Welcome to the August 2008 issue of Condor Monthly!
Please continue below to view the "From the Portfolio Manager" and "Financial Planning Corner" segments in this month's issue.
From the Portfolio Manager
Inflation Worries Waning
In addition to turmoil in the credit markets over the last year, investors have been equally concerned over inflation and its effects on consumer spending. The recent surge in commodities prices, especially for oil and food, drove the year-over-year increase in consumer prices to 5.6% in July 2008. Currently, with the prices of oil, corn, copper, and many other commodities in retreat, future gains in the consumer price index should be muted.
The drop in inflation will be gradual, not sudden, because many businesses (i.e. utilities) are trying to pass on their 
higher costs to their customers. What is reassuring is the absence of signs that the surge in inflation has triggered a wage-price spiral. Many companies have managed to boost productivity enough to offset much of the increase in their labor costs. While this is not good news for workers who have seen their inflation-adjusted pay fall, some of this loss is offset by the fact that the cost of gasoline has come down. The average cost of gasoline declined by 37 cents, or 9 percent, to $3.79 per gallon over the five weeks ended August 18. Over the same period, diesel prices plunged 55 cents a gallon, or almost 12 percent, to $4.22
higher costs to their customers. What is reassuring is the absence of signs that the surge in inflation has triggered a wage-price spiral. Many companies have managed to boost productivity enough to offset much of the increase in their labor costs. While this is not good news for workers who have seen their inflation-adjusted pay fall, some of this loss is offset by the fact that the cost of gasoline has come down. The average cost of gasoline declined by 37 cents, or 9 percent, to $3.79 per gallon over the five weeks ended August 18. Over the same period, diesel prices plunged 55 cents a gallon, or almost 12 percent, to $4.22 
The crash in commodity prices is also good news on the interest rate front, as Federal Reserve officials have been predicting that inflation will moderate as prices come back down to reality. As long as the outlook for global economic growth is weak, a quick rebound in commodity prices seems unlikely. As a result, consumers get some much-needed breathing room, while the Fed can keep interest rates at historic lows until the credit crisis subsides. Lower commodity prices are key to turning around the global economy. Financial Planning Corner
Change in Real Estate Tax Law
Although the Housing Act of 2008 is generally designed to support the housing market, a provision regarding the exclusion of real estate capital gains makes second homes less attractive. The new law requires sellers to allocate the gain from the sale of real estate between periods of qualified and nonqualified usage. Up to $250,000 ($500,000 per couple) of capital gains can be excluded from tax upon the sale of a principal residence as long as the property was used as the seller's principal residence for at least two of the five years preceding a sale, which is "qualified" usage. Up to now, property owners could sell their principal residence, claim the capital gain exclusion on the profit, and 
then move into their vacation home or rental property for two years to repeat the process. Sellers will now need to divide the period of nonqualified usage by the total period of ownership and multiply that percentage by their total gain. The resulting number is the amount of gain that is subject to tax and the remaining gain is tax-free up to the maximum exclusion amount. The new allocation formula only applies to properties purchased in 2009 and beyond, so nonqualified usage prior to 2009 is grandfathered under the current law.
then move into their vacation home or rental property for two years to repeat the process. Sellers will now need to divide the period of nonqualified usage by the total period of ownership and multiply that percentage by their total gain. The resulting number is the amount of gain that is subject to tax and the remaining gain is tax-free up to the maximum exclusion amount. The new allocation formula only applies to properties purchased in 2009 and beyond, so nonqualified usage prior to 2009 is grandfathered under the current law. 
