyers, the market will start to fall due to its own weight.

Long term commodities are a bullish bet. The earth's population is not getting any smaller and certain commodities are non-renewable. This sounds like a sweet spot for oil and natural gas companies. Also as more land is taken out of farm use due to urban/suburban development, whats left will become more valuable along with whatever it produces. Agribusiness sounds like a great thing to be involved in. In the words of Jim Rogers:

`If I told you how bullish I am about agriculture, you'd ask me to leave the room. Prices of agricultural commodities are going to explode. Inventories of food are the lowest they've been in over 40 years. The number of hectares devoted to wheat farming has been declining for over 30 years.'

Source:
'Commodities: Who's Behind the Boom?', by Gene Epstein, Barron's {$$$}
Rogers Says Sugar, Other Agricultural Commodities to `Explode', by Dave McCombs, Bloomberg News

Make Your 2007 IRA Contribution Now

The IRS gives you until April 15th of this year to make a contribution to a traditional IRA or a Roth IRA for the 2007 tax year. The 2007 limits are $4,000 maximium, and $5,000 maximium if you were age 50 or older in 2007.

The IRS also allows you to take a tax credit for eligible contributions to a qualified retirement plan (i.e. Traditional IRA, Roth IRA, 401K, 403B, 457, 501C, SEP or a SIMPLE IRA.) if your adjusted gross income is below a certain limit. You can also claim the credit before you actually make the contribution, as long as that the contribution is made April 15th.

The great thing about a tax credit it that it is a dollar for dollar reduction in any tax amount you owe, which makes it more 'valuable' than a tax dedcution. A tax deduction only reduces the amount of taxable income.

Source:
'Publication 509 (2007), Individual Retirement Arrangements', IRS