Junk Bonds - Back from the 80's

They’re baack……

Remember junk bonds from the days of Michael Milken, big hair and Jacko before his transformation?

BusinessWeek just reported on the hot junk bond market. This was followed up by support from Bloomberg. com, Jeremy Grantham and Merrill Lynch reports – sounds like a critical mass of opinion. Why the rally?

Junk bonds are safer than stocks. Corporate bondholders are ahead of the stockholders to get a piece of the pie, in the event of a liquidation. Corporate earnings have been weak, to say the least, driving down the price of stocks. And interest rates are close to zero. We need returns somewhere!

Obama & Google

Obama & Google – The Fortune Cover Story October 30, 2009
Obama is not a fan of Corporate America, but he seems to have close ties to Google, a huge corporation. Google likes to portray themselves as Washington outsiders, yet they have a 20-person policy staff in their Washington office and their fingerprints on the Obama Administration.

Obama visited Google’s HQ in 2004 and again in 2007. During the first visit he developed two economic opinions, as Fortune says “support for more U.S. educated engineers and the expansion of internet services to poor and rural areas”.

Google donated $803,000 to the Obama Presidential campaign. This was third to Goldman Sachs and Microsoft. Christine Varney, Assistant Attorney General for Antitrust, alluded that Google might be looked at for antitrust. A Google representative says “what we offer is technological expertise…it’s a company that’s a think tank or a think tank that’s a company”.

Huh?

The Apps Economy

October 26, 2009 Apps – The BusinessWeek Cover Story
They’re here, and they are growing. Apple launched its Apps store in July, 2008, and it has taken off. It took Google three years to turn a profit, but App developer Zynga is profitable now with $100 million in revenues.

How does an app developer make money? They can sell apps, they can sell ads within apps and they can sell digital goods used in the Apps. BusinessWeek tells us about Farmville, the virtual farm, where people pay real money to buy digital crops, cattle and farmland. Amazing! I’ll say it again: people pay real money to buy fake crops for their fantasy world. I wish I had invented that – sounds like the pet rock from the 1970’s, and some brilliant person convinced others to pay real money for essentially nothing. Let’s hope for Zynga, it continues.

The market for apps is predicted to grow threefold over the next three years. Anything growing in this economy is unusual, but to grow at that rate is truly unbelievable. The barriers to entry are next to nothing, so this will be a crowded marketplace in no time flat.

The First-Time Home Buyer Tax Credit

October 23, 2009 – The First-Time Home Buyer Tax Credit
The First-Time Home Buyer Tax Credit – did it work? Yes – it did what a credit should do, it influenced behavior. What is it? The U.S. Government has offered a tax credit of up to $8000 for first-time qualified home buyers, if they buy a primary home before November 30, 2009. What are the qualifications? The buyer cannot have owned a primary home for three years prior to purchasing a home in 2009, they cannot buy from ancestors or a spouse, and income is limited to $75,000 MAGI for a single taxpayer and $150,000 MAGI for married taxpayers filing jointly.

The best part about the tax credit is that it is refundable. There is a big difference between non-refundable and refundable tax credits. Also, the tax credit goes directly on the 1040, eliminating the need for another form.

What will happen once the tax credit is no longer valid? The market will fall off, no doubt. However, getting new buyers into a home will have a ripple effect of spending – that’s what we call the multiplier in economics class. People need to buy furniture, spend on landscaping and improvements, and, as all of us homeowners know, the list goes on for years.