Fourth Quarter, 2012
My Comments and Opinions
To those who are not yet my clients:
I help my clients replace their paychecks in retirement. My goal is to prevent them from running out of money once they retire by offering both wealth management and financial planning.
- Bob Brimmer, CFP®
The IRS has changed the yearly 1099 Tax Reporting Statement mailing deadline from January 31, 2013 to February 15, 2013, as mandated under the Emergency Economic Stabilization Act signed into law October 3, 2008. Fidelity Investment's National Financial Services (NFS, our brokerage clearing corporation) will mail 2012 tax forms in January 2013 through mid-February 2013.
February 22, 2013 - The first duplicate/correction cycle will run on the close of business. Duplicate tax forms can also be ordered at this time.
Fourth Quarter Jitters
Was November and December a Gloom Boom? The Dow Jones Industrial Index began the quarter at 13,515. It traded within the 13,000s during October, then traded in the 12,000s during November and closed the year out at 13,104, 400 Dow points lower than at the start of the quarter. From Calvert Investments' Natalie Turnow, CIO Equities: “China's economy continued to show signs of stabilizing, which helped international stocks outperform their U.S. counterparts. For the quarter, the Standard and Poor's (S&P) 500, Russell 1000, Russell 2000, MSCI EAFE, and MSCI Emerging Markets Indices returned -0.38%, 0.12%, 1.85%, 6.60%, and 5.61%, respectively. Value stocks outperformed growth stocks during the quarter, in a reversal of a multi-year trend, with the Russell 1000 Value Index returning 1.52% and the Russell 1000 Growth Index declining 1.32%.” Oh, and the world didn't end on Dec. 21, 2012. According to Core Wealth Consultants, the U.S. stock market rose a tiny 0.25% in the last quarter. Emerging market stocks gained over 5% and international developed country stocks rose almost 6% during the same quarter. These gains reflected the relative calm that Europe enjoyed.
Greece was actually the best-performer of the developed countries in the fourth quarter. Maybe buy low, sell high still makes sense. Morningstar, a favorite research firm stated recently: We continue to view the market as pretty close to fairly valued, with stocks under Morningstar coverage trading at 92% of fair value in mid-December, using a market-capitalization-weighted average.
What was the news during this final quarter? Well, the election for one. There was a lot riding on the results for businesses to name just one group. Would we get a more or less business-friendly Congress and White House? Would we ever see a national balanced budget in our lifetimes? How much higher will the U.S. debt go? What will be done about unemployment? The so-called Fiscal Cliff had the lemmings lined up for the plunge. At the end of the year the brave hearts of the United States Congress kicked the can further down the road, apparently leaving the solution to future Congresses, Presidents and voters. One big tax issue was temporarily resolved by increasing tax rates for individuals earning over $400,000 per year and couples earning over $450,000 in 2013 and beyond. Taxpayers at all income levels will be subject to a two-percentage-point increase in the employee portion of the Social Security tax. It will rise to 6.2% from 4.2%, where it had been for several years as part of a fiscal stimulus package. Weren't we told: No tax hikes for the middle class?
U.S. Dept. of Labor Statistics Chart. U-1 through U-6. - sample of a few states
U1: This is the proportion of the civilian labor force that has been unemployed for 15 weeks or longer. This unemployment rate measures workers who are chronically unemployed.
U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
“The multiplication of public offices, increase of expense beyond income, growth and entailment of a public debt, are indications soliciting the employment of the pruning knife.” -- Thomas Jefferson
Is there a day when the word “economy” isn't mentioned in the news media? No. Why? Because our national economy gives us the means of survival. Economy is a very important concept, and one little understood. The economy of a country is generally meant to be the totality of all production and consumption - everything grown, made and provided by producers, which is then sold to consumers. Think of our national economy as an enormous farm, one that produces every form of food we need. For our farm to be sustaining, the soil must be rich, the rain must fall and the sun must shine. Our national economy also needs the right balance of things in order to grow well. On our farm we must have balance: Not too much sun; not too much rain; soil that has just the right type and amount of nutrients. This is a physical example of supply and demand. Our plants demand a balance of good things in order to grow enough food.
Right now our national economy is growing at an anemic 1.5%. A 4% growth rate would be healthy following a recession. Our economy is bogged down with the flood waters of too much debt and an excess of confusing and costly regulation at every level of government, local, state and federal. If we're to believe Washington politicians, it's almost as if the local Farm Agent official stopped by our farm to tell us that everything's OK, and says: “Keep sowing seeds in your flooded fields.”
In our economic life we no longer barter as farmers could years ago. It's now impossible to sustain ourselves by swapping goods for services. To solve the problem of unwieldy barter, we invented money. We usually think of money as currency - dollar bills, etc. But money is also the movement of credits and debits swirling around the world at the speed of electrons. The credit/debit ratio for the U.S. is way out of balance. We import more than we export.
America borrows about $0.40 of every dollar she spends, which is building up our annual budget short-fall, the deficit. The annual deficit is added to our accumulating National Debt, now over $16,000,000,000,000.00. According to the U.S. Debt Clock, each American owes $181,500 on the U.S. national debt and the average family owes $732,800. On a slow day Google: U.S. Debt Clock and watch the numbers spin.
One part of our economy has good news to report. Our stocks have been doing well lately for several reasons. For one, many companies, having survived the recession, can now expand. And the alternative investment choices, such as low-interest bearing bank accounts, are not that attractive.
We might think that the supply of money is inexhaustible because the government can keep printing currency. I'm here to tell you that it is not limitless. Consider these examples of things people once thought were overly abundant. In the 1870s the supply of American Buffalo seemed unlimited. When the carnage stopped, only a few thousand head were left. They nearly went extinct. The American Passenger Pigeon population was estimated to be from three to five billion in the 1600s when Europeans first arrived on North America. After the last few were blasted out of the sky the population was too small to reproduce. The last one, named Martha, died in the Cincinnati Zoo in 1914.
Last of her species, died at 1 p.m.,
1 September 1914, age 29, in the
Cincinnati Zoological Garden.
Financial planning is a way to help individuals, families and small business owners prepare for the future. The future will arrive whether or not we're prepared.
Robert W. Brimmer, CFP™
The views expressed contain certain forward-looking statements. Although they are forecasts, actual results may be meaningfully different. This material represents an assessment of the market and conditions at a particular time and is not a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any security in particular. The opinions expressed here are the author's and do not reflect any opinion of National Securities Corporation, member FINRA/SIPC, my Broker/Dealer, or any of its Affiliates. Source material for this letter include: Dow Jones and other global stock indices; Morningstar; Internal Revenue Service; Calvert Investments; Core Wealth Consultants; US Dept of Labor Statistics; Thomas Jefferson; U S Debt Clock
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