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The middle of April brought not only the tax deadline, but also some encouraging news relative to the economy.  First, consumer prices were only up 0.1% and Federal Reserve Chairman Ben Bernanke testified before Congress that he believes inflation will remain under control for the remainder of the year.  He also talked about better retail sales and, perhaps as importantly, increased factory production which could soon lead to the creation of more jobs.  As businesses have gained greater confidence in the economy, they have increased their inventories which had been depleted significantly over the past couple of years.  The consumer, which powers 70% of the economy, also seems to be feeling a little better, as retail sales rose for the third month in a row in March, increasing 1.6% over the month of February.  While the numbers aren’t “great”, they indicate that the bottom might be behind us.

• As expected, the Federal Reserve Board held interest rates at 0.25%.  Importantly, they also said that they intended to hold interest rates down for “an extended period of time”.  If they had removed this language, it would have given them flexibility to move the interest rates up sometime later this year, including raising interest rates between meetings.  While the Fed acknowledged that the economy is beginning to recover, they also took note of the high unemployment rate and the gentle recovery taking place on a worldwide basis.

• Not that we can always rely on history to help us see the future, especially when things have been so skewed for the past couple of years, but here’s a little nugget to chew on:  The bear market bottom occurred about 14 months ago on March 9, 2009.  Over the last 50 years the average bull market for the S&P 500 has lasted 55 months or just short of five years.  The shortest bull market during those 50 years lasted 26 months (the period between 1966 and 1968).  (Source:  BTN Research)

• If you thought the healthcare debate was over, you will be very disappointed to learn that it continues to rage in circles around Washington.  This continuing debate is not coming from the Republican side of the aisle but rather from the Health and Human Services Department in the Obama Administration.  In a recent report, the Department indicated that the legislation will definitely achieve the objective of adding 34 million people to the insurance rolls but the legislation will fail to achieve the cost savings over the next ten years and will definitely not curtail runaway healthcare costs.  Not too surprisingly, the White House scoffed at the report saying it didn’t take into account all of the cost saving measures.  It’s one thing to be criticized by the opposing political party, but something entirely different when your own Administrative economists are doing the criticizing.  This will add a great deal of fuel to the fire and will definitely be used by the Republicans in the upcoming elections in November.

• For the first time in three and a half years mortgage delinquency rates actually declined during the first quarter of this year versus the fourth quarter of 2009.  It wasn’t much, but it was a start, and will hopefully begin to reverse this very unfortunate trend which has resulted in people walking away from their homes.  Not all of the mortgage delinquencies were the result of people losing jobs.  In some cases, it was simply people abandoning their mortgages because they owed more than the house was worth.  That unsavory trend may continue for some period of time.

• According to the National Association of Realtors, the good news for home sales continues as sales of previously occupied homes grew nearly 7% during March following an 8.2% increase in February.  Of course, this only leads to significant controversy.  There is a huge debate over whether we’ve reached a “bottom” or if all of the sales were simply a result of people looking to benefit from the tax credit to new homebuyers before it expired at the end of April.  Many believe that this increase in home sales was accelerated by the looming disappearance of the tax credit which could certainly be argued.  On the other hand, with the decline home prices and continued low interest rates, there is some hope that the spring season of home buying will continue, albeit at perhaps a slower pace.  Rising interest rates would likely dampen the enthusiasm of new home buyers.  Thus, we think it is safe to say that there may be a turnaround in the real estate market in place, but that, like the recovery from the recession, it will be a long, uphill climb to get back to a reasonable level of sales and to make a dent in the available inventory. 

It wasn’t just existing home sales which did well in March.  Sales of news homes in March had the largest monthly jump in 47 years.  This came off of the record lows in February and with the tax credit coming to an end.  The 27% increase in March cannot be sustained, but it feels good after all of the issues that the real estate industry has faced.  (Source:  Commerce Department) 

• In an effort to get more data about not-for-profits, the 2006 Pension Reform Act contained a rather innocuous provision which required all not-for-profits to file tax returns beginning in 2007.  Under the old law, only not-for-profits with revenues of $25,000 or more had to file, which excluded the vast majority of the 1.6 million charities, trade associations, and membership groups granted tax exemptions by the IRS.  According to the bill, if a not-for-profit entity fails to file a tax return for three years in a row it will lose the tax exemption.  It isn’t suspended – it’s actually lost.  May 16th marks the third anniversary of this bill and could cause a lot of pain to small not-for-profit organizations.  >From the perspective of a donor, any contributions made would continue to be tax deductible until the charity actually receives notice of the exemption being lost.  Those who donate to small charities should probably check with the Executive Director to ensure that tax returns have been filed.  

• Every year Forbes prints its list of the richest people in the world and the richest Americans.  There are 306 Americans worth at least $1.4 billion and there are 309 million American citizens.  Therefore, one can conclude that one in a million is worth $1.4 billion.  (Source:  Forbes)

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

©4/30/10 ProVise Management Group, LLC

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