Effective January 1, 2010 anyone, regardless of income, can convert a regular IRA into a Roth IRA. Previously, this was only available to IRA owners with a modified adjusted gross income of less than $100,000. This change could potentially be a big deal. If you would like a copy of our free report on Roth IRA conversions, just give us a call or e-mail us and we will be happy to e-mail it to you. To our clients…please know we are reviewing your accounts to determine if you might benefit from this new provision in the law.
In just a few weeks, a lot of us will be glued to our television sets watching the Super Bowl – or at least we’ll be watching the commercials on “Super Sunday”. As investors, it would have been encouraging to see the Pittsburgh Steelers win the Super Bowl. The Steelers won last year, and it was their sixth win, having hoisted the Lombardy trophy in 1975, ’76, ’79, ’80 (thank you for those years, Bradshaw), and in 2006. In the five previous years in which they were winners, the average for the S&P 500 was a positive 25.6%. They didn’t let us down in 2009, as the S&P finished up 26.46%. Unfortunately, the Steelers won’t be defending their championship. (Source: BTN Research)
Over the years we have learned that it’s not wise to make predictions about what the market is going to do. In our last Bullets, we said we would be happy if we earned an 8% to 10% return this year, but we tried to avoid making any firm predictions. We just think that’s the most reasonable the market could be, given the current economic situation. We’ll be disappointed if we end up with a lower return, and we will be pleasantly surprised if we get more. USA Today reported that predictions by a group of Wall Street strategists ranged from an increase of 0.5% to gains as high as 16.7%. It’s interesting that our “hoped for” amount falls right in the middle of that range. History is working on the side of the analysts in that going back to 1949 the S&P 500 Index has never fallen in the second year of a bull market. The average gain in the second year of a bull market is 15%. Obviously, this is just history and it is an average, so it remains to be seen what will happen. Most importantly, it isn’t what we know that we worry about; it’s what we don’t know. It will require continued vigilance on the part of investors to invest intelligently going forward.
As Congress returns from their brief holiday (normally they’re gone almost the entire month of December and into January), there are a number of issues staring them in the face. Yes, they have to come up with compromise legislation on health care, but they also need to deal with estate taxes as soon as possible. Early last December, the House passed a temporary bill, but the Senate has yet to take up the issue. Additionally, at the end of 2010, the Bush tax cuts expire. Capital gains rates rise from 15% to 20%, and the top ordinary income tax bracket rises from 35% to 39.6%. These are just a few of the more obvious tax increases that will occur in 2011 unless Congress does something about it before then. The common consensus is that, in order to raise revenue, Obama and the Democrats will just let the tax cuts expire and let the law take its natural course. That would be the easy way to raise taxes because the Democrats could say it was Bush’s Bill, not theirs. Of course, Republicans will push to forestall the elimination of the tax cuts and will introduce legislation to extend them. If the Democrats don’t go along, they will be labeled in the elections as the party who not only forced health care reform on a population who didn’t want it, but they will also be viewed as having raised taxes. Nobody wants that during an election year, so don’t be surprised if you see a compromise arise, which might extend the tax cuts for another year, being dubbed as “necessary to help the economy”. The fact is Congress needs to come up with major reform to the tax system – something which hasn’t been done since 1986.
Just how good was the return for the stock market last year? The S&P 500, including reinvested dividends gained 26.5%, which is the second best performance for the first decade of the 21st century. The gain for the S&P 500 in 2003 was 28.7%. The Index’s return for 2009 was the 11th best in the last 50 years. During those 50 years, the Index produced a positive return in 38 years, or 76% of the time, and it produced a positive return of at least 20% in 18 years, or 36% of the time. The best year was 1995 when it was up 37.6% and the worst year was 2008 when the Index lost 37%. In 2009, the performance showed 49 of the Index’s 500 stocks were up at least 100%, 32 were up between 75% and 100%, and 65 were up between 50% and 75%. Only 71 stocks finished the year lower. (Source: BTN Research)
The jobs numbers for December came out a little over a week ago and they were disappointing to say the least, but the markets reacted calmly to the news. This recovery is going to be a grind and the jobs report only reinforced that. Our concern, however, is that many of the “new” jobs are being created by governments, especially the federal government, and in the healthcare sector. These are not industries in which we want to see long-term systemic growth. Yes, we are pleased to see the growth, but we want to see structural changes occurring – not jobs that will drive health care costs higher, or governmental jobs which will drive taxes higher. Unfortunately, Congress is now fully preparing for the upcoming November elections, and everything they do will be designed to make themselves look good in the short-run - potentially at the expense of the long-run.
Not all banking companies have been losing money. In fact, at least one has been setting records. The Federal Reserve recently paid $46.1 billion of earnings to the Department of Treasury. Those earnings came primarily from profits on its securities, many of which were related to stimulating the economy and staving off the financial melt-down. This payment by the Federal Reserve was the largest in history and as more of the stimulus money is repaid with interest and securities are sold back to investors, we can expect the Federal Reserve to be a true profit center for the government.
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon.
This material represents an assessment of the market and economic environment at a specific point in time. Due to various factors, including changing market conditions, the contents may no longer be reflective of current opinions or positions. It is not intended to be a forecast of future events, or a guarantee of future results. Forward looking statements are subject to certain risks and uncertainties. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in these Bullets, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information contained in these Bullets serves as the receipt of, or as a substitute for, personalized investment advice from ProVise. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Information is based on data gathered from what we believe are reliable sources. The information contained herein is not guaranteed by Provise Management Group, LLC as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. The indices mentioned are unmanaged and cannot be directly invested into. . If you do not want to receive the ProVise Bullets, please contact us at: info@provise.com or call: (727) 441-9022. Please visit our Web Site at: www.provise.com.
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