Harry Chen Thinks Aloud

The price of New York City apartments skyrocketed in the past decade. Not only people are paying millions for apartments, they also spend millions to renovate and remodel them. While money may get people expensive apartments, but it can’t eliminate the mental stress of home renovation.

Julia Kim rapped her spiked Gucci heels along the floor of a Midtown furniture showroom earlier this year as she approached a $30,000 custom wraparound couch that will be the centerpiece of the Manhattan co-op apartment she plans to share with her fiancé, Stephen Rushmore.

This purchase was just one of many steps in the journey that began more than a year ago when Rushmore [and] Kim decided to buy a duplex just off Park Avenue for $6 million.

Indeed, even after paying top dollar for a luxury apartment, most buyers see the need for more work. Like Rushmore and Kim, they often embark on costly and lengthy renovations intended to reflect not only their own taste but also their ambitions to find a perch in the social and economic swirl of today’s Gilded Age.

In fact, it’s more stressful to own expensive homes because you have to do extra works in order to live up to the social expectation.

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The Consumer Price Index (CPI) report shows food price in the US rose 0.3% in July 2007. The price for food away from home (e.g., food in restaurants) increased 0.5%. The price for food prepared at home increased 0.1%.

In the past year, food price are up 4.2%.

Conclusion: it pays to prepare food at home and dine out less.

Source: MarketWatch.com

The US Dollar is trading historically low against many major currencies. Few questions come to my mind: (1) How did we come to this situation? (2) Who can and can’t benefit from a cheap US Dollar? (3) Should small investors be worried about a cheap US Dollar?

How did we come to this situation?

According to The Economist article, the US Dollar is trading historically low for three key reasons: high oil prices, a weak US economy and a troubled US credit market.

Who can and can’t benefit from a cheap US Dollar?

Individuals and companies benefit differently from a cheap US Dollar. For individuals, tourists travel in the US from countries with a strong currency can benefit. Travelers from Canada and EU find everything to be cheaper in the US. On the other hand, US tourists who travel abroad face a complete oppose situation — everything is more expensive abroad than at home.

A cheap US Dollar can help US companies and depress the economy of foreign countries. US businesses with an international market can benefit greatly from a cheap greenback. This is because the price of their exports are now more competitive than those from countries with a strong currency. Developing countries whose economy depend on exports to the US may be hurt by a cheap US Dollar — a weak US economy will demand less imports.

Should small investors be worried about a cheap US Dollar?

In general, small investors in the US shouldn’t be worried about a cheap US Dollar, assuming that their investment portfolios are diversified and are aimed for long-term investment. Currency exchange rates are cyclical — the US Dollar was the king in the late 90’s. It’s only a matter of time for the US Dollar to come out of its low (the question is when). Meanwhile, I think investors should continue to invest in the US stock market, in particular in S&P 500 companies. The profits of US national business may be hurt by a weak US economy, but multinationals should do relative well because of their diversified international markets.

Experts believe that now it’s a good time to diversify some of your investment in cash. This is because the yield of cash is very attractive given today’s market condition.

1. Cash yield as much as long-term bond. As of July 9th, 2007, 10-year US Treasury yield is 5.16%, and 6-month CD offered by INGDirect is 5.15%.
2. The yield of cash investment is ahead of the current annual inflation rate, which is around 2%. If your cash investment yield 5%, then you enjoy real cash yields of 3%.
3. The Fed probably will keep the short-term interest rate at 5.25% for the rest of 2007.

For those who are interested in cash investment, I recommend CD laddering.

Source:

• Daily Treasury Yield Curve Rates
• INGDirect Orange CD
• Diversify into Cash?

The New York Times runs an article that talks about the current US housing slump. It argues that people who don’t already own a house should continue to rent. I disagree.

Before presenting my arguments, let me summarize the key points in the article. First, the author predicts that the US housing price will continue to fall in the next few years. Second, it’s not really beneficial for people to own a house because there are extra expenses associated with the home ownership, e.g., property taxes and mortgage interests. Third, using paid mortgage interests as tax deduction can’t completely eliminate the actual borrowing cost.

This is what I agree with the author. The US economy is currently in a housing slump phase. People should think twice about buying for real estate investment purposes. Unless you are real estate professionals, it’s unlikely that you can make quick profits from buying and selling houses in this market. In addition, people should never borrow more than they can afford just for the sake to increase their tax deduction.

However, I disagree that renting is a sensible choice for everyone.

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US government policies are full with surprises. Illegal immigrates is a hot topic on the Capital Hill when the context is social responsibility. However, it’s a rather simple issue when the context is taxation. In the US, almost everyone is required to file Federal incoming tax. This includes US citizens, permanent residents (Green Card holders), legal residents (visa holders) and illegal residents.

How do you count illegal residents as taxpayers? To IRS, no matter what your legal resident status, as long as you live in the US and receive incoming, you must pay taxes.

Here is the rule:

You can be a resident under substantial presence if you are in the U.S. for more than 30 days in the current year and if the sum of the current year’s days plus one-third of the previous year’s days plus one-sixth of the second preceding year’s days exceed 182 days.

The surprise continues with tax deduction — i.e., when you try to pay less taxes.

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For those who paid long-distance phone bills in the past few years will be entitled to receive a special telephone tax refund. This refund is available this year only (i.e., 2006 federal tax filing).

[This refund] came about after court decisions found the excise tax, first levied in 1898 to fund the Spanish-American War, should no longer apply to telephone service as it’s billed today. Taxpayers can claim a refund based on the 3% excise tax they paid on long-distance calls from March 2003 through July 2006.

How should you file if you’re eligible for this refund?

• Option 1: Add up all that federal excise tax you paid based on your old phone records
• Option 2: Take a standard refund amount, based on the number of personal exemptions you claim. If you claim one exemption, you can claim a $30 refund; two exemptions, $40; three exemptions, $50; and four exemptions, $60.

For additional information, see the following personal finance articles from MarketWatch.com:

• No-so-easy money?
• Deductions and credits you’re likely to overlook

Everyone should care about saving for a secure financial future. This is true for both men and women. However, in the US women face more financial challenges than men. Why?

Women live, on average, seven years longer than men. But they often don’t have enough money to live on during those extra years. Women face different financial challenges than men do. They still only make about 76 cents for every dollar men do, and they are also more likely to take time off during their careers to raise children. Furthermore, women also invest less aggressively than men do.

If you are a woman and want to save for a secure financial future, what can you do? Take a look at the saving tips for women by Marshall Loeb at MarketWatch.com.

Highlights:

• Take control of your own financial planning. Don’t leave it to your husband.
• If your husband save 10% of his gross income each year, you should save 12%.
• Open an IRA account under your own name.