Are you worried about the fiscal cliff? You should be more concerned about “Skyfall” on the S&P.
A monastery was perched high upon a cliff. The only access to it was by riding in a wicker basket on a rope hauled up by several monks at the top. One visitor became nervous when, about halfway up, he noticed the rope being used was rather frayed. He frantically asked the monk seated next to him how often they changed the rope. After a thoughtful moment, the monk replied: “Whenever it breaks.”
If you didn’t think the monk was kidding, you might believe the doomsday notion that the sky will soon fall on our nation’s finances. Are we are about to fall off the fiscal cliff? Consider these three past images of impending disaster: Y2K, the downgrade of America’s treasuries to AA, and last year’s debt ceiling crisis. All of these scenarios were presented by the media and others as leading to the weakening and potential destruction of our economy. Was our world turned upside down by these catastrophically portrayed events? Not really. The stock market sure didn’t seem to care as it has climbed to new highs…at least until lately.
The end of October was merely a prelude to a dismal first half of November. At Friday’s close, the DOW was at 12,588, down 1022 points from a high of 13,610 just a few weeks ago on October 5th. The S&P 500 has been drained by nearly 8% since mid October. You can attribute the downfall to the election, Hurricane Sandy, and the financial upheaval in Europe. Should you be concerned? Yes…especially before the year end when managers and investors typically sell to take profits or make adjustments for taxes. The good news: Wages and salaries rose .3%, employment increased by 171,000 in October, and nonfarm productivity increased 1.9% in the business sector.[1] The US real estate statistics have been very positive: New foreclosures are at a five-year low, prices of existing homes are rising at relatively healthy rates, and NCREIF (National Council of Real Estate Fiduciaries) reports property returns were up last third quarter in all sectors.[2]
More good news for Pacific Sun Clients: First, our website link to your Schwab account has been tested and it is now fully operational. In addition to news, reports, pictures, and information, you can now log in to your accounts by going to www.pacsunfinancial.com. Second, the Interfamily Fund Exchanges are being processed this month. You will see these conversions in your statements and in your email. By exchanging retail shares for institutional shares, you will be saving expenses while keeping the same investment. There should be no taxes, no consequences, and no fees. Lowering our client’s fund expenses was a very big part of our reason to move to Schwab. Third, your Required Minimum Distributions from your IRAs have been prepped and are ready to go out. If you need to change your tax withholding, please give us a call.
Speaking of taxes…they are going up. Here are some “give and take” suggestions for dealing with the higher rates next year: 1. Take money in 2012. Income from dividends, interest, capital gains, and royalties are likely to be 3.8% more in 2013. 2. Give assets in 2012. The $5M lifetime exemption is dropping to $1M. 3. Give gifts, pay college tuition and medical bills in 2012. 4. Take itemized deductions in 2012 before they go away in 2013.[3]
Telethon celebs Christina Aguilera, Jon Bon Jovi, Bruce Springsteen, Jimmy Fallon, Brian Williams and many others raised money and awareness for victims of Hurricane Sandy. Thank you. The real onsite heroes were the crews working 16 hour days to save lives and restore power. We feel, we give, and we hope for life to return to normal soon for our friends and families on the East Coast.
Harry Dent is the author of several books about financial forecasting. His writings are described as necessary “guidebooks” for the movement and direction of our wealth and economy. I enjoy reading the description of his best-selling book “The Roaring 2000’s” to remind me to kick myself for briefly buying into a few of his demographic models and theories. Here’s a line from the 1998 book promo: “One of the world’s prescient forecasters, Harry Dent turns his visionary eye to identify trends and to make concrete predictions. Among these are a DOW that will reach at least 21,500 and possibly 35,000 by the year 2008.” Oops. We’ve never been even close to those numbers. Being dead wrong didn’t seem to bother Harry, so he took the opposite approach with his book in 2009 entitled “The Great Depression Ahead”. Harry predicted “a major recession reminiscent of Japan” and a soon-to-be stock market crash. The promo for this book twisted history in his favor by claiming “Dent has always been right about the market.” Sorry, Harry…even as a blind squirrel, you haven’t found an acorn in 15 years. The period from 2009 to 2012 has been one of greatest stock market runs in history.
I suggest that you throw considerable doubt at these so-called pundits, be suspicious of the doomsday forecasts, and minimize the media “noise”. We have seen some isolated success with our clients by “trading on the news”…especially in the short term. Generally, my strongest position for the long haul has been simple: make good investments, check up on them regularly, and then watch them grow.
In last month’s Pac Sun Report, I offered a warning to be careful about jumping into equities immediately following the election. I will add a “second” to that cautionary motion with the end of 2012 in sight. For long-term investors, however, these market discounts from the highs of last month offer some good entries into tech, health, telecom, real estate, and financials.
I hope that you have a loving and delicious Thanksgiving holiday with your family.
Today’s the day.
Mitch Fisher
[1] Economic News Releases 11/17/12 [2] ULI Real Estate Business Barometer 11/17/12 [3] Speak with your Accountant before taking action. These are very general recommendations.