ProVise Management Group, LLC, an SEC Registered Investment Advisor

PROVISE BULLETS ©

(January 30, 2009)

• During the past few weeks, you have most likely received W2s, 1099s, and maybe even a few K1s, which you are assembling to give to your CPA in order to have your taxes prepared.  Over the next 75 days, you will also be gathering all of your receipts for your medical bills, real estate taxes, charitable contributions, etc. to provide to the CPA.  This process takes a lot of time.  According to the IRS, it takes the “average” taxpayer a total of 26 hours and 40 minutes to complete form 1040.  As a result, many people are calling for a more simplified tax system.  Taxpayers would probably be delighted to see this happen, while tax preparers would likely be less thrilled.  Added all together, the IRS says it takes 7.6 billion hours of work for Americans to do their taxes each year.  Don’t think simplification is needed?  Since 2001, there have been 3,250 changes made to the Tax Code.

To further complicate matters, this year you may receive some tax forms up to three weeks later than usual.  That’s because a federal law enacted in October, in conjunction with the IRS, extended the deadline for brokerage firms to send out these forms from January 31st to February 17th.  The extension applies to Form 1099-B, which includes information on the sale of stocks, bonds and other investments, as well as other tax information, including interest and dividends reported on Form 1099-INT and Form 1099-DIV.  Since the new law also requires brokerages to report cost basis in stocks and other such securities, the securities industry asked for more time to prepare these forms.  On a positive note, the deadline extension is expected to reduce the number of corrected forms that need to be sent out.

• This is from “our lips to God’s ears”.  Last year, the market was down 37%.  There have been three previous calendar years when the S&P 500 Index had losses of 20% or more.  The average recovery in the following year on these three downturns was a positive 32%.  (Source:  BTN Research)

Further, there have been only a few times in history where the S&P 500 produced a negative return for a 10 year period.  We are coming off of one of those periods now, as the S&P 500 declined an average of 1.38% per year for the 10 years ended December 31, 2008.  The good news is that looking back at every point when the market returned less than an average of 2.5% for 10 years, it then returned an average 13.3% for the next 10 years, with a range of 7.1% to 18.6%.  (Source:  Global Financial Data)  Of course, past performance is no guarantee of future results, but the statistics are certainly very encouraging as we look forward.

• The real estate market remains in the doldrums, and many predict that 2009 won’t be a lot better than 2008.  According to RealtyTrac, foreclosures were up over 81% during 2007 and up over 225% in 2008!  One in fifty-six homes was in at least one stage of foreclosure during 2008.  We don’t know whether Congress and President Obama will be able to come up with legislation to solve some of these problems, but they will certainly do something.  Applying the “common sense” test, we wonder if allowing mortgages to be financed for 40 years might not be a somewhat simplified answer to lowering the monthly costs and allowing people to stay in their homes.  Many Americans are outraged by the forgiveness of debt to some of the people who “don’t deserve to be bailed out”, but this might be a bitter pill we need to swallow for the greater good of the economy and all homeowners.

• The Federal Reserve did just about what was expected this past week by keeping the federal funds rate floating between 0% and .25%.  These rates became effective at the December 16th meeting.  In a slightly stronger message than December, but not as strong as some had expected this time around, the Board indicated that they would buy Treasuries if they felt the situation warranted it and if it might jump start the credit markets.

• Over the next couple of weeks, we’d like to collect some of your ideas on what provisions should be included in the Economic Stimulus Package, and/or your ideas on how to solve the credit crisis.  For example, one person suggested that new mortgages should be offered by the government at the current low interest rates, but that those mortgages could not be refinanced for a ten year period of time.  After ten years, a homeowner could refinance, should it make economic sense, but they would not be allowed to pull out any equity during that refinancing.  This would permit the homeowner to hopefully build equity in the home and become a “forced savings plan”.  Another client suggested that the government should buy up all of the toxic assets they could and place those assets into the Social Security investment system.  Since many people believe that these toxic assets are, for the most part, only toxic in the short run, and that many of them will eventually pay off, this would match long-term assets with long-term obligations.  It would remove these toxic assets from the marketplace, and thus, there would be no trading of those assets, and companies would not be forced to “mark to market” on these particular assets.  If you have ideas you would like to share, send them to us and we will accumulate them and include them in a future issue of the ProVise Bullets.

• After all the dust settles from the current economic turmoil, one result is that we’re likely to see more drug stores than banks on every corner.  Because it’s expensive to have a large number of branches, banks will most likely take this opportunity to close many of their branches, forcing people to utilize the internet for branch banking and ATMs when they need cash.  As a result, it will become more difficult to visit face-to-face with the “friendly local” banker.  Of course, much of this will happen as a result of the consolidation in the industry, as some banks are “gobbled up” by others.  This could give a big boost to local community banks which can then capitalize on the “close personal touch” angle.  Many people still prefer visiting with a local banker as opposed to banking over the internet.

• What had been predicted for several years finally became official in 2008.  Toyota took over the number one car maker spot of the world from General Motors.  Ever since the depth of the Great Depression in 1931, General Motors was the largest manufacturer of automobiles.  Nonetheless, the crown which has now been inherited by Toyota comes during an extremely difficult time in the automobile industry, as Toyota has its first annual operating loss in 70 years.

• Most of the testimony for the various Cabinet member appointees has been held without any real issues arising.  Of course, Bill Richardson withdrew his name, and Tim Geithner found himself in the embarrassing position of having to admit that he “forgot” or “didn’t know” to pay certain taxes in four years.  He’s all caught up now, so everyone seems to be happy with him.  In some respects, Tim Geithner is a perfect pick for Secretary of Treasury, as he is an excellent liaison between past and future policies.  As the President of the New York Federal Reserve Bank, he was arguably the third most important financial person in the country and is now either number one or number two.  He dropped a huge bombshell when he was testifying before Congress when he said that President Obama believes that China has been, is, and will continue to try to manipulate their currency.  This is a very big and different statement than has been made by past Treasury Secretaries.  In fact, Bush One, Clinton, and Bush Two have all been very supportive of China.  You can expect the Obama Administration to be far less accommodating and it could get very interesting and might be a way to bring jobs back to America.

• In the January 15th edition of the ProVise Bullets, we mentioned that the current value of the White House, according to Zillow.com, was $308 million.  One of our readers wrote to tell us “The piece about the value of the White House is off by 100%.  Obama spent $650 million to get into the White House – more than double the $308 million listed in your Bullets.”  Of course, there was a smiley face at the end of the message.

As always, we encourage you to give us a call if you would like to discuss anything further.  We will visit again soon.

RAY, KIM, ERIC, BRUCE, and LOU

©1/30/09 ProVise Management Group, LLC

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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