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