The year goes by, you get busy … and tax-saving opportunities slip away. So as a reminder, this article is here to reacquaint you with some of the notable federal tax breaks offered this year.
The first-time homebuyer credit. This is the up-to-$8,000 credit available in 2009 to anyone who hasn’t owned a home during the previous three years. (It is subject to phase-outs at certain income levels.) The home you buy has to be your principal residence, and you have to buy it before December 1, 2009. The credit does not have to be paid back.
The IRA charitable rollover. This is the move that lets your IRA trustee make a tax-free direct transfer of up to $100,000 from your IRA to a charitable organization. This option is scheduled to go away in 2010. You must be age 70½ or older to do this.
3 don’t-miss deductions for businesses. When it comes to new cars and light trucks used for business means, the maximum first-year depreciation deduction has been increased by $8,000 for cars placed in service before 2010. The Section 179 deduction (that’s the one that lets you write off the costs of certain new and used business assets during their first year of use) is still at $250,000 for 2009, instead of the prior $133,000. The first-year bonus depreciation break of $50,000 is still in place for 2009, and even the biggest businesses can take advantage of it.
The new car sales tax deduction. Okay, “cash for clunkers” is over, but you still may be able to deduct state and local sales and excise taxes if you buy a car, motorhome, motorbike or light truck. You can itemize the deduction or just add it to the amount of your standard deduction.
A major tuition tax break. In 2009, you can claim an above-the-line deduction for “qualified tuition and related expenses” relating to the enrollment or attendance of you, your spouse or your dependent at an eligible college or university. While it is subject to phase-outs at higher income levels, the deduction can be as large as $4,000.
The classroom teacher credit. Are you a primary or secondary school teacher? If you were an educator who worked more than 900 hours on campus in 2009, you can claim an above-the-line deduction for up to $250 of personal expenses for schoolbooks and school supplies that see classroom use. You don’t even have to itemize.
COBRA continuation. Did you get laid off this year? Were you insured under an employer-sponsored health plan? Well, you may qualify for up to nine months of (COBRA) coverage. As for the company where you worked, it can claim a credit for the COBRA subsidy it extends to you.
$2,400 in unemployment income tax-free. That’s right: this year, the first $2,400 of federal unemployment compensation benefits you receive are excluded from gross income.
An extra deduction for state and local property taxes. Do you usually claim the standard federal deduction? If that’s your plan, this year you can take an additional deduction for state and local property taxes. The ceiling is $500, $1,000 if you are filing jointly.
The capital gains tax break. If you are in the 10% or 15% tax bracket, note that the current tax rate for long-term capital gains is 0% - and it is slated to stay at 0% through 2010.
The homebuilder tax credit. Do you build homes? If so, you may claim a credit of up to $2,000 for each qualified energy-efficient home constructed and acquired from you for use as a residence. This credit is set to expire December 31, 2009; President Bush’s signature extended it into this year.
And of course, the exemption from required IRA distributions. The federal tax mandate requiring IRA owners age 70½ to take Required Minimum Distributions (RMDs) was suspended for 2009, but it will be reinstated for 2010. Worth noting: in 2010, anyone will be able to convert a traditional IRA into a Roth IRA.
This is just a sampling. There are other tax breaks out there during this unusual year for the federal tax code, and it is worth asking your accountant or advisor to do some research and/or collaborate to find you as many as possible.
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Tuesday, October 13, 2009
Friday, September 11, 2009
IS YOUR ADVISOR PROACTIVE?
Here’s hoping your financial consultant has kept up with the times.
The memory is indelible: in the last two quarters of 2008, investors with short- to mid-range time horizons cringed as their portfolios lost 20%, 30%, even 40% of value. This bear market was not only a test of investors … it was also a test of financial advisors.
Did your advisor respond to the changing environment? When the market corrects, a good financial advisor stays on top of things. As things turned bearish in fall 2008, many portfolios went the way of the market, with numerous investors moving to the money market for cover. Yet other investors found themselves making money during the downturn. Was it luck? Or simply the right strategy?
Some market conditions demand a change. In late 2008, was your advisor sharp enough to meet with you and alter your financial strategy to one appropriate to the bear market? Did he or she offer you an approach that could exploit opportunities in that market with your goals in mind? An astute advisor recognizes that being proactive in a changing market can potentially change the client outcome – for the better.
The market is dynamic. More bull and bear markets will follow. What do you think your current financial advisor will do next time? Sit back and relax when conditions improve? Mysteriously ignore you when the markets slump?
The nonprofit National Bureau of Economic Research (NBER) has recorded five recessions since 1980 and three since 1990. If you are investing by a 20-year or 30-year financial plan, you may ride through a handful of recessions over the next two or three decades if history is any guide. If recessions and bear markets rear their heads, will your investment strategy be updated? What is the risk of having it set in stone?
Today, anyone frustrated with current portfolio values has reason to consider a new financial advisor. If you feel that inattention and misdirection characterize your relationship with your current advisor, perhaps it is time for a change. You are not forbidden from changing advisors. You may look back one day and realize that the change helped your portfolio.
The memory is indelible: in the last two quarters of 2008, investors with short- to mid-range time horizons cringed as their portfolios lost 20%, 30%, even 40% of value. This bear market was not only a test of investors … it was also a test of financial advisors.
Did your advisor respond to the changing environment? When the market corrects, a good financial advisor stays on top of things. As things turned bearish in fall 2008, many portfolios went the way of the market, with numerous investors moving to the money market for cover. Yet other investors found themselves making money during the downturn. Was it luck? Or simply the right strategy?
Some market conditions demand a change. In late 2008, was your advisor sharp enough to meet with you and alter your financial strategy to one appropriate to the bear market? Did he or she offer you an approach that could exploit opportunities in that market with your goals in mind? An astute advisor recognizes that being proactive in a changing market can potentially change the client outcome – for the better.
The market is dynamic. More bull and bear markets will follow. What do you think your current financial advisor will do next time? Sit back and relax when conditions improve? Mysteriously ignore you when the markets slump?
The nonprofit National Bureau of Economic Research (NBER) has recorded five recessions since 1980 and three since 1990. If you are investing by a 20-year or 30-year financial plan, you may ride through a handful of recessions over the next two or three decades if history is any guide. If recessions and bear markets rear their heads, will your investment strategy be updated? What is the risk of having it set in stone?
Today, anyone frustrated with current portfolio values has reason to consider a new financial advisor. If you feel that inattention and misdirection characterize your relationship with your current advisor, perhaps it is time for a change. You are not forbidden from changing advisors. You may look back one day and realize that the change helped your portfolio.
Stephanie Shinn is a Representative with KMS Financial Services, LLC and may be reached at 253.627.8101 or sjs@purcellas.com.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Friday, September 4, 2009
Monthly Economic Update for September, 2009
Quote of the month. “We will either find a way, or make one.” – Hannibal
The month in brief. Pessimists thought the market would pull back; it didn’t. Stocks did well and there was mounting evidence of a real estate rebound. We got news of a decline in the jobless rate, and better news from the manufacturing and service sectors. The government’s health care reform effort met with rowdy public opposition. Consumer spending inched up, and new cars sold like mad. The commodities markets had a mixed month with oil futures hitting a 2009 peak.
Domestic economic health. The jobless rate went down to 9.4% in July from 9.5% in June; perhaps it was an aberration, or perhaps (could we hope?) the start of a trend. It was the first time that America’s unemployment rate had dropped since April 2008.
Consumers managed to spend just a little bit more. Consumer spending rose 0.4% in June and 0.2% in July (while personal incomes fell 1.3% for June and stayed flat in July). There will likely be a bump in the August consumer spending and durable goods orders – the C.A.R.S. program, although quickly replenished by Congress, went through its $3 billion allotment of rebates by August 24.
In July, factory orders rose by 0.4% (economists thought they would fall) and industrial production went north 0.5% (the first increase in nine months). Producer prices fell by 0.9%, and durable goods orders soared 4.9%, with an 18.4% leap in transportation orders. In the wake of the C.A.R.S. program, the Institute for Supply Management’s gauge of manufacturing activity went above 50 in August for the first time since January 2008, coming in at 52.9.
“The prospects for a return to growth in the near term appear good,” Federal Reserve Chairman Ben Bernanke said at the Kansas City Fed’s annual symposium in Wyoming. The Fed’s August policy meeting produced the opinions that “economic activity is leveling out” and that inflation will be “subdued for some time”. Public response to the government’s attempt to advance health care reform was not subdued at all, and the contention delayed any notion of progress until after the Congressional summer recess.
Global economic health. New Eurostat data gave us a look at how things were faring in the EU nations. The overall EU unemployment rate rose 0.1% in July to 9.5%. However, the jobless rate in its biggest economy (Germany) was just 8.3%. (Spain’s jobless rate for July: 18.5%.) A key purchasing managers survey had EU manufacturing output at a 14-month high in August.
In Asia, the big concern came late in August when the central bank of China issued an internal memo telling its branches to tighten lending practices. This hit stocks hard, but fresh data pointed to a nice recovery for some of the region’s economies. A pair of China’s PMI indexes stayed above 50 (indicating expansion). Hong Kong’s manufacturing pace increased for the first time since June 2008. South Korea had a surplus of $1.67 billion (U.S.) in August, compared to a $3.81 billion (U.S.) deficit in August 2008. Inflation in Indonesia had increased moderately to 2.75%, and consumer prices in Thailand had moderated their descent.
September outlook. Well, September started with a triple-digit hit to the Dow – you could hear bears growling, worrying about banks and wondering if the summer rally had been justified. Will everyone sell in September? Or will stocks defy expectations? Is this a cyclical bull market or a secular bull market? We do have some history to consider: on average, the Dow, S&P 500 and NASDAQ have declined a bit more than 1% during the typical September. Many eyes are on the jobs report coming out September 4, and whether the jobless rate climbs or descends. Any descent (for the second month in a row) would provide a strong hint of an ebbing recession and a shot of reassurance to Wall Street. Even pessimists have to concede that many indicators are improving and that the economy is definitely recovering.
Securities offered through KMS Financial Services, Inc.
The month in brief. Pessimists thought the market would pull back; it didn’t. Stocks did well and there was mounting evidence of a real estate rebound. We got news of a decline in the jobless rate, and better news from the manufacturing and service sectors. The government’s health care reform effort met with rowdy public opposition. Consumer spending inched up, and new cars sold like mad. The commodities markets had a mixed month with oil futures hitting a 2009 peak.
Domestic economic health. The jobless rate went down to 9.4% in July from 9.5% in June; perhaps it was an aberration, or perhaps (could we hope?) the start of a trend. It was the first time that America’s unemployment rate had dropped since April 2008.
Consumers managed to spend just a little bit more. Consumer spending rose 0.4% in June and 0.2% in July (while personal incomes fell 1.3% for June and stayed flat in July). There will likely be a bump in the August consumer spending and durable goods orders – the C.A.R.S. program, although quickly replenished by Congress, went through its $3 billion allotment of rebates by August 24.
In July, factory orders rose by 0.4% (economists thought they would fall) and industrial production went north 0.5% (the first increase in nine months). Producer prices fell by 0.9%, and durable goods orders soared 4.9%, with an 18.4% leap in transportation orders. In the wake of the C.A.R.S. program, the Institute for Supply Management’s gauge of manufacturing activity went above 50 in August for the first time since January 2008, coming in at 52.9.
“The prospects for a return to growth in the near term appear good,” Federal Reserve Chairman Ben Bernanke said at the Kansas City Fed’s annual symposium in Wyoming. The Fed’s August policy meeting produced the opinions that “economic activity is leveling out” and that inflation will be “subdued for some time”. Public response to the government’s attempt to advance health care reform was not subdued at all, and the contention delayed any notion of progress until after the Congressional summer recess.
Global economic health. New Eurostat data gave us a look at how things were faring in the EU nations. The overall EU unemployment rate rose 0.1% in July to 9.5%. However, the jobless rate in its biggest economy (Germany) was just 8.3%. (Spain’s jobless rate for July: 18.5%.) A key purchasing managers survey had EU manufacturing output at a 14-month high in August.
In Asia, the big concern came late in August when the central bank of China issued an internal memo telling its branches to tighten lending practices. This hit stocks hard, but fresh data pointed to a nice recovery for some of the region’s economies. A pair of China’s PMI indexes stayed above 50 (indicating expansion). Hong Kong’s manufacturing pace increased for the first time since June 2008. South Korea had a surplus of $1.67 billion (U.S.) in August, compared to a $3.81 billion (U.S.) deficit in August 2008. Inflation in Indonesia had increased moderately to 2.75%, and consumer prices in Thailand had moderated their descent.
September outlook. Well, September started with a triple-digit hit to the Dow – you could hear bears growling, worrying about banks and wondering if the summer rally had been justified. Will everyone sell in September? Or will stocks defy expectations? Is this a cyclical bull market or a secular bull market? We do have some history to consider: on average, the Dow, S&P 500 and NASDAQ have declined a bit more than 1% during the typical September. Many eyes are on the jobs report coming out September 4, and whether the jobless rate climbs or descends. Any descent (for the second month in a row) would provide a strong hint of an ebbing recession and a shot of reassurance to Wall Street. Even pessimists have to concede that many indicators are improving and that the economy is definitely recovering.
Securities offered through KMS Financial Services, Inc.
Friday, June 5, 2009
ROTH IRA CONVERSIONS FOR 2010
A unique opportunity for IRA owners
In 2010, anyone may convert a traditional IRA to a Roth IRA. No income limits will stand in the way of the conversion.1 Should you do it? Here’s why it may (or may not) make sense for you to go Roth next year.
Why you might want to consider it. A Roth IRA permits tax-free growth and tax-free income distributions in retirement (assuming you are age 59½ or older and have held your Roth account for 5 years or longer). You can contribute to a Roth IRA after age 70½, without having to take mandatory withdrawals. While contributions to a Roth IRA aren’t tax-deductible, the younger you are, the more attractive a Roth IRA may seem.2
However, older investors have reason to go Roth as well – especially if they don’t really need to withdraw IRA assets. Under present tax law, converting an untapped traditional IRA to a Roth will shrink the size of your taxable estate, and careful estate planning could foster decades of tax-free growth for those IRA assets.3
Currently, if you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. So those Roth IRA assets can keep compounding untaxed across the rest of your spouse’s life.
If your spouse then names a son or daughter as a beneficiary, that heir has the choice to make minimum withdrawals according to his or her life expectancy, all while the assets continue to compound tax-free. Currently, withdrawals from an inherited Roth IRA are not subject to income tax.3
Why you may want to think twice about it. The IRS regards a traditional IRA-to-Roth IRA conversion as a distribution from a traditional IRA – a taxable event.4 You’ll need to pay taxes on the entire amount of the conversion. Do you have the money to do that?
Keep in mind, however: with the market down, many IRA values are lower than they have been for years. That translates to paying less tax on gains. It is also worth remembering that tax rates could increase in the years ahead – another reason why now may be a good time to convert. (You could simply do a partial Roth IRA conversion if converting the full amount would send you into a higher tax bracket.)4
You may be tempted to use the current IRA assets to pay the conversion tax, but should you? If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.5
Why you might want to fund a Roth IRA this year. In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA.6 Interesting. Why is this so?
In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA. But the federal government has suspended mandatory IRA withdrawals for 2009.7 Any IRA withdrawals made in 2009 are thereby elective withdrawals. So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.6
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan. This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less. More good news: there is no limit to the conversion amount.1
A potential tax break for those who convert in 2010. If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.8
Be sure to consult your tax advisor before you convert. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.8
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html [1/09]
2 thestreet.com/print/story/10505164.html [5/26/09]
3 smartmoney.com/personal-finance/retirement/estate-planning-with-a-roth-ira-7966/ [1/22/09]
4 smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/ [1/9/08]
5 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/ [1/10/08]
6 online.wsj.com/article/SB123033785000236433.html [12/26/08]
7 usnews.com/blogs/planning-to-retire/2008/12/23/president-bush-signs-pension-relief-bill.html [12/23/08]
8 kiplinger.com/columns/ask/archive/2009/q0601.htm [6/1/09]
In 2010, anyone may convert a traditional IRA to a Roth IRA. No income limits will stand in the way of the conversion.1 Should you do it? Here’s why it may (or may not) make sense for you to go Roth next year.
Why you might want to consider it. A Roth IRA permits tax-free growth and tax-free income distributions in retirement (assuming you are age 59½ or older and have held your Roth account for 5 years or longer). You can contribute to a Roth IRA after age 70½, without having to take mandatory withdrawals. While contributions to a Roth IRA aren’t tax-deductible, the younger you are, the more attractive a Roth IRA may seem.2
However, older investors have reason to go Roth as well – especially if they don’t really need to withdraw IRA assets. Under present tax law, converting an untapped traditional IRA to a Roth will shrink the size of your taxable estate, and careful estate planning could foster decades of tax-free growth for those IRA assets.3
Currently, if you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. So those Roth IRA assets can keep compounding untaxed across the rest of your spouse’s life.
If your spouse then names a son or daughter as a beneficiary, that heir has the choice to make minimum withdrawals according to his or her life expectancy, all while the assets continue to compound tax-free. Currently, withdrawals from an inherited Roth IRA are not subject to income tax.3
Why you may want to think twice about it. The IRS regards a traditional IRA-to-Roth IRA conversion as a distribution from a traditional IRA – a taxable event.4 You’ll need to pay taxes on the entire amount of the conversion. Do you have the money to do that?
Keep in mind, however: with the market down, many IRA values are lower than they have been for years. That translates to paying less tax on gains. It is also worth remembering that tax rates could increase in the years ahead – another reason why now may be a good time to convert. (You could simply do a partial Roth IRA conversion if converting the full amount would send you into a higher tax bracket.)4
You may be tempted to use the current IRA assets to pay the conversion tax, but should you? If you’re younger than 59½, you’re looking at a 10% penalty on the amount you withdraw, and you’ll lose the chance for tax-free compounding of those assets within the Roth IRA.5
Why you might want to fund a Roth IRA this year. In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA.6 Interesting. Why is this so?
In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA. But the federal government has suspended mandatory IRA withdrawals for 2009.7 Any IRA withdrawals made in 2009 are thereby elective withdrawals. So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.6
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan. This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less. More good news: there is no limit to the conversion amount.1
A potential tax break for those who convert in 2010. If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns.8
Be sure to consult your tax advisor before you convert. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.8
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Citations.
1 kiplinger.com/magazine/archives/2009/01/sweet-deal-on-roth-ira-conversion.html [1/09]
2 thestreet.com/print/story/10505164.html [5/26/09]
3 smartmoney.com/personal-finance/retirement/estate-planning-with-a-roth-ira-7966/ [1/22/09]
4 smartmoney.com/personal-finance/retirement/roth-iras-you-wanted-to-know-7967/ [1/9/08]
5 smartmoney.com/personal-finance/retirement/roth-iras-to-convert-or-not-7965/ [1/10/08]
6 online.wsj.com/article/SB123033785000236433.html [12/26/08]
7 usnews.com/blogs/planning-to-retire/2008/12/23/president-bush-signs-pension-relief-bill.html [12/23/08]
8 kiplinger.com/columns/ask/archive/2009/q0601.htm [6/1/09]
Friday, May 15, 2009
Monthly Economic Update for May, 2009
The month in brief. If the economy was downtrodden, the stock market sure was upbeat – at the end of April, blue chips were wrapping up their best two months since 2003. As headlines and nightly news relayed anxiety about banks and automakers, Wall Street advanced powerfully. The three major indexes gained between 7.3 and 12.4% in April. Statistics indicated gloom, but confidence returned to consumers and investors.
Domestic economic health. New concerns about the viability of automakers and the capitalization of banks surfaced; in April, Wall Street rode through these concerns remarkably well. The big news, of course, was Chrysler LLC entering bankruptcy proceedings April 30 at the instruction of the White House. Fiat said yes to a partnership and a 20% stake in the U.S. automaker, but Chrysler bondholders (notably about 40 hedge funds) said no to slashing $6.9 billion in debt to $2.25 billion.
The Federal Reserve unveiled some details about bank stress tests in late April. The tests were evaluations: could 19 major U.S. thrifts potentially survive two financial scenarios, or would they need more capital to do so? Scenario one assumed a 2009 with -2.0% GDP, 8.4% unemployment, and a 14% drop in home prices. Scenario two plugged in -3.3% GDP, 8.9% joblessness and a 22% decrease in home values. We get the results May 7. Any undercapitalized banks will be directed to sell assets or draw on private-sector sources of capital before turning to the government.
As for consumers, the latest rounds of data showed them spending a bit less, but also far more confident. Personal spending and personal income respectively fell 0.2% and 0.3% in March; disposable income was flat. Retail prices and retail sales were down in March: the Consumer Price Index decreased by 0.1% and the Commerce Department had retail sales slipping by 1.1%. Producer prices also fell 1.2%. CPI dropped 0.4% and PPI fell 3.5% from March 2008 to March 2009 - the first year-over-year drop in CPI since 1955 and the biggest 12-month fall in PPI since 1950. However, the numbers from the consumer confidence indexes were certainly something to smile about: the Reuters/University of Michigan index came in at a final April level of 65.1, its biggest gain in two years. The Conference Board’s April survey hit 39.2, trouncing the 29.7 figure economists polled by Bloomberg News had expected. In other news, unemployment climbed to 8.5% in March. The Fed said GDP for the first quarter was pretty miserable: -6.1%. However, the Fed also reported that consumer spending did not contract, maintaining a 2.0% annualized pace last quarter. The Fed left interest rates alone.
World financial markets. We saw gains across the globe – tremendous gains. The MSCI World Index was up 10.9% in April – its best month since January 1987. The MSCI Emerging Markets Index rose 16.3% last month, and that was its hottest month since December 1993.
In Europe, the DAX gained 16.8% in April, and the CAC 40 rose 12.6%. England’s FTSE 100 gained 8.1%, and Ireland’s ISEQ rose 19.5%. In Asia, the April data: Hang Seng, +14.3%; Shanghai Composite, +4.4%; Sensex, +17.5%; Nikkei 225, +8.9%; Singapore Straits Times Index, +13.0%; Australian All Ordinaries Index, +6.0%.
Housing & interest rates. The March numbers weren’t very encouraging. The Commerce Department said new home sales fell by 0.6% for the month, and the National Association of Realtors reported residential resales down by 3.0%. However, the inventory of unsold new homes shrank from 12.5 months worth to 10.7 months worth across the first quarter of the year.
Rates on conventional mortgages finished April down more than a percentage point from a year ago. 30-year FRMs ended the month averaging 4.78%, according to Freddie Mac; 5-year ARMs averaged 4.80%, 1-year ARMs averaged 4.77%, and 15-year fixed-rate loans averaged 4.48%.
May outlook. On Thursday, May 7 (after the markets close), we are supposed to learn the results of the stress tests. The government has put itself in a difficult place: if it reveals too much, the markets might react too wildly, and if it reveals too little, that could breed suspicion or pessimism. Now of course, the results could surprise us all and not be as bad as anticipated. Or they could be worse than presumed.
Pessimists say that the stock market ignored economic reality in April. Optimists see the potential for great gains across the balance of 2009. In fact, Anthony Bolton, Fidelity International’s president of investments, recently told Bloomberg Television that “All the things are in place for the bear market to have ended.” Let’s hope he’s right.
Domestic economic health. New concerns about the viability of automakers and the capitalization of banks surfaced; in April, Wall Street rode through these concerns remarkably well. The big news, of course, was Chrysler LLC entering bankruptcy proceedings April 30 at the instruction of the White House. Fiat said yes to a partnership and a 20% stake in the U.S. automaker, but Chrysler bondholders (notably about 40 hedge funds) said no to slashing $6.9 billion in debt to $2.25 billion.
The Federal Reserve unveiled some details about bank stress tests in late April. The tests were evaluations: could 19 major U.S. thrifts potentially survive two financial scenarios, or would they need more capital to do so? Scenario one assumed a 2009 with -2.0% GDP, 8.4% unemployment, and a 14% drop in home prices. Scenario two plugged in -3.3% GDP, 8.9% joblessness and a 22% decrease in home values. We get the results May 7. Any undercapitalized banks will be directed to sell assets or draw on private-sector sources of capital before turning to the government.
As for consumers, the latest rounds of data showed them spending a bit less, but also far more confident. Personal spending and personal income respectively fell 0.2% and 0.3% in March; disposable income was flat. Retail prices and retail sales were down in March: the Consumer Price Index decreased by 0.1% and the Commerce Department had retail sales slipping by 1.1%. Producer prices also fell 1.2%. CPI dropped 0.4% and PPI fell 3.5% from March 2008 to March 2009 - the first year-over-year drop in CPI since 1955 and the biggest 12-month fall in PPI since 1950. However, the numbers from the consumer confidence indexes were certainly something to smile about: the Reuters/University of Michigan index came in at a final April level of 65.1, its biggest gain in two years. The Conference Board’s April survey hit 39.2, trouncing the 29.7 figure economists polled by Bloomberg News had expected. In other news, unemployment climbed to 8.5% in March. The Fed said GDP for the first quarter was pretty miserable: -6.1%. However, the Fed also reported that consumer spending did not contract, maintaining a 2.0% annualized pace last quarter. The Fed left interest rates alone.
World financial markets. We saw gains across the globe – tremendous gains. The MSCI World Index was up 10.9% in April – its best month since January 1987. The MSCI Emerging Markets Index rose 16.3% last month, and that was its hottest month since December 1993.
In Europe, the DAX gained 16.8% in April, and the CAC 40 rose 12.6%. England’s FTSE 100 gained 8.1%, and Ireland’s ISEQ rose 19.5%. In Asia, the April data: Hang Seng, +14.3%; Shanghai Composite, +4.4%; Sensex, +17.5%; Nikkei 225, +8.9%; Singapore Straits Times Index, +13.0%; Australian All Ordinaries Index, +6.0%.
Housing & interest rates. The March numbers weren’t very encouraging. The Commerce Department said new home sales fell by 0.6% for the month, and the National Association of Realtors reported residential resales down by 3.0%. However, the inventory of unsold new homes shrank from 12.5 months worth to 10.7 months worth across the first quarter of the year.
Rates on conventional mortgages finished April down more than a percentage point from a year ago. 30-year FRMs ended the month averaging 4.78%, according to Freddie Mac; 5-year ARMs averaged 4.80%, 1-year ARMs averaged 4.77%, and 15-year fixed-rate loans averaged 4.48%.
May outlook. On Thursday, May 7 (after the markets close), we are supposed to learn the results of the stress tests. The government has put itself in a difficult place: if it reveals too much, the markets might react too wildly, and if it reveals too little, that could breed suspicion or pessimism. Now of course, the results could surprise us all and not be as bad as anticipated. Or they could be worse than presumed.
Pessimists say that the stock market ignored economic reality in April. Optimists see the potential for great gains across the balance of 2009. In fact, Anthony Bolton, Fidelity International’s president of investments, recently told Bloomberg Television that “All the things are in place for the bear market to have ended.” Let’s hope he’s right.
Wednesday, March 18, 2009
HOW FAST THE MARKETS RECOVER
Don’t let the headlines get you down. Look at how the markets have rebounded.
provided by Stephanie Shinn
The stock market is amazingly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns.
2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points (the biggest single-day drop ever) to 8920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.
There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.
As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.
1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.3 (That would be akin to a 2,300-point one-day drop today.) The S&P 500 lost 20.4%.4 By comparison, the initial “Black Monday”, the stock market crash of 1929, represented a 12.8% market loss.
Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year. By January 1990, the DJIA was at 2,800.
If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.
1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.
I hope these examples give you some encouragement and confidence when it comes to the market right now. The Dow, S&P and NASDAQ have been through some rough periods, but the important thing is to look at how they have climbed across the decades.
On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. That’s a 1,500% gain in 17½ years. This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.
What should you do now? That’s a good question. If you would like to talk about how to invest in light of this recent market, and what financial moves you might make that could help you manage risk and take advantage of a rebound, then talk with a qualified financial advisor today.
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
provided by Stephanie Shinn
The stock market is amazingly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns.
2001-2002. After the four-day closure of the stock market following 9/11, the Dow fell 685 points (the biggest single-day drop ever) to 8920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21. But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.
There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286. But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.
As for the people who panicked and bailed out of the stock market, they ended up kicking themselves: in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.
1987. October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.3 (That would be akin to a 2,300-point one-day drop today.) The S&P 500 lost 20.4%.4 By comparison, the initial “Black Monday”, the stock market crash of 1929, represented a 12.8% market loss.
Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year. By January 1990, the DJIA was at 2,800.
If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later. If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.
1974. With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October. In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.
I hope these examples give you some encouragement and confidence when it comes to the market right now. The Dow, S&P and NASDAQ have been through some rough periods, but the important thing is to look at how they have climbed across the decades.
On August 12, 1982, the Dow was at 777. On January 14, 2000, it was at 11,722.98. That’s a 1,500% gain in 17½ years. This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.
What should you do now? That’s a good question. If you would like to talk about how to invest in light of this recent market, and what financial moves you might make that could help you manage risk and take advantage of a rebound, then talk with a qualified financial advisor today.
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
Tuesday, January 6, 2009
WHAT WILL 2009 BRING?
Can the markets rebound?
It’s time to leave 2008 behind. We’ve heard the sound bites. We’ve seen the headlines. It’s all yesterday’s news. Let’s turn our attention to 2009. There is reason to be optimistic. We have a new administration and a huge new stimulus/infrastructure plan that may bode well for the economy. We have the Federal Reserve and the Treasury working to thaw the credit markets. We have economists sensing the beginnings of a recovery later this year. Here are some thoughts as we enter 2009.
Eyes on the first few days. Traditionally, stock market analysts have looked closely at the first few trading days of a new year for a clue as to how the markets will do the rest of the year. When a new President takes office after a bearish year, the interest in these first few days is heightened. If the market performs well or poorly, the thinking goes, it “sets the tone” for the first quarter and the year. Many economists would say this is bunk, and that macroeconomic forces will ultimately shape stock market performance rather than a few market days. Traders would reply by saying that the impulses of investors don’t always correspond to macroeconomic forces.
They can also point to some telling statistics. Read Stock Trader’s Almanac, and you’ll discover that a positive January has led to a positive year for stocks more than 90% of the time.
Historically, Januarys have been bullish on Wall Street. But as the Almanac notes, every January in which stocks have lost ground has “preceded a new or extended bear market, or flat market.” So keep watching.
Stocks up 20.04%. What? What kind of statistical manipulation is that? It’s no trick; it’s reality. On November 20, the S&P 500 closed at 752.44. It ended 2008 at 903.25. So the broad stock market gained 20% in less than 30 trading days at the end of 2008. Hopefully, you didn’t miss that.
Sure, you say, this is just a bear market phenomenon. It could be. But consider these hopeful signs. Our current recession began in December 2007, according to the National Bureau of Economic Research. It is now entering its fourteenth month. The two worst downturns in post-WWII history have lasted 16 months. (The old joke is that a recession is over just about the time that NBER confirms it.) Most economists doubt the recession will last through the end of 2009.
We’re not living in 1931. You’ve probably read articles that compare and contrast the current economy to the 1930s. Well, we haven’t gone that far back. Sure, we’re seeing a lot of short sales and foreclosures. But we’re not seeing every other bank shuttered, soup lines on the corner, or one out of every four Americans looking for work. The economy is down, but not out.
What we’ve done, in a sense, is to go back a few years. Mortgage rates, oil futures, retail gas prices, home prices, inflation – they are all in the ballpark of what we saw in 2003 or 2004 (and mortgage rates are lower than that). Keep in mind that in the last 2-3 years, you had the real estate market at its peak, the stock market setting records, and a commodities market that was on fire. Inevitably, all that cooled off. Severely, yes – but inevitably. Recessions are part of the natural economic cycle.
When do things turn bullish? Well, a few things have to occur to pave the Street for another extended bull run. One, the federal government stimulus and rescue plans have to take effect. Two, banks have to start lending more readily. Three, the real estate market has to show new signs of life. Improvements in corporate earnings, joblessness and consumer spending will also help.
We might be poised for great things. In recent times, powerful bull markets have emerged from low points in stocks and consumer confidence. You can point to 2003, after Black Monday in 1987, and 1982. Moreover, some of the best long-term investing opportunities have emerged from extended bear markets or tepid markets.
Consider this: The Leuthold Group, an institutional research firm based in Minneapolis, just concluded that the annual returns of the S&P 500 from 1998 to 2008 averaged -0.93% per year, not including dividends. (This study wrapped up at the end of November 2008.) As the research notes, “when 10-year annual returns [of the stock market] fall to 1% or less, the next 10 years produce an average cumulative return of 183%”. So there’s some hope for you.
What should you do in 2009? Talk about it with your financial advisor. The start of the year is a good time to review and revisit your financial plan and your long-range investment strategy.
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
Past performance is not necessarily indicative of future results.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
It’s time to leave 2008 behind. We’ve heard the sound bites. We’ve seen the headlines. It’s all yesterday’s news. Let’s turn our attention to 2009. There is reason to be optimistic. We have a new administration and a huge new stimulus/infrastructure plan that may bode well for the economy. We have the Federal Reserve and the Treasury working to thaw the credit markets. We have economists sensing the beginnings of a recovery later this year. Here are some thoughts as we enter 2009.
Eyes on the first few days. Traditionally, stock market analysts have looked closely at the first few trading days of a new year for a clue as to how the markets will do the rest of the year. When a new President takes office after a bearish year, the interest in these first few days is heightened. If the market performs well or poorly, the thinking goes, it “sets the tone” for the first quarter and the year. Many economists would say this is bunk, and that macroeconomic forces will ultimately shape stock market performance rather than a few market days. Traders would reply by saying that the impulses of investors don’t always correspond to macroeconomic forces.
They can also point to some telling statistics. Read Stock Trader’s Almanac, and you’ll discover that a positive January has led to a positive year for stocks more than 90% of the time.
Historically, Januarys have been bullish on Wall Street. But as the Almanac notes, every January in which stocks have lost ground has “preceded a new or extended bear market, or flat market.” So keep watching.
Stocks up 20.04%. What? What kind of statistical manipulation is that? It’s no trick; it’s reality. On November 20, the S&P 500 closed at 752.44. It ended 2008 at 903.25. So the broad stock market gained 20% in less than 30 trading days at the end of 2008. Hopefully, you didn’t miss that.
Sure, you say, this is just a bear market phenomenon. It could be. But consider these hopeful signs. Our current recession began in December 2007, according to the National Bureau of Economic Research. It is now entering its fourteenth month. The two worst downturns in post-WWII history have lasted 16 months. (The old joke is that a recession is over just about the time that NBER confirms it.) Most economists doubt the recession will last through the end of 2009.
We’re not living in 1931. You’ve probably read articles that compare and contrast the current economy to the 1930s. Well, we haven’t gone that far back. Sure, we’re seeing a lot of short sales and foreclosures. But we’re not seeing every other bank shuttered, soup lines on the corner, or one out of every four Americans looking for work. The economy is down, but not out.
What we’ve done, in a sense, is to go back a few years. Mortgage rates, oil futures, retail gas prices, home prices, inflation – they are all in the ballpark of what we saw in 2003 or 2004 (and mortgage rates are lower than that). Keep in mind that in the last 2-3 years, you had the real estate market at its peak, the stock market setting records, and a commodities market that was on fire. Inevitably, all that cooled off. Severely, yes – but inevitably. Recessions are part of the natural economic cycle.
When do things turn bullish? Well, a few things have to occur to pave the Street for another extended bull run. One, the federal government stimulus and rescue plans have to take effect. Two, banks have to start lending more readily. Three, the real estate market has to show new signs of life. Improvements in corporate earnings, joblessness and consumer spending will also help.
We might be poised for great things. In recent times, powerful bull markets have emerged from low points in stocks and consumer confidence. You can point to 2003, after Black Monday in 1987, and 1982. Moreover, some of the best long-term investing opportunities have emerged from extended bear markets or tepid markets.
Consider this: The Leuthold Group, an institutional research firm based in Minneapolis, just concluded that the annual returns of the S&P 500 from 1998 to 2008 averaged -0.93% per year, not including dividends. (This study wrapped up at the end of November 2008.) As the research notes, “when 10-year annual returns [of the stock market] fall to 1% or less, the next 10 years produce an average cumulative return of 183%”. So there’s some hope for you.
What should you do in 2009? Talk about it with your financial advisor. The start of the year is a good time to review and revisit your financial plan and your long-range investment strategy.
Stephanie Shinn is a Representative with KMS Financial Services, Inc. and may be reached at 253.627.8101 or sjs@purcellas.com.
Past performance is not necessarily indicative of future results.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
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