August felt like we were driving on a bumpy dirt road in the back of a truck. It was a relentless ride of pounding and bouncing with dust flying everywhere in the financial markets. Your investment statements will likely be a painful reminder of those potholes. You may need an Advil for some temporary relief.
“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.” Benjamin Graham
There were no jobs added last month in the US. It was the worst employment report in 11 months. The yield on the 10-year Treasury note decreased to an all-time low of 1.9%.[1] Europe seems to be coming apart at the seams. Consumer confidence is waning in the wake of all the global economic pessimism. The destruction and disruption of life caused by an angry Hurricane Irene just added to all of the dismay in August. We have the tenth anniversary of 9/11 coming this week to top off a month of unsettling events.
You can certainly take a more optimistic view by using the last 12 months to gain perspective. The DOW has moved from 10,320 on September 2, 2010 to its close last Friday of 11,240. The S&P 500 gained nearly triple digits during the same period, moving up from 1,090 to 1,174. A 30-year mortgage interest rate last year averaged 4.43% versus 4.32% this week. Gold has soared from 1,248 to 1,821 an ounce at Friday’s close. Although year-to-date, the S&P 500 is down by 5.3%, the following sectors are positive through September 2nd: Utilities +8.7%, Consumer Staples + 5.1%, and Healthcare 4.1%.[2]
Several tax law changes have taken place in 2011. It is always good to have a check-up with your accountant, sooner rather than later. Here are a few items that should be food for discussion. The estate and gift taxes were overhauled. The top rate is 35% and a new $5 million exemption. The alternative minimum tax (AMT) is $47,450 for single filers and $74,450 for married couples. Income tax brackets are a bit higher this year while investment tax rates are historically low. A zero tax applies to anyone in the 15% bracket, while those in the 25%+ bracket pay 15% capital gains. These rates end in 2012.[3] Do you think these tax rates will be going up?
Since these last few months may have been some of the worst of times financially, here is a random list of awards for some of the best in 2011: Best Kiss, Kristen Stewart and Robert Pattinson, The Twilight Saga. Best Movie Villain, Tom Felton, Harry Potter. Best Digital Government Portal, Arkansas (state), Seattle (city). Best Vehicle Off-road, Jeep Grand Cherokee. Best Fun Car to Drive, Lotus Evora. Best Car Value, Hyundai Sonata. Best International beer, Narke Kaggen (Sweden). Best Domestic beer, Russian River Pliny the Younger. Best hotel, Singita Grumeti, Tanzania. Best Cruise line, Crystal. Best Domestic Airline, Virgin Atlantic. Best restaurant in the world, Noma (Denmark). Best restaurant in America, Alinea (Chicago). Best Classical Conductor, Ricardo Muti. Best beach in the world, Providenciales, (Turks and Caicos). Best beach in the US, Myrtle Beach (South Carolina). Are any of these on your wish list?
There is good cause to consider the purchase of high-quality, high-dividend paying stocks in this economic environment. Here are some compelling stats: 1. Dividend yield on the S&P 500 Index (SPX) exceeds 2%, representing less than 30% of the profits of these companies, 2. Per share dividends of the SPX have grown at 5% annually over the last 50 years, beating inflation. 3. Dividend growth in the last two years has averaged over 10% per year. 4. The corporate sector is churning out record profits despite the sluggish economy.[4] In addition to this investment strategy, you can use high-dividend paying exchange traded funds (ETF) for a ‘pool’ of these companies. In the last Pac Sun report, I suggested that “if you are worrying a lot and have a newfound aversion to risk, park your money in TIPS (Treasury Inflation Protected Securities), or begin a Principal Guarantee Plan, or lock in an 8% Index Bonus Annuity that should double in value in 9 years.” ’
Finally, from the Institute of Wealth Management: “While we are certainly not complacent, we feel as though the market is in a dramatically better position than during 2008 with equities in a uniquely undervalued position. While we are excited about where we are and where we think things are headed, we also feel as though this is an important time to focus on risk mitigation…as well as to keep some dry powder.”[5]
If you have not had a financial check-up with us recently, please call for an appointment soon. Your comments and suggestions are always appreciated.
Today’s the day.
Mitch Fisher
National Asset Management, Inc. (NAM) is a Registered Investment Advisor with the SEC. NAM provides fundamental investment management services. The views expressed contain certain forward-looking statements. NAM believes these forward-looking statements to be reasonable, although they are forecasts and actual results may be meaningfully different. Actual events may cause adjustments in portfolio management strategies. This material represents an assessment of the market at a particular time and is not a guarantee of future results. This information should not be relied upon as research or investment advice regarding any security. One cannot directly invest in an index. Index performance returns do not reflect any management fees, transaction cost or expenses. Indices are unmanaged. S&P 500 Index is an unmanaged index of 500 common stocks chosen to reflect the industries in the US economy. The DOW Jones Industrial Index is an index that shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market. The insurance-annuity described may not be available in all states. It is not FDIC insured or guaranteed. Please read the prospectus before investing. Pacific Sun Financial is not affiliated with National Insurance Corporation. Securities offered through National Securities Corporation, Member FINRA/SIPC. Investment Advisory Services offered through National Asset Management, Inc SEC Registered Advisor and affiliate of National Securities Corporation. NAM or Pacific Sun Financial does not offer any legal or tax advice. One should consider consulting with a legal or tax professional before implementing investment strategies.
[1] Associated Press 9-2-11 [2] J.P. Morgan Asset Management 9-5-11 [3] Wall Street Journal 1-8-11 [4] Donald M. Selkin, Chief Market Strategist, 8-29-11 [5] Institute for Wealth Management 8-26-11