As a independent financial planning and wealth management firm, we talk with our clients during tax season and help them coordinate discussions with their CPA. While we do not offer tax advice, we do give them important questions to ask their accountant. There’s three… or more.
Greg Powell, CIMA
President/CEO
Wealth Consultant
On December 31st the “Bush Tax Cuts” will expire. Next year will be the 100 year anniversary of the Federal Tax Code and taxes will be a theme 2013. What does this mean for investors? How will this impact the economy? I give you my thoughts in my investment video of the week.
The year 2012 is right around the corner, but you still have time to look at year-end portfolio strategies that could help you with your taxes.
Tax Loss Harvesting – This is a strategy that involves selling investments that have fallen below their initial purchase cost in order to offset capital gains realized thru the sale of another investment. For example, suppose you sold XYZ Stock for a $7,000 Long Term Gain and then sold ABC Stock for at $5,000 loss. Your long term gain would be $2,000 versus $7,000 if you had only sold XYZ. December is a great time for you to review you portfolio and look at opportunities to use tax loss harvesting as a way to potentially reduce your taxes.
Gifting Strategies – At the end of the year you may choose to make contributions to your favorite charities. Instead of using cash to make charitable gifts, consider gifting highly appreciated investments. For example, suppose you give $10,000 worth of XYZ stock to a charity for which you only paid $2000. By gifting the stock you would be able to avoid paying taxes on an $8,000 capital gain. Using this strategy will allow the charity to receive the funds while helping you reduce your potential tax liability.
I suggest consulting with you tax professional to see if either one of these strategies may be beneficial for you. If you have any other questions, please feel free to call me at (205) 989-3498 or email me here.
Mac Frasier
Senior Vice President
Wealth Consultant
In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.
During this Christmas season, sometimes it’s nice to have “advanced knowledge” of at least one gift under the tree. As expected, there were no bad surprises for the market from the Federal Reserve’s Tuesday afternoon FOMC meeting, the last one for 2010. The market gained early on strong retail sales and the overall favorable economic data, but the end result for equities was a flat session when an improving growth outlook put upward pressure on interest rates. As of this morning, the market is showing weakness on the potential of a Spanish debt downgrade. Asian markets are mostly lower this morning, although Japan is holding up.
Here are four items that we were discussing in our offices this morning and thought would be of interest to our readers:
Wednesday’s economic data continues to surpass expectations. No doubt, the economy continues to accelerate out of this summer’s “soft spot.” All three of today’s activity related economic data reports (December Empire State manufacturing, November industrial production and capacity utilization) beat expectations and accelerated from the prior month.
The Fed isn’t content with the rise in the stock market and improving economic data. There are three reasons for this. First, the data improvement that we are seeing may not last. Second, unemployment is now higher than it was at the last Fed meeting in November. Third, core inflation is lower and below 1%. All of this probably means that the FOMC will continue to pursue Quantitative Easing (QE2) until it works to push prices higher and the unemployment rate lower or until the program ends in June 2011.
Municipal bonds had another difficult day. Selling pressure here continues strong, and similar to taxable markets, bond dealers are reluctant to participate aggressively with year-end coming up and the desire to keep balance sheets as pristine as possible for year-end reporting. The average 30-year AAA municipal yield is approaching 5%, a level that has increased demand in the past but is now being “dampened” because of weak technicals.
The U.S. Senate today is positioned to pass the bill to extend the Bush tax cuts along with payroll tax cuts and an extension of jobless benefits. After the bill makes it to the House, it is likely to pass with objections in the form of rules rather than amendments, amounting to a symbolic vote that won’t change the substance of the bill.
As always, email me here with questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
President/CEO
Wealth Consultant
In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.
One of our favorite advertising quotes around fi-plan Partners is the well-known Nike tag line, “Just Do It.” As far as the tax compromise is concerned, don’t you wish we could just put a “Swoosh” on the thing and move on? The markets certainly want to.
U.S. stocks opened higher this morning on optimism that there is a deal out there despite attempts by Democratic lawmakers to derail it. Coupled with the “tailwinds” generated from the hope that the anticipated compromise is coming, overseas data was better this morning and weekly jobless claims have fallen somewhat. Stocks would be doing even better on this combination if fears about the deficit were not creeping into the mix as evidenced by the sharp reversal in Treasuries. Frankly, we just want Congress to “Just Do It” so that we will all know where to go from here.
Here are four major points of discussion that we were having in our offices this morning that we thought would be of interest to our readers.
Being a strong advocate of independent businesses (we’re one ourselves), we love the provisions of the tax cut that favor the “heart” of the American free enterprise system. While the payroll tax savings will give companies modest abilities to enhance cash flow and re-invest the savings, the prominent impact would be the ability to fully expense capital equipment purchased in 2011.
Will we have stagflation in 2011 – rising interest rates with no economic growth? In a word, no. Our best forecasts for the year have GDP growth at 2.5 to 3% and inflation around 2%. Certainly nothing “exciting,” but definitely not stagflation, which is one tough beast to slay.
Central banks will not raise interest rates for now. Most forecasts that we see for this do not have any domestic interest rate increases until November 2011.
Asian markets rose on better-than-expected Australian and Japanese data. Helping this along are ebbing Korean fears on news of China’s involvement in the process.
As always, email me here with questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
President/CEO
Wealth Consultant
In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.
Particularly living in a “storm belt” like we do in Alabama, we’re fascinated with the “360 degree sweep” technology that a Doppler radar offers to provide better, and timely, information. When there is not much meaningful economic data coming out in a quiet reporting week to cause a “honing in,” the markets have a tendency to “sweep around” like a Doppler radar to get their bearings. That’s clearly where we find ourselves today.
Because there is so little economic data this week, the markets are looking for clarity in Washington, New York, Europe and China all at once. The Washington focus is still on the tax cut compromise, which generated early market gains that did not hold up. Once the market digested the favorable tax cut news, it got “knocked back” when focus shifted to an announced insider-trading probe and on-going concerns in Europe. Stocks opened marginally higher this morning, although corporate headlines are not helping today, as outlooks from Texas Instruments, Costco and Home Depot created modest selling pressure. Also, China has signaled a potential rate hike, which has non-Japan Asian markets off and Japanese markets gaining.
Here are four major items that we were discussing this morning in our offices and are tracking for our readers:
As always, email me here with questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
President/CEO
Wealth Consultant
In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.
I think that we can certainly put the second part of that phrase to rest forever with all of the tax focus out of Washington over the past 24 hours. As we often say in our office and is true of in all of our lives, the “land of uncertainty” is just a difficult place to have your address. The markets, of course, are no different.
The President yesterday announced a compromise plan after weeks of negotiations with Republicans to extend the Bush tax cuts for two more years. In addition to the time extension, the dividends and capital gains tax stays at 15%, there are temporary cuts in Social Security and payroll taxes, and unemployment benefits are extended. Keep in mind, though, that the “hay is not in the barn” yet, as Democratic lawmakers objecting to parts of the plan are meeting on the matter today. The overarching “negative” is that these changes are likely to substantially increase the deficit over the next two years. Not surprisingly, stocks are pushing towards 2010 highs this morning on the announcement of this working compromise. More than anything, the American business community (and investors!) needed this compass to quit spinning and finally have the needle point in one direction so that 2011 strategic plans could be “firmed up.”
In addition to the U.S. markets moving up this morning based on the tax news, European markets were higher today based in resource sector strength. Likewise, most Asian markets were higher with the exception of the Nikkei. Agricultural, crude and metals commodities are up 1% or more. As we discussed yesterday, the economic report front is quiet this week, with only weekly chain store sales and consumer credit data being published.
Along with the news coming out of Washington, here are four items that we discussed this morning and are focused on in our office today:
Treasuries opened weaker this morning on the tax cut extension news. High-quality bond prices are near recent lows. Inflation expectations in the market are higher (to 2.24%) as measured by TIPS. Focusing in on technical data, if you look at the mid-range forecast for 10-year Treasuries, a 3.2% level seems fair given current inflation levels and economic growth.
Corporate bonds are showing recent attractive signs versus Treasuries. Looking at last week’s data, positive yield advantages in investment-grade corporate bonds stood at 1.73% versus Treasuries. This yield advantage is notably above levels for early November.
The bond market will be focused on the Treasury auctions and news out of Europe this week. The Treasury will auction 3-year securities today and follow later this week with 10 and 30-year securities. These should go off smoothly with now higher level rates.
Are state governments as bad as what we are seeing in Europe? In a word, no. Primary credit metrics are nowhere near what nations like Ireland and Greece are currently facing. Having said that, a state financial profile such as California, which represents one-third of the U.S. GDP, is getting our attention along with other states like Illinois.
As always, email me with questions or comments. I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.
Greg Powell, CIMA
President/CEO
Wealth Consultant
Market participants breathed a sigh of relief in early November. The arrival of the long-awaited mid-term elections and the Federal Reserve (Fed) announcement of another stimulus program unfolded as anticipated.
Even though the major political headlines are out of the way, what happens in Washington during the remainder of the year will still hold influence over the markets. The most important item facing Congress is the looming expiration of the Bush tax cuts. Congress is likely to address the tax cuts in some way during the remainder of this year. Both parties risk a huge backlash if no action is taken and all tax rates revert to higher levels, which puts pressure on the 70% of the economy that is driven by consumer spending. Congress is likely to pass a one- or two-year extension of all the Bush tax cuts during the lame duck session, but it is a close call.
The market reacted favorably to election results and the Fed announcement, extending the trends in the markets and resulting in the S&P 500 reaching a new two-year high. However, the strong gains in September, October, and November were not powered by individual investors. For the first time in 25 years, a three-month gain in the S&P 500 of 10% or more was not accompanied by net inflows into individual investments—namely U.S. equity mutual funds and exchange-trade funds (ETFs). Fortunately, individual investor outflows have been more than offset by the buying of institutions and foreign investors. Nonetheless, individual investors have been net sellers of U.S. stock mutual funds every month since April of this year. In that time, they have pulled about $80 billion from the U.S. stock market*. This is not because individual investors have been avoiding investing entirely, however. Interestingly, they have been putting money to work in foreign stocks and U.S. bonds—including more aggressive emerging market stocks and high-yield bonds, as they reallocate money from cash and U.S. stocks.
Investors’ appetite for yield has prompted strong inflows into the high-yield bond market this year (Source: Investment Company Institute). The potential for extending the dividend tax rate at 15% (as opposed to reverting up to 39.6% for the top bracket), combined with the increases in dividend payments that traditionally come in the first several months of the year, may prompt individual investors to migrate from high-yield bonds toward high dividend-paying stocks furthering the stock market’s gains. This upside potential is balanced by the threat of potential selling by foreign investors prompted by the ongoing weakness in the dollar. As a result, the volatility that has been the key characteristic of this year’s stock market performance is likely to continue in to 2011. As always, please contact me if you have any questions.,
Greg Powell, CIMA
President/CEO
Wealth Consultant