Is the Commodities Bull Gaining a Second Wind?
After the carnage that has gripped the markets over the last 6 months, it's difficult at present to approach potential investments with confidence. Naturally, because very few people vocally predicted our current financial and economic crisis ahead of time, taking any investment authority as such these days is not exactly a conservative or rational call.
Most of the conventional wisdom of long term mutual fund investing and diversification has finally come into question, and a call to personal research and specialized investing is once again gaining precedence. Most investors have come to realize that the great stock market and real estate booms over the last 15 years have been anomalous, historically speaking. They were in fact unprecedented gains that should not have been taken for granted, or assumed to be the new order of things.
We are returning once again to a more precarious investment climate, and one that for those of us who have researched the markets throughout the 1970's, have seen before. Will history repeat itself? The last time the US fell into a long drawn out recessionary period, as many, including myself, speculate we are entering, was the decade of the 1970's.
Some of the events that marked this period were skyrocketing energy prices, oscillating and net negative stock index performance, financial and economic instability resulting in rapid government spending and bailouts, and consequently, very high inflation. Sound familiar? The first three should to you at this point. We've witnessed them all within the last year. The fourth and most insidious of these, inflation, has yet to surface, but its well on its way.
Our government has fallen deeply into debt, and has created more dollars in the last 8 years than were in existence throughout our entire history. The last year has itself contributed the largest portion of new money in an attempt to save corrupt financial institutions. And for those of you who know how money works, you know that when you add more of it to the current supply without a corresponding increase in value or product creation, then dollars become worth less, and real physical things become worth more. This is inflation.
Historically, times of high inflation have regularity in they way they impact asset classes. High inflation forces the hand of the Federal Reserve to raise interest rates. Raising interest rates reduces incentive to borrow and invest. Reducing this incentive hurts business growth and profit potential, as the cost of doing business increases. Therefore, stocks tend not to do so well, with individual exceptions. Even if they close at a higher dollar value in ten years, the chance of that value outpacing inflation is not so good.
So if stocks, in general, are not a great place to be, where should the small investor look to protect and grow his wealth? Let's get back to the title of the article, commodities. While the USA is and will be hurting for a while, world growth is set to resume before long, still led by China. The demand for physical materials, food, and energy is not going to remain muted. I'm not speculating here, I can see it with my own eyes. I've lived and traveled in China for several years, and while the economy is experiencing set backs in growth, it is still growing.
All commodities are cheap again, and this will stimulate spending on those things china needs the most, infrastructure, energy, and food. In addition to the coming resumption of demand, inflation will force dollars to flow into every asset that isn't dead, and create a new and greater base value of all commodities, if not an all out resumption of this incredible commodities bull market. Which commodities are safest?
The answer differs little today than at any other time, namely those commodities that have a supply and demand imbalance, or will in the foreseeable future have an imbalance. Some of these include coffee, cotton, sugar, and livestock. And in keeping with historical patterns, gold and silver benefit greatly from the flight to value that occurs when inflation sets in and nervous investors run around like chickens with their heads cut off.
The best way to have a footing in the gains to come is to consider commodity ETF's that allow you to hold long term positions in commodities themselves, without the risks incurred with futures. For 2009 and 2010 consider coffee and silver, both dirt cheap commodities suffering from a lack of supply relative to demand.
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Business Cash Advance Confusion and Misunderstandings
Despite efforts by the federal government and commercial lenders to suggest that there is ample business funding, confusion seems to be increasing about small business loans and working capital loans. As a result, the actual availability of basic business finance services such as commercial real estate financing and business cash advance programs is not clear to many commercial borrowers.
It seems apparent that there have been many reports suggesting that normal commercial finance channels are either frozen or extremely sluggish. After reviewing other funding sources, it is possible to find more commercial loan financing options than such reports might suggest. Uncertainties in credit and financial markets have produced misleading and often conflicting information about commercial financing availability. For most business owners, it is probably not clear if business finance funding is realistically available to them or not.
In spite of some admittedly bad news, there continue to be to reliable funding sources for commercial real estate loans, working capital loans and especially for business cash advances. At the same time, the current negative economic conditions will prove to be difficult for most businesses. Commercial borrowers should expect that extra efforts will be required to successfully arrange commercial financing. An especially harsh reality for business financing is that many banks have discontinued all or most of their business lending activities, often with very little advance notice.
One common example of commercial finance misinformation distorting what is actually feasible is that some kinds of commercial financing have been more disrupted than others by recent events. Commercial borrowers might be unnecessarily confused by reports that do not refer to all commercial loan situations but rather primarily apply to a very specialized form of business financing. For example, by most accounts commercial construction loans are in short supply currently. Such specialized business loans are not as easily available as they were just a few months ago, and a more accurate accounting would reflect that the number of commercial lenders currently active in construction financing has shrunk dramatically. At the same time, most commercial real estate loans without new construction have not been as severely impacted as funding requests which do involve construction financing.
Another example of how business finance funding reports might confuse small business owners is that several publications have suggested that most new business financing requests are on hold or have simply been rejected due to recent credit market uncertainties. While the sources for this information might have been honestly told by one or more lending institutions that they are in fact deferring new commercial loan funding, this does not mean that is the case for the entire country. If the discussion involved automobile sales, it would be comparable to concluding that nobody is selling cars anywhere after learning that several major dealers and two manufacturers announced that they were going out of business due to lack of adequate sales. Just because one or more banks fail or stop making business loans, it does not mean that there are not commercial loans available from other sources.
Commercial borrowers would be wise to maintain a cautious perspective in determining how to refinance or obtain small business loans simply because the banking industry has been involved in financial disruptions of an epic proportion. Many banks are sounding and acting like they have been through the equivalent of a train wreck. In such a natural disaster, it might not be prudent for business owners to seek the advice of banks which effectively caused the train to derail in the first place.
Some commercial lending activities such as business cash advance programs are actually as active as they have ever been despite reports to the contrary about limited availability of business financing. In the current commercial funding crisis, small business owners should seek a commercial loans expert for a realistic assessment and candid discussion about working capital loans and business finance programs.
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Extreme Tax Deductions May Increase Chances of Being Audited
At the IRS, everything is about averages. The standard deduction is the average amount of deductions for your situation. Tax credits are all based on average costs and benefits of having a child or going to college or buying energy efficient appliances. But what you may not know is that the IRS uses averages to determine whom to audit.
The IRS database uses statistical analysis to determine what the average ?deduction range? is for most taxpayers. This range is mainly based on income, although they may use other factors. If you claim more deductions than the average range for your income bracket, the IRS computers will flag your return. Don?t be scared though. Many returns that fall outside the deduction ranges are never audited.
In 2005, the average taxpayer with an income of $15,000 to $30,000 claimed $6,515 in medical expenses, $2,783 in taxes, $7,293 in interest, and $1,916 in charity donations. In the income range of $30,001 to $50,000, the averages were $5,625 for medical expenses, $3,623 for taxes, $7,582 for interest payments, and $2,158 for donations. Those who earned between $50,001 and $100,000 claimed an average of $6,144 in medical expenses, $5,812 in taxes, $8,946 in interest, and $2,703 in donations.
The two highest brackets showed the same patterns, though of course the numbers were larger. The $100,001 to $200,000 bracket had average deductions of $9,727 for medical expenses, $10,504 for taxes, $11,927 for interest payments, and $4,057 for charitable donations. Those earning $200,001 and over deducted an average of $30,952 for medical costs, $39,321 for taxes, $21,166 for interest payments, and $20,434 for donations.
Even if your deductions fall way outside these ranges, tax experts agree that you should claim them all. There is nothing wrong with having a large number of deductions ? in fact, it probably shows that you are doing something right! The famous Judge Learned Hand once stated during the 1934 case Helvering v. Gregory that ?there is nothing sinister in so arranging affairs as to keep taxes as low as possible,? and ?there is not even a patriotic duty to increase one?s taxes.?
Simply ensure that you have all the necessary evidence ? receipts, statements, tax returns, and any other relevant documents ? to prove that your deductions are justified in case your return is chosen for auditing. (This is a good idea even if your deductions are completely average ? there?s no telling when the taxman will come calling.)
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Commercial Loan and Working Capital Resources
The practical overview in this article will describe some useful small business loan resources which should be evaluated by business owners as part of a systematic process for obtaining working capital financing and commercial loans. To locate any site referred to in this article, commercial borrowers should either contact the author directly or use a leading internet search engine. All of the suggested business finance resources are free and available online.
Small business loans have always been more complicated than realized by most business owners. A prudent approach to working capital financing and commercial loans is becoming more difficult for most commercial borrowers. Recent commercial financing uncertainties involving commercial mortgages and SBA loans have added significantly to the complexity of the entire commercial lending process.
By searching for "commercial mortgages and commercial loans guide", the first suggested resource will be identified. This site includes candid advice about avoiding problems with commercial real estate loans and small business loans. Also included are some especially relevant articles. A special report describing what a business borrower can do when a bank refuses commercial mortgage requests is one prime example.
A second resource can be located by searching online for "working capital financing special reports" or "commercial loans special reports". This will provide links to a wide variety of recent articles addressing relevant issues such as difficulties which are likely in refinancing SBA loans. Commercial borrowers should especially benefit from reading about recent adverse developments involving business cash advances and business finance programs.
A third key commercial funding resource can be reached by searching for "business cash advance and working capital guide". This site primarily discusses topics related to working capital financing. Of special note at this site is a small business cash management executive summary. This summary report includes a list of ten problems to avoid with credit card factoring.
A fourth resource of general interest to small business owners will be found by searching for "working capital help" or "working capital journal". This includes a discussion of predatory lenders which should be avoided. Also provided is a comprehensive update about the many evolving changes for business finance programs.
A fifth resource which should be helpful to anyone that currently owns or is about to buy commercial property can be found by looking for "real estate investment property loan and business finance guide". This site will provide a useful perspective about some critical problems to avoid with SBA loans and conventional commercial mortgages. For example, a report at the site discusses how to avoid malpractice with commercial loans.
We recommend inclusion of terms such as "avoiding problems" along with other descriptions like "working capital" and "commercial mortgage loans" to obtain more helpful comments about small business loan reports available through internet sources. For example, by searching for "avoiding problems with working capital loans", commercial borrowers should obtain useful insights about difficulties to be avoided in their own business financing efforts.
Some precautions in this approach to business finance research are appropriate. Highlighted below are two of the more important aspects.
First, because of the complicated nature of small business loan underwriting, there is really no substitute for individualized discussions between a commercial borrower and a knowledgeable business finance advisor. Before finalizing their commercial loan decisions, prudent business owners should insist on personalized and detailed discussions with a working capital expert.
Second, most business finance strategies are highly likely to be more complex than expected by commercial borrowers. There will normally be specific issues requiring more detail than can be found in a generic article, even though written sources can identify important commercial loan difficulties for business owners to anticipate.
It is likely that business owners will gain helpful insights about the changes currently featured in the business finance news by devoting some time to reviewing sites through the search phrases noted above. Although it is true that there are new and substantial small business loan problems to be confronted by commercial borrowers, in most cases these will be difficulties that can be successfully overcome with prudent advance preparation.
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