My Reality Show: Pt.1 What's In The Stimulus 4 Me

I hope that by now you have had an opportunity to read the last few posts to understand some of the high - level aspects of the stimulus bill. Part one of my new reality show is the evaluating what parts of the stimulus bill make sense for me. Here goes my quick analysis of the parts of the bill that peak my interest.


My SWV, "I Get So Weak In the Knees" parts to the bill:

Income Tax: This provision stands to give me and every other single taxpayer, who qualifies, a tax credit of up to $400 in 2009 and 2010.

Unemployment: N/A

Health Insurance: N/A

Social Security: N/A

Car Buyer Tax Deduction: Wish I would have waited a year because the SUV would have been a little bit cheaper this year...but I don't see this tax deduction helping me out.

Pell Grant: N/A

Higher Education Tax Credit: This has seriously got me thinking about graduate school...AGAIN

First-Time Home Buyer Credit: Of all the provisions, this one has me thinking my timing may just be right. The $8,000 first-time homebuyer tax credit, low mortgage rates, and sinking home prices create a mix that may be to tempting to pass up.

Transit Accounts: Outside of last week, I am a pretty loyal Chicago Transit Authority rider and can benefit from the larger pre-tax provision.
Alternative Minimum Tax (AMT): N/A

My Reality Show...

Now I am no longer a huge fan of the reality television craze as I often pass on keeping up with American Idol, Survivors, Big Brother, The Biggest Loser, The Real World, College Hill or any of the dance shows. However, I am a fan on a new economic reality show that I may personally star in. In true “reality tv” form, it would be all about me and the focus would be to prove or disprove my theory that there is definitely a need for a stimulus bill.

Logic:
My logic was included in a recent post written here at Urbanomics that describes the need for an economic stimulus bill and how it can and should be crafted to help those that can stimulate the economy the fastest. My version of a bill would evaluate most Americans based on different scenarios and the respond to their needs within the bill, accordingly. I have attached a link to the post that described a number of scenarios that are playing out across American households across the US:

http://urbanomics.blogspot.com/2009/02/stimulating-economy.html

Concept:
The scenario that I most represent is: SCENARIO #4

“4. An employed young man is not going to the bar, eating out, or vacationing”
Note: I haven't shaken my weekend bar trips!

My goal is to create a series of posts that will evaluate whether there are provisions (i.e., goodies) in the bill that impact me and also help stimulate the economy. I will document the provisions that affect me and if they really work in the end!

Stimulus Bill and How it Helps U...

I wrote a previous post describing my thoughts on the overall bill. But I know most of us out there are saying if we are a bailout nation, what contents of the bill will assist me. I have attached two links that detail the main points of the bill that affect most Americans:

http://www.cnbc.com/id/29179184

Highlights: Tax Incentives, Unemployment, Insurance, Social Security, Auto Tax Deduction, Education Tax Credits, 1st Time Home Buyer Credits

First Time Home Buyer Tax Credit

I have been following this development of the bill very closely and as a potential first time home buyer I believe that this will provide an incentive for me to do my part in reviving the economy. I know many others are very interested in the developments of this part of the bill so here are some important details:

http://www.savingtoinvest.com/2009/02/15000-first-home-buyer-tax-credit-in.html

Stimulating the Economy...

The hardest question I received so far this year is, "Do I agree with the stimulus bill?" It is a very difficult question because we are facing a very tough economy that has a number of different scenarios currently in play. Consider the following scenarios:

1. Young, middle, and old aged people are unemployed
2. A single mother working retail has her hours cut because demand is slowing
3. Governors fear slashing jobs if the state doesn't balance its budget
4. An employed young man is not going to the bar, eating out, or vacationing
5. A young couple with children did everything right but is underwater on their new housing purchase after buying at the height of the real estate market
6. The parents of a well off family of four still lives their daily but are shopping less and saving more than ever do to declining investments and the declining value of their home.

I went to answer this question and tried to address as many of these different scenarios as possible. The realization I quickly came to is there are a FEW small measures that will help everyone and those should be the focus of the government. Here is what I've got to assist in each of these scenarios:

1. Jobs, Immediate Assistance(to pay bills)
2. Jobs (More work hours or new job options), Immediate Assistance(to pay bills)
3. Immediate Assistance (to balance budget, and maintain Jobs)
4. Confidence (in the economy) and Incentive (to spend his hard earned money)
5. Confidence (in the economy) and Extra Help (with underwater mortgage and kid)
6. Confidence (in the economy and Incentive (to spend their hard earned money)

After analyzing these scenarios a true stimulus bill would address the areas that can help the most people. Here is what my stimulus bill would include:

~ Developing Jobs is needed to provide work and options to those in need and improve the confidence in the overall market (Scenarios: 1,2,4,5,6)

• Create new jobs through state and federal projects that put people to work
• Maintain jobs through by increasing the demand for American goods domestically and internationally

~ Immediate assistance needs to be given to Americans to help buy food, pay for rent/utilities, and help with kids which begins to circulate money back into the economy and builds confidence (Scenarios: 1,2,3,4,5,6)

• Food stamps assist will immediate help and will be spent immediately at grocery stores everywhere (circulating money and keeping jobs intact)
• Cash to only those that need immediate help with Utilities (No jobs and low income)
• Utility and Day Care assistance as an incentive for middle income families to spend money and not hoard any cash given by the government

~ Incentives need to be given to Americans to who have discretionary income which will circulate cash, develop jobs, and improve confidence (Scenarios 4,6,1,2,5)

• Housing and Auto Credits will provide incentives to Americans with discretionary income to help revive two major industries
• Temporary reduction in sales tax (but will this hurt state budgets)
• Tax Cuts will put more money in our pockets but I don't think this measure should be heavily relied upon because it would not cause me to spend the money...rather to save it.

These are the pillars to what I would recommend in a stimulus package. Ironically, I believe that the government has gotten the bill correct but the allocation of the bill is what I believe is out of what. Roughly 80% of the package should have gone towards DEVELOPING JOBS and providing IMMEDIATE ASSISTANCE. The remaining 20% should have focused on providing incentives to those who have been impacted the least but can provide additional help in stimulating the economy.

Twist And Shout...

The reason why I call this post twist and shout is because I am definitely about to throw my readers for a twist. The twist goes a little something like this:

I have recommended since last September/October that we MOVE all of our positions into Cash, and Cash-like assets (Treasurys,etc). And I mentioned we would hold those positions until we hit a relevant level that may help form a bottom. At this point, with the new Treasury secretary (Tim Geithner) delivering his plan for the banks TOMORROW...AND the Senate finalizing the vote on the stimulus plan TODAY I am under the assumption, that any hint of news (as minimal as it might be), may cause the market to start rallying in anticipation of both announcements. I would increase your exposure to the market however incrementally. At this point no more that MAYBE 25% of your CASH position should be used to take advantage of this situation.

Now here is the TWIST, I am resigned to say that we are purely taking advantage of what will probably go down as a BEAR MARKET RALLY. This simply means that there are pockets, during an economic downturn where the markets need a breather and goes in the opposite direction. And that direction would be UP.

But this will be short-lived and the hard part to determine is how long this BEAR MARKET RALLY will last. I will go out on a limb and say it the market top 9000 to head for the hills as I believe that it will be trading in a range for a long time. I know I continue to deliver news that you may not want to hear but I believe that once we hit those levels the markets will continue to decline until critical things are addressed such as unemployment, foreclosure, and failing banks.