- Vince Lombardi, football coachThe only place success comes before work is in the dictionary.
S&P (C Fund) - Man, volume was up on Friday's move. Does this thing have legs? The economic news was generally favorable Friday. Durable goods numbers were better than expected, and new-home sales were just shy of expectations. A month ago the very same news would have caused us to tank. So what gives? The election? The Fed? End of the recession? Who cares! The truth is no one really knows why it happened or if it will hold. But whatever you call it - DANG it felt bullish! I hope it keeps going!
One thing I think we can say now is that our old level of resistance has become our new level of support:
Now any drop below the 1130 area would mean our break out has failed and we could possibly advance to our next level of resistance in the 1220 area (the highs we reached back in May).
I'm near term bullish. Here are the items I'm planning on watching this week:
TUESDAY - S&P Case Shiller, Consumer Confidence, State Street Investor Confidence Index
THURSDAY - Jobless Claims, Chicago PMI, Fed Balance Sheet
FRIDAY - Motor Vehicle Sales, Personal Income & Outlays, Consumer Sentiment, ISM Mfg Index, Construction Spending
Other issues.........my thoughts here and there............
Because I did a poor job formulating the tax poll question and was accused of showing my bias/intent for the poll, I wanted to address this issue here in an open forum and tell you how I see it.
Taxes - all the political rhetoric over taxes and tax cuts is heating up and will certainly be getting hotter the rest of this month. The biggest concern I have over the indecision is not whether they allow the tax cuts to expire or not, but just simply that is makes it impossible to do any long-term planning from here based on this uncertainty. I want clarity. I have no real control over what happens, so what I want is a mute point. I need to know what the tax rate will be so I can plan for the future.
For now I think we must assume that the tax rate on investments (bonds interest and dividends) will rise from 15% to 39.6% for some. According to the Tax Foundation (non-partisan? - their claim, not mine), the average middle-income family will pay about $1,500 more in federal taxes if the tax cuts do expire. But I believe Congress will extend the tax cuts on the middle class while allowing the rate on incomes greater then $250K go up.
Either way, I think you are better off putting as much of your money as possible in tax deferred accounts. Disclaimer here - I personally love the Roth IRA and use TDAmeritrade and Investors Business Daily to manage my investments. I have no affiliation with either. None what-so-ever.
Now, while I am a big fan of the Roth, I also believe our politicians will eventually change the laws so they too can be taxed. I say this simply because there is so much money in these accounts, and the temptation for politicians to take your money will be too strong to resist. You cannot escape death or taxes, and the Roth will be no exception. I also think the preferential treatment MLPs receive will be taken away too.
The one thing I have taken note of and believe is prudent for some, many advisors are now pushing clients to also consider non-traditional forms of investments in areas clients have a passion (classic cars, art, rare collectibles) as another means to grow and protect wealth in areas that are not so heavily regulated by the government.
In the end taxes are going up. There is simply no way around it. A revision of the tax code should be explored, but it just isn't going to happen. As for me, I'm for lower taxes simply because I don't think raising taxes will solve the problem. If our politicians see more money coming in, they will simply spend more. This has always been the case and there is nothing out there to make me feel it will change in the future. Politicians are there for their own benefit, not yours. Anything they do is for self preservation, not what you really want/need. I have a son and daughter, and I always tell them that if they really want to keep daddy happy, then don't bring home a lawyer or politician. I have no respect for neither.
Consumer Spending - Unemployment aside, our current situation is, um, odd. Americans are often criticized for spending too much and not saving enough. Consumer spending now accounts for about 70% of GDP, so the economy will not improve until consumers start spending again. Before the crash Americans were saving only like 1%, but now the savings rate has increased to almost 6%. Our new found frugality is now crippling us. While saving is a 'good' thing, right now we need consumer spending.
U.S. Treasuries - U.S. Debt may be safe (are they still?), but they could quickly lose value if inflation starts heating up. But if deflation becomes a problem, they could actually continue their run. I will leave that others to speculate.
Gold - who knows where this is going?
Buy and Hold - The C Fund - as of late summer, if you had bought and held the S&P 500 (C Fund) for 10 years was looking at a loss of about 7% (according to market-analysis research firm Ned Davis Research). If you bought and held since March 1999 then you are down almost 30%! Simply put, buy and hold works until it doesn't, and lately it doesn't. I refer to it more as buy and pray/hope, because that really is all you are doing.