- There’s a big push amongst businesses to make things “consumer friendly”, especially for Baby Boomers. For a long time, advertisers have used bigger and brighter colors, not only to attract attention, but also to make it easier to read. Now, many businesses are making print larger on letters. Stores are increasing the size of the signs on their shelves, making them bigger and easier to read, sometimes even without glasses. Have you noticed that the “blue light special” announcements are louder than they used to be, since hearing deteriorates with age? It’s easier to reach things on the shelves and customers are not having to bend over quite as much as they once did. Watch for more stores to follow these and other trends in making it “easier” for the Baby Boomers.
- Gold and silver coins went the way of the dinosaurs a long time ago when the government replaced these base metals with something far less expensive and more practical. With commodity prices rising so much, you can soon expect to see the Lincoln pennies and Jefferson nickels being made from steel rather than from zinc, cooper, and nickel. This will be the first time that steel has been used for coins since World War II. According to Kiplinger, the government will save about $100 million per year.
- Okay, so we’re not the best political handicappers in the nation. Back in early January, we said that the odds favored a Giuliani/Clinton contest this fall. Giuliani disappeared from the scene quickly, and Clinton is hanging on in spite of ever-increasing odds against her winning the nomination. Let’s look past the Presidential nomination process to the Congressional elections. The recent Democratic victory in Mississippi was a significant wakeup call for Republicans as they lost a district which was almost always Republican. Early on, it appears as if the Democrats will not only do very well in the upcoming House elections, but it is possible that in the Senate the only chance the Republicans will have is the right to filibuster. It takes 60 votes to close down a debate. If the Democratic nominee becomes the President and has such a strong majority in both houses of Congress, it could be an interesting four years. The last time there was this type of majority in Congress and we had a President from the same party in the White House was in the mid to late ‘60s when Lyndon Johnson developed the “Great Society” Platform.
- Here’s an interesting little tidbit we picked up from reading the May 6th edition of the Marketimer Newsletter. Since World War II, a bear market (defined as a 20% decline in the market), has never occurred during a Presidential election year. Having said that, there have been three Presidential election years where we have had significant bull market corrections - 1960 (minus 14%), 1980 (minus 15.7%), and 2008 (minus 18.7%). Here’s the part that they didn’t discuss. In 1960, the Republican party was ousted when Kennedy beat Nixon. In 1980, the Democratic party was ousted when Reagan beat Carter. We’ll have to wait and see whether the Republicans and McCain are tossed out by either of the two remaining Democratic nominees. These market corrections, however, led to some startling recoveries. From the bottom of the 1960 market in October, the S&P 500 Index increased 30% over the following 14 month time period. Following the April bottom of 1980, during the next 12 months the market increased 35%. Many people believe that the bottom reached on March 10th of our current market represents a true bottom and that the market will now move into positive territory. We’ll just have to wait and see if this happens.
- Much has been said during the Presidential primaries about the potential for taxes to increase in the future. In fact, both Obama and Clinton have made it very clear that they will increase taxes, and most of the burden would fall on the shoulders of those with “upper incomes”, although that has not been clearly defined by any candidate. In a future world where capital gains are targeted for tax increases (and remember that if nothing changes, they revert to 20% automatically in 2011 which represents a 33% increase), the rates could go to 25%, 30%, or more. What investments might investors turn to? Looking at tax-free bonds is the most obvious, especially if the tax-favored status of qualified dividends returns to ordinary income rates. Tax-managed mutual funds would likely see significant cash inflows, and in fact, the industry would likely respond by creating even more of these funds. An argument could be made for index funds, which have a relatively low turnover and therefore generally have less capital gains than perhaps an actively managed mutual fund. Of course, utilizing index funds forces the investor to give up the active management and be satisfied with the averages of the index as opposed to potentially something better. If individual income tax rates go over 40% for “upper income” taxpayers, expect a proliferation of tax-shelter deals to return. Investors will need to be wary of investing based on tax ramifications without considering the economic merits.
- About a week ago the Supreme Court breathed a sigh of relief into state governments and a municipal bond market. A case that was appealed all the way to the Supreme Court challenged the 90 year-old exemptions that allowed a state to exempt its own bonds from taxation while taxing those of other states. In a seven to two decision, the Justices stated that there was “nothing wrong in giving this special tax break”. For those states without an income tax, this was not a big deal. However, a total of 42 states would have been sent into turmoil had the Justices ruled the other way.
- Let us leave you on this note. Currently, we are facing inflation, the possibility of a recession, and obviously, rising oil prices. For some of us, it could be de je vu, all over again. By no means is inflation running in the high single digits, nor have we officially entered a recession. Obviously, oil is extremely expensive, albeit partly as a result of speculation in addition to valid macro-economic reasons. Nonetheless, we thought you might enjoy visiting the website listed below at: http://www.time.com/time/covers/0,16641,19741014,00.html which will take you to the October 14, 1974 cover of Time Magazine, showing President Gerry Ford rolling up his sleeves to fight back these “evil triplets”. For those too young to remember this time period, it might provide some comfort to know that, although it was difficult, we managed to weather that storm and our economy has continued to grow at a dramatic pace over the past 34 years.
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
©5/30/08 ProVise Management Group, LLC
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