ProVise Management Group, LLC, a SEC Registered Investment Advisor

 

PROVISE BULLETS ©

(October 1, 2010)

 

 

·    In the Bullets at the end of August, we reminded everyone that, traditionally, the worst month for the stock market was not October but September, which historically has been down an average of 0.72%.  Last year, September fooled us by rising significantly, but this September fooled us even more, with the S&P 500 posting a gain of +8.92%, which is easily the best monthly performance in 2010 and the best September in 71 years!  During the quarter, we had some significant swings, once again pointing out the inability of market timers to be successful consistently.  If we think back just 30 days ago, the mood was not nearly as good as it is today.  We want to take this opportunity to caution you that the mood could shift again quickly, but the general drift seems to be towards a better economy and a better stock market.  Earnings reports will be coming out in the next couple of weeks which will provide some clearer information as to where companies and the economy might be headed.  As always, it is important to focus on the long-term. 

 

·    There is a lot of competition amongst colleges, and we’re not talking about on the football field.  Every year colleges also battle to be recognized as one of the top schools in a variety of categories.  Which universities do you think made the top ten when the Wall Street Journal surveyed job recruiters and asked them to name the best public schools for job seekers?  The top five schools based on this survey were Penn State, Texas A&M, Illinois, Purdue, and Arizona State.  That’s not a bad geographic break down, but the East and South dominate the next five spots, which is led by Michigan at number six, followed by Georgia Tech, Maryland, Florida, and Carnegie Mellon.

  

·    Over the past couple of months we have shared some articles that were published over 50 years ago.  We found the one below quite interesting in light of the current circumstances.  It’s called:  “No Limit on the Stream of Production”.  Keep in mind that this was written at a time of grave concern over Communism and Socialism.

 

“No matter how hungrily the trout are rising to a skillfully presented fly, there is a strict limit on the number of fish you can keep.  Fortunately, our American economy does not have any fixed limits, like a trout stream.  One of the worst of many mistaken ideas the Socialists spread is the theory that the only way any group can have more is to take it from some other group.  But if you believe that, you have to believe that there is only a limited number of things to be done in this country – a limited amount of goods and income to be produced, and only a limited number of jobs that can be created.

 

If this were true, real wages of factory workers could not have increased by three and a half times from those of 1900, not even if owners gave up all of their shares.  Actually the average percentage shares of workers and owners has stayed about the same.  If machines limited jobs, we wouldn’t have over 62 million jobs, because machines now do 95% of the work.  The fact is, there is no visible limit to our ability to have more of everything, so long as we aim at producing more, not dividing less – and continue to invest in new ideas, new processes, and new machines, in an expanding economy.”

 

Definitely some food for thought.

 

·    It was less than two days after completing his economic town hall meeting that President Obama began to consider changes to his closest economic advisors.  Larry Summers, who headed up the White House Economic Council, resigned effective the end of the year.  He will return to Harvard to teach.  His replacement will be watched carefully by investors because one of the major criticisms about the Obama economic team is the total lack of practical experience, with the majority of the group being academicians.  It is widely expected that the CEO of a large corporation (past or present) will be named.  We can also take from this that the student, (Treasury Secretary Timothy Geithner), has now taken control of the ideas of the White House economic policies away from his mentor, (Larry Summers).  Expect to see Summers totally out of the picture immediately and for the spotlight to be shining brightly on Geithner.

 

·    All around the world, governments are grappling with increased spending.  While the Greek/Spain issues have been in the news throughout the year, other countries are attempting to avoid having similar problems.  In France, President Nicolas Sarkozy has proposed and his party has supported, an increase in the retirement age from 60 to 62 in 2018.  Also, full benefits would not be available until age 67.  It’s currently age 65.  So what did the French people do?  They protested against Sarkozy’s proposal.  Much like the United States will some day have to face the issue with Social Security, we have to give Sarkozy credit for at least attempting to bring some fiscal austerity to the French pension system.  The issue of “entitlement” is not unique to the U.S.

 

·    We find it incredible that the National Bureau of Economic Research (NBER) finally determined this month (September 2010) that the recession officially ended in June of 2009.  They certainly took their time in figuring out that the recession was over.  This recession which, according to the NBER, started in December of 2007, lasted 18 months, and was the longest running recession since the end of the Second World War.  That’s not too surprising, given everything that occurred from late 2007 through early 2009.  Previously, the longest recession had been 16 months, which occurred twice – once in 1973-1975 and the other in 1981-1982.  While at times it doesn’t feel like there is growth, there is a little, and we are likely to enter into the fifth quarter of growth when the numbers come out near the end of October.

 

·    Here’s another twist on the income tax debate.  In 1953 anyone with a taxable income over $400,000 paid a top marginal tax rate of 92%, which makes today’s 35% top tax bracket pale in comparison.  We want to remind you that the deductions in those days were significantly higher than they are today.  And of course, $400,000 doesn’t go as far today as it did in 1953.  When adjusted for inflation, it represents $2.8 million.  (Source:  IRS and Department of Labor)   

 

·    When we do financial planning, we normally project a life expectancy for the male member of the family to age 90 and the female member to age 95.  Yes, women still have a longer life expectancy than men, but the difference is shrinking.  According to the Government Accountability Office, when they become eligible for Social Security at age 62, a husband and wife have a 47% chance of at least one of them living to age 90 or older.  This is an average.  For people with money and access to good health care, the percentages rise dramatically, especially if they maintain a healthy weight, don’t smoke, and exercise regularly.

 

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

 

 

(c) ProVise Asset Management

www.provise.com.