·         Is the new Congress going to be as wealthy as the current Congress?  A recent study from the Center for Responsible Politics showed that the net worth for Congress is recovering perhaps faster than it is for the rest of America.  Several months ago, we reported on the richest Congressmen/women, and just as a reminder, Representative Daryl Issa, Republican of California, tops the list at $303.5 million.  He is followed by Representative Jane Harman, Democrat of California, with $293.4 million.  Then, former Presidential candidate Senator John Kerry, Democrat of Massachusetts, comes in at $238.8 million – a distant third. Keep in mind that when our elected officials fill out disclosure forms, they are really “qualified guesstimates”, as they provide ranges – they don’t have to give specific information, although a few of them attempt to be as specific as possible.  Overall, the personal wealth of Congress increased 16% in 2009.  The median net worth for the members of the House was $765,010.  This means half were above that figure and half were below it.  The Senate is richer, where the median net worth was $2.38 million.  There are 535 members of Congress and almost half of them (251) are millionaires.  Wouldn’t it be interesting to have a study which compared an elected official’s wealth prior to entering office to their wealth when they come out of office?  Of course, to be fair, we would have to adjust the figure for inflation and a reasonable investment return.

 

·         This is one of those a-political/political bullets.  We don’t care whether you’re a Republican or Democrat, you have to be incensed by a House Ethics Committee that recommended that Charlie Rangel be “censured”, which simply means that Speaker Pelosi stands in front of him and rebukes him in front of the entire House.  How fitting it is that Pelosi will do this, because as you may recall, when she began her term as Speaker four years ago, she talked about “cleaning” up the House.  It’s no wonder that people have such low regard for politicians.  Yes, it is true that the Committee could have recommended an even “lighter” sentence”, but we can only assume that they only wanted to look foolish – not stupid.

 

·         The clouds around the world are lacking a “silver lining” in a literal sense.  It was reported in a study by Nature Geo Science that there was 1.3% less carbon deposited into the atmosphere worldwide in 2009 versus the prior year.  That’s a plus for the environment, but the reason it occurred is a negative for the worldwide economies as power plants were not operating at full capacity; people traveled less in cars and in airplanes; and in fairness, because of better and cleaner fuel efficiency.  Carbon emissions dropped by 7% in 2009 in the United States.  Once again, this shows that for every action there is an equal and opposite reaction.  That is, a positive can come out of a negative.

 

·         The cost of a college education has continued to rise dramatically over the past 10 to 15 years, often more than double the rate of inflation.  These higher costs have caused parents and students to borrow more money.  Recently the Hugh Research Center’s Social and Demographic Trends Project reviewed information from the National Center for Education Statistics and found that students borrowed 50% more in 2008 than they did in 1996.  After making an adjustment for inflation, on average, students borrowed $23,000 in 2008 versus $17,000 in 1996.  Those students who attended for profit schools generally borrowed more than those who attended state supported schools.  Needless to say, the tough economic times have also led to a greater number of students needing to borrow a greater amount of money.

 

·         If you think student loans are going to start to decline, you are wrong.  It is projected that a child born in 2010 who attends college between 2028 and 2032 will pay a total of $506,423, or $127,000 per year.  This assumes attendance at a private four year college and that the average annual price increase from the past 30 years continues into the future.  (Source:  College Board) 

 

·         Remember when Warren Buffett lent Goldman Sachs $5 billion and got preferred stock with a 10% annual dividend.  It’s not a bad deal at $500 million annually, which works out to $1.37 million a day, or $57,000 per hour.  (Source:  BTN Research)

 

·         On the last day of November, the National Commission on Fiscal Responsibility and Reform presented its report to the President.  This Commission was formed earlier this year by the President to come up with some ideas on how to decrease spending and increase revenue.  It is a bi-partisan group headed up by Republican Alan Simpson and Democrat Erskine Bowles.  As we get a chance to review the report, we’ll share our thoughts, but here’s some advance information.  They recommended government spending be reduced to 22% of gross domestic product, down from 26% today.  Basically, they propose that the gap be reduced through both spending cuts (85%) and revenue increases (15%).  It appears that some early proposals include increasing the gasoline tax, treating capital gains and dividends as ordinary income, limiting deductions for charitable contributions, and prohibiting interest deductions on second homes or home equity loans.  The net effect of all of this would be to reduce the federal deficit to 2% of GDP in 2015.  Currently, it is 9%.  Needless to say, there will be something to like in the report, and there will be an even greater amount to dislike.  To make a long story short, there is no way to simply cut spending – it will require an increase in taxes as well as a broadening of the tax base.  We keep hearing about our current deficit being a burden on the grandchildren of tomorrow, but the fact is, it will likely also be a burden to our children and to those of us who are fortunate to live long enough. 

 

·         Now that Congress has returned to Washington after Thanksgiving break, they have a few things to accomplish between now and their departure for the Christmas and New Year holidays.  This is especially important in view of the fact that the new Congress will look dramatically different than the current Congress.  At the top of the list are the so-called “Bush Tax Cuts” with Republicans wanting to make them permanent and the Democrats wanting to extend them for everyone other than for those in the upper most tax brackets.  We expect the tax cuts to be extended for everyone another few years.  Before tackling such a “minor” piece of legislation, Congress must pass a temporary spending bill in order to avoid shutting down the entire federal government system.  While it’s hard to believe that this won’t happen by Friday, it is possible that they will wait until the weekend to do something about it just to make a point.  What else do they have to do during the next three weeks?  It depends on what they want to work on.  First, the Senate has yet to approve any spending bill for the current fiscal year.  Ho Hum!  There is still the question of federal unemployment benefits for 2 million people who will lose their benefits over the next four weeks.  There is the START Treaty with the Russians hoping to reduce nuclear weapons for both Russia and the U.S.  Huge reductions in Medicare payments to doctors were supposed to go into effect December 1^st but this had been postponed for a month, but something needs to happen fast.  Congress also has in front of it, the “don’t ask don’t tell” policy of the military which many want to repeal – but don’t expect that to happen between now and the end of the year.

 

·         It appears that Gray Thursday, Black Friday, Small Business Saturday, and Cyber Monday were all big hits with shoppers this year.  The shopping was equally robust on line as it was in the big department stores.  Sales appeared to be running 6% ahead of last year, with people not only buying items on sale, but big ticket items as well.  Do you know the answer to this:  Where did the name “Black Friday” come from?  According to Wikipedia, since about 1975 the term Black Friday refers to the point when retail stores turn a profit for the year.  In other words, they endured “red ink” for the entire year just to get into the holiday period.  Originally, however, the term started about 1966 in Philadelphia and was used to describe the “heavy and disruptive traffic which occurred the day after Thanksgiving” caused by people who were shopping.

 

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

 

©11/15/10 ProVise Management Group, LLC

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