ProVise Management Group, LLC, an SEC Registered Investment Advisor
PROVISE BULLETS ©
(August 15, 2008)
- A few weeks ago a new Bill was passed by Congress, and signed into law by the President, relating to the mortgage crisis. Although a good portion of the Bill was devoted towards helping people refinance their mortgages, thus allowing them to keep their homes, there were a few other little “tidbits” tucked into the Bill. For example, people who use a standard deduction can now deduct their property taxes in 2008 up to $1,000 for a married couple filing jointly and $500 for single taxpayers. Not a big deal, but every little bit helps. Also, homebuyers can potentially receive a tax credit of up to $7,500 if they purchase their primary residence after April 8, 2008 and before July 1, 2009. They cannot have had a primary residence within the prior three years. This credit gets phased out for a married couple filing jointly with an AGI between $150,000 and $170,000, while single taxpayers are phased out with an AGI between $75,000 and $95,000. There is a little hook to this provision in that the credit is recaptured over the next 15 years, starting two years after the credit is taken. Because this Bill loses revenue, it also has to raise some revenue. One of the changes in the Bill restricts a taxpayer’s ability to convert a second home into a primary residence, live in it for a few years, then sell it and take advantage of the $500,000 capital gain break. While this can still be done, some restrictions have been put into place which make it far less lucrative and therefore, a less viable strategy. Why can’t Congress just figure out a way to make as much of it as possible as easy as possible?
- In the upcoming Presidential election we are going to hear a lot about taxing the rich. The fact is, the rich are already paying a disproportionate share of taxes. Nearly forty percent (39.9%) of all the federal income tax revenue from 2006 was paid by the top 1% (that’s right 1%!) of all taxpayers. In 2005, it was 39.4%, so the top taxpayers are even paying a greater percentage now. What did it take to be in this top 1%? A “mere” $388,800. These taxpayers only represented 22% of the total adjusted gross income. To be in the top 5%, you had to have income of at least $153,500, and this top 5% paid 60.1% of the total federal income tax, but only had 36.7% of all adjusted gross income. $108,900 was needed to fall in the top 10%, and this group paid 70.8% of the income taxes, but only represented 47% of adjusted gross income. Okay. How about the bottom 50%? They paid only 3% of the total income tax bill. Let’s not talk about the rich not paying their fair share. Of course, people who want to raise taxes on the rich don’t want to look closely at the facts. Source: IRS – Kipplinger Letter.
- Have you been doing any traveling recently? Isn’t it fun? The airplanes are crowded, often not running on time (30%), and it seems that the service levels continue to decline. If all of this weren’t bad enough, the airlines have quietly reinstituted a bygone provision, which necessitated a Saturday night stay in order to get the cheapest air fares. Do you feel like this is “back to the future”? When traveling on US Air the other day, we actually paid $1 for a cup of coffee – go figure – but – refills were free. How very generous! In any event, you may want to check on whether it would be better to stay over on a Saturday night. If you do stay over and are on a business trip, the extra night is tax deductible if in fact it leads to a reduced air fare. No, you don’t have to be working on that extra day, it’s simply a function of making it less costly.
- People who have a significant amount of cash should make sure they don’t have more than $100,000 in any one bank, no matter how “safe” that bank appears to be. This becomes a bit of a problem for individual investors who like to keep a lot of cash, as well as for businesses. In several of the past Bullets we have talked about the Certificate of Deposit Account Registry Service (CDARS). Below is a general idea of how it works, but you need to visit with your own bank to get complete details. There are over 2,000 banks that participate in this program. You go to your bank and tell them that you would like to participate and it is possible to get millions of dollars worth of FDIC coverage on your CDs by simply going to your own bank. How is that possible? Your bank spreads out the money among other member banks, and none of them take more than $100,000. Thus, in essence, you end up with a CD of $100,000 or less in each of these participating banks. Although there are many banks involved with these CDs, they all show up on one statement from your bank.
- So, is oil a commodity being driven to ridiculously high prices because of heavy demand, or is it a speculator’s dream? Around the middle of June, a prominent investment banking firm proclaimed that oil would be selling at $150 per barrel before the Fourth of July. They almost got it right, as oil topped out at just over $147 per barrel, but it was the middle of July. Oh well, what’s a couple of weeks among friends? At that time, others were arguing that oil was headed to $200 per barrel. Some day, oil might trade for this amount, but that is unlikely to occur in the near term. During the last four weeks the current “oil bubble” finally burst. Perhaps oil futures contracts are more about “trading” than oil being a “commodity”? As the bubble burst, the price of oil went down to around $114 per barrel; a decline of 22%. There is likely a further decline in the future, although extreme volatility is expected to continue. Will this change the attitudes of consumers? Four weeks ago, everyone was looking for a hybrid auto and no one wanted an SUV. With the average price of gasoline now a good 30¢ to 40¢ below its all-time high, will American consumers forget the lessons of the spring and early summer? We believe the answer to that question is “no”. The days of purchasing SUVs, pick up trucks, etc., by the casual consumer are likely behind us in the near term, and they will probably be purchased only by people who need a larger vehicle for their business or who may simply want one and feel as if they can afford to fill the large gas tank.
- Early in August, with a vote of 10 to 1, the Federal Reserve Board said that short-term interest rates should remain at 2%. The lone dissenting vote was by Richard Fisher, an inflation hawk, who believes that stimulating the economy is not needed in the current environment. There is still one more interest rate meeting for the Federal Reserve Board between now and the Presidential election. The Fed meets again on September 16th, and it is safe to say that it could throw a real monkey wrench into the economic platforms of either/both candidates. The Fed meets again on September 16th. The question on the immediate horizon is whether the Fed leave the interest rates alone for the sixth consecutive meeting, or begin tightening.
- A lot has been said about inflation, particularly as it relates to energy and food prices. We have even heard people comment that the inflation we are currently experiencing is unprecedented. If you measure the cost of living by the Consumer Price Index, you find that in the ‘50s inflation was up by 24%. In the ‘60s it remained relatively tame (going up 28%). Of course, during the ‘70s inflation “went wild” and the cost of living doubled, rising around 103%. There was a “hangover” effect from the ‘70s into the early ‘80s with inflation increasing 64% during that decade, and by the ‘90s, inflation increased by only 33% (largely due to productivity gains). We are eight years into the current decade and the cost of living has increased by 25%. We still have another 16.5 months to go in this decade, so it is likely that the number will be higher than it was in the ‘50s and ‘60s, but probably no worse than it was in the ‘90s, and certainly nowhere close to what it was during the ‘70s and ‘80s. (Source: Department of Labor)
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
©8/15/08 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
Notice: This e-mail message and any attachment to this e-mail message may contain information that is confidential, proprietary, privileged, legally privileged and/or exempt from disclosure under applicable law. If you are not the intended recipient, please accept this as notice that any disclosure, copying, distribution or use of the information contained in this transmission is strictly prohibited. National Financial Partners Corp. reserves the right, to the extent and under circumstances permitted by applicable law, to retain, monitor and intercept e-mail messages to and from its systems. Any views or opinions expressed in this e-mail are those of the sender and do not necessarily express those of National Financial Partners Corp. Although this transmission and any attachment are believed to be free of any virus or other defect that might affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by NFP, its subsidiaries and affiliates, as applicable, for any loss or damage arising in any way from its use. If you have received this e-mail in error, please immediately contact the sender by return e-mail or by telephone at 212-301-4000 and destroy the material in its entirety, whether electronic or hard copy format.
(c) ProVise Management Group, LLC
www.provise.com |
