Tired of hearing about it!

Are you tired of hearing about it yet?  We first blogged about the fiscal cliff 233 days ago (reprinted verbatim below) and unfortunately, continued political dysfunction, which we correctly cited as a key risk, has prevented any resolution.  We continue to remain hopeful that a last minute compromise will occur but that hope is waning as each day passes.   

Originally posted by Payne Wealth Partners on April 25, 2012

It is looming!!!  In his recent congressional testimony, Fed Chairman Bernanke stated, “Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.”  This is the date when the Bush-era tax cuts, the temporary payroll tax cut and extended unemployment benefits are all due to expire.  To make matters worse - since the Congressional Super-Committee failed to reach consensus last year on reducing government spending we will also see $1.2 trillion of automatic spending cuts begin on the same date.  Combining tax increases with spending cuts could push our economy back into recession.  It is anticipated that economic output would be reduced by 3.5% next year if all these things come to pass. 

We remain hopeful that a more thoughtful approach is taken regarding spending and tax cuts by Congress and the President prior to meeting the fiscal cliff Chairman Bernanke speaks of.  However, the risk of policy errors and continued political dysfunction, particularly in an election year, remains very high.  We will continue to monitor these issues closely as the year progresses.  

FDIC Upcoming Changes for Noninterest-Bearing Transaction Accounts

The Dodd-Frank Act provided temporary unlimited deposit insurance (FDIC) coverage from 12/31/2010 until 12/31/2012 for “noninterest-bearing transaction accounts” at all FDIC-insured depository institutions.  This coverage has been available to all depositors:  consumers, businesses and government entities alike.  Without action by Congress, these accounts will lose their unlimited coverage and will no longer be insured separately from a depositor’s other accounts at the same financial institution starting 1/1/2013.  Instead, these accounts would be added to a depositor’s other accounts (in the same ownership category at the same institution) with the aggregate balance being insured up to $250,000 per depositor.

More information on what accounts are characterized as “noninterest-bearing transaction accounts” and the coverage limits on other FDIC-insured accounts can be found here:  http://www.fdic.gov/deposit/deposits/insured/print/LgPrintEng-YID.pdf.

When Markets Become Volatile, Keep Things in Perspective

When the stock market becomes more volatile, it can be easy to lose perspective.  Guard against allowing your emotions to drive your investment decisions!  In just the past few months, we’ve seen pessimism return to the markets – first with uncertainty surrounding the elections and now with concerns over the fiscal cliff.  As a result, the S&P 500 index declined by 8% from September 10 to November 15.  Now in the past two weeks it has risen by 4%.  This type of roller-coaster ride can be unnerving for some investors.  We continue to believe that Congress will come up with a solution to the fiscal cliff – the biggest question is when.  Thus, as uncertainty continues to plague the markets, remember that markets never move higher in a straight line.  Since February 2009, the S&P 500 index has fallen by more than 5% in six different months, but it has also risen by more than 5% in ten different months, and is up over 100% since its March 2009 low.  We expect market volatility to continue until there is compromise in Washington on future tax policy and spending cuts; therefore, it will be important for investors to stay balanced and not panic in the face of choppy markets. 

Now we better know the rules of the game

We live in a country where the transition of power (or retention of power) occurs in a fair and orderly fashion.  Compare this to much of the world where such is not the case.

The voters have spoken and in so doing have chosen the programs as offered by the administration of President Obama.  As advisors to families who have accumulated high levels of net worth, we believe that Obama policies will seek a larger share from our clients.  It is important to recognize this, and plan accordingly.

There is a window of time between now and December 31, 2012 where we still get to play by the “old” rules as to wealth transfer and income taxes.  This is an important opportunity and one that should not be missed.  We all have much to do before year-end.

Essential Wisdom for Today's Market

We’d like to share with our reader’s a short (4 minute) webcast released by Selected Funds.  We find this to be a particularly useful resource to help navigate today's investing environment. It covers the following three essential themes that have guided some of history's most successful investors:

Stay focused on the long term - Recognize that periods of low returns for stocks have historically been followed by periods of higher returns

Remain unemotional - Avoid self-destructive behavior by controlling emotions and adhering to your investment plan

Be disciplined - Though frustrating and disappointing, short-term underperformance is an inevitable part of building long-term wealth

Click on this link and then “Play” to view webcast: http://www.selectedfunds.com/investorcenter

2012 Tri-State MS Autumn Walk

For thousands of people in the tri-state affected by Multiple Sclerosis, hope has become a reality!

This fall over one thousand walkers will walk together to make a difference in the lives of those living with multiple sclerosis and their families in the tri-state.   In 2001, volunteers established the Tri-State MS Association to offer local services to the many being diagnosed with multiple sclerosis and their families, right here at home. Today Tri-State MS offers enhanced local services and specialized health care to over 1,300 families in our community touched by this devastating disease.

Payne Wealth Partners is excited to proudly support the Tri-State Multiple Sclerosis Autumn Walk on Sunday Nov 4^that Romain Cross Pointe Auto Park.  Registration is at 12:30 with the walk to begin at 1:30.  There will be lunch, a silent auction and a DJ to spin some tunes. 

You’re invited to join the Payne Wealth Partners team and walk to support Tri-State MS. (Free Payne Wealth Partners t-shirt for those who join our team).  Contact us with your interest 812-477-6221 or email lawathen@paynewealthpartners.com

National Estate Planning Awareness Week

Most people don’t know that there is such a thing, but the National Association of Estate Planners & Councils is getting the word out this year that next week is the National Estate Planning Awareness Week.  A resolution was passed in 2008 creating the proclamation to bring attention to the estimated 120,000,000 Americans that do not have up-to-date estate plans. 

With so much uncertainty in the transfer tax code, income tax code, economy and political environment estate planning has never been more important.  For those with balance sheets above $5 million and complex assets like closely held businesses and real estate, planning is particularly important.  Even if you do not fit this category, there are many non-tax reasons to be thoughtful about estate planning.  If you have questions or concerns, our team of professionals is always available. 

Stealing Social Security Benefits

Seniors’ and disabled citizens’ government benefits are reportedly being targeted by identity thieves.  Unfortunately our society is filled with conscienceless individuals quick to develop new methods of stealing another’s property.  In a recent CNN Money story which can be read here http://money.cnn.com/2012/09/26/pf/seniors-social-security-scam/index.html?iid=SF_PF_LN, certain personal information including a bank account number is being acquired and deceptively used to redirect electronic benefit payments to thieves.  At a bare minimum, it’s wise to track our accounts closely and take extreme caution when anyone is requesting our personal information.

QE3 – Is this the Answer to Economic Woes?

The U.S. Federal Reserve (the Fed) has a dual mandate for our economy - full employment and price stability.  Over the past four years our economy has clearly been producing at a level well-below its potential.  The unemployment rate has been too high for too long and inflation has consistently been below the Fed’s target for price stability. 

So what are they to do?  We received the answer on Thursday, when the Fed announced a third round of Quantitative Easing (QE3).  With QE3 the Fed is increasing their economic stimulus by purchasing $40 billion of mortgage-backed securities per month for an indefinite time period.  The goal is to apply further downward pressure on long-term interest rates, support the mortgage market (i.e. help homeowners) and to make broader financial conditions more accommodative.   Unlike QE1 and QE2, no dollar cap or time-limit was placed on this program. 

Given that QE3 supports asset values at the expense of triggering higher inflation and devaluing our currency, the ultimate outcome becomes somewhat frightening.  We’re not quite sure how this approach will create jobs.  Instead, we believe more clarity is needed on tax policy, healthcare costs and budget cuts for businesses to get comfortable hiring and investing for future growth. 

Pension Guarantees for State Govt. Retirees?

A recent survey by the Center for Retirement Research at Boston College finds retirement benefits to state employees and retirees may not be as certain as some would think/argue.  According to the researchers, many details can be legally challenged in favor of the state/employer since employment contract terms are often used generally as opposed to being clearly defined. 

More info can be found here:  http://www.benefitspro.com/2012/08/15/states-have-plenty-of-room-to-legally-alter-pensio?ref=hp

State Pension Controversy

Pension underfunding and bleak projections have caused state governments – Illinois comes to mind due to its geographic proximity to us – to discuss potential benefit reductions for future, and even current, retirees.  In fact, states like Rhode Island, Louisiana and Florida have recently decided to implement significant changes.  It’s no surprise that lawsuits have arisen in response. 

More info can be found here:  http://www.benefitspro.com/2012/08/22/what-actually-constitutes-a-pension-obligation?t=strategies

Don't Hold Your Breath

We’ve seen the markets ticking higher, with six consecutive weeks of gains. Yesterday, the S&P 500 reached its highest level since April and was within 10% of the all-time high of Oct. 9, 2007. Even so, with much of Europe on holiday and trading volume being low, there is a sense that investors are holding their breath, waiting for Europe to get back from vacation, for the next policy announcement, for the next big headline to move the markets.

Kick the Can

“Kick the can down the road” – slang…Developing a temporary, inadequate solution to a problem in hopes that it will go away or be addressed by someone else. 

Four public school districts in San Diego, California have recently sold huge long-term bonds to avoid making tough decisions today.  Payments on the Poway Unified district’s $105 million bond will not begin for 20 years.  At that time, payments totaling $982 million will be made over the following 20 years!  That equates to almost $50 million per year or $1 million per week in payments!  That’s about 20% of the district’s total current budget.  In addition, the bond is reportedly not callable (meaning it cannot be repaid early or refinanced).

How will the money be spent?  Updates include new computers, wireless data systems, alarm systems, recyclable building materials, landscaping, permanent outside eating areas, etc.  Hopefully all the updates are enjoyable and create a better learning environment since those students who remain in the district after graduation will pay dearly for it.  At the current pace, however, there may not be any upper income taxpayers in the district 20 years from now.  The Fox Business article references the following California Taxpayers Association data:  the number of California tax returns with $500,000 or more of adjusted gross income dropped from 146,221 in 2007 to 98,610 in 2009.

The full Fox Business article can be viewed here:  http://www.foxbusiness.com/investing/2012/08/08/california-school-districts-spend-1-billion-to-borrow-100-million/

Sayonara USA?

The number of expatriates of the United States increased six fold from 2008 through 2011.  In 2008, only 231 individuals renounced their U.S. citizenship; in 2011, the same statistic measured 1,781 individuals.  Many would argue that this is partially due to the tax atmosphere here in the states. 

A Closer Look at the Unemployment Rate

As weekly jobless claims were reported today as less than expected, it brings jobs in the U.S. back to the spotlight. Although it is refreshing to see positive data such as this, we understand that there are many seasonal factors that are at play that can cause these short-term statistics to fluctuate unexpectedly. Looking at the longer term unemployment rate we see that the rate has held at 8.2 percent, marking the 41^st consecutive month that joblessness has been above 8 percent—this is the longest stretch of such high levels in the post-World War II era. Taking a closer look at this statistic reveals something interesting: The chart below breaks down the unemployment rate by levels of education. While an individual with less than a high school degree faces an unemployment rate of 13% as of May 2012, an individual who has a “college or above” level of education faces a 3.9% unemployment rate.

How Low Can They Go?

Have you been paying attention to the recent direction of mortgage interest rates?  They are moving lower!  This is great news if you’re a first-time home buyer, shopping for a new home or interested in refinancing your existing mortgage balance.  We were contacted today by a local banker, and she shared the following conventional mortgage rates with us. 

·         30 year fixed rate is 3.375% with 0 points

·         15 year fixed rate is 2.75% with 0 points

On June 20 the U.S. Federal Reserve extended “Operation Twist” through the end of 2012.  With this program the central bank is selling an additional $267 billion of shorter-term treasury securities to buy the same amount of longer-term bonds in a bid to reduce borrowing costs and help spur the economy.  The recent drop in mortgage rates can be attributed to this program, so the Fed has accomplished one of their goals.  Now we'll have to see if overall economic activity improves further.      

Staying healthy can (and will) be taxing

As part of the 2010 Patient Protection and Affordable Care Act (referred to as ObamaCare) a number of new taxes will begin going into effect as early as next year.  Business owners and corporate executives should pay close attention to the changes as they will be particularly susceptible to these new taxes.

Just to name a few of the new taxes coming in 2013- there is a 3.8% Medicare “surtax” that may apply to those with modified adjusted gross income over $250,000 (if filing jointly) who also have “unearned” income, a 0.9% Medicare payroll hike for earnings over $250,000 (if filing jointly) and an increase in the threshold for deducting medical expenses as an itemized deduction from the current 7.5% to 10% for those under 65 years of age.

Examples of things to come in 2014 and after- potential healthcare penalties for employers of 50 or more employees (now deemed to be a “tax” by the Supreme Court) and for those employers offering what is deemed a “Cadillac” health care plan a 40% tax on the value of that coverage, levied against the employer.

These changes need to be navigated in context of your comprehensive wealth plan along with the help of your CPA and other advisors to minimize the impact you see from these changes- particularly if you are a business owner or corporate executive. 

Healthcare Reform

There has been a lot of talk by political pundits, economists, and everyone in between about the Affordable Care Act, or “Obamacare,” and its constitutionality.  According to reports, the Supreme Court is releasing its verdict as to the act’s conformity with the constitution (or lack thereof) on Thursday morning.  This debate is only one of many that the country will face in the coming years as citizens both young and old, retired and working, attempt to solve the healthcare puzzle without breaking the bank. 

Oppose the Investment Advisor Act of 2012 - HR 4624

Payne Wealth Partners is against the Investment Advisor Act of 2012 – HR 4624.  This bill will hurt small business owners who provide sound financial planning to consumers and who put their clients' interests first.  We believe that if enacted into law this bill would allow the foxes to rule the henhouse.

HR 4264 would strip advisor examination and oversight from the Securities and Exchange Commission (SEC), a government entity that has worked with registered fiduciary advisors for 70 years, and place them with a non-government organization called FINRA (Financial Industry Regulatory Authority), who oversees the Wall Street stockbrokers who in the past created products so confusing and with such outrageous commissions that consumers had little idea what they were being sold.

May 2012 Market and Planning Update

WHICH WILL YOU CHOOSE: INSPIRATION OR DESPERATION?

Taking action that will truly have a long-term impact on one’s financial situation often requires inspiration or desperation. Typically over time, poor decisions will lead you toward a point of desperation. Taking the easy way out of decisions along the way (spending too much, retiring too early, missing planning and investing opportunities, etc.) will begin to send your financial plan down a hill like a snowball toward a cliff. Desperation is the last-minute reaction that forces those individuals to take drastic steps to avoid falling off the cliff. READ MORE

MARKET COMMENTS & OBSERVATIONS

Although still positive for the year, the S&P 500 index declined 6% during the month of May as tensions increased over European debt problems. Both developed international and emerging markets stock indexes declined sharply in May and they have both experienced a more than 20% decline in the past 12 months. Many emerging countries (China for example) are very dependent upon selling their exports to Europe, so concerns about further economic weakness across Europe has led to the decline in stock prices. Just as we saw in April, out of the five financial market indices represented below, only the two bond indexes posted positive gains for the month.  READ MORE