ProVise Bullets

  • In late December just before Christmas, the Postal Regulatory Commission delivered an unwanted present in the form of a "temporary" three cent rate hike for first class mail effective January 26th. It seems that the Post Office decided it lost $2.8 billion as a result of the Great Recession and convinced the Commission that it needed to make this loss go away. Well, in reality, the Post Office asked for a permanent hike, but was only given the opportunity to make up the loss and then have the rate go back down. We shall see.
  • So here’s a trick question: How many stocks are in the Wilshire 5000 index? Okay, quick… did you say more or less than 5000? The answer is 3,609. Dating back to the early 1970’s, the Wilshire 5000 stock market index was designed to measure the performance of the stock market using the broadest universe of stocks. Despite what the name implies, however, there have rarely been 5,000 companies in the index. The number of stocks have ebbed and flowed over the years. In 1979, after years of consumer inflation and a weak economy, the number declined to about 3,700. That changed dramatically in the 1980’s, as the stock market rose. By 1986, there were almost 6,000 stocks in the index. The number exploded higher in the second half of the 1990’s, peaking just shy of 7,500 in 1997. Given the economic turmoil of the past 13 years, the number is only 60% of what it once was.
  • So with the rise in the stock market this year why is the number of stocks in the Wilshire 5000 index back down to around 3,600? While there have been several initial public offerings (IPOs) this year, there has been a lack of IPO activity in the past four or five years. Much of this has to do with the new regulations companies must adhere to like the Sarbanes-Oxley regulations passed in 2002 in response to accounting scandals at companies like Enron. The costs of companies going public, and remaining public, have gone up significantly. That’s why we have seen some companies like Dell Computer “go private” after being public.
  • The Congressional Budget Office recently released a report indicating that by 2030 Social Security will be running at a 30% deficit. That is to say, Social Security will only be taking in about 70 cents for every dollar it pays out. This phenomenon will occur as the Baby Boomers retire and the work force remains stable. Over the next decade, Social Security is expected to average an annual deficit of 12%. This is just one of many issues that Congress must face if it intends to truly solve the financial issues of our country. Solutions are aplenty, but none are very popular: slow down the cost of living increases; tax 100% of Social Security benefits; raise the income cap faster, or perhaps eliminate it altogether; raise the minimum retirement age from 62 and raise the full retirement age which is currently age 66; and/or means test the benefits, to name a few. Whatever the fix, the burden will fall more on current workers, than on current retirees.
  • For those who are planning on deducting standard mileage during 2014, you will find it’s a little less beneficial in 2014 than it was in 2013. The rate, as set by the government based on a variety of factors all related to auto costs will fall to 56¢ per mile from 56.5¢ for business driving. In addition, for vehicles used for business a deduction is available for the cost of parking and tolls.
  • The amount of taxes paid by the top 1% of all income tax payers fell from 37.4% in 2010 to 35.1% in 2011, yet they reported only 18.7% of the total adjusted gross income. Interestingly, the top 5% paid 56.5% of total income taxes, but only accounted for about 34% of all adjusted gross income. The top 10% paid 68% of all total federal income taxes. The bottom 50% paid only 2.9% of the total federal income taxes in 2011. Don’t forget, however, that everyone paid 6.2% in Social Security taxes on income up to $113,700 and 1.45% Medicare taxes so that, as a percentage of income, these two taxes had a greater impact on the lower paid individuals versus the top 10%.
  • Previously we mentioned that we had developed the ProVise Premier Program to manage accounts for clients with as little as $40,000 to invest. We have five different accounts designed to accommodate various risk levels and investment objectives. If you know someone that you would like to refer to ProVise, but have been hesitant to do so in the past because you “didn’t think they had enough money”, don’t hesitate any more. We are actively seeking accounts of this nature. If you would like to learn more about this program, please visit with Lanette Wing here at ProVise. She is at extension 253.
  • The President has been bashed over the past several months because of the poor execution of the online enrollment for ObamaCare. On January 1st, however, a new provision kicked in that, on the surface, is a big bonus. Insurance companies must cover pre-existing conditions at the same cost and with the same benefits as the healthiest of insureds, and further, they cannot cancel coverage because of poor health. In order to make this work financially, the law mandates that virtually everyone must obtain coverage so that the risk is spread and that insurance companies don’t face adverse selection where only those who are ill apply for coverage. While this provision has the best of intentions, one always has to worry about the law of unintended consequences. In this case, several of those consequences are already evident. Many of the new plans are more expensive than the old plans, have fewer options for care, and do not have as extensive a network of doctors and hospitals. Further, in an effort to maintain costs, insurance companies have used a provision in the law to cancel old plans, in spite of the President’s infamous pledge (you can keep your coverage if you want to) to the contrary. The country remains evenly split on ObamaCare, and thus, it remains a lightning rod for both political parties. It is likely going to be a major issue in the upcoming mid-term elections.
  • In the not too distant future, Congress will once again grapple with raising the debt ceiling. While the current date of mid-February to early March is likely not a hard date, you will hear a lot from both sides of the aisle now that they are back in session. It is possible that the Treasury may be able to extend the date into April, which will give the government even more room as revenues flow into the Treasury before the April 15th deadline. If so, a result could be that Congress does not have to do anything until the summer. There will likely not be a shutdown as before. The Republicans learned that lesson.
  • Everybody knows by now just how good 2013 was for the market, but let's take a look at some very interesting statistical information. Would it surprise you that the market has been up 10 of the last 11 years? Actually, 2008 was the only down year, but of course it was a doozy with the market falling 37%. Last year, 38 of the stocks in the S&P 500 gained at least 75% or more. About 25% of the index, or 127 stocks, gained at least 50% or more. Only 39 of the stocks (about 8%) finished lower. The top three stocks for the year gained 298%, 243%, and 237%. (Source: BTN Research)
  • So how is it that the economists can be so wrong (sic) since the ADP employment numbers forecasted 200,000 jobs for the month of December and instead we saw only 72,000 new non-farm jobs during the month? This is particularly confusing since, for the prior five months, we had averaged over 200,000 new jobs. Are things going backwards? We think not. First, let’s remember all of the lousy weather up north during the month of December with ice storms, snow and historically low temperatures. This put a damper on several industries including home building, construction, and believe it or not, retail. People just couldn’t get out to shop. Secondly, we believe that as the next couple of months go by, the jobs number for December will be revised upward and we wouldn’t be surprised to see it double as it is adjusted. It still won’t be 200,000 but will likely be much better than 72,000. Another issue could have come from the health care industry which, perhaps, stopped its hiring one month before ObamaCare kicked in.
  • We have often written at the beginning of the year regarding the Five Day effect, the January effect, and of course, the Super Bowl effect. Many people believe that the month of January, and especially the first five days, can set the tone for the rest of the year. Forty times since 1950, the first five days of January created a positive return for the S&P 500 and 80% of the time the index finished up with an average gain of about 13.5%. In 23 years, the S&P 500 was down during the first five days (just like this year with a negative return of 0.6%) and 50% of the time the market traded higher in those years. The full month of January is perhaps a pretty good predictor for what the market will do the rest of the year. Historically, 76.2% of the time the market finished the year the same way January did. We will update you when January ends and, of course, we will wrap it up with the Super Bowl outcome in our February 15th Bullets. (Source: S&P)

We are pleased to announce that Ray became the Chair of the Certified Financial Planner Board of Standards, Inc. on January 1st. CFP Board is the standard setting body for the 69,000 CFP professionals in the US. He has served on the Board of Directors for the past five years, and last year was the Chair-Elect. Congratulations Ray!

As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 27 years.


© 1/15/14 ProVise Management Group, LLC

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Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.

S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.

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