Friday, April 13, 2007

The coming Real Estate boom in 2012

Congress is about to screw up the economy big time, if Democrats succeed with plans to raise taxes on capital gains and dividends. Here is an analysis which seems right on:
Hundreds if not thousands of company's will be recapitalizing in 2009, paying out huge special dividends just before the dividend tax rate goes up. Many will lever up and many will cease dividends altogether post 2010 and use the cash flow to reduce the debt, in essence pulling profits forward in time to give their shareholders cash at the 15% rate and reduce the level of future profits that would be subject to higher rates of taxation. Imagine that, receiving your little slice of US corporate profitability for years 2011-2015 in 2010, cash money! The implications for the Treasury are that there will be a surge of revenue in 2010 and a cratering of revenue beyond. Private equity types are doing this already. When the outlook for capital gains is cloudy (or even when it is not) they sell bonds to pay themselves a fat dividend. As 2010 approaches, everybody will be getting in on this game. You've got to own stocks to get your share of the cash tsunami but massive capital losses would be in the offing. Start learning now about buying long dated puts on the market indices and/or selling calls.

Furthermore, congress will interpret the revenue surge as a permanent increase in the tax base, and they will rapidly increase spending. The post 2010 federal budget deficits could be huge when the tax receipts dry up. With guys like Max Baucus at the wheel, I say it's a safe bet. Won't be good for treasuries.

With treasuries and stocks looking bad, usually what happens is capital flows to real estate (think 2002). I think it is fair to say that 2011 is far enough away for the collective memory of where we are today with real estate to have faded by then. I predict another real estate boom circa 2012.


Post a Comment

<< Home