Friday, December 17, 2010

Merry Christmas!

MIXED ECONOMIC NEWS GAVE MARKETS little direction last week, with most domestic equity indices up slightly. By the numbers, for the week ended Friday December 10, 2011, the Dow Jones Industrial Average closed at 11,410, up 28 points, or 0.25%. The Standard & Poor’s 500 closed at 1240, up 16 points, or 1.2%, and the NASDAQ Composite closed at 2637, up 46 points, or 1.8%.
On the economic front, data indicates a slow recovery. The U.S. trade deficit fell in October to $38.7 billion, due primarily to increased exports and reduced gasoline consumption. Consumer borrowing increased by $3.4 billion in October, most of which was student loans. Credit card use fell for the 26th consecutive month, and jobless claims were down to 421,000.

While there are encouraging short term signs of economic recovery, long term challenges are real, and must be addressed. The Congressional Budget Office, www.cbo.gov, estimates that the U.S. will add another $7 trillion in debt by 2020, bringing our total indebtedness to $20 trillion, whatever that is. Either we print this money and devalue the dollar, which is the current approach, or we find other countries willing to purchase our debt. Either path brings lousy results.

Steve Jobs has been named CEO of the Decade by MarketWatch, a Dow Jones service. Tim Solso of Cummins Engine, among others, was a finalist.

The last building of Chicago’s Cabrini-Green housing project is being torn down. CG is one more case study in the string of failed attempts by government to do good. Any assistance requires buy-in by those being helped. Without this participation, a sense of futility and ultimately entitlement prevails.

Physical and fiscal health top the list of New Year’s resolutions. A few thoughts regarding fiscal health. Affluence, or discretionary cash flow, has very little correlation to wealth. Economic wealth can be described as control of assets. Affluence indicates that you have learned how to make money, or have available credit. Wealth indicates you have learned how to properly deploy the money you make. These are two entirely separate skills.

The wealthy among us have lived in the same town most of their lives, own a business, have been married once and remain that way, and live next to people with a fraction of their wealth. Here are seven common denominators we have discovered among the wealthy.

1. They live well below their means.
2. They allocate time, energy, and money efficiently.
3. They prefer financial independence to social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.

What have we learned? Building wealth takes discipline, sacrifice, and hard work.

Christopher Buckley offers a Santa’s Wish List for World Leaders. Hugo Chavez - a karaoke machine with 100 anti-U.S. rants. Olafur Grimsson – 10 trillion kronur debt relief, Mahmoud Ahmadinejad – leather-bound copy of Protocols of the Elders of Zion, Nicolas Sarkozy – custom shoe lifts, Kim Jong Il – economy size tube of styling gel.

The last few weeks of each year are times of reflection and celebration. In the U.S., we start the fall holiday season with Thanksgiving, to remember God’s grace and provision to some of the early settlers of our great country. Moving into December, many celebrate Hanukkah, or the Festival of Lights, a memorial to the Jews’ victory over very oppressive rulers in the 2nd century, B.C.

In our home, we celebrate Christmas, when we pause to give thanks for the freedom, salvation, and restoration found in Christ, our Saviour. However you celebrate, make time before the new year starts to reflect on the goodness of life, the gifts of friends and family, and whatever other blessings are around you.

Friday, December 10, 2010

Apple at $1000?

DOMESTIC EQUITY INDICES WERE up for the week, following a batch of positive economic reports, and in spite of hiring softness. By the numbers, for the week ended Friday, December 3, 2010, the Dow Jones Industrial Average closed at 11,382, up 290 points, or 2.6%. The S&P 500 closed at 1224, up 35 points, or 2.9%, and the NASDAQ Composite closed at 2591, up 57 points, or 2.2%.

On the economic front, nonfarm payrolls grew by 39,000 jobs in November, substantially less than the 155,000 forecast, sending the official unemployment rate from 9.6% in October to 9.8% in November. Construction spending gained 0.7% in October, fueled primarily by stimulus financed projects, and reminiscent of the WPA days. Manufacturing activity expanded for the 16th straight month, with auto sales leading the charge. Consumer confidence is at its highest level since June, and productivity growth was revised upward for the third quarter from 1.9% to 2.3%.

The U.S. continues to lose manufacturing jobs, as skilled labor and government services have both priced themselves out of the global market. In some of the best economic news in a long time, local governments reduced unemployment during October by 14,000 jobs. While this is a small start, it is a large step in the right direction.

On the tax front, Congress and the White House are attempting to come to terms on a tax bill before year end. Look for a special year-end tax update from us, delivered to your inbox by the 15th of December.

The European Union agreed to a $112 billion bailout of Ireland over the weekend. We will be surprised if the EU survives in its current form for another five years. Germany and its work ethic will agree to carry the rest of Europe only so long, and I suspect Germany is nearing the end of the line with its neighbors.

China is attempting to figure out what to do with its new found power. The current announcements are a tightening of the money supply and the importation of gold. It will be interesting to see if the old Communist lions can transition to their version of a capitalist economy or free market in a manner that allows them to sustain their current growth rates.

In China’s favor is a large and growing underground church, whose presence and impact is missed completely by almost all political and economic analysts and commentators. It is my understanding that China now leads the world in the number of Christian missionaries sent to other countries, surpassing both the U.S., and South Korea.

Cody Willard is suggesting that Apple stock will trade at $1000 a share by 2015. Pepsi has announced plans to purchase 66% of Russia’s Wimm-Bill-Dann foods, in a continuing effort to expand its global footprint.

Uncertainty is always with us. Often, it is masked behind what we see as good times. One approach to life is to separate our view of good and bad times from macro or micro economic circumstances. This is easier said than done, but it can be a useful exercise.

Quotes of the week:

“Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has been to being even.”

“I don’t make jokes. I just watch the government and report the facts.”
                                                             -Both quotes courtesy of Will Rogers

Tuesday, November 30, 2010

At Last!

After a several month absence, we are pleased to be back to you with a roundup of the markets, and observations about business, the economy, and whatever else may be top of mind in a given week.

The domestic equity indices, as measured by the Dow Jones Industrial Average, the Standard and Poor’s 500, and the NASDAQ, were off for the year, through the end of August, by 5.4%, 8.5%, and 7.5% respectively. September and October were very solid months for the domestic equity markets, and as of last Friday, November 26, 2010, these indices were up 4.6%, 4.8%, and 9% respectively, year to date.

Consumer sentiment, housing starts, and sovereign debt both at home and around the globe continue to be topics of conversation, and causes for uncertainty. The Republican recapture of the House in the November elections hasn’t quieted the general uneasiness on the part of many.

All this together has caused a flight to assets perceived as safe, such that gold and silver are up about 30% and 40% year to date. Silver has doubled in price over the last year, and gold has done the same over the last two plus years.

Some of the largest public companies in the world are deploying some of their cash on hand, buying up either content or distribution. They are also taking advantage of historically low interest rates by arranging lines of credit, with an eye toward making strategic use of this relatively inexpensive money.

On the economic front, GDP for the third quarter was revised up to an annualized 2.5%, personal income gains were 0.5% in October, and initial unemployment claims fell to 407,000, the lowest level since July 2008. Existing home sales dropped another 2.2% in October, to an annualized rate of 4.4 million units, and the median home price fell to $170,000, a 1% decline in the last year. New home sales fell by 8.1%, and prices of these homes were $194,000, down from $215,000 a year ago.

Homeownership has long been the Holy Grail for many Americans, though technically the mortgage company actually owns the home. Many have questioned when the residential market will stabilize. Median household income in America in 2008, according to the US Census Bureau, was $52,000. A household can realistically support a mortgage of two to two and a half times household income. Therefore, I suspect that residential real estate prices will drop until the median home price is in the range of $120,000 to $130,000.

If you plan to buy, buy at two times household income, and no more. If you can’t find something that fits that price range that you want to buy, continue to rent, wait, and continue to look.

In terms of economic outlook, the strong growth around the world will continue to come from developing countries that aren’t saddled with debt, entitlement programs, and entitlement mentality. This excludes the US, and Eastern and Western Europe, and includes parts of South America, Africa, and Asia. America has the opportunity to retain its leadership, once it refuses to fawn over terrorists, and chooses to get its own financial house in order.

Long term care insurance is in the news, as John Hancock has announced a 40% increase in individual LTCi premiums, and has suspended the sale of group LTCi. MetLife has also announced that it is exiting the LTCi business. We expect substantial premium increases on LTCi policies from Genworth, Conseco, Allianz, and others. New York Life, Northwestern Mutual, and State Farm, all mutual companies, appear to have priced their LTCi plans and managed their distribution such that their premiums will remain fairly stable.

According to Rich Kaarlgard, writing in Forbes, a 3.3% economic growth rate is required to maintain growth momentum. He quotes Carl Schramm, who heads the Kauffman Foundation. Schramm suggests that this growth rate is sustained when America has 75 to 125 new companies each year that have moved from start up to the $1 billion revenue mark within twenty years. Schramm further suggests that all of us dream big, and that we as a society adopt policies and guidelines friendly to this growth. Finally, Schramm’s research indicates that an outsized number of these companies are founded by those born in other countries. Suggestion from me is that we throw open the borders to legal (not illegal) immigration to those who want to come to America, assimilate into the dominant culture, learn English, and pursue their dreams.

We will be sending out a separate communication regarding Tax Tips for 2010. However, there is one tax detail you need to be aware of today. On September 27, 2010, the President signed into law the Small Business Jobs and Credit Act of 2010. One provision of the Act affected Qualified Small Business Stock (QSBS) pursuant to Section 1202 of the IRC of 1986. Provided such stock qualifies, all gain on sale is exempt from income taxation, and the gain also escapes inclusion as an AMT preference item. Call or email if you would like additional information, and look for additional details in our tax letter.

Quote of the week:

“All that’s required for evil to triumph is for good men to do nothing.”
                                                                                                        -Edmund Burke

Thursday, June 3, 2010

MAY DOLDRUMS CONTINUED FOR THE public equity markets. By the numbers, for the three weeks ended Friday, May 28, 2010, the Dow Jones Industrial Average closed at 10,136, down 244 points, or 2.4%. The Standard & Poor’s 500 closed at 1089, down 21 points, or 2%, and the NASDAQ Composite closed at 2257, down 8 points, or 0.3%.



BP continues its attempts to both cap the Deepwater Horizon well, and come to grips with its responsibilities regarding the spill. To date, both efforts have met with very limited success. The $900 million that BP is said to have spent to date represents about nine days of BP’s free cash flow from operations.


The U.S. Treasury Department announced the sale of about one-fifth of its Citigroup stake for $6.2 billion. The government’s continuing move to sell its positions in publicly traded companies should not be confused with a return to free markets.


Spain joins Greece in the ranks of countries whose debt has been downgraded by ratings agencies. Wal-Mart has cut prices by half on the iPhone 3GS, in preparation for new product from Apple. Marc Zuckerberg, interviewed at the “All Things Digital” conference, had challenges being forthcoming about his plans for Facebook. All in all, an interesting interview, given his interest in information from and about FB users.


For those of you who own Sub-S corporations, pending legislation would subject distributions to Self-Employment tax, beginning in 2011. This effectively gives you the opportunity to pay both sides of FICA on these distributions. My guess is that there will be fewer Sub-S entities in 2011 than there are today.


The Freedom From Religion Foundation is attempting to have the tax exemption for parsonage allowances declared unconstitutional. Look for continuing attempts to fracture America’s tradition of supporting faith based initiatives. Note that substantial gain from the sale of a primary residence, beginning in 2012, can trigger a special 3.8% Medicare surtax. This tax kicks in at AGI’s of $200/$250K for single/MFJ. Given the IRS’ aggressive approach to tax collection, they may want to change the IRS uniform to brown shirts.


Viable solutions for our country include limiting the federal government to powers specifically granted in the Constitution, while returning all other powers to the states. This would do away with many federal agencies, which is a plus. Other positive steps include doing away with all tax on income and assets, and adopting a 10% national sales tax. Congress also must do away with its pension and health plans, and participate in its legislation for the rest of America. We must return to a Constitutional Republic, if we have any hope of a future as a country. Let me urge you to be involved with your time and money in the upcoming November elections.

Speaking of elections, incumbents aren’t faring well. Utah’s Bob Bennett didn’t make it out of caucus. Rand Paul, who holds himself out as a constitutional conservative, is in the Senate race in Kentucky. Senator Blanche Lincoln of Arkansas is in a June 8th runoff. Incumbents are at risk around the country. It remains to be seen whether the anti-incumbent mood carries through to the general election.

On the economic front, GDP is running an annualized 3%. Durable goods orders are up for the first quarter, due primarily to aircraft orders. Sales of new and existing homes rose, perhaps in large part to the tax credit benefits.


There is always news on the economy, the financial markets, and the continuing efforts of our comrades at the IRS working to separate us from our dollars. In spite of all this, life is good, and most days, life is excellent. There will always be circumstances. How we choose to engage with life, regardless of our circumstances, will determine its quality. It will also determine the impact we make during the time we have been given.


Quote of the week:


“…You are not your own; you were bought at a price…”
                                                                                                      St. Paul

Thursday, May 13, 2010

Eagles

THE MONTH OF MAY has certainly added an interesting perspective to the financial markets. Since our last report, almost two months ago now, we have witnessed all manners of news. By the numbers, for the six weeks ended Friday, May 7, 2010, the Dow Jones Industrial Average closed at 10,380, down 470 points, or 4.3%. The Standard & Poor’s 500 closed at 1110, down 56 points, or 4.8%, and the NASDAQ Composite closed at 2265, down 130 points, or 5.4%.

Some of the best minds and petroleum engineers in the country are attempting to figure out how to sop up the oil in the Gulf of Mexico. Seeing a recent video demonstration brought back memories. Farm equipment leaks oil. The easiest way to soak up the oil was just to throw some loose hay on it. The oil would stick to the hay, and we would then just burn the hay.


Seems to me that it may be time to order several ships full of hay bales to spread around the gulf. Bermuda or prairie grass would work best. Hay doesn’t sink, and is fully biodegradable. Just a thought.


Based on last Thursday’s market gyrations, it appears that some of our country’s largest financial institutions don’t quite have a handle on the operations side of their trading systems. This will simply further endear these paragons of virtue to those millions of Americans who entrust their retirement savings to these firms.


As of last week, 437 of the S&P 500 had reported first quarter earnings. 77% of those reporting beat analyst’s earnings estimates, reflecting earnings 56% ahead of the first quarter in 2009. Not only are staff cuts having the desired effect, but top lines are growing as well.


On Main Street, my friend Steve, who owns a local pizza shop, tells me that April was the first month in fifteen months that sales didn’t decline. I’ll let you know what his May looked like in a couple of weeks. Other privately held businesses are reporting solid sales gains for March and April.


It looks as if Merkel and Sarkozy were able to get their friends to agree to bail out Greece. They must, if they intend to maintain the EU. Not that a bailout addresses the issue. What must be done, around the world, and including the USofA, is for nations to spend less than they take in, and for governments to wean their constituents from the government teat. I haven’t met or heard a politician with the will to do such.


Cameron and Clegg have agreed to lead Britain, replacing Brown. What remains to be seen is whether these two will step in to articulate a meaningful future, and help make the tough decisions to move Britain toward that future, or whether Britain has chosen to saddle itself with elected officials who can see no further than the next election or board position. All countries face the same questions, and too many are answering poorly.


On the economic front, the US added 290,000 non-farm jobs in April, the biggest increase since March 2006. Hiring has risen for four straight months, reversing nearly two straight years of job losses. Unemployment remained at 9.9%, meaning more people have begun looking for work again. Construction spending rose 0.2% in April, primarily from highway and public sector spending. Productivity jumped 3.6%, while unit labor costs were down 1.6%.


We have a choice. We can engage, or we can withdraw. Whether in war, in business, or in personal relationships, we can choose to engage, often at risk of physical or emotional harm, or we can withdraw. Withdrawing may allow us to escape momentary pain, and may be our reaction in an attempt at self-preservation. What we often miss is adventure, love, victory, freedom, and the richness of life that comes with the willingness to risk. A wise man once said that in order to gain life, we must be willing to lose ourselves. Charge the hill. It is much better to risk defeat than never to have attempted victory.


Quote of the week:


“…every form of refuge has its price…”
                                                               -The Eagles, “Lyin' Eyes”

Tuesday, March 30, 2010

Ty Murray on Life

EQUITY MARKETS CONTINUED THEIR march north, apparently on the back of hopes for continuing low interest rates, and drops in unemployment claims. By the numbers, for the two weeks ended Friday, March 26, 2010, the Dow Jones Industrial Average closed at 10,850, up 226 points, or 2.1%. The Standard & Poor’s 500 closed at 1166, up 16 points, or 1.4%, and the NASDAQ Composite closed at 2395, up 28 points, or 1.2%.


Germany, France, and the rest of the European Union have chosen to bail out Greece. Isn’t this like buying your son a new car after he wrecked the one you bought him last year by drinking and driving? Apple continues to wow the consuming public, and has built substantial anticipation into the iPad release.

Treasury is selling its 27% stake in Citigroup. Caterpillar, Deere, and ATT have announced non-cash charges related to the passing of the most recent version of the Patient Protection and Affordable Care Act, otherwise known as national healthcare. More on this topic later.

In 1775, the Continental Congress asked the colonies to pray for wisdom as the representatives worked to form the new government. President Truman signed a joint resolution by Congress in 1952, recognizing a National Day of Prayer. President Reagan signed a proclamation setting aside the first Thursday of May as the time for a National Day of Prayer. Every president since 1952 has signed a National Day of Prayer proclamation, and most presidents over the last twenty years have hosted services in the White House. This year, the National Day of Prayer is May 6.

On Tuesday, President Obama signed into law the referenced healthcare reform. A few of the changes are as follows. For a complete summary, prepared by the National Association of Health Underwriters, send us an email, and we will forward it to you.

1. Existing plans are grandfathered as long as the only changes are additions and deletions of employees and dependents.
2. Eligible small businesses can receive phase one of the small business premium tax credit.
3. Employers will lose the deductibility of Medicare D subsidies paid on behalf of retired employees.
4. Plans may not cap lifetime benefit limits.
5. All plans will be required to cover dependents up to age 26.
6. All plans will be required to cover pre-existing conditions.
7. All employers will be required to enroll employees in a new national public long-term care program, unless the employee opted out.
8. All business owners will be subject to new expanded federal income tax requirements on payments of fixed or determinable income or compensation.

Israeli Prime Minister Benjamin Netanyahu was essentially stiffed by the Obama administration on a recent visit to the White House. For 60 years, Israel has been our one consistent friend in the Middle East. In the meantime, the President appears to have made it a priority to befriend the Muslim world, visiting Egypt, Saudi Arabia, Turkey, and Afghanistan, among other countries.

In economic news, GDP was revised to 5.6% for the fourth quarter, down from the previous 5.9%, but still quite strong. Durable goods orders were up 0.5% in February, the third consecutive monthly increase, though existing home sales fell 0.6%, and new home sales fell 2.2% in February. Last week, the Congressional Budget Office announced that Social Security will pay out more than it receives in payroll taxes this year.

Ty Murray, at the age of 19 in 1989, became the youngest cowboy ever to win the All-Around Rodeo World Championship. Ty credits a conversation with his mom as the catalyst for this achievement. Through high school, according to Ty, he would perform well until the championships, where he would choke. His mother taught him to treat the championship rides as just another day at the rodeo. Ty says that in bull riding, you take something that big, that scary, and that dangerous, and you learn to gain control over your mind and your emotions, and move fluidly through the situation. Good words.

Quotes of the week:

“Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt.”
                                                                                                        Henrik Ibsen

“All men are alike in what they say; all men are alike in what they dream; it’s what they do that makes the difference.”
                                                                                                        Anonymous

Thursday, March 18, 2010

Ed Justice

EQUITY MARKETS CONTINUE TO edge up, probably from lack of any other opportunity to find a meaningful return. By the numbers, for the week ended Friday, March 12, 2010, the Dow Jones Industrial Average closed at 10,624, up 58 points, or 0.5%. The Standard & Poor’s 500 closed at 1150, up 14 points, or 1.2%, and the NASDAQ Composite closed at 2367, up 41 points, or 1.7%.


The flight to bonds continues, as investment grade corporates continue the upward journey in price they have experienced the last four or five years. It wouldn’t surprise us if the winning streak in bonds is nearing its end, and it will be interesting to see how bond prices respond to a quarter point increase in interest rates, once that happens.

China and Google are fighting for control, Congress is fighting for its life, the Administration is fighting for power, and Toyota is fighting for market share. I’m not convinced that most of these are worth fighting for. Fighting for justice, truth, those who can’t speak for themselves, yes – but fighting for power and control is an empty victory, if it comes.

U.S. debt grew at its slowest pace on record, with consumer debt actually falling in 2009 for the first time since records have been kept. Is there anyone willing to serve at the federal level that will bring discipline to their financial decisions the way households are required to? By the way, what’s a dangling participle?

In general economic news, retail sales were up 0.3% in February, a respectable showing given the nasty weather. Business inventories were unchanged in February, and the U.S. trade deficit fell to $37.3 billion, as both imports and exports declined.

States around the nation are facing large and growing deficits, with the typical suspects, those bastions of socialism such as California, New York, and New Jersey, having especially difficult challenges. California has already issued scrip instead of cash for some of its noteholders. Look for other states to follow, either with scrip, or trips to Washington, with sob stories in tow.

Revenue bonds can be attractive for the yield. Like corporate bonds, they depend on the revenue of an underlying entity, such as a road, museum, hospital or housing project for their value and income stream. In many cases, these entities are governed and run by those from the public or non-profit sector. Given my experience with non-profits, this isn’t especially comforting.

If we were buying individual bonds, I’d be tempted to stick with the General Obligation bonds of states such as Tennessee, Oklahoma, North Dakota, or Idaho. You may have to look hard for GO bonds from some of the less populated states, as they don’t carry much debt. There’s probably a tip in there somewhere.

Ed Justice, the youngest of six, was born in Paola Kansas. He died a couple of years ago at the age of 87. In the late 30’s, Justice drove Route 66 west to California and took a job with Douglas Aircraft. After his brother Zeke joined him, they worked at Kurtis-Kraft building race cars. Soon, they launched Justice Brothers Racecar Repair and Fabrication. This led to a distributorship for motor oil additives, sold to service stations, and a move to Florida. Bill France, owner of an Amoco Station and founder of NASCAR, was one of their customers. Justice became an early NASCAR sponsor. After his retirement in 1989, Ed devoted his time to the Justice Brothers Museum of Early American Racing. You can visit the website at www.justicebrothers.com. Click on the racing button.

Quote of the week:

“Americans have always been able to handle austerity and even adversity. Prosperity is what is doing us in.”
                                                                                              James Reston

Wednesday, March 10, 2010

SEVEN WEEKS HAVE PASSED since our last commentary, though it was designed to go out weekly. Over that time, the major indices have moved very little. By the numbers, for the seven weeks ended Friday, March 5, 2010, the Dow Jones Industrial Average closed at 10,566, down 43 points, or 0.4%. The Standard & Poor’s 500 closed at 1138, nearly unchanged from 1136, and the NASDAQ Composite closed at 2326, up 38 points, or 1.6%.



The equity markets have trended up so far this year. We suspect this is driven more by investors looking for yield, than any real confidence in economic fundamentals. Washington continues to exude confusion and uncertainty, and Wall Street has been written off as a meaningful source for solid investment ideas – at least for anyone other than their promoters.


History tells us that the long term trend for stocks should be up. We concur, though this trend will most likely bring short term volatility. As has been noted elsewhere, the S&P 500 returned -0.5% annually over the last ten years. This was nothing but a reversion to the long term average of 10% annual gains, as the nineteen years ending in 2000 saw an 18% annualized return. The only other decade that saw negative annual returns was the 30’s, with an average annual return of -0.2%.


At the moment, the overvalued asset class appears to be bonds. Bonds have had annualized returns of 5% or more over the last several years, depending on which bond type is in question. In 2009, more than ten times more dollars went to bond funds than to stock funds.


In business news, Coke has purchased its largest bottler, Coca-Cola Enterprises. It will be interesting to see how this integration works. Chile and Turkey, like Haiti and AIG, have been hit by earthquakes. The countries are rebuilding. AIG appears to be rebuilding as well, starting with selling off units to raise cash and pare debt.


Greece is only the most obvious example of being satiated with debt. Sovereign debt loads around the world are staggering, in the size of their raw numbers. Some have suggested the end of the world as we know it, as a result. Productivity is the solution. One of the sure courses to productivity is to remove the tax incentives to carry debt, and to remove the tax penalties for putting equity to work. FairTax is still a superb solution.


The official unemployment rate is holding steady, at just under 10%. This doesn’t include the underemployed, or those who have simply given up. Employment is generally a lagging indicator of economic health, as companies find ways to create profitability with fewer employees during economic down cycles. The third and fourth quarter 09 nonfarm productivity numbers were up, confirming this corporate strategy.


The Congressional Budget Office recently offered an analysis of the administration’s budget estimates. CBO’s findings were that the federal government would record deficits of $1.5 trillion in 2010, and $1.3 trillion in 2011. The cumulative deficit to 2020 would be $9.8 trillion, and public debt by 2020 would be $20.3 trillion. Finally, net interest on debt would grow from the current 1.4% of GDP, to 4.1% in 2020.


The IRS released IR-2010-1, on January 4, 2010, which proposes standards for paid tax preparers, including CPA’s, attorneys, and enrolled agents. The proposed standards include a registration requirement, a competency testing requirement, and a continuing education requirement. It appears that companies specializing in registrations, testing, and education stand to benefit. Under the proposed guidelines, the IRS will conduct preparer visits and sporadic compliance checks.


On the tax front, Congress continues to be desperate for new revenue. In the crosshairs are profit distributions from Sub-S corporations. Look for new taxes on these funds. A district court in Michigan has ruled that severance pay for downsized employees isn’t subject to Social Security taxes, specifically repudiating an Appeals Court analysis. The IRS is irritated. Look for an IRS appeal.


More than 90% of most personal financial statements are comprised of business interests, real estate, or other long term investments. Most charitable giving is done from the cash and equivalents portion, which represents less than 10% of assets for most households.


There are wonderful planning tools and strategies that allow the charitable gifting of assets, in a way that cares for the household, and has a major positive impact on charitable organizations. It’s immaterial whether the asset is real estate, privately held or publicly traded stock, or financial assets such as life insurance or IRAs. If you would like to receive a short PowerPoint that reviews a few of these ideas, respond to this commentary, and we will get it to you.


Quote of the week:

“A taxpayer is someone who works for the government without taking the civil service exam.”
                                                                                                Ronald Reagan

Friday, January 22, 2010

Senate Race

2010 IS OFF TO A SOLID start, as the major equity indices are up. By the numbers, for the two weeks ended Friday, January 15, 2010, the Dow Jones Industrial Average closed at 10,609, up 181 points, or 1.7%. The Standard & Poor’s 500 closed at 1136, up 21 points, or 1.85%, and the NASDAQ closed at 2288, up 19 points, or 0.8%.



Earnings season has started. Analysts expect earnings of the S&P 500, ex-financial stocks, to increase 8% during this reporting season, up for the first time in nine quarters. December unemployment held steady at 10%. Ford auto sales were up 33% in December, while both government run operations continue to bleed.


Retailers reported their best December in two years, though Marks & Spencer of England suggested that the heavy winter weather took a toll on sales. Novartis has decided to drop $39.3 billion for the 75% of Alcon it doesn’t already own. Cadbury appears ready to acquiesce to Kraft’s increased offer of $19.5 billion.


The Coakley-Brown showdown in Taxachussetss appears to be a referendum on fifteen months of federal foolishness, starting with the $800 billion feeding frenzy in the fall of 2008. A Brown win would end an eighty year Kennedy monarchy.


The World Cup of Texting took place in New York City this last weekend. Yours truly didn’t qualify. The Administration is proposing a ten year fee on financial institutions that is projected to raise $90 billion during that time frame. Bankers are in a quandary. On the one hand, they are hammered for not lending by Washington. On the other, they are getting no clear direction from OCC and FDIC auditors, who are in serious defensive mode.


Google is considering leaving China, after what appear to be attempts to censor the flow of information through the Google network. On the economic front, the Fed’s Beige Book reported improved economic performance in ten of the twelve Fed regions in December, and business inventories grew for the second straight month after no gains since August 2008. Consumers continued to cut spending, trimming consumer credit by $17.5 billion in November, the largest decrease since 1980.


On the tax front, Congress is in complete disarray, with no consensus on either cap-and-trade or nationalized health care. Our distinguished and seasoned leaders have been so caught up with political shenanigans that they have allowed a variety of tax laws to expire, leaving a vacuum, instead of allowing for sound planning. Regarding estate taxes, a group of Congressmen is pushing for a $5 million exemption and a 35% maximum rate.


Expect the mileage deduction to remain at 50 cents for 2010, and for the domestic production deduction to increase to 9%. Still to be addressed are AMT provisions, charitable gifting from IRA’s, R&D credits, and credits for college tuition and teachers’ supplies, to name a few. The limits on HSA deductible payins increases to $6150 and $3050 for married and single taxpayers in 2010. The adoption credit goes to $12,170 in 2010, and 401k contribution limits remain at $16,500.


The Iditarod starts this year on March 7 in Willow, Alaska. The race covers 1150 miles of some of the most beautiful terrain on earth, and can last from ten to seventeen days. 2010 should see 75 teams attempt to be the first to Nome, on the Bering Sea. You can learn more at www.iditarod.com. To plan your outing to watch the Iditarod, check out www.iditarodtours.com, and www.discoverak.com, among others.


Quotes of the week:


“Of the four wars in my lifetime, none came about because the U.S. was too strong.”


“I have wondered at times what the Ten Commandments would have looked like if Moses had run them through Congress.”
                                                                                   Ronald Reagan