Monday, November 19, 2012
NEGOTIATING A PATH AWAY FROM THE EDGE
We're hearing a lot about the fiscal cliff in this post-election time period, and surprisingly, considering the angry partisanship of the campaign, some of the news is encouraging. The White House and Congressional leaders, elected officials from both sides of the aisle, are saying that they believe they can reach agreement before the end of the year.
What is this fiscal cliff? The term refers to a lot of different tax and budget provisions that are all scheduled to take place automatically at midnight on December 31. These include:
Higher tax rates. When the clock strikes twelve, the Bush-era tax cuts will expire, eliminating the 10% tax bracket altogether, and moving the current 25%, 28%, 33% and 35% brackets up to 28%, 31%, 36% and 39.6% respectively. At the same time, the 0% capital gains tax rate for lower-bracket Americans would bump up to 10%, and the tax rate on dividends would rise to 15% or 28%, depending on the recipient's income tax bracket.
The loss of deductions--including a provision that eases the so-called "marriage penalty," some deductions for college tuition, child tax credits, dependent care credits and a particularly harsh phase-out that would eliminate up to 80% of some taxpayers' itemized deductions for mortgage interest, state and local taxes, and charitable donations.
Random across-the-board budget cuts that nobody intended to see enacted. The Budget Control Act of 2011--what most of us remember as the tense compromise that ended last year's budget standoff--calls for automatic government spending cuts of $1.2 trillion from the federal budget over the next 10 years. The cuts apply to just about every discretionary (non-Social Security, Medicare, Medicaid) program in Washington, although most of what you're hearing about are reductions in the defense and education budgets.
The expiration of stimulus measures: The Obama-era payroll tax cuts will go away, raising taxes by about two percentage points for workers.
Why do we call this a "cliff?" Because everything on that list would take money out of the hands of taxpayers and, at the same time, lower government spending-essentially providing the U.S. economy with the opposite of a government stimulus, what some have called a hard punch in the gut. The Congressional Budget Office estimates that if we go over the cliff--that is, if Congress and the President don't act between now and the end of the year--a total of $560 billion would exit the economy. The CBO estimates that this would reduce America's total economic activity in 2013 by four percentage points. Hello recession!
So what are the odds that Washington will get its act together and choose a course that doesn't take us over the cliff? As it happens, there is reason to hope. Leaders on both ends of the partisan divide agree on many things in this negotiation: that the tax cuts are too painful and random to allow in their present form, and that tax rates on American taxpayers with less than $250,000 in income should continue as they are today. The sticking points are if or how much tax rates should rise for Americans in the higher tax brackets, and where to apply the budget knife.
This rare moment of meaningful negotiation offers Washington policymakers a chance to expand the discussion and come up with a long-term solution to the nation's debt problem-which is, after all, the topic of debate which led Congress to create this fiscal cliff in the first place. If you're optimistic, then cross your fingers that the leaders in the room will want to do something more with this conversation than just address the immediate problem.
As you follow the debate, pay attention to whether our elected officials are actually tackling the issues or just kicking the can down the road yet again. If you hear discussion about permanent laws, such as a balanced budget amendment, or a framework that forces Congress to offset any expenditures with cuts elsewhere, or a change in tax rates, or some kind of entitlement reform (Means testing? Raising eligibility ages?), that will be a sign that Washington is getting serious about addressing real issues.
If, on the other hand, you hear about caps on future appropriation bills, or frameworks for deficit cutting, or solutions which sunset in 12 or 24 months, that means that we'll be going through a version of this debate for the foreseeable future, and the can could be kicked, once again, far enough down the road to become a 2016 Presidential election issue and a headache for the next President to deal with.
We should also pay attention to the timing. The longer the U.S. economy continues to march straight toward the edge, the longer businesses will be reluctant to hire or invest in the future. But for now, this moment may be something to enjoy. How often do we see Democratic and Republican leaders in the same room together, promising to get something done? Maybe it will become a habit.
Sources:
http://news.yahoo.com/blogs/ticket/obama-lawmakers-hold-constructive-talks-taxes-deficit-174256300--politics.html
http://www.smartmoney.com/taxes/income/how-the-expiring-bush-tax-cuts-affect-you/
http://bonds.about.com/od/Issues-in-the-News/a/What-Is-The-Fiscal-Cliff.htm
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, November 13, 2012
SOME FISCAL CLIFF SCENARIOS
What could play out in the near future?
In the worst-case scenario, Congress argues and deadlocks. Tax hikes and roughly $109 billion in federal spending cuts take a bite out of GDP and another recession becomes a possibility.1
There are other possibilities, however. The fiscal cliff may yet be averted, or at least we might back away from its edge. One of several scenarios might come to pass.
Scenario A: Congress buys time. Many analysts think this is exactly what will happen. Congress is in a lame-duck session. The option for legislators to "pass the buck" may prove tantalizing. So we could see a short-term, stopgap deal with the idea that the next session of Congress will tackle the problem later in 2013. The debt ceiling could be raised, and a "down payment" might be made on longer-term liabilities.1
Scenario B: Congress can't make a deal. This may not be so improbable; if you remember the "super committee" assigned to craft a deficit reduction plan in 2011, you will also remember that it didn't accomplish the set task. In fact, we are facing the fiscal cliff because of that committee's failure.2
The "fiscal cliff" already amounts to Plan B. When Congress and the White House reached an accord to raise the debt ceiling back in August 2011, $1 trillion in federal spending cuts were greenlighted and Congress was told to find $1.2 trillion more to slash. As that didn't happen, $1.2 trillion in automatic cuts are set to begin next year. So Congress would actually be following federal law if it did nothing to respond to the issue.2
Doing nothing seems unsuitable, but there is the risk that history could repeat itself. Election outcomes may alter political assumptions and interfere with consensus. If it looks like we will go over the cliff in the waning days of 2012, there is a strong possibility that the incoming 113th Congress could vote quickly to reinstate select spending levels and tax breaks. That might mute some of the clamor from global financial markets.3
Scenario C: Middle ground is reached. Some degree of compromise occurs that leaves no one particularly satisfied. Certain short-term provisions are phased out, such as the payroll tax holiday, the recent increases for small business expensing, and assorted tax credits and tax breaks for education. The Bush-era tax cuts are preserved (at least temporarily) for the middle class, but rates rise for those making $1 million or more per year. The clock turns back to 2009 with regard to estate taxes. The rich face higher taxes on capital gains and dividends. Perhaps some defense cuts are postponed.
Scenario D: The "Grand Bargain." Congress and the White House boldly arrive at a something more than an incrementally enacted deficit reduction plan. They reach a "grand bargain," a deal designed to cut the deficit by $4 trillion by the mid-2020s, after historic, long-range compromises are made to reach stability on assorted tax and spending issues. With a lame-duck Congress, this may be a longshot.1
Scenario E: The "Down Payment." Legislators could always tear a page from another playbook in trying to solve this problem. The Bipartisan Policy Center, for example, thinks a "grand bargain," or anything approximating a real deal on the fiscal cliff, is unlikely given the short interval between the election and 2013. It recommends a "down payment" of deficit cuts that could be approved by a fast-tracked simple majority vote. If Congress didn't take further steps to cut the deficit next year, then certain tax breaks would disappear and cuts would hit social welfare programs (excepting Social Security).2
Whatever happens in Washington, this is a prime time to consider financial moves with the potential to lower your taxes and insulate your wealth. Explore the possibilities before 2013 arrives.
Citations.
1 - articles.marketwatch.com/2012-10-25/economy/34719282_1_fiscal-cliff-tax-cuts-defense-cuts [10/25/12]
2 - thehill.com/blogs/on-the-money/budget/262893-bipartisan-policy-center-floats-fiscal-cliff-solution [10/12/12]
3 - www.salon.com/2012/11/01/a_look_at_3_scenarios_as_the_fiscal_cliff_looms/singleton/ [11/1/12]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Wednesday, November 7, 2012
POST-ELECTION POLITICS: THE 30-YEAR MISSION
One of the most interesting aspects of every presidential election is the inevitable post-election trauma suffered by the roughly 50% of Americans who supported the unsuccessful candidate. Those of us with long memories will recall Americans vowing they would leave the country after George W. Bush won the disputed 2000 election, and again four years later. Judging by President Bush's extremely low profile during the 2012 presidential election campaign, his eight years in office were not considered an unqualified success even by his own party. Yet the country has survived, and one can predict with confidence that it will weather any political issues (and policies) that arise during a second Obama presidency.
In fact, if the citizens whose candidates won can come down from their highs, and those whose candidates lost can shake off the depression, they would notice that the country's economic system has been remarkably resilient despite the dysfunctional political process that virtually everybody, on both sides of the spectrum, rightly deplore. Despite the selloff the day after the recent election, the American stock market has actually delivered better performance under Democratic than Republican presidents--for no visible economic reason. (The accompanying chart shows the evidence pre-Obama.)
The biggest economic problems that America faces today have actually accrued slowly, gradually, and under the stewardship of multiple presidents from both parties. There is some evidence that the U.S. electorate doesn't yet understand the high cost of avoidance, of political one-liners offered by candidates from both parties that have trivialized very real long-term problems or suggested that they can be solved quickly if the right person is elected.
Fortunately, it is possible to understand the nature of these bigger-picture, bigger-than-a-sound-bite problems--and the solutions. You just have to put up with a lot of charts.
The charts can be found here: http://www.businessinsider.com/politics-economics-facts-charts-2012-6#
courtesy of Business Insider. What you see first is a long, relatively smooth avenue of growth in the U.S. economy since 1947, punctuated by a significant drop in 2008 and a recovery to the former highs since then. A second chart shows real per capita income--the amount of money, inflation-adjusted, that the average worker takes home, and here we see a bigger drop for a longer period of time. Perhaps the most remarkable chart shows essentially the same thing for corporations: you see a very steep drop in corporate profits after tax from 2008 through 2010. But then, unlike the worker income, corporate profits zoom back up again, surpassing record highs. What is most remarkable is that most of the rise in corporate profits--literally much more than half--has been recorded in the last 11 years. Before that, corporate profit growth was slow and steady. In the past decade, it has been very uneven and spectacularly fast. The next chart shows that companies are making more profit per dollar of sales than ever before.
The next set of graphs is about jobs, and you see a big drop in civilian employment as a percentage of the total population during the recession, which bottomed out in 2010 and continues to scrape along at roughly 58%--well below the late 1990s high of 64%. But if you look at the chart as a whole, those high employment rates were a historical anomaly. The current total employment-population ratio is actually higher than it was at any time from 1940 to 1976, and is well above levels in the early 1980s. In the following chart, we see that wages as a percent of the economy have reached an all-time low (roughly 44%). Companies are sharing less of their revenue with employees than ever before.
What about debt and spending levels? You already know that total debt in our economy is at an all-time high, although it has leveled off since 2008. In subsequent charts, this is broken down into household debt, corporate debt, state and local debt, and federal government debt. All of them have risen dramatically over the past 30 years; the lines practically jump off the page. So, of course, you look for where to cut. A chart looks first at the number of state and local workers, and finds that they now represent about the same percentage of total U.S. employees as there have been for the last 40 years. The next chart--the 39th in the series, shows that, despite what you may have heard about a ballooning Washington bureaucracy, the total number of federal government employees has held steady for nearly 50 years, and is actually below levels in the late 1960s. Looked at another way, federal government workers now make up a smaller percentage of the total workforce than at any time since the 1940s.
The federal debt problem is not complicated: charts show that spending has gone up as federal tax revenue (due to the recession and slow recovery) has fallen dramatically. The most interesting subsequent chart shows that by far the biggest contributor to the increase--really, the reason there has been any increase at all--has been an explosion in the cost of Social Security, Medicare and Medicaid. You look at the line rising from 1960 through 2011 and it looks a bit like the slope of the Matterhorn: straight up. These programs now make up a record 16% of all American economic activity--up from roughly 4.5% in 1960. And, of course, every year sets a new record.
The inescapable conclusion of this economic graphic slideshow is that corporations have done very well during the four-year term of a president who business leaders have accused of being a socialist. Individual workers have suffered under what many have called a "populist" president. Overall debt has leveled off, but somehow, the U.S. is going to have to gradually fix the out-of-balance social programs, by reducing benefits and collecting more revenue to pay for them.
The slide show commentary suggests that it took us 30 years to get into this mess; it may well take us 30 more to climb back out of it. Let's see; that covers the span of between four and seven future presidents, and the White House will almost certainly change hands (or parties) several times over that time period. We will need all of them, plus Congress, to recognize what you now know. And we will need all citizens, even those who were disappointed by the recent election, to continue to push for meaningful solutions rather than take their money and vote to Canada.
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc. wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
In fact, if the citizens whose candidates won can come down from their highs, and those whose candidates lost can shake off the depression, they would notice that the country's economic system has been remarkably resilient despite the dysfunctional political process that virtually everybody, on both sides of the spectrum, rightly deplore. Despite the selloff the day after the recent election, the American stock market has actually delivered better performance under Democratic than Republican presidents--for no visible economic reason. (The accompanying chart shows the evidence pre-Obama.)
The biggest economic problems that America faces today have actually accrued slowly, gradually, and under the stewardship of multiple presidents from both parties. There is some evidence that the U.S. electorate doesn't yet understand the high cost of avoidance, of political one-liners offered by candidates from both parties that have trivialized very real long-term problems or suggested that they can be solved quickly if the right person is elected.
Fortunately, it is possible to understand the nature of these bigger-picture, bigger-than-a-sound-bite problems--and the solutions. You just have to put up with a lot of charts.
The charts can be found here: http://www.businessinsider.com/politics-economics-facts-charts-2012-6#
courtesy of Business Insider. What you see first is a long, relatively smooth avenue of growth in the U.S. economy since 1947, punctuated by a significant drop in 2008 and a recovery to the former highs since then. A second chart shows real per capita income--the amount of money, inflation-adjusted, that the average worker takes home, and here we see a bigger drop for a longer period of time. Perhaps the most remarkable chart shows essentially the same thing for corporations: you see a very steep drop in corporate profits after tax from 2008 through 2010. But then, unlike the worker income, corporate profits zoom back up again, surpassing record highs. What is most remarkable is that most of the rise in corporate profits--literally much more than half--has been recorded in the last 11 years. Before that, corporate profit growth was slow and steady. In the past decade, it has been very uneven and spectacularly fast. The next chart shows that companies are making more profit per dollar of sales than ever before.
The next set of graphs is about jobs, and you see a big drop in civilian employment as a percentage of the total population during the recession, which bottomed out in 2010 and continues to scrape along at roughly 58%--well below the late 1990s high of 64%. But if you look at the chart as a whole, those high employment rates were a historical anomaly. The current total employment-population ratio is actually higher than it was at any time from 1940 to 1976, and is well above levels in the early 1980s. In the following chart, we see that wages as a percent of the economy have reached an all-time low (roughly 44%). Companies are sharing less of their revenue with employees than ever before.
What about debt and spending levels? You already know that total debt in our economy is at an all-time high, although it has leveled off since 2008. In subsequent charts, this is broken down into household debt, corporate debt, state and local debt, and federal government debt. All of them have risen dramatically over the past 30 years; the lines practically jump off the page. So, of course, you look for where to cut. A chart looks first at the number of state and local workers, and finds that they now represent about the same percentage of total U.S. employees as there have been for the last 40 years. The next chart--the 39th in the series, shows that, despite what you may have heard about a ballooning Washington bureaucracy, the total number of federal government employees has held steady for nearly 50 years, and is actually below levels in the late 1960s. Looked at another way, federal government workers now make up a smaller percentage of the total workforce than at any time since the 1940s.
The federal debt problem is not complicated: charts show that spending has gone up as federal tax revenue (due to the recession and slow recovery) has fallen dramatically. The most interesting subsequent chart shows that by far the biggest contributor to the increase--really, the reason there has been any increase at all--has been an explosion in the cost of Social Security, Medicare and Medicaid. You look at the line rising from 1960 through 2011 and it looks a bit like the slope of the Matterhorn: straight up. These programs now make up a record 16% of all American economic activity--up from roughly 4.5% in 1960. And, of course, every year sets a new record.
The inescapable conclusion of this economic graphic slideshow is that corporations have done very well during the four-year term of a president who business leaders have accused of being a socialist. Individual workers have suffered under what many have called a "populist" president. Overall debt has leveled off, but somehow, the U.S. is going to have to gradually fix the out-of-balance social programs, by reducing benefits and collecting more revenue to pay for them.
The slide show commentary suggests that it took us 30 years to get into this mess; it may well take us 30 more to climb back out of it. Let's see; that covers the span of between four and seven future presidents, and the White House will almost certainly change hands (or parties) several times over that time period. We will need all of them, plus Congress, to recognize what you now know. And we will need all citizens, even those who were disappointed by the recent election, to continue to push for meaningful solutions rather than take their money and vote to Canada.
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc. wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, November 6, 2012
THE ONE PERCENT SOLUTION
During the run up to the Presidential and Congressional elections, you might sometimes get the idea that certain voters line up reliably behind certain policies. In fact, the biggest stereotype has been that people with above-average wealth -- the so-called "one-percenters" -- never want to pay any taxes. Instead, corporate executives and financial leaders expect the government to reduce spending, and somehow reduce the federal deficit without calling on them to make a contribution.
But in the real world, business leaders are trained to apply business logic to the problems in front of them, and when they look at the challenges facing America's finances, the conclusions they're coming to don't fit neatly along partisan lines.
For example? Recently, a coalition of more than 80 CEOs of major U.S. corporations have joined together to tell Congress that it needs to find a bipartisan solution to the so-called "fiscal cliff" -- the changes in tax law and the federal budget that will take place at midnight, December 31. Longer term, they have asked Washington to address the deficit in a realistic way. The group, which includes such one-percenters as the CEO of General Electric, Boeing, Verizon, Aetna, Microsoft, Cisco, Blackrock and Goldman Sachs, has publicly argued that, despite the "no new taxes" pledge that many in Congress have signed, raising taxes in some form is inevitable if we are serious about paying down the federal debt. So far, the coalition has raised $29 million to carry this "raise taxes" message to various Congressional districts.
The One Percent Solution came right out of their respective accounting departments. The CEOs say that it makes no mathematical sense to try to fix the deficit without raising taxes, but they also believe there is a significant amount of waste in current government spending. The group has asked Congress to follow a deficit reduction model similar to the Simpson-Bowles deficit reduction committee recommendations, which called for both spending cuts and temporarily higher taxes which fall hardest on persons with the most income and wealth.
Why would the one-percenters lobby for a higher tax bill? Interestingly, their letter makes clear that they are not necessarily putting the good of the country ahead of their own interests, but they are putting the welfare of their companies first. They say that the looming fiscal cliff and uncertainty over the budget is costing their corporations meaningful business. Goldman Sachs cited a report which shows that capital spending has weakened over the past few months, and 6-month forward capital spending levels have fallen to pre-recession levels.
Meanwhile, another group of one-percenters are asking for similar measures. The Financial Services Forum -- which brings together the nation's largest banking institutions -- has sent a letter to the White House and Congress asking them to negotiate a bipartisan deficit agreement as soon as possible -- and the term "bipartisan" is clear code for "we will accept Democratic proposals to raise taxes as part of the deal." The letter repeats warnings that have been sounded by Fed Chairman Ben Bernanke, the Congressional Budget Office, various ratings agencies and even the Chinese government.
The CEOs of big banks and big businesses would almost certainly benefit personally from lower tax rates. Their respective calls to action suggest that the threat of inaction on the economy has finally become too dire to ignore. America's one-percenters, who have been spoken for throughout the election cycle, and now speaking out on their own, saying they are willing to sacrifice a bit of their own income to help the country climb out of its fiscal woes and restore economic growth and prosperity. It is possible that forecasts delivered by their own accounting departments suggests that higher economic growth will more than pay for the temporary cost of higher taxes -- in the long run.
Economists and accounting professionals from these various firms are sitting down with members of Congress through the remainder of the year to help explain not just the importance of these fiscal issues, but also the best, most realistic ways to move past them. Dare we hope that Congress will finally listen?
Sources:
http://yhoo.it/T1zTBv
Big Banks Blast Washington
http://on.wsj.com/TLTzz1
Business Leaders Press Congress to "Fix the Debt"
http://onforb.es/VJfMjv
80 CEOs to Obama and Romney
http://yhoo.it/WLyjL9
CEO's Launch Campaign
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
But in the real world, business leaders are trained to apply business logic to the problems in front of them, and when they look at the challenges facing America's finances, the conclusions they're coming to don't fit neatly along partisan lines.
For example? Recently, a coalition of more than 80 CEOs of major U.S. corporations have joined together to tell Congress that it needs to find a bipartisan solution to the so-called "fiscal cliff" -- the changes in tax law and the federal budget that will take place at midnight, December 31. Longer term, they have asked Washington to address the deficit in a realistic way. The group, which includes such one-percenters as the CEO of General Electric, Boeing, Verizon, Aetna, Microsoft, Cisco, Blackrock and Goldman Sachs, has publicly argued that, despite the "no new taxes" pledge that many in Congress have signed, raising taxes in some form is inevitable if we are serious about paying down the federal debt. So far, the coalition has raised $29 million to carry this "raise taxes" message to various Congressional districts.
The One Percent Solution came right out of their respective accounting departments. The CEOs say that it makes no mathematical sense to try to fix the deficit without raising taxes, but they also believe there is a significant amount of waste in current government spending. The group has asked Congress to follow a deficit reduction model similar to the Simpson-Bowles deficit reduction committee recommendations, which called for both spending cuts and temporarily higher taxes which fall hardest on persons with the most income and wealth.
Why would the one-percenters lobby for a higher tax bill? Interestingly, their letter makes clear that they are not necessarily putting the good of the country ahead of their own interests, but they are putting the welfare of their companies first. They say that the looming fiscal cliff and uncertainty over the budget is costing their corporations meaningful business. Goldman Sachs cited a report which shows that capital spending has weakened over the past few months, and 6-month forward capital spending levels have fallen to pre-recession levels.
Meanwhile, another group of one-percenters are asking for similar measures. The Financial Services Forum -- which brings together the nation's largest banking institutions -- has sent a letter to the White House and Congress asking them to negotiate a bipartisan deficit agreement as soon as possible -- and the term "bipartisan" is clear code for "we will accept Democratic proposals to raise taxes as part of the deal." The letter repeats warnings that have been sounded by Fed Chairman Ben Bernanke, the Congressional Budget Office, various ratings agencies and even the Chinese government.
The CEOs of big banks and big businesses would almost certainly benefit personally from lower tax rates. Their respective calls to action suggest that the threat of inaction on the economy has finally become too dire to ignore. America's one-percenters, who have been spoken for throughout the election cycle, and now speaking out on their own, saying they are willing to sacrifice a bit of their own income to help the country climb out of its fiscal woes and restore economic growth and prosperity. It is possible that forecasts delivered by their own accounting departments suggests that higher economic growth will more than pay for the temporary cost of higher taxes -- in the long run.
Economists and accounting professionals from these various firms are sitting down with members of Congress through the remainder of the year to help explain not just the importance of these fiscal issues, but also the best, most realistic ways to move past them. Dare we hope that Congress will finally listen?
Sources:
http://yhoo.it/T1zTBv
Big Banks Blast Washington
http://on.wsj.com/TLTzz1
Business Leaders Press Congress to "Fix the Debt"
http://onforb.es/VJfMjv
80 CEOs to Obama and Romney
http://yhoo.it/WLyjL9
CEO's Launch Campaign
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, October 30, 2012
THE AFTERMATH OF SANDY
Gauging the economic and market impact of the storm.
Repairing Main Street. How do you begin to total the damage from a storm affecting 20% of the U.S. population?1
EQECAT, a risk-modeling firm, thinks it could run as much as $10-$20 billion, with $5-$10 billion reflecting insured losses. This is an important distinction, as many analysts feel a tally of $10 billion or less in covered losses could have a comparably diminished effect on the insurance industry beyond the fourth quarter. However, respected University of Maryland economist Peter Morici told MarketWatch that total losses could reach $35-45 billion if the superstorm ultimately proves more powerful than Hurricane Irene... exactly how Sandy was being described the morning after. That would fall well short of the economic hit from Hurricane Katrina, from which the damage totaled about $108 billion; 1992's Hurricane Andrew was responsible for roughly $60.5 billion of destruction. Federal government officials say they have about $3.6 billion ready to pay for relief efforts.1,2,7
If there is any good side to this, it is that the collective response to Sandy's destruction may amount to an economic stimulus. MarketWatch notes that as much as $20 billion could be spent over the next 12 to 24 months on new construction, remodeling and renovation, which could further invigorate the construction industry, indirectly aid the job market, and bring about increased consumer spending.1,2
Resuming trading on Wall Street. Will the New York Stock Exchange's goal of reopening Wednesday morning turn out to be realistic? Just in case, NYSE Euronext will test a backup plan Tuesday morning, a plan B that could permit trading in case things aren't up to speed by Halloween. In this scenario, NYSE Arca would become the primary market for New York-listed stocks - we're talking about the NYSE's electronic market that could operate even if its trading floor or headquarters were closed for the day.3
As for Tuesday, all NYSE and NASDAQ exchanges will close across all asset classes. While the CME Group's Nymex floor will be closed today, its products are still available electronically. CME Group opened trading of equity-index futures and options Monday night, but that trading ended early today; however, trading of interest-rate futures and options will resume with normal trading hours. The CBOE and CBOE Futures Exchange are shuttered today; CBOE Holdings will update traders if the closure is forced to stretch into Wednesday.3
With the end of the month coming, there is extra impetus to get the market open - fund managers need to adjust holdings before November starts.
What about earnings and the October jobs report? Many corporations are delaying the release of third-quarter earnings reports. Hertz, Spirit, and Waste Management will now report quarterly results on Wednesday; Pfizer, Pitney-Bowes, Ralph Lauren, Sirius XM, and TripAdvisor will follow suit Thursday; McGraw-Hill and Thomson Reuters will now report Q3 earnings on Friday. Time Warner Cable will announce Q3 results on November 5, and Office Depot is delaying issuing its Q3 results until November 6.4
"Our intention is that Friday will be business as usual," Labor Department public affairs specialist Jennifer Kaplan told CBS News regarding the release of October's employment report. While noting that the severity of the storm might hinder some of the report's final calculations, Labor Department officials are hopeful that the report can be released as scheduled November 2 (at 8:30am EST).5
Fuel prices. U.S. natural gas consumption could be greatly tempered this week, and prices may move significantly. New Jersey, Pennsylvania and Delaware are home to five of the most important gasoline refineries on the east coast, but analysts feel they could rebound decently from any storm-related problems. While RBOB gas futures rose Monday as traders assumed some disruption in supplies, it appeared the bigger blip might be demand, with commuting and trucking patterns potentially thrown out of whack for days.6
As to whether drivers might see a violent spike in gas prices, the Oil Price Information Service's Tom Kloza dismisses the notion: "My hunch is we'll get a wobble higher in the next couple of days, and then resume [heading] lower."6
After the stress of this superstorm, we can only hope that its economic effect will not be as severe as some anticipated.
Citations.
1 - online.wsj.com/article/SB10001424052970204840504578086290411855054.html [10/29/12]
2 - marketwatch.com/story/big-storms-rarely-dent-economy-for-long-2012-10-29 [10/29/12]
3 - www.businessweek.com/news/2012-10-29/u-dot-s-dot-stock-trading-canceled-as-new-york-girds-for-storm [10/30/12]
4 - www.cnbc.com/id/49596291 [10/29/12]
5 - www.cbsnews.com/8301-505123_162-57542196/will-hurricane-sandy-delay-the-jobs-report/ [10/29/12]
6 - www.cnbc.com/id/49596291 [10/29/12]
7 - http://www.reuters.com/article/2012/10/30/us-storm-sandy-insurance-idUSBRE89T0WT20121030 [10/30/12]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Monday, October 22, 2012
YOUR ANNUAL FINANCIAL TO DO-LIST 2013
Things you can do before and for 2013.
What financial, business or life priorities do you need to address for 2013? Now is a good time to think about the investing, saving or budgeting methods you could employ toward specific objectives. Some year-end financial moves may prove crucial to the pursuit of those goals as well.
What can you do to lower your 2012 taxes? Before the year fades away, you have plenty of options. Here are a few that may prove convenient:
*Make a charitable gift before New Year's Day. You can claim the deduction on your 2012 return, provided you use Schedule A. The paper trail is important here.
If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity in December but only end up gifting $500 before 2012 ends, you can only deduct $500.1
Are you gifting appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the stock, fund or bond and then donating those proceeds. (Of course, if your investment is a loser, then it might be better to sell it and donate the money so you can claim a loss on the sale and deduct a charitable contribution equivalent to the proceeds.)1
Does the value of your gift exceed $250? It may, and if you gift that amount or larger to a qualified charitable organization, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property in a year exceeds $500.1
If you aren't sure if an organization is eligible to receive charitable gifts, check it out at www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.
*Contribute more to your retirement plan. If you haven't turned 70½ and you participate in a traditional (i.e., non-Roth) qualified retirement plan or have a traditional IRA, you can reduce your 2012 taxable income by the amount of your contribution. If you are self-employed and don't have a solo 401(k), a SIMPLE plan or something similar, consider establishing and funding one before the end of the year. Also, keep in mind that your 2012 tax year contribution to an IRA or solo 401(k) may be made as late as April 15, 2013 (or October 15, 2013 if you file Form 4868).2
In 2012, you can contribute up to $17,000 in a 401(k), 403(b) or profit-sharing plan, with a $5,500 catch-up contribution also allowed if you are age 50 or older. You can put up to $11,500 in a SIMPLE IRA in 2012, $14,000 if you are 50 or older.3
*Make a capital purchase. If you buy assets for your business that have a useful life of more than one year - a truck, a computer, furniture, a rototiller, whatever - those purchases are commonly characterized as capital expenses. For 2012, the Section 179 deduction can be as much as $139,000 (although it is ultimately limited to your net taxable business income). First-year bonus depreciation is set at 50% for most purchases of new equipment and software in 2012. The way it looks now, the 2013 deductions may be much less generous.2,4
*Open an HSA. If you work for yourself or have a very small business, you may pay for your own health coverage. By establishing and funding a Health Savings Account in 2012, you could make fully deductible HSA contributions of up to $3,100 (singles) or $6,250 (married couples). Catch-up contributions are allowed if you are 50 or older.2
*Practice tax loss harvesting. You could sell underperforming stocks in your portfolio - enough to rack up at least $3,000 in capital losses. If it ends up that your total capital losses top all of your capital gains in 2012, you can deduct up to $3,000 of capital losses from your 2012 ordinary income. If you have over $3,000 in capital losses, the excess rolls over into 2013.2
Are there other major moves that you should consider? Your to-do list might be long, for much financial change may occur in 2013...
*Pay attention to asset location. Here are two big reasons why tax efficiency should be a priority as 2012 leads into 2013:
Next year, dividend income is slated to be taxed as regular income. So tax on qualified stock dividends could nearly triple for the wealthiest Americans.
Capital gains taxes for high earners are scheduled to jump 33% in 2013. Long-term capital gains are now taxed at 15% for those in the highest four income brackets; that rate is supposed to rise to 20% next year.5
*Can you contribute the maximum to your IRA on January 1? The rationale behind this is that the sooner you make your contribution, the more interest those assets will earn. If you haven't made your 2012 IRA contribution, you still have until April 15, 2013 to do that.6
In 2012 you can contribute up to $5,000 to a Roth or traditional IRA if you are age 49 or younger, and up to $6,000 if you are age 50 and older (though your MAGI may affect how much you can put into a Roth IRA).3
What are the income limits on tax deductions for traditional IRA contributions? If you participate in a workplace retirement plan, the 2012 MAGI phase-out ranges are $58,000-68,000 for singles and heads of households and $92,000-112,000 for couples.3
*Should you go Roth before 2013 gets here?We all know federal taxes are poised to rise next year, but one little detail isn't getting enough publicity: the planned 3.8% Medicare surtax scheduled to hit single/joint filers with AGIs over $200,000/$250,000 will not apply to qualified payouts from Roth accounts.7
MAGI phase-out limits affect Roth IRA contributions. In 2012, phase-outs kick in at $173,000 for joint filers and $110,000 for single filers. Should your MAGI prevent you from contributing to a Roth IRA at all, you still have a chance to contribute to a traditional IRA in 2012 and then roll those assets over into a Roth.7
Consult a tax or financial professional before you make any IRA moves to see how it may affect your overall financial picture. If you have a large traditional IRA, the projected tax resulting from the conversion may make you think twice.
What else should you consider as 2012 turns into 2013? There are some other important things to note...
*Payroll taxes are slated to increase 2% next year.The payroll tax cut of 2011-12 has slim chance of extending into 2013. The maximum payroll tax paid by high earners is slated to be $7049.40 next year, $2,425 above 2012 levels. That isn't just because Social Security taxes for employees are returning to the 6.2% level; it also reflects a 3.3% increase in the upper salary limit subject to the tax to $113,700.8
*Review your withholding status. Aside from the presumed end of the payroll tax holiday, there are other reasons you may want to adjust your withholding status...
•You tend to pay a great deal of income tax each year.
•You tend to get a big federal tax refund each year.
•You recently married or divorced.
•A family member recently passed away.
•You have a new job at a much greater salary.
•You started a business venture or became self-employed.
*If you are retired and older than 70½, remember your RMD. Retirees over age 70½ must take Required Minimum Distributions from traditional IRAs, Roth IRAs and Roth 401(k)s and all employer-sponsored retirement plans by December 31, 2013. The IRS penalty for failing to take an RMD equals 50% of the RMD amount.9
If you have turned or will turn 70½ in 2012, you can postpone your first IRA RMD until April 1, 2013. The downside of that is that you will have to take two IRA RMDs next year, both taxable events - you will have to make your 2012 tax year withdrawal by April 1, 2013 and your 2013 tax year withdrawal by December 31, 2013.9
Plan your RMDs wisely. If you do so, you may end up limiting or avoiding possible taxes on your Social Security income. Some Social Security recipients don't know about the "provisional income" rule - if your modified AGI plus 50% of your Social Security benefits surpasses a certain level, then a portion of your Social Security benefits become taxable. For tax year 2012, Social Security benefits start to be taxed at provisional income levels of $32,000 for joint filers and $25,000 for single filers.10
*Consider the tax impact of any 2012 transactions.Did you sell real property this year - or do you plan to before 2012 ends? Did you start a business? Are you thinking about exercising a stock option? Could any large commissions or bonuses come your way before January? Did you sell an investment held outside of a tax-deferred account? Any of this might significantly affect your 2012 taxes.
*Would it be worth making a 13th mortgage payment this year?If your house is underwater, there's no sense in doing it - and you could also argue that the dollars might be better off invested or put in your emergency fund. Those factors aside, however, there may be some merit to making a January mortgage payment in December. If you have a fixed-rate loan, a lump sum payment can reduce the principal and the total interest paid on it by that much more.
*Are you marrying in 2013?If so, why not review the beneficiaries of your workplace retirement plan account, your IRA, and other assets? In light of your marriage, you may want to make changes to the relevant beneficiary forms. The same goes for your insurance coverage. If you will have a new last name in 2013, you will need a new Social Security card. Additionally, you and your spouse no doubt have individually particular retirement saving and investment strategies. Will they need to be revised or adjusted with marriage?
*Are you coming home from active duty? If so, go ahead and check the status of your credit, and the state of any tax and legal proceedings that might have been preempted by your orders. Make sure your employee health insurance is still there, and revoke any power of attorney you may have granted to another person.
Talk with a qualified financial or tax professional today. Vow to focus on being healthy and wealthy in the New Year.
Citations.
1 - news.cincinnati.com/article/20120919/BIZ/309190108/Businesswise-Make-most-charitable-contributions [9/19/12]
2 - www.inman.com/buyers-sellers/columnists/stephen-fishman/5-things-you-can-do-now-lower-your-2012-tax-bill [10/11/12]
3 - www.irs.gov/Retirement-Plans/COLA-Increases-for-Dollar-Limitations-on-Benefits-and-Contributions [8/2/12]
4 - www.bkd.com/articles/2012/tax-depreciation-changes-coming-in-2013.htm [3/12]
5 - www.thenewstribune.com/2012/10/02/2317249/consider-selling-investments-soon.html [10/2/12]
6 - www.sacbee.com/2012/09/28/4862291/tax-help-program-needs-volunteers.html [9/28/12]
7 - online.wsj.com/article/SB10001424052702304072004577325551162426954.html [10/11/12]
8 - www.forbes.com/sites/janetnovack/2012/10/16/social-security-benefits-to-rise-1-7-workers-face-up-to-2425-payroll-tax-hike/ [10/16/12]
9 - www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Required-Minimum-Distributions#2 [8/2/12]
10 - www.socialsecurity.gov/planners/taxes.htm [10/18/12]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Monday, October 15, 2012
WILL THE MARKET LOSE MOMENTUM?
Some analysts question how well stocks can perform this fall.
Are fresh headwinds buffeting Wall Street? Stocks performed surprisingly well in the first three quarters of 2012, but developments in the fourth quarter are giving analysts pause. While no one sees the bulls turning tail and running, there are emerging factors that may challenge their advance in the near term.
This earnings season isn't shaping up so well. The Wall Street Journal believes it will be the poorest we've seen in almost three years, with an overall decrease in profitability for S&P 500 firms. Thomson Reuters has forecast a 2.9% drop in earnings. Alcoa kicked it off by beating estimates, but it cited lessening demand in China for aluminum. Then, Chevron warned the market that its earnings would be "substantially lower" than what was forecast. Even shares of some market leaders have declined in value since September.1,2
The IMF sees some gloom ahead. On October 11, International Monetary Fund director Christine Lagarde stated that the "slowdown of economic growth is affecting not only advanced countries but also emerging countries, particularly in Asia." This comment came on the heels of the IMF downgrading its global growth forecast for 2012 and 2013; it now projects global GDP of 3.3% this year and 3.6% next year.3,4
Political question marks abound. The presidential race has narrowed in the last couple of weeks, and that has added another degree of uncertainty to the future of the Bush-era tax cuts and scheduled health care reforms.
Profit taking might be popular. In only three quarters, stocks have had the equivalent of an excellent year - the S&P 500 ended September up 14.56% YTD. So if the bulls trot rather than run this quarter, institutional and retail investors may be predisposed to lock in some gains.5
These warning lights aside, Wall Street has swept away pessimism before. It may do so again. Although the S&P 500 was down approximately half a percentage point from its final September close in mid-October, indicators apart from corporate earnings might surprise to the upside and push stocks a bit higher.6
Citations.
1 - www.dailyfinance.com/2012/10/11/8-reasons-to-hate-earnings-season/ [10/11/12]
2 - www.philly.com/philly/business/20121011_Markets_down_as_earnings_season_off_to_dreary_start.html [10/11/12]
3 - online.wsj.com/article/SB10000872396390444799904578050172264021136.html [10/11/12]
4 - www.smh.com.au/business/markets/dollar-claws-back-overnight-losses-20121010-27bz2.html [10/10/12]
5 - www.cnbc.com/id/49210305 [9/28/12]
6 - markets.on.nytimes.com/research/markets/overview/overview.asp [10/11/12]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Are fresh headwinds buffeting Wall Street? Stocks performed surprisingly well in the first three quarters of 2012, but developments in the fourth quarter are giving analysts pause. While no one sees the bulls turning tail and running, there are emerging factors that may challenge their advance in the near term.
This earnings season isn't shaping up so well. The Wall Street Journal believes it will be the poorest we've seen in almost three years, with an overall decrease in profitability for S&P 500 firms. Thomson Reuters has forecast a 2.9% drop in earnings. Alcoa kicked it off by beating estimates, but it cited lessening demand in China for aluminum. Then, Chevron warned the market that its earnings would be "substantially lower" than what was forecast. Even shares of some market leaders have declined in value since September.1,2
The IMF sees some gloom ahead. On October 11, International Monetary Fund director Christine Lagarde stated that the "slowdown of economic growth is affecting not only advanced countries but also emerging countries, particularly in Asia." This comment came on the heels of the IMF downgrading its global growth forecast for 2012 and 2013; it now projects global GDP of 3.3% this year and 3.6% next year.3,4
Political question marks abound. The presidential race has narrowed in the last couple of weeks, and that has added another degree of uncertainty to the future of the Bush-era tax cuts and scheduled health care reforms.
Profit taking might be popular. In only three quarters, stocks have had the equivalent of an excellent year - the S&P 500 ended September up 14.56% YTD. So if the bulls trot rather than run this quarter, institutional and retail investors may be predisposed to lock in some gains.5
These warning lights aside, Wall Street has swept away pessimism before. It may do so again. Although the S&P 500 was down approximately half a percentage point from its final September close in mid-October, indicators apart from corporate earnings might surprise to the upside and push stocks a bit higher.6
Citations.
1 - www.dailyfinance.com/2012/10/11/8-reasons-to-hate-earnings-season/ [10/11/12]
2 - www.philly.com/philly/business/20121011_Markets_down_as_earnings_season_off_to_dreary_start.html [10/11/12]
3 - online.wsj.com/article/SB10000872396390444799904578050172264021136.html [10/11/12]
4 - www.smh.com.au/business/markets/dollar-claws-back-overnight-losses-20121010-27bz2.html [10/10/12]
5 - www.cnbc.com/id/49210305 [9/28/12]
6 - markets.on.nytimes.com/research/markets/overview/overview.asp [10/11/12]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
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