Ron Paul for President - A better America in 2008

I'm going to opine on political issues for a moment, even though I normally detest all things related thereto. In fact, I have been so disgusted with the choices for president in the two elections in which I was eligible to vote that I abstained from voting altogether. For once, I've found a candidate worth backing.

It's worth mentioning that the key issues we should be concerned with are the ones that will directly affect us. For the vast majority of Americans, their only interaction with the Federal government is the payment of taxes. On that note, I'd like to throw my support behind Senator Ron Paul for president of the United States in 2008, who supports low taxes, limited government and limited foreign intervention. I believe that he is the one candidate running today who has the right mix of competence, integrity and economic knowledge to get us out of the quagmire that we're currently in.

While he is a candidate of the Republican party, Ron Paul doesn't quite fit the Republican mold as we have come to know it recently, which now includes wasteful government spending, huge federal budget deficits and a ballooning national debt. From a generational standpoint, Mr. Paul's policies, I believe, will give us non-boomers the best chance to enjoy at least a half-decent life compared to our elders.

Some of his key platform points are below:

Getting out of Iraq... The cost of the war is approaching $1 trillion, funded almost entirely by debt (debt that the boomers won't have to worry about too much, but the under-40 crowd will have to work paying off). Iraq has gotten plenty of help and it's time to let them sort it out for themselves. RON PAUL IS THE ONLY REPUBLICAN CANDIDATE SUPPORTING A COMPLETE PULL OUT FROM IRAQ.

We can't afford to increase our massive national debt further by spending ruinous amounts of money carrying out an interventionist foreign policy (anyone remember what happened to those guys from Italy about 1600 years ago? You know, I think they were based in Rome...)

Ron Paul has consistently voted against the Iraq war (Hillary, eat your heart out!!!).

Limited Government.. "I believe in limited government. The purpose of government is to protect liberty and not to run our lives or run the economy or police the world." - Ron Paul

Bloated tax codes with "incentives" that attempt to tell you how to spend your money, wasteful government spending on foreign wars and pork barrel politics, government subsidies and government sponsored entities such as Fannie and Freddie that distort markets, FHA (subprime lending financed by the government).... Ron Paul would work to end the wasteful bureaucracy that plagues Washington (remember, it's all paid for by you!).

Looking at the federal budget, it's abundantly clear that we could both generate a surplus and keep more of what we earn through lower taxes by simply reducing the size of government. We could probably cut out half of government expenditures and still have more government than we'd ever need.

Why we need a budget surplus: Young people (in their 20s and 30s) like me are going to have to pay down the national debt sometime, and it gets downright ugly when the bills come due and the creditors release the hounds (remember Mexico circa 1994?)... The greater the obligation becomes, the greater the drag on our economic growth.

Right now, 9% of our taxes go right out the door to pay just the interest on this debt. Of course, we'd have to pay this 9 percent - about 239 billion this year, before we even begin paying off our $9 trillion in debt. If we assume each family has, on average, 4 people, our national debt is $120,000 per family. Here's another interesting piece of information. Without interest on this debt, we'd have a balanced budget, notwithstanding the excesses of the Iraq war.

We need to be accumulating reserves to pay for social security and medicare, not piling on more debt. As it stands, with a savings rate of nearly zero and large budget deficits, we are spending a lot more than we make, and have been for some time. A wise person once told me "If your outgo is higher than your income, then your upkeep will be your downfall." Balancing the budget is a good first step toward making sure this doesn't happen.

Protecting the Value of Currency... Fairly simple... restrict the printing press at the Fed. Since 1913, when the Federal Reserve was established, the U.S. dollar has lost 95% of its value. From 1790 to 1913, prices were effectively flat (I'm quoting Peter Schiff from Europacific Capital on this). Inflation hurts prudent savers and rewards borrowers, who get to repay their debt with dollars that are worth less and less over time.

Easy money simply causes inflationary bubbles, as we've seen over the past 20 years. Ever notice how the price of anything that can't be imported has gone through the stratosphere? Healthcare, Education, Housing? I've just mentioned three of the most important things in life. While their costs have skyrocketed, the CPI has clocked in at relatively low rates. The reason... the CPI is a failure as an indicator of inflation... There are too many tweaks, the "basket of goods" that it measures is not representative of the spending needs of large portions of the American population, and other important factors (food and energy) are often excluded as undue focus is placed on the "core" number that excludes food and energy prices... which is a good indicator, I guess, if you don't need to consume food or energy.
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Ron Paul's economic policies are certainly the best suited for the under 40 crowd (and I believe, the nation as a whole). If we don't get the federal budget under control and (for real) control inflation, we going to watch the value of the dollars we make erode faster than we can increase our earnings (get poorer) while we pay a much higher portion of our earnings in taxes in the future. In short, we'll all be screwed... except the baby boomers, who ran up the debt in the first place and left us holding the bill as they laugh their way to their retirement homes in Boca.

Ron Paul realizes that we're setting ourselves up for ruin, and he wants to do something about it. By all accounts, he's an honorable man (according to former treasury secretary William Simon, he's "one exception to the Gang of 535" on capitol hill), and he presents a cogent, credible platform for building a better America... Something that I believe none of the other candidates offer.

Yes... Ron Paul for president, for a better America. (Come on, are you really going to vote for Hillary? Do you really want to make it 24 years straight with a Bush or a Clinton in the White House? It's time for some new blood in the Oval Office)

- eternitus

BTW - It's only extra icing on the cake (I wouldn't vote just because of this), but Ron Paul, like eternitus, is a native Pittsburgh.

Fantastic Article from the Motley Fool

I know I promised to analyze stocks versus housing, and when things calm down for me, I will... The article below does an excellent job. I particularly agree with the "throwing money away" discussion points at the bottom of the article. Mortgage interest, property taxes, insurance and maintenance (which you throw away when you rent money and buy a house) right now amount to much more than the cost of renting.

Motley Fool
The Worst Investment Ever
Friday May 18, 2:05 pm ET
By Robert Aronen

My fellow Fool John Rosevear considers a house to be the best investment ever. I disagree. A house is a place to live, not a road to riches.

Think about it for a minute. What characteristics do Fools look for in a great investment? Positive cash flow, low expense ratios, low transaction fees, and historically proven returns. Using these criteria, the average house falls well short of the all-time best.

ADVERTISEMENT

Positive cash flow
If you buy a house, how much money goes into your pockets every year? How much goes out? That's right -- a house clearly produces negative cash flow. Mortgage payments, maintenance, and taxes add up to a lot of money heading out and none coming in.

This is not necessarily true for real estate as an asset class. Purchase a parking lot, apartment block, or strip mall, and you very well may find that the rents are higher than the cost of ownership. Real estate that generates positive cash flow can be a great investment. This positive cash flow fuels the dividends from REITs such as Avalon Bay (NYSE: AVB - News) and American Financial Realty (NYSE: AFR - News).

Low costs
The Fool has long advocated seeking investment vehicles with low expense ratios and transaction fees. The expense ratio is the cost of owning an investment as a percentage of its value over the course of a year. Shannon Zimmerman at the Motley Fool Champion Funds service searches for mutual funds with expense ratios of less than 1%.

How does this compare to housing? Costs vary significantly by location, but for urban areas, annual property taxes are typically between 1% and 2% of the current property value. Annual maintenance costs can add another 1% of the property value. If your down payment is less than 20%, you will also usually have to pay private mortgage insurance. Add property insurance, and the annual expense ratio associated with homeownership can easily reach 3% or more.

The big hit, however, arrives when you sell a property. Real estate agents will collect 6% of the selling price, while, lawyers, inspectors, title companies, and banks will collect additional fees. These fees appear as though they will remain stubbornly fixed for years to come. If you flip properties as though you are actively trading stocks, the only folks getting rich will be real estate agents. Meanwhile, transaction fees for stocks and mutual funds have plummeted in recent decades, to the point of falling below $10 per trade at several discount brokers.

Historically proven returns
The Fool has long advocated shares of individual companies as the best road to wealth, because of their inflation-crushing performance over very long periods of time. In The Future for Investors, Jeremy Siegel identifies several companies that have not only beaten inflation but also delivered returns far in excess of the market average for 50 years. It does not take a genius to actually buy companies like Pfizer (NYSE: PFE - News) or Altria (NYSE: MO - News), consistently reinvest the dividends, and build wealth over the decades. Over the 50 years of data compiled, Pfizer and Altria returned 16.0% and 19.8% respectively.

For any time period longer than the past few years, residential housing prices fall far behind these returns. Perhaps the best measure of housing-market appreciation is the S&P National Home Price Index. This index represents the actual appreciation of the same house over time, whereas a portion of overall housing-price increases occurs because new houses are generally much larger than old houses and people frequently spend substantial money upgrading and expanding their houses. Looking at the index, from 1987 to 2006, we see that the overall average appreciation in the U.S. was only 5.6%. Even cities showing huge gains during the final years of the housing bubble -- including San Diego, Las Vegas, and Washington, D.C. -- showed gains slightly above only 7% for the 19-year period. If we adjust these returns for inflation, we end up with real returns on housing in a range of 3%-5%. Subtract our annual expense ratio of 2%, and the return gets pretty thin.

This index is relatively new, and the data ends at the top of the final eight years of the biggest housing boom in U.S. history. Longer-term data paints an even less encouraging picture. Piet Eichholtz studied records on home sales in Amsterdam's premier Herengracht neighborhood from 1628 to 1973 and found an inflation-adjusted return of 0.2%. There were periods of rising prices and periods of falling prices, but not a continuous march upward with spectacular returns.

Final thoughts
I will agree with John Rosevear on one account -- a house is a great place to live. Fool Mary Dalrymple provides a good discussion of the issues associated with the rent-or-buy decision. Those who think renting is "throwing money away" should consider that mortgage interest, maintenance, taxes, and insurance are also "thrown away." Having a place to live costs money no matter what, and a rational evaluation of your local market should let you know which one is a better value. Before you start plugging overly optimistic numbers into the rent-vs.-buy calculator, just remember that past performance may not be indicative of future returns.

Fool contributor Robert Aronen does not own shares of any of the companies mentioned. He lives in a van, down by the river. He would rather fund his retirement with his stock portfolio, not equity withdrawals from a house. Please feel free to share your comments with him. The Motley Fool has a disclosure policy.

S&P breaks "record," closes at 1530

Thought of the day: Adjusted for inflation, the S&P 500 would need to pass 1878 to actually break a record. We still have 21% to go before we get to that level.

New Home Prices Fall 11%

All,
Sorry for the prolonged period of inactivity. I won't be able to get back on a good posting schedule for a couple of weeks. Lots of family issues and work have been making it too difficult to find time to post.

I'll have to be short.... I am extremely encouraged by the drop in home prices. It looks like market forces are finally starting to work... as this has (GASP!) led to MORE SALES! Gee, that complicated economics stuff actually works! Who would have thought lowering your price will get people to buy your house? I guess more people are learning that life's too short to have your house own you for 30 years.

This also means, because new homes are selling for less, existing homeowners will have to cut their prices to keep up... unless they don't want their houses to sell. I might actually be able to afford a house before I'm 45!

Even more encouraging is that incentives (like free kitchens, cars and cash back), which can total more than $20,000, have not been subtracted from the new median price... That means new homes are really going for $210 - $215k right now.

-eternitus

On a somber note, one of the sweetest women I've ever known passed away suddenly last week after falling ill on mother's day. She always treated me far better than I deserved. I thought I was special, but the enormous turnout to her funeral was testament to the fact that she treated everyone that way. I loved her dearly and she'll be sorely missed.

"The Worst is Over".... Yeah Right

Check out the rather humorous Wall Street Journal Article below my diatribe...

It looks like many of these economists went to the same school as David Lereah. We have gone from "The economy is strong... The housing issue is contained as consumers continue to spend" to the "the worst has passed" in only one quarter. Economic cycles take much longer than that. I suggest they start paying attention to Nouriel Roubini. Of course, it's too late and the train wreck has begun.

I think the debt-laden consumer is starting to feel like the guy in the picture running from a tsunami. Unfortunately, since he's the average guy, he doesn't have the "high ground" of savings to run to.

Here are my reasons why it's going to get worse before it gets better:

1. False Expansion: The recent economic expansion was not precipitated by a growth in productivity or incomes. Instead, the economy was dragged out of a slump by spending through a massive increase in consumer debt. That debt has to be repaid, and the average consumer's income hasn't grown by an amount necessary to compensate for this. Takeaway: The consumer now has to restrain spending in order to pay for past consumption. We simply traded in future consumption to pay for current consumption, with interest.

2. Misallocation of Capital: Why hasn't the consumer's income grown enough? That one's easy. We borrowed massive amounts to pay for a capital good, housing, which has no payoff in productivity. In Econ 101 - Higher Productivity = Higher REAL incomes (meaning income growth greater than inflation... so you are REALLY earning more). A lot of that money should have been spent on infrastructure and technology that would have helped us become more productive and thus earn more. Typically, borrowing is not a good investment if the cost (interest) exceeds the benefit of using those proceeds. Takeaway: Our incomes haven't grown because we flushed away trillions of dollars on assets that don't help boost our incomes. We now have to pay that money back with interest.

3. Negative Savings Rate: Notwithstanding the fact that we are borrowing a lot more, we are borrowing to consume more than we earn. That hasn't happened since the two years before the great depression. Too many of us are relying on paper gains and asset bubbles to support ourselves. Unfortunately, asset bubbles don't make the economy as a whole richer (only producing more goods and services per person does). Low savings rates mean that the average person has much less of an ability to withstand an economic downturn... especially if he has high monthly debt payments to worry about. When the asset bubble deflates, and we haven't saved, we are no better off than when we started.

Negative savings rates are bad for long-term economic growth as well. Using savings instead of debt to pay for investment that improves our lives means that we get all the benefits without having to pay interest. Productivity rises, we earn more, and we get to keep it all. Takeaway: We have severely hindered our long-term ability to earn more by failing to save.

4. The Big One - Consumer Running Out of Credit: Following up on the negative savings rate, a consumer can live above his means as long as there is someone to supply the credit (See: U.S. Government). Consumer debt is already at record highs, and many consumers have little room left to borrow. Mortgage equity withdrawals accounted for a significant portion of economic growth recently (their use has perhaps increased tenfold over the year 2000). Our economic growth has become dependent on consumers continuing to spend at the rate they have been (i.e. spending more than they earn)... which can't be sustained.

The consumer will have to cut back on consumption, soon (he is already beginning... check the retail sales data). When that reality takes hold, the economy will dip into recession... consumers will default on their loans in record numbers (commensurate with the record amounts of debt) and we will be faced with a significant financial crisis. Takeaway: We're screwed.

Nope, the worst is yet to come....

Economy Is Clawing Back, but Not Much

Economists See Signs of a Rebound in Growth,
But 2007 Is Still on Track as Weakest in Years

By PHIL IZZO
May 10, 2007

The worst of the economic slowdown has passed, private economists said in the latest WSJ.com forecasting survey. But they don't see any reason to expect a significant acceleration.

By a more than 5-to-1 margin, the economists said they believe the first quarter's 1.3% growth -- the weakest in four years -- marked the low point in the slowdown that gripped the economy much of last year. However, they expect growth to stay below 3% into early 2008, leaving 2007 on track to have the slowest economic growth since 2002.

CHARTS AND FULL RESULTS

See and download forecasts for growth, inflation, interest rates and more. Plus, items on the dollar, the alternative minimum tax and the outlook for a new high in Nasdaq stocks. Survey conducted May 4-8.

• Washington Wire: Economists See No AMT Overhaul

The economists don't see any new engines for growth this year. They expect continued weakness in consumer spending, for instance, which accounts for 70% of the economy.

"All of expected growth is addition by subtraction of drags," said Bruce Kasman of J.P. Morgan Chase & Co. "Drags from housing and inventories of manufacturing are fading," he said. Business spending may pick up a bit from its recent lull, said Allen Sinai, of Decision Economics.

On the whole, the 60 economists predict gross domestic product, the broadest measure of economic output, will grow at a 2.2% annual rate this quarter. Over the second half, they expect growth of about 2.6%, which is a slight reduction from what they had forecast in a survey conducted last month. They don't expect growth to reach 3% until the second quarter of 2008.

Mickey Levy of Bank of America said he expects home construction to provide a slight boost to the economy by late in the year, after dragging down growth the past six quarters. But economists don't expect a big housing rebound. They predict home prices will fall more than 1% this year, as measured by an index calculated by the government's Office of Federal Housing Enterprise Oversight.

Inflation risks continue to loom, a concern that was reinforced yesterday by the Federal Reserve, when it voted to leave interest rates unchanged and cited inflation as its primary policy concern. Amid the inflation threat, the Fed is reluctant to cut rates, something that could boost the economy. And with energy prices high, particularly for gasoline, consumer spending is crimped.

ABOUT THE SURVEY

The Wall Street Journal surveys a group of 60 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted semiannually, at midyear and at year-end. Between each semiannual survey, four monthly updates are conducted for the most closely watched forecasts. This is the monthly survey for May. For prior installments of the semiannual and monthly surveys, see: WSJ.com/Economists.

Economists, on average, increased their estimates for consumer price growth from the previous survey, seeing 2.4% growth this month and 2.8% in November. When asked in April, the economists had forecast 2.1% and 2.7%, respectively, for the periods.

When asked which presents the bigger risk of triggering a spillover of inflation pressures in the overall economy, 67% of respondents chose energy prices, while 33% said food prices. While some economists said that the spillover risks remain small, Mr. Sinai expressed concerns about their affect on wages.

Last year, inflation appeared to shrug off a spike in energy prices, but Mr. Sinai said that was earlier in the inflation process. "When workers bargain, they don't bargain on core [consumer prices, which exclude food and energy]," he said. "Does anyone really think gas prices are going to go down much?"

Of course, the biggest risk to growth remains the unknown. "The economy is more levered here. Something is going to give, either on the upside or the downside," Mr. Kasman said. "I'll be surprised if we just chug along."

Among other findings of the survey:

• More than three-quarters of economists said that a widening income gap in the U.S. -- where a growing share of income is going to the top 1% of households -- is a worrisome development. But the majority said the government shouldn't seek to restrain it.

• When asked if the Fed is currently behind the curve, just right or too tight in light of its goal of price stability, 75% said it is just right. Just a few economists see the Fed changing rates at its June meeting, but 35 expect a change by the end of the year: 26 see a cut and nine forecast an increase.

• While the Dow Jones Industrial Average continues to set records, economists don't see the Nasdaq Composite breaking its high -- which is nearly twice its current level and was set in 2000 -- any time soon. Nine out of 10 said they don't expect a Nasdaq record until 2010 or later.

• Almost three-quarters of the economists expect the dollar to fall further this year, and, on average, they expect a 3.42% decline.

Write to Phil Izzo at philip.izzo@wsj.com

Housing Analyst: "Our Contacts Have Officially Declared the Spring Selling Season a Bust"

All, sorry for the lack of posting... My REAL job has been demanding very long hours lately... I've got something good in store for you very soon. For now, check out this article from the Wall Street Journal....

By JAMES R. HAGERTY

May 9, 2007; Page D3

The supply of houses and condominiums available for sale continues to grow quickly in much of the U.S., reflecting weak sales.

The number of homes listed for sale in 18 major metropolitan areas at the end of April was up 7% from March, according to data compiled by ZipRealty Inc., a national real-estate brokerage firm in Emeryville, Calif. The data cover listings of single-family homes, condos and town houses on local multiple-listing services.

The increase was above the seasonal norm. Over the past 22 years, home inventories nationwide have increased an average of 4.5% in April from March, according to Credit Suisse Group. Spring is the busiest time of year for home shopping, as families with children try to get settled ahead of the next school year.

Some of the biggest increases last month were in the metro areas of San Francisco, up about 19%; Washington, 17%; Orange County, Calif., 15%; and Seattle, 14%. Inventories declined nearly 1% in the Los Angeles area, according to Zip.

In a report issued yesterday, Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse, said her building-industry contacts have been surprised by the weakness of sales recently, "given the typical seasonal bounce that occurs at this time of year." She added, "Our contacts have officially declared the spring selling season a bust." Many people who had expected a recovery by year end "now believe the market rebound will be pushed out until 2008 at the earliest," Ms. Zelman wrote.

After booming in the first half of this decade, the housing market began cooling in much of the country in 2005. Since then, prices have been flat to declining in many areas. In recent months, an abrupt tightening of lending standards has further sapped the market by preventing some potential buyers from getting loans.

The National Association of Realtors yesterday again lowered its forecast, predicting that sales of previously occupied homes will total 6.29 million, down 2.9% from 2006. A month ago, the trade group projected that sales this year would slip 2.2%. Lawrence Yun, a senior economist for the Realtors, said many speculators have fled the market.

"It's good that we're getting beyond the tendency of some buyers to view housing as a temporary asset to accumulate short-term wealth, which is not to be expected in a normal market," he wrote.

Write to James R. Hagerty at bob.hagerty@wsj.com