Sunday, January 20, 2019

Crash Crash Boom Boom

I have an odd feeling that the crash of 2008 is on the cusp of the horizon.  But oddly I think it is more about commercial real estate and developments that are multi family housing, including apartments and condos.  There is also a push with the big skinny's but those are also being built by speculators and developers at exceedingly out of reach costs versus buyers incomes.

Then we have the large flipping business back on the scene and that push seems to be across the board if anyone who watches HGTV would believe.

Lastly we have interest rates rising, the flux of the market which is back up after being down and in turn the tariffs which affect building due to costs of materials and lastly the Government shutdown which has finally proven that people who thought they were middle class were actually the working poor as they visit food banks, barter with creditors and are selling belongings to keep afloat. But they are just like all the rest of Americans with stagnant wages and benefit costs that rise with little security for retirement.

And education the last cushion for those seeking to gain a foothold in the economy are too laying off people, closing doors and changing their programs to somehow maintain relevance. All while more students are taking on massive debt and some living homeless in which to do so.  CBS Sunday Morning did an excellent story on that very issue.  

Living in Nashville where I am seeing the push of gentrification with hysteria centered on largely stadiums, big business incentives and a budget shortfall that left Teachers and other city workers without a raise this year while promising not to raise property taxes leaves the city in a  conundrum, which again is the Nashville way.  Next up a soccer stadium and then maybe a baseball team.  It never ends here in Idiot City..  whoops I mean It City.

This week we saw several restaurants close, one being taken over by a restaurateur who suddenly canceled his larger project in a newer build to take over the failed property.  Then in turn another "successful" restaurateur return his investment in two other properties, two more small scale restaurants close after being open barely a month, a local burrito chain also close for the holidays and have since not reopened. Then we have a massive commercial build in one of the more "richest" counties in the area trying to circumvent bankruptcy and a local building that houses a long term restaurant sell at record breaking prices but the restaurant has a long term lease so how will the investor recoup his costs and pay his mortgage on said property?  Who knows?  I got people to feed and bills to pay I guess he could take a cut of the takings of the till?   Then a former studio with roots in the history of cuntry music is back on the block. But it is upgraded so leasing the space at new higher costs is not a problem as everyone is rich bitch, right?   Or you can turn this empty building into some housing  as it is empty so make an offer now so the owner can buy more art. 

Many of the local vendors in the Hillsboro Village area are struggling and in turn one business is shuttered, two restaurants are closed, another cut his business in half only after last year hiring some idiot who convinced him how to expand said business. Clearly that did not work out.   The Gulch the shiny key of Nashville has found on restaurant changing focus while another location long shuttered is once again being taken over by a new high end chain.   Meanwhile more hotels are being erected as you can never have enough.   As they say try try again then try some more.  Between all the hotels and the AirBnB's Nashville can become the largest tourist destination in the world at one time.   Contact Guinness immediately! 

And all of this is outside investment and from that comes outside investors and debt.  And  bankruptcies continue as there is only so much debt a company can manage, just ask Sears about that one.  This comes form another food company with perhaps the worst cupcakes I have ever eaten, Gigi's.  

The local Tennessean is laying off workers as is the local Christian publishing house, Lifeway.  So much for a booming economy and they can always work at Amazon whenever that opens right? Remember Gibson Guitars?   Well they could be Tesla?  Right Daddy?

Then we have my former home city of Seattle where Microsoft has decided to take over housing and development. Either/Or Neither/Nor this is another attempt at corporate governance that has no business in said business regardless of need.  The current tax situation may be why as thanks to that tax cut it favors real estate development. Hmm wonder why that is?  And everyone has an opinion but sometimes they are right.  We might try to listen and talk less.   And then in turn do more.

Or just hire really good Tax Attorney's and Accountants.  They seem to know how to get more for less and by less I mean as in taxes.

Trump Administration Spells Out Who Wins and Loses From New Tax Break

By Jim Tankersley
The New York Times
Jan. 18, 2019

WASHINGTON — Shrugging off the limitations of the partial government shutdown, the Trump administration finalized rules on Friday governing who can claim a new 20 percent tax deduction for business owners.

Officials said the rules would allow millions of businesses to file their 2018 taxes with certainty over whether they qualify for the break.

The deduction for so-called pass-through businesses was a central feature of the sweeping tax-cut legislation that President Trump signed at the end of 2017. The vast majority of American small businesses are organized as pass-throughs, whose profits are divided up among owners and taxed as individual income. Many financial firms and real estate companies — including hundreds that are under the umbrella of the Trump Organization — are also set up as pass-throughs.

The regulation includes several changes from a proposal the Treasury Department issued in August. It now allows certain mutual-fund holders to benefit from the deduction if they have holdings in a real estate trust. It also provides far greater detail on the type of service businesses that are excluded from claiming the deduction above a certain income threshold. The law’s drafters have said that limitation was meant to prevent certain high-earning individuals, such as lawyers, from reclassifying individual income as pass-through income, in order to reduce their tax bills.

Some of those details appear likely to disappoint business leaders who urged Treasury to broaden the definition of what sorts of companies qualify for the full deduction. Major League Baseball owners, for example, had pushed to be eligible after the draft regulations excluded them.

“Sports clubs are engaged in a multifaceted business that involves activities and operations relating to selling media rights, tickets, concessions, signage rights, sponsorships, merchandise and other goods, managing real estate, and creating entertainment content,” the M.L.B. commissioner, Robert D. Manfred Jr., wrote in a comment on the proposed regulations. “This is in stark contrast to accounting firms, law firms, consulting firms, investment banking firms, and health care practices, whose sole and narrow business is to engage in the performance of professional services for their customers.”

The final regulations still exclude them.

The nation’s largest small-business advocacy group, the National Federation of Independent Business, welcomed the regulation. It provides “needed certainty to small business owners,” said Brad Close, senior vice president of public policy and advocacy. “The vast majority of small businesses will enjoy the benefits of the full 20 percent deduction.”

A companion regulation issued on Friday would allow owners of rental properties to claim the deduction provided they keep certain records and perform 250 hours a year of “rental services” on the property — either by themselves or by hiring someone to do it. Those guidelines would appear to allow some Americans who rent rooms or other property through sites such as Airbnb to qualify for the full deduction, though not if they live in the property at any time during the year.

The guidelines also exclude some of the largest landlords in the country, because they rent to tenants using so-called triple-net leases that call for tenants to pay all real estate taxes, maintenance and building insurance. “I am very surprised they did what they did,” said Anthony J. Nitti, a tax partner at Withum in Aspen, Colo., who has written extensively on pass-through regulations. “It creates this strange dichotomy.”

Mr. Nitti said winners under the new regulations include assisted living facilities and employment staffing companies, which appear now to qualify for the full deduction without limitations. Losers include radiologists and possibly chiropractors, who appear not to qualify, he said.

Nicole Kaeding, director of federal projects at the Tax Foundation in Washington, said the regulations would likely lead to lawsuits that force courts to determine whether many individual businesses qualify.

“It is a generous deduction that encourages individuals to try and take advantage,” she said. “The I.R.S. regulations could be perfect and still, the beneficial tax treatment will ensure that accountants and attorneys will seek to innovative on new business structures and forms to maximize the deduction.”

Treasury is one of the agencies where funding has lapsed during the government shutdown, meaning its employees are either furloughed or working without pay. The department has recalled tens of thousands of workers to process tax refunds and aid taxpayers during tax filing season, which is scheduled to open at month’s end.

On Friday, officials told reporters that the shutdown had delayed release of the final pass-through regulations by one or two weeks. Other regulations governing provisions of the Trump tax cuts remain under development by the department. Officials said they have identified “high priority” regulations and focused resources in order to complete them in time for filing season.

When I hear a Lyft driver talking nonsense about Real Estate and Hotel Development, when a local builder changes gear to build Air BnB vs housing and then threatens to make them tall skinny's instead the realization is that the end is closer than one thinks.  The Businesses taking advantage of tax incentives and tax law are enabling them to buy real estate, buy businesses and in turn fold them after enslaving them to more debt is again a repeat of 2008 and again the causalities will be the every man who drank the kool aid.

What comes up must come down.  Crash Crash Boom Boom

The Next Financial Calamity Is
Coming. Here’s What to Watch.

 SEPT. 12, 2018

A decade ago this week, Wall Street imploded.

The global financial crisis is fading into history. But the roots of the next one might already be taking hold.

Financial crises strike rich countries every 28 years on average. Often, the break between busts is much shorter.

Fast-growing pockets of debt, as in the last time around, look like potential sources of problems. They’re nowhere near as big as the mortgage bubble, and no blow-ups appear imminent.

“But what we saw last time around is that things can creep up on you,” said Wesley Phoa, a bond-fund manager at the Capital Group. “You can turn around and in three years’ time you can go from not much of a problem to a pretty big problem.”

Students are borrowing at record levels

The amount of American student debt — roughly $1.5 trillion — has more than doubled since the financial crisis. It is now the second-largest category of consumer debt outstanding, after mortgages.

Public colleges and universities, hurt by state budget cuts, increased tuition. The drop in house values also made it harder for families to tap into their home equity to pay for tuition. As a result, the financial burden shifted to students, who took on heavier debt loads to pay for school.

Many borrowers are already falling behind. During the second quarter of 2018, more than 10 percent of student loans were at least 90 days past due. That was down slightly from a couple of years ago, but higher than the peak for mortgage delinquencies during the last crisis.

Could this spark a new crisis, with student loans playing the role that mortgages played a decade ago? Probably not.

The student loan market is much smaller than the mortgage market. And the main lender is the federal government, so even a surge of defaults would barely touch the banking system, unlike the mortgage meltdown.

The bigger issue is whether growing amounts of student debt may be a drag on consumers. Some think it could be playing a role in the decline of homeownership over the last decade, an important driver of spending in the consumption-led American economy.
Companies are also loading up on debt

After the crisis, central banks slashed their interest rates. Investors moved their money out of government bonds, which were paying essentially nothing. And they piled into corporate bonds, which typically pay slightly higher rates.

American companies were more than happy to satisfy investors’ ravenous appetites — and they did so by selling gobs of debt.

There are signs that the borrowing binge may have gone too far. Debt issued by non-financial companies is near its highest levels, as a share of the United States economy, since World War II. In the past, such indebtedness has been followed by a rise in defaults.

Even in the market for the safest corporate bonds, funds have been flowing to the borrowers that have some of the lowest credit ratings — the category known as BBB. Roughly $1.4 trillion of the debt is currently outstanding, making it the largest single piece of the investment-grade corporate bond market, according to Standard & Poor’s.

More than $500 billion of these BBB-rated bonds are just one downgrade away from being junk, according to Fitch Ratings. A wave of downgrades could cause losses for investors, potentially scaring them from lending more. That would make it more expensive for companies to borrow and invest, weighing on the entire economy.

Developing economies are looking shakier — and, again, a main culprit is corporate debt. The amount outstanding in all emerging markets is now slightly greater than the size of their actual economies.

In China, the ratio of corporate debt to gross domestic product is above 150 percent, according to the Bank for International Settlements. Some Chinese companies are struggling to keep up with their loans as the world’s second-largest economy faces pressure. While China has significant financial heft to deal with problems, any issues could prompt jitters in the broader markets.

A key risk for many countries is that much of the debt is denominated in American dollars, as opposed to the borrowers’ local currencies. The loans are getting more expensive because the dollar has gained value in recent months relative to other currencies.

In Turkey, the lira’s plunge is already expected to unleash a wave of bankruptcies, and the risk of a recession there is rising. In the past, problems in one emerging market have tended to spread elsewhere, creating concerns about the health of the global economy.

And a lot of debt now lurks in the shadows of the financial system

Once again, lending is growing outside the confines of the traditional, heavily regulated banking system, by entities like private equity firms, hedge funds and mortgage companies. The trend is especially pronounced in the market for home loans, where many mainstream banks still haven’t regained their hunger for risky lending.

Non-bank financial companies tend to offer loans to borrowers with lower credit scores and higher debt-to-income levels. But their standards are nowhere near as lax as the subprime mortgages that preceded the 2008 bust.

It’s much harder for regulators, investors and banks to keep track of where the risks lie in this so-called shadow banking sector, potentially allowing big problems to bubble up undetected.

Another pocket of concern is the fast-growing market for so-called leveraged loans. Banks make these loans to companies, and then sell off slices that are packaged up and resold to investors, like hedge funds, mutual funds and pensions. The market is much larger than it had ever been, with more than $1 trillion of the loans currently outstanding.

Investors are so eager to get their hands on these loans — because they have adjustable interest rates, they perform well when the Fed is hiking rates — that they’re accepting lower-quality deals. Some 80 percent of today’s institutional leveraged loans are known as “covenant lite” deals, because they offer weaker protections for investors.

So far, defaults in this area have been low, given the strength of the American economy and fat corporate profits. If growth sputters, that is likely to change.

Most financial crises are tied to excessive debt. But they don’t have to be. In 1999, the financial world was on edge because of fears about the Y2K bug. In the end — whether because widespread efforts to prepare computer systems for the new millennium were successful, or the concerns themselves were overblown — the disaster never happened.

But threats to the technological foundation of the world’s financial system have only grown more severe. Devastating cyberattacks are the greatest source of anxiety for big bank executives. In July, when lawmakers asked what risks kept him up at night, the Federal Reserve’s chairman, Jerome H. Powell, cited similar fears.

There’s no question that hackers are trying to penetrate the American financial system. The number of successful data breaches has been rising.

Banks are rushing to fortify their defenses. The crippling of a major financial institution at the hands of hackers could sow fear and instability across the entire banking system — the same sort of chain reaction that brought financial activity to a halt 10 years ago.

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