Thomas Jefferson

OVER THE LAST THREE weeks, since our last commentary, the major equity indices have moved up slightly. By the numbers, for the week ended Friday, September 4, 2009, the Dow Jones Industrial Average closed at 9441, up 120 points, or 1.3%. The Standard & Poor’s 500 closed at 1016, up 12 points, or 1.2%, and the NASDAQ closed at 2018, up 33 points, or 1.7%.

The Shanghai stock market continued its volatility, with daily swings of 5% to 7%. Non-farm payrolls fell by 216,000, bringing the official unemployment rate to 9.7%, a 26 year high. The Federal Reserve is confident that the steep economic downturn is over, but they have no idea what the future looks like. At least they admit it.

The European Central Bank kept interest rates at 1%. ECB president Jean-Claude Trichet says the worst is over, but sees only a “very gradual recovery”. Retail sales were off 2% in August. Discounters Costco and BJ’s posted sales increases, Gap and Banana Republic fared worse than expected, while Old Navy posted a sales increase. Aeropostale recorded a 9% sales increase, and Abercrombie saw a 29% sales decline, according to recent reports at Marketwatch.

Walt Disney is buying Marvel Entertainment, and EBay is selling Skype. According to reports, the Pension Benefit Guaranty Corporation, or PBGC, is running a $33.5 billion deficit. This should worry taxpayers more than retirees.

Digging into the employment report, there were 63,000 jobs lost in the manufacturing sector. April 2006 was the last month that there was a job increase in manufacturing. Education and healthcare added 52,000 jobs in August, which is no surprise, given that these two industries are funded primarily through taxes. Non-farm productivity jumped 6.6%, while unit labor costs dropped by 5.9%.

In his Saturday radio address, President Obama suggested four new initiatives that he hoped would improve savings. First was automatic enrollment in employer sponsored retirement plans. This means it would take action on the part of the employee not to participate. Second was the ability to receive tax refunds in the form of savings bonds, sort of like the scrip issued by mining companies in years past. Third was the ability for employers, with employee consent, to contribute unused vacation and overtime pay to retirement accounts. The fourth was the government’s printing of a guide to job changes and retirement plans. Steps one through three may be good ideas, unless Washington nationalizes the country’s retirement plan system.

According to the FDIC, as of the second quarter of 2009, the number of banks on the “problem list” stood at 400, compared to less than 100 during the first quarter of 2008, according to Bob LeClair’s newsletter. Boeing is now promising to fly the 787 before the end of 2009, with initial deliveries by the end of 2010.

On the tax front, 401(k) plan fiduciaries aren’t liable for losses on employer’s stock. This ruling came in district court, in the Lingis vs Motorola case, according to Kiplinger’s Tax Letter. Michigan employers can expect a 2009 FUTA rate of 1.1%, compared to 0.8% in most other states. Indiana and South Carolina will most likely see FUTA rate increases in 2010. According to a New Jersey District Court, settlements of job bias cases are taxable, even to the extent of being hit with payroll taxes.

Firms have until October 15 to elect to carry back a 2008 net operating loss for five years instead of two. This break applies only to those companies with $15 million or less in revenue.

If you tapped a home equity line for business use, then borrowed against it again for personal use, such that the total exceeded $100,000, your interest deduction would generally be capped. According to a Private Letter Ruling by the IRS, you can claim the business portion as a business loan instead of mortgage debt, and deduct the interest as business interest. This could allow the personal debt interest to be fully deductible. You make this election by attaching a statement to your tax return.

If you’ve read this far, I’d be interested in your input. From either personal experience, or from watching others, share with me what it takes to bounce back from defeat. What did you do? What was your mindset? Did you do certain things, read certain books, change the scenery, take a sabbatical, change careers or businesses? These stories are fascinating in a good way, as they display the strength and resiliency of the human spirit. I’ll not reference these stories without your express permission. Thanks for sharing.

Quotes of the week:

“The natural progression of things is for liberty to yield, and government to gain ground.”

“To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.”

“What country can preserve its liberties if its rulers are not warned from time to time that their people preserve the spirit of resistance?”
Thomas Jefferson