[henrysd]

The SALT effect on urban California housing is certainly exaggerated. For people in NJ and NY with 3% property tax, they are hurt big way for almost all home owners. But for California, it is much more limited. We have only 1% property tax and many people wrongly claim Mello-Roos as part of property tax deduction in the past.

The SALT restriction mostly affects (assuming 2 income family here):
1) Very high earners like those make $800K or more a year. Those people were able to deduct all SALT expenses in the past without triggering AMT. They had 39.6% normal tax rate, so their effective tax rate before AMT was higher than the AMT rate of 28%. The new law would strip their ability to deduct SALT.
2) Middle middle class stretching themselves to buy homes at 5 – 6 times of their annual income of $120-200K. They were able to deduct all SALT expenses in the past without paying AMT. They have around 15 – 30K worth of SALT expense, but only allow 10K now.

For upper middle class (those make $220-600k annually), SALT restriction has zero effect. Those people were paying AMT tax in the past, so SALT expenses were not allowed anyway. Actually the removing of AMT in those income range in the new tax law tremendously increases their after tax income. This creates a plus factor for housing demand.

For low middle or lower income class, it is unlikely they have SALT above 10K. Even if it is above, it will be by small amount. I know people bought homes 20 years ago locked in low property tax and living on not-so-much income, they may be hurt in other aspect of tax change, but not much with SALT deduction.

[henrysd]

[quote=moneymaker]Bought some Ford today, hasn’t been this low since 2009. What stocks are you buying today?[/quote]
You seem to have a strong urge to trade stock.

Not buying stocks today. There are a few things on my radar gun, junk bond is on my list. Junk bonds are not tax friendly, but the tax cut reduced my tax bracket, so owning high yield taxable bond is no longer a problem for me. I may have to wait half to one year to get good opportunity to enter.

You seem to like Ford’s high dividend yield. But the company is quite high in debt and its bond rating was cut this year to one notch above junk. If the company runs into some trouble, its bond rating will be further reduced, thus make them harder to raise capital due to higher interest rate. What they will do next, cut dividend, then share holders get mad, a big bout of selling follows. This is exactly what has happened to GE.

[henrysd]

Market priced in 70% chance of interest rate hike tomorrow even with many call for no-hike, so Fed might have to preserve it credibility with go-ahead hike tomorrow. 1 and 3 month treasury bills already baked in the hike into rates. I think they will issue a reduced guidance for 2019 and 2020. Current guidance is 3 hikes in 2019 and 1 in 2020 and new guidance is likely to go down to 1-2 in 2019. I think there is a chance the recession can be pushed back further by a few more years if one hike tomorrow then pause for 2 years without changing.

My take is those people who expect a housing market crash will probably be disappointed for the next a few years. Not all recessions cause housing downturn. A new recession will prompt Fed to reduce rate to 0 again or even to negative territory and a new round of QE will push 10 year treasury rate down below 1%.

[henrysd]

I bought bond today. I moved some money in muni money market to long term muni mutual fund.

10 yr treasury yields 3.21% now slightly below 3.23% reached on Oct 5th. But 30 year yield 3.45%, highest since 2014.

I don’t believe longer term inflation theory or a high long bond yield in future. I still have the risk of yield going up more, but the interest difference between my fund and money market will allow some loss and I can still be ahead.

Aging population in developed world and even more serious aging issue will happen to China next a few decades. With Low growth in non-U.S world, slowing economy of China, U.S. in later economic cycle, baby boomers with tons of investable money chasing fixed income, I am betting bond yield will actually drop with 3-5 years time horizon.

[henrysd]

[quote=FlyerInHi]What are high quality low priced western goods? Name some that together will add up to $300 billion just for US alone[/quote]

As as simple as baby formula, Chinese elites opt to avoid domestic brands and buy overseas products. Just watch those Chinese tourists in U.S., see how much they spend on cosmetics, fashion products etc in U.S. All those products are either much much higher priced or simply not available in China. The cause is Chinese government put too many restriction on foreign products to enter.
Not only U.S. is not happy with Chinese trade protection, EU is not happy either. But unlike Trump, the Europeans are trying to avoid direct confrontation with Beijing. They join China in condemning U.S. trade protection, but quietly refuse Chinese call to form alliance again U.S. on trade.

[henrysd]

[quote=FlyerInHi]

Haha.

High tech is what China wants to buy but we won’t sell.

So how to close the trade gap? Agricultural products?[/quote]
U.S. wants China to open their market to high quality and low priced foreign products/services.
Remember less than 200 years ago China was still world No 1 in term of GDP before the opium war, but they refused demand from west to open market. That was why Britain started the opium war and used opium to transfer wealth out of Qing Dynasty.

[henrysd]

I am worried that the market hasn’t priced in several down side risks. I originally thought Trump just use trade war as strategy to force some concession from other countries, but now it more likely he is really into a trade war. Yes we all will eventually feel higher inflation from trade protection as it protects high-priced inefficient domestic producers. The market can be spooked again if trump engages a trade war with rest of world.

The Fed made even more hawkish guidance last Wednesday, upped total 2018 hikes from 3 to 4 but stock market completely ignored the hawkish change:
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180613.pdf

I am still a long-term stock market bull, but I need to be prepared with more turbulence next a few years.

[henrysd]

I just found out this site and it has good information on many Poway USD CFD bonds. It is public data in:
http://mycataxdata.com/docs/ContDisc.GOB_1617_Fn.pdf

[henrysd]

Flatter yield is something to pay attention to, but not really a worry. The whole later 1990s several years bond yield curve was quite flat. Inverted yield curve is the real worry. Even in 2006 when inverted curve happened, economy didn’t get into recession until 2 years later. Both year 2000 and 2006 there were bubbles in economy – Nasdaq in 2000 and housing in 2006, so the Fed had no choice but jacking up the short term interest which caused the inversion. This time there is no obvious bubble at this stage and world economy is growing healthily, but not super strong, so I doubt Fed will artificially create inverted curve. Some Fed official has publicly said to vote against increasing short term rate if facing consequence of inverted curve.

Right now the steroid juicing effect from Tax cut is at the most potent stage. As time goes, the juice will wane down, probably later this year and next a couple of years. The market is very hawkish now and even the Fed gave hawkish guidance, but that is a strategy they play. It is always easy to switch from hawkish stance to dovish, but hard for the other way switch. In 2019 when Tax cut effect dies down, any extra rate hike has to be very careful and face a lot of resistance even inside the fed. We may see some dovish surprise next a few years.

[henrysd]

[quote=harvey][quote=henrysd]I don’t think Trump’s tough ball play against China is really intended in a trade war, just a strategy to force concession from China. Ultimately China has more reasons to back down, give up something and enter negotiation. Who is more afraid of losing? of course Chinese side. China had $375 billion trade surplus vs U.S. last year, now U.S. wants a cut, I don’t see enough reason China wants to ruin surplus status even the new $275b annual value is not bad at all. The tough mouth talk each side is only in superficial level. U.S. has other trade alternatives to go besides China – Vietnam, Indonesia, Philippine etc.[/quote]

China is going to back down from what?[/quote]
From trade war position

[henrysd]

I don’t think Trump’s tough ball play against China is really intended in a trade war, just a strategy to force concession from China. Ultimately China has more reasons to back down, give up something and enter negotiation. Who is more afraid of losing? of course Chinese side. China had $375 billion trade surplus vs U.S. last year, now U.S. wants a cut, I don’t see enough reason China wants to ruin surplus status even the new $275b annual value is not bad at all. The tough mouth talk each side is only in superficial level. U.S. has other trade alternatives to go besides China – Vietnam, Indonesia, Philippine etc.

[henrysd]

[quote=harvey]
Dollar-cost-averaging is a gimmick invented by investment “advisors” to get you to keep putting money into the market without thinking.[/quote]

Only true in small degree. dollar cost average has mathematical law behind to back it to be a better way for long term investors.
Harmonic mean >= arithmetic mean >= geometric mean

Harmonic Mean = n/(1/a1 + 1/n2 +… + 1/an)
Arithmetic mean = (a1 + a2 + …+ an)/n
Geometric mean = nth root of (a1 x a2 x … x an)

Cost cost average is using harmonic mean, so in the long run produces better return. The volatility actually more benefit harmonic mean. Geometric mean is the effective annualized return for the holding period.

The there means are equal only when a1, a2 …, an are all equal when no volatility in stocks at all.

[henrysd]

[quote=kev374]down again and Morgan Stanley has just come out saying this is just an appetizer and to wait for a massive crash later this year… buckle up. Seriously what did the retards in Washington think was going to happen when they took on all this ridiculous debt?[/quote]

You never need to listen wall street sell side recommendations – professional investors never listen to them. They are fuckers, liars and also sales men of brokerage houses. When Goldman quietly shorted mortgage bond market just before the financial crisis, they were just boasting the mortgage bond products to public.

U.S. 10 yr bond yield is already the highest in developed world. France and Germany have negative 2 yr bond yield, 5 yr bond yield was negative a few months ago, now just turned slightly positive, 10 yr yield at 0.7 or 1.0% now There is still some global deflation force (mostly Europe and Japan) which will limit U.S. bond yield:
http://www.wsj.com/mdc/public/page/2_3022-govtbonds.html?mod=mdc_bnd_gvtbnd

When corporate bond market smells trouble, that is the time we need to worry. Right now corporate debt side is super healthy.

[henrysd]

Today the market welcomed new Feb Chairman Jerome Powell with a big bang. During the first few months of Greenspan’s rookie year as Fed boss, the market welcomed him with an even bigger one – drop of 20+% in one day.

I am not too much worried about last Friday and today’s drop. I don’t see it is big bear market coming in, more of a overdue correction. We have now 8.5% correction in place, once it gets to 15% correction, our dovish Fed has to delay or pause rate hike or even reduce rate if market lost support. Also additional large drop will force bond yield to go down also, partially cure the problem which started the selling. We had even higher 10 and 30 year bond yields in early 2014 and the market didn’t took it as a big issue.

[henrysd]

I am buy and hold guy, never have guts and possibly the skills to successfully short any stock. Telsa is one of bubble stock now, but even if you are right, other people, especially those wall streets traders have to follow you with the same bet for you to make money. Little fish can’t fight the big guys. In 2005-2006 time many piggs here already knew about housing market cracks, but how many actually made housing related shorting profits when wall street still liked mortgage lenders? The real shorting opportunity happened in spring 2007 with public traded sub-prime mortgage lenders.

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