Monday, May 19, 2014

Brake-O-Rama finds interesting article on the fuel economy

Big battle brewing over fuel economy standards

The White House appears to be looking for a way to compromise on future fuel economy increases, but it remains to be seen whether planned new mileage rules will satisfy those on either side of the debate.
The Obama administration is hinting that it will require carmakers to produce fleets of cars and trucks that get an average 56.2 miles per gallon by 2025. That would represent a nearly a 60 percent increase over the 35.5 mpg mandate in place for 2016. But the end result, representing an increase of 5 percent annually, still would be significantly lower than the 62 mpg number the Environmental Protection Agency originally was considering.
Proponents of an even bigger increase in fuel economy standards say the compromise figure would not do enough to reduce global warming or decrease America’s dependence upon foreign oil.
But some industry representatives and others say even the 56.2 mpg standard could result in costs that are more than the public can bear, leading to sharp declines in new car sales and the loss of thousands of automotive jobs. They have suggested a standard of perhaps 47 mpg, which would represent a 3 percent annual increase over a decade.
“Overly ambitious standards set 14 years in the future risk severe economic harm if consumers’ wants and needs are not met,” said Bailey Wood, a spokesman for the National Automobile Dealers Association.
The Corporate Average Fuel Economy or CAFE standards have been controversial since they were made law in 1975 following the first Middle East oil shock. Opponents of the standards were able to effectively freeze the rules for two decades, with only the most modest increases until the Obama administration negotiated an increase beginning with the 2012 model year through 2016.
Given sporadic run-ups in oil prices over the past two years and growing concerns about global warming, proponents of government-mandated fuel standards now feel they have momentum to achieve the biggest mileage increases since the original rules were passed more than three decades ago.
Clearly, consumers want improved fuel economy. That is reflected in the market’s shift toward smaller vehicles and downsized powertrains. But growing frustration with government and public debate over global warming have made the original 62 mpg goal more difficult to sell than some had initially expected.
Also complicating matters: Americans are concerned about jobs, and a study issued this month by the Center for Automotive Research raised serious questions about the costs and benefits  of pushing fuel economy too far, too fast.
The risk “is serious,” proclaimed the CAR study, which said the higher standards could boost the price of a typical car sold in the U.S. by as much as $9,000 while reducing new car sales by up to 5.5 million units a year, potentially eliminating as many as 265,000 American jobs.
Advocates of CAFE standards decried the CAR report as “propaganda,” pointing instead to another study issued by the Boston Consulting Group on the same day as the CAR report.
The Boston Consulting Group is far less negative about the projected sharp rise in mileage. It would be “a lot cheaper than expected,” said Boston Consulting Group analyst Xavier Mosquet, who estimated the average cost at $2,000 per vehicle. That, he contended, would be easily paid for by fuel savings, especially if gas prices keep going up, as many expect.
Why such a discrepancy between the two projections? There are plenty of assumptions that go into forecasting what consumer demand will be more than a decade out — as well as the sorts of technology that might be available to meet those needs.
Industry leaders such as Ford global product development chief Derrick Kuzak say that motorists will not only be forced to substantially downsize, but that they will also likely no longer be able to get the sort of powertrains popular today. The industry will likely be forced to replace V8s, V6s and even smaller 4-cylinder engines with battery-based technologies that could limit range, performance and payload.
On the other hand, CAFE proponents point to the substantial number of conventional vehicles that already deliver 40 mpg on the highway without using hybrid technologies that could yield even more savings. The Boston Consulting study, for one, sees tremendous opportunities using direct injection, turbocharging and more advanced transmission systems.
The administration backed down on the earlier 62 mpg standard once the new Republican-majority House was seated, in January. But the issue of fuel economy is less partisan than some might think.
Liberal Sen. Carl Levin, D-Mich., is one of those siding with the industry, saying that even the reduced 56 mpg target is too high. On the other hand, a group of 15 prominent Republicans, including former governors, members of Congress and EPA administrators, wrote the White House last week to back the full 62 mpg target.
With consumers so worried about fuel prices, there are few who expect the CAFE debate to be put on the back burner again. What’s unclear is whether the new proposal is the point at which the White House expects to begin bargaining with the auto industry, or if it sees 56 mpg as the compromise it is willing to settle for.
Administration representatives have reportedly been meeting with officials from the auto industry, Capitol Hill leaders and others in recent days, hoping to take the political temperature.
“No decision has been made yet, but our goal remains to propose [a revised mileage] rule this September,” said White House spokesman Matt Lehrich.

Tuesday, January 14, 2014

REITs and a lesson in business by Master businessman Zalman Silber

Zalman Silber 02/19/2012
Residential properties are one great way of owning a piece of real estate for investors, but it is certainly not the only way. Investing in commercial real estate such as malls, medical office buildings, large properties, and hospitals - may provide investors with an income stream, potential tax benefits, protection against inflation, and substantial growth opportunities. In addition, real estate is a great way to add diversification benefits when combining it with other types of non-correlated investments such as equities and fixed income securities. Therefore, commercial real estate can provide investors with a way to shield against volatile market conditions.An investment opportunity
Years ago, commercial real estate investments were only attainable by institutional investors, wealthy individuals, and trusts with significant financial resources. For more info Zalman Silber

Today, with the advent of products such as real estate investment trusts (REITs), many investors now have access to commercial real estate investments and opportunities that were once available to only the cream of the crop.How it works
The most often used vehicle for investing in commercial real estate is the REIT. Although investing in commercial real estate was restricted to wealthy individual and corporations 50 years ago, since the REIT was created, the real estate market has attracted a much broader and much larger group of investors because it allowed regular investors to participate. REITs are like most other funds in the way they get capital for their operations. They raise money from investors and pool all the funds to acquire properties such as hospitals and office buildings. As long as REITs closely adhere to the laws applicable to them, most notably distributing at least 90% of all their taxable income to investors, they avoid double taxation of its income at the REIT level. This distribution is the major source of the income that REIT investors receive.When investors place their money in any REIT, they are putting their money in the hands of real estate professionals that monitor changes and trends in the real estate market, mortgage rate movements, regional trends, and other factors. In addition to all the external factors, the REIT's success will also be affected by the fund manager's skills, experience, and talent.REITs come in two forms: traded and non-traded fashions. Each has its own advantages and risks. However, this article concentrated on non-traded REITs.Potential benefitsNon-traded REITs may offer:Steady income streams. Non-traded REITs may provide a revenue stream in the form of monthly or quarterly distributions. This gives fixed-income investors with a steady cash flow.Protection of principal. Although the economy's ups and downs can affect real estate values, REITs that invest in high-quality real estate assets can maintain their values.Capital appreciation. With a sufficiently long time horizon, real estate can provide investors with back-end appreciation which can translate into significant rates of returns.Inflation protection. Real estate typically withstands the erosive nature of inflation.Tax advantages. Many investors benefit from holding real estate investments because the investor's taxable income is reduced by taking advantage of depreciation deductions. When the asset is sold, the income that was protected by the deductions is taxed at potentially lower capital gains taxes.Potential risksThe following risks are possible with non-traded REITs:Some of the property holdings in the REIT may have been purchased at a highly appreciated price which can restrict the overall growth of a REIT portfolio because the REIT may run the risk of not being able to sell the property at a more appreciated price. These types of properties may or may not be providing cash flows to the REIT.Non-traded REITs are typically appropriate for long-term investment horizons of 5-10 years making them more illiquid investments.Investment objectives stated in the REIT's prospectus are target not guarantees. Clients may see a difference in the distributions they receive and the expected level of distribution rate.Commercial real estate investment strategiesCarefully consider what risks you are looking to take on in order to justify the expected return. Higher returns generally go hand in hand with higher risks. Individual investors need to feel comfortable with the degree of risk they are willing to tolerate and then maximize their returns to their unique risk level without leaving your comfort zone.REITs typically fall into three principal categories each with its own advantages and risks:1. Core investment programs concentrate on long-term property holdings in order to generate steady income streams for their investors and potentially some back-end appreciation. Investors that find these programs appealing are typically focused on receiving an income stream to supplement their current income.REITs that fall under this category of core real estate investments invest their funds in well-established real estate markets focusing on high-quality, stable, well-maintained properties that are not too leveraged. They buildings generally have minimal upkeep necessary such as repairs.Managers select
properties in diverse markets and look at the financial stability of tenants in their chose properties.2. The value-added group invests in properties that potentially may provide investors with significant back-end capital appreciation. Therefore, these properties carry with them a higher level of risk and are generally financed with some amount of leverage. Investors seeking greater asset appreciation rather than current income in their investment plans may find this group of REITs more appropriate for their investment goals.When buying these types of real estate properties, managers are willing to purchase properties that may have had some operational or management problems such as average or below average occupancy rates. In hope of turning these investments around, the REIT may look to improve or reposition troubled areas in the property in some way often by finding higher-quality tenants. Once their attempts have increased the value of the asset, the manager may consider selling the property to capture gains.3. The opportunistic REIT strategy seeks to invest in properties that will capture the highest possible returns and therefore may accept a significant amount of risk to get to their goals. Investors in these types of REITs have a minimal need for current income and are looking for substantial short-term capital appreciation.Such investments are generally not appropriate for individuals seeking a steady income stream, but rather those seeking to increase total returns in their portfolios via capital appreciation. REIT managers create value by finding properties in geographically diverse markets where growth potential is high. Fund managers invest in properties for a short period of time are generally ready to recapitalize certain holdings to increase returns.You don't have to do it aloneREITs can be complicated investments to evaluate and even more complicated to integrate into your current portfolio and investment goals. Your Isakov Planning Group Financial Advisor can help you determine if REITs makes sense for you.