Monthly Archives: May 2013

The Taxman Cometh

                     

 

Weekly Market Commentary

May 28, 2013

 

The Markets

 

Like guests feeling the first rain drops at a Memorial Day barbeque, markets responded uncertainly to Federal Reserve Board Chairman Ben Bernanke’s congressional testimony and the newly released Federal Open Market Committee (FOMC) minutes last week.

 

Generally, both Bernanke’s comments and the FOMC minutes reiterated what the Fed has been saying for some time. According to FOMC minutes, quantitative easing – the Fed’s purchase of $40 billion of mortgage-backed securities and $45 billion of longer-term Treasury securities each month – will continue “until the outlook for the labor market has improved substantially in a context of price stability.” The minutes also suggested the Fed’s other method for stimulating the economy – low interest rates – “will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”

 

Initially, stock market investors responded positively to these messages. On Wednesday morning, both the Dow Jones Industrial Average and the Standard & Poor’s 500 Indices gained more than 1 percent. By afternoon, the indices had lost more than 1 percent each. By week’s end, the indices had experienced their first weekly losses since late April.

 

Uncertainty about the future of quantitative easing affected bond and gold markets, as well. By Friday, the yield on benchmark 10-year U.S. Treasury note had risen above 2 percent, reaching its highest level in two months. Gold prices firmed during the week.

 

Fed policymakers will meet twice before Labor Day – in mid-June and late-July. The minutes of those meetings will be released three weeks after each meeting. If markets respond as they did last week, investors may experience a bumpy ride this summer.

 

 

Data as of 5/24/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard &   Poor’s 500 (Domestic Stocks)

-1.1%

15.7%

25.0%

15.4%

3.6%

5.7%

10-year Treasury   Note (Yield Only)

2.0

N/A

1.8

3.2

3.8

3.4

Gold (per ounce)

1.6

-18.0

-11.4

5.4

8.9

14.1

DJ-UBS Commodity   Index

0.2

-5.1

-0.3

2.1

-9.5

1.1

DJ Equity All REIT   TR Index

-3.6

14.0

24.8

20.8

7.0

11.9

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

the taxman cometh. If your ears are burning, it may be because the people who run state and federal governments have been discussing where to find revenue to fill budget shortfalls. Currently, the solutions they’re pursuing focus primarily on U.S.-based companies.

 

As corporate profits have increased, the tax strategies employed by U.S.-based multinational corporations have come under Internal Revenue Service scrutiny. According to The Economist, America’s corporate profits are at an all-time high. Yet, corporate contributions to Uncle Sam’s coffers have been far lower than they were in the past. In 1947, corporate profits were about 10 percent of Gross Domestic Product (GDP) and corporate taxes were about 4 percent. Last year, corporate profits were about 12 percent of GDP and corporate taxes less than 2 percent.

 

The United States government recently called a U.S.-based multinational to task because it had employed “a complex web of offshore entities to pay little or no tax on tens of billions of dollars it had earned outside America.” The company responded to the inquiry by pointing out it paid billions of dollars in American taxes during fiscal 2012 and was probably one of the biggest corporate taxpayers in the country.

 

Internet retailers and catalogue companies also are becoming part of the hunt for tax revenue. Under current law, states cannot compel out-of-state retailers to collect the sales and use taxes owed by residents and businesses. It is up to individuals to declare and pay those taxes. The National Conference of State Legislatures estimates the inability to have Internet businesses collect taxes resulted in about $23 billion in lost tax revenue during 2012. In an effort to help states collect these taxes, Congress created the Marketplace Fairness Act. If it becomes law, states that adopt a simplified tax code will be able to enforce sales and use tax collection by Internet retailers and catalogue companies. The Act was passed by the Senate early in May.

 

Weekly Focus – Think About It

 

“Adversity is the diamond dust Heaven polishes its jewels with.”

Thomas Carlyle, Scottish philosopher

 

Best regards,

 

John Raudat

Canoga Wealth Management LLC

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

Securities offered through LPL Financial, Member FINRA/SIPC.

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

                           

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with  “Unsubscribe” in the subject line.

 

Sources:

http://www.economist.com/blogs/freeexchange/2013/05/week-american-monetary-policy

http://news.yahoo.com/column-many-interpretations-ben-bernanke-164318124.html

http://www.federalreserve.gov/newsevents/press/monetary/20130501a.htm

http://www.reuters.com/article/2013/05/27/usa-stocks-weekahead-idUSL2N0E80JW20130527

http://www.miamiherald.com/2013/05/24/3415072/how-the-dow-jones-industrial-average.html

http://www.reuters.com/article/2013/05/27/markets-precious-idUSL3N0E809S20130527

http://www.reuters.com/article/2013/05/26/us-usa-fed-summer-idUSBRE94P07T20130526

http://www.economist.com/blogs/graphicdetail/2013/05/daily-chart-14

http://www.economist.com/blogs/schumpeter/2013/05/apples-tax-arrangements

http://www.ncsl.org/issues-research/budget/collecting-ecommerce-taxes-an-interactive-map.aspx

http://www.forbes.com/sites/davidmarotta/2013/05/12/marketplace-fairness-act-adds-automation-to-tax-confusion/

http://www.prnewswire.com/news-releases/senate-passes-marketplace-fairness-act-208385131.html

http://www.brainyquote.com/quotes/authors/t/thomas_carlyle.html

 

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Weekly Market Commentary – May 13, 2013

Weekly Market Commentary

May 13, 2013

 The Markets

‘Sell in May and Go Away’ is a trading maxim which, according to Investopedia, encourages an investor to “sells his or her stock holdings in May and get back into the equity market in November…” Traders who adhere to that adage may be pondering averages and exceptions right now. During the first two weeks of the month, the Dow Jones Industrials Average, the Standard & Poor’s 500, and the Russell 2000 Indices all reached new highs. The Dow passed 15,000, the S&P reached 1,600, and the Russell 2000 hit 968.

Bulls are in the majority among investors, although there is some bearish sentiment, according to the Bull and Bear Wise Index. Investors’ changing expectations are reflected in CNNMoney’s Fear & Greed Index which showed investor sentiment has shifted from ‘fear’ one year ago to ‘extreme greed’ last week. The premise of the index, which measures seven indicators, is investors are driven by two emotions: fear and greed. When investors are fearful, stock markets may fall more than they should; when investors are greedy, markets may be pushed higher than they should be.

Investors’ inclination toward stocks may be one of the reasons for declines in the value of gold and commodities last week.

Although there was little of it, economic news generally was positive last week. The U.S. Labor Department announced the number of Americans filing initial claims for jobless benefits dropped unexpectedly. Approximately 323,000 people filed for unemployment benefits which was about the same number that filed each week before the recession started in December 2007. According to Bloomberg, investors took the news as a sign the U.S. economy is improving which helped push yields on 10-year Treasuries higher.

Perceived economic strength in the U.S. caused the U.S. dollar to gain against many of the 16 major world currencies last week, as well as the 24 emerging countries’ currencies tracked by Bloomberg.com.

 

Data as of 5/10/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.2%

14.6%

20.3%

12.1%

3.1%

5.6%

10-year Treasury Note (Yield Only)

1.9

N/A

1.9

3.5

3.8

3.6

Gold (per ounce)

-2.9

-15.8

-10.8

6.0

10.1

15.1

DJ-UBS Commodity Index

-0.9

-5.1

-3.0

0.4

-9.3

1.2

DJ Equity All REIT TR Index

0.8

16.0

22.4

17.4

7.0

12.3

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Where will you live during RETIREMENT? As with many of life’s important questions, the answer depends on you and, possibly, your partner or spouse. Before you make a decision and decide to retire to wherever your grandchildren live (or in your favorite vacation spot) you might want to take a moment and consider the tax implications of your decision.

If your grandchildren live in Alaska, Nevada, Wyoming, Mississippi, or Georgia, you’re probably okay. Each year, Kiplinger.com reviews the tax rules of each of the 50 states, giving special consideration to states which offer attractive tax incentives to retirees and then provides a list of those states it deems most tax-friendly for retirees. For 2012, Kiplinger reported the five states listed above were the most tax-friendly. According to the article,

“All of these tax havens exempt Social Security benefits from taxation (and some impose no state income tax at all). Many of them exclude government and military pensions from income taxes, and some exempt private pensions, too. A few offer blanket exclusions up to a specific dollar amount of retirement income from a wide variety of sources, which is important if you depend on distributions from IRAs and 401(k) plans rather than traditional pensions. Review all of your sources of income before you decide which state may be the best fit for your retirement home.”

Kiplinger.com reported the least tax-friendly states included Connecticut, Vermont, Rhode Island, Montana, and Minnesota, which have one or more of the following:

  • Estate or inheritance taxes
  • High property taxes
  • No tax breaks on Social Security benefits
  • No special treatment for various types of retirement income

Source: Kiplinger.com

No matter where you decide to settle, it’s important to evaluate all of the factors which may affect your income during retirement.

 

Weekly Focus – Think About It

“Every saint has a past and every sinner has a future.”

Oscar Wilde, Irish writer and poet

Best regards,

 

John Raudat

Canoga Wealth Management LLC

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

Securities offered through LPL Financial, Member FINRA/SIPC.

 

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

                                     

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

 

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

 

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

 

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

 

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

 

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

* Past performance does not guarantee future results.

 

* You cannot invest directly in an index.

 

* Consult your financial professional before making any investment decision.

 

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with    “Unsubscribe” in the subject line.

 

Sources:

http://www.investopedia.com/terms/s/sell-in-may-and-go-away.asp

http://finance.yahoo.com/news/wall-street-week-ahead-sell-224849895.html

http://online.barrons.com/article/SB50001424052748704253204578471390309717114.html

http://www.bullandbearwise.com/

http://money.cnn.com/data/fear-and-greed/

http://money.cnn.com/investing/about-fear-greed-tool/

http://www.forbes.com/sites/kitconews/2013/05/10/metals-outlook-us-dollar-strength-economic-data-may-influence-gold/

http://www.bloomberg.com/news/2013-05-10/treasuries-head-for-second-weekly-loss-as-stocks-rise-to-record.html

http://money.cnn.com/2013/05/09/news/economy/unemployment-benefits/

http://www.bloomberg.com/news/2013-05-11/canadian-currency-weakens-as-u-s-economy-overshadows-recovery.html

http://www.bloomberg.com/news/2013-05-10/emerging-stocks-fall-most-in-three-weeks-as-exporters-tumble.html

http://www.kiplinger.com/slideshow/retirement/T006-S001-10-most-tax-friendly-states-for-retirees/index.html

http://www.kiplinger.com/slideshow/retirement/T006-S001-10-least-tax-friendly-states-for-retirees/index.html

http://www.brainyquote.com/quotes/authors/o/oscar_wilde.html

 

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