One Big Collective Yawn

The stock market reaction to the 16-day government shutdown and threat of a default on all U.S. government budget obligations (Social Security checks, interest payments on government bonds, payments under contract to suppliers and contractors, etc. etc.) was stunningly mild.  In fact, despite all the dire warnings and hints from the Democratic side of the aisle that the markets should send a loud message to the Republican party, they never did.  Investors, for the most part, saw the whole shutdown/default charade for what it was: something that a majority of our elected representatives would eventually have to decide to work out. 

Indeed, over the 16 day shutdown, the markets actually went up.  Compared with the naked fear that the Fed would stop intervening in the bond markets, the response to closing down the largest payroll on the planet and threatening to send the global economy into a tailspin registered not even a yawn.

Nevertheless, there were costs involved.  The Standard & Poors organization recently calculated that the shutdown cost the U.S. economy $24 billion--or about $1.5 billion a day.  An estimate from Moody's Analytics similarly put the figure at $23 billion--and this doesn't count lost productivity.  Hundreds of thousands of furloughed government workers are going to paid for their two-week-and-two-day vacation even though they did nothing productive.  All those tourists who would have visited national parks and purchased hotel rooms and restaurant meals didn't.  The ripple effect of thousands of government contractors twiddling their thumbs hopefully is hard to calculate. 

Perhaps the biggest cost, if we ever get a final tally, will be the interest the U.S. government has to pay on its debt.  Bond dealers were reporting weak demand for Treasury bonds at auction across the full spectrum of maturities in October, as investors demanded higher yields to cover the threat of default.  Since the recent budget deal only lasts until January 15, and the debt ceiling will be again breached on February 7, 10-year government bond holders could conceivably be looking at ten more opportunities for default before they get their money back.

The U.S. and world markets rose on the news that the government standoff had ended, but that doesn't rule out a pullback at some point in the near future.  Eventually, investors are going to realize that shutdown and default debates could become an annual event.  This is ironic, because, absent the squabbling in Washington, the U.S. economy seems to be healing nicely--if not quickly.  Just before its staff was sent home for the shutdown holidays, the Federal Reserve Bank of Chicago released its latest report on the state of the economy, saying that consumer spending continues to increase, business spending is up and manufacturing activity has expanded.  Most economists on the talking circuit these days seem to expect that the U.S. economy will show 2% growth for the year, down from closer to 3% estimates before the shutdown.

                                   40 Years As A Personal Financial Planner

This Monday, July 15, 2013, marked my 40^th year as a Personal Financial Planner.  It has been a great 40 years! I thank the College of Financial Planning, the Institute of Financial Planning (ICFP), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA) for continuously helping me to grow within the profession.

Many people have asked why I don’t retire.  I feel my clients need me as much or more today as they did in 1973.  You see today investment markets are faced with some of the same problems that they did in 1973.

1.   

•           In 1972 interest rates began to rise. On January 3, 1972 3 month bonds were paying 3.69% and 10 year bonds were paying 5.94%.  By January 4, 1982 3 month bonds were paying 11.87% and 10 year bonds were paying 14.19%. That was an increase of 321% and 239%.

•       I do not believe interest rates will go this high over the next 10 years, but I do believe interest rates are about to make substantial increases, that can have the same type of an effect on a client’s investments as they did in 1973.  

• In 1973 crude oil prices had risen from $2.97 a barrel on July 1, 1963 to $4.31 on July 1, 1973.  That was an increase of 45.1%.  Crude oil the continued to increase to $31.66 over the next 10 years, an increase of 734%. 

• Today oil prices have risen from $30.76 on July 1, 2003 to $96.56 on July 1, 2013.  That was an increase of 314%.  It is anyone’s guess what oil prices will do over the next 10 years, but I doubt that anyone thinks they will go down in value?  

Interest rates and oil prices are important because they affect the amount of discretionary income we have to spend and in turn how our economy grows.

No, I don’t think I will retire just yet; over the next few years my clients may need some historical prospective to protect their investments.

God bless!

Doomsday Prophecy or Just Looking For Press

Doomsday Prophecy

When a former White House Budget director who famously never balanced the federal budget suddenly claims to have special powers to forecast a major economic crisis, it's hard to understand why anybody pays attention.  But recently David Stockman, who served as Ronald Reagan's budget chief back in the 1980s, has gotten a lot of publicity for his fiery Easter Sunday article in the New York Times, telling us that America's future is bleak and everybody should get out of the investment markets as quickly as possible.  His advice (the first paragraph contains the words "we should be very afraid") is getting a lot of attention among triumphant doomsayers who have been predicting America's downfall for decades, and from economists, who wonder where Mr. Stockman learned how to add and subtract.

The article was written to support Stockman's newly-released book, called The Great Deformation, and it shows that the author knows how to generate a lot of attention.  It calls the Federal Reserve Board "a rogue central bank," and declares that the U.S. is fiscally, morally and intellectually broke.  It predicts a global currency war that America is destined to lose.  Stockton's advice: "hide out in cash."

Is this good advice?  Interestingly, the article says that the problems began in 1933, when the American dollar went off the gold standard, and have simply accelerated ever since.  But anybody who avoided the U.S. stock market since 1933, and hid out in cash, would have missed the greatest period of stock market returns in world history--not to mention the enormous strides in standards of living and, most notably, no more economic catastrophes like the Great Depression.  Even the Great Recession meltdown in 2008 has been followed by a long, steady recovery that has produced new market highs.  And despite 80 years of disconnect from the gold standard, the dollar remains the strongest currency in the world, the reserve currency against which all others are measured.

Predicting doom is a great business to be in, because our minds are wired to spook at the first sign of danger, and our eyes are instantly attracted to warning signs.  People buy because they're afraid not to.  The only problem with the doomsayers who have made these predictions is that they have never actually been right.  Betting on the end of the world, or the end of the U.S. economy, or the death of the stock market, has never been a winning choice.

In addition, you have to wonder how credible Stockman is to be telling us our economic future.  Never balancing the federal budget puts him in pretty good company, but Stockman also had an undistinguished Wall Street career at Salomon Brothers and the Blackstone Group, and his job as CEO of auto supplies manufacturer Collins & Aikman Corp. led, less than two years after he took the helm, to the company filing for Chapter 11 bankruptcy protection.

If Warren Buffett tells us to get out of stocks, we're going to listen carefully to his arguments.  When David Stockman peddles gloom to an ever-ready market, because he seems to be the only Wall Street executive who has to supplement his income with book revenues, we simply put our hands over our ears and continue with our time-tested investment policies.  If his fiery case for gloom and doom make you nervous, our best advice is to consider what would have happened if you had retreated to cash in 1933 when the S&P 500 was trading at 6.25 and stayed out while it rose to (recently) over 1,550.  Missing out on 24,700% overall growth (and all the associated dividends) might be too scary even for David Stockman to contemplate.   

The Fiscal Cliff Act

Unless you were living on the moon this past week, you know that Washington policymakers finally reached a so-called "fiscal cliff" deal that avoids a sudden return to tax rates that are now more than a decade old.  But for some reason, news outlets have been a bit stingy about telling us exactly what's in the American Taxpayer Relief Act of 2012.

The good news is that our lawmakers are creeping closer to reality about how to define "the rich;" rather than $200,000 (single taxpayers) or $250,000 in adjusted gross income (joint returns), as specified in many prior proposals, "the rich" are now defined as making more than $400,000 (single) or $450,000 (joint).  For taxpayers whose income falls below those thresholds, the temporary Bush-era tax cuts have (for the first time) been made permanent, which means that for most taxpayers, the marginal tax rates will remain the same this year as they have been for the past two.   However, taxpayers who fit this new definition of "the rich" will experience a new 39.6% upper tax bracket.  They will also be required to pay taxes on capital gains and dividends at a 20% tax rate.  (The 15% rate still applies to taxpayers below the thresholds.) 

In addition, the Taxpayer Relief Act borrows something from the Clinton era tax code: itemized deductions and the personal exemption will once again begin phasing out for individuals with more than $250,000 in adjusted gross income, or couples with more than $300,000 AGI.  At $372,501 (single) or $422,501 (joint) of adjusted gross income, personal exemptions are phased out in their entirety.

The tax bill also makes permanent the current $5 million estate and gift tax exemptions ($10 million for couples), but raises the tax rate for money transferred to heirs above that amount from 35% to 40%.  And it offers a permanent fix to the perennial alternative minimum tax problem by inflation-indexing the threshold (currently $78,750 for joint filers; $50,600 for individuals) at which people have to calculate their AMT, exempting all but about 5 million taxpayers from this chore now and in the future.

Also eliminated: the two percentage point reduction in the Social Security payroll tax--a stimulus measure enacted in 2010, which is likely to be the biggest impact of the legislation on most taxpayers.  The payroll tax rises from 4.2% last year to 6.2% this year.

Finally, the new tax law makes $24 billion in federal spending cuts, while giving Congress two additional months to decide what to do about $109 billion of automatic spending cuts that were scheduled to begin taking effect at the start of this year.

You can expect those two additional months to be spent in partisan wrangling over where, exactly, federal expenses should be cut, and news outlets have been repeating over and over the fact that March 1 also happens to be the next time that Congress has to vote to raise the debt ceiling.  We don't know whether that next debate will spill over into tax rates once again, but we will be paying attention and will keep you posted.

Political Magic with Smoke & Mirrors

Not since the late 1990s has there been such a political illusion as we are currently witnessing!

During President Bill Clinton’s Presidency they came up with ways to balance the Federal budget.  I believe a large part of this was allowing individuals to move their IRA accounts into Roth IRA accounts.

A little back ground is needed here:

1. An IRA account is designed to help individuals prepare for retirement by:

·                    Allowing individuals to put pre-tax dollars into an IRA.

·                    Allowing the investments in the IRA account to grow tax free.

The investments in an IRA account are then taxed when they are withdrawn during retirement.

2. A Roth IRA account is designed to help individuals prepare for retirement but with a few twists:

·                    Dollars invested in a Roth IRA account are after tax dollars, rather than pre-tax as in a normal IRA account.

·                    Investments in the Roth IRA account still grow tax free while they are in the account.

·                    However, when the money comes out of the Roth IRA it comes out tax free.

During President Clinton’s Presidency they allowed individuals to switch from their individual IRA accounts to new Roth IRA accounts during 1 year, but pay taxes on the money transferred into the Roth IRA account over a 5 year period of time.  There were a large number of very wealthy individuals who took the government up on this and many of which no longer pay taxes.

President Obama tried something like this a few years back, but only allowed the taxes to be paid over a 2 year period of time and few people found this tempting.

Fast forward to today and the fiscal cliff:

The threat of much higher individual taxes, capital gains taxes, AMT taxes and dividend taxes on people who have incomes above $250,000 a year has put America’s wealthiest citizens into a panic. They have:

1. Started selling stocks with extremely high gains, to avoid the high capital gain taxes in 2013.
2. They have persuaded companies like Johnson Controls and Bon-Ton Stores to pay their normal dividends early. Instead of paying out their dividend as scheduled in, say, January, they will pay it instead in December to allow shareholders to pay less taxes on the dividend.
3. They have persuaded other companies, like Oracle, to go even further and bundle several future dividend payments into one bigger pre-December 31 payment.
4. They have persuaded other companies like Costco, Carnival and Brown-Forman to borrow money in order to pay a big dividend before the end of the year, on the theory that they are paying future earnings to shareholders at current tax rates, rather than at higher tax rates down the road.

All this is going on as the President, Congress and the Senate appear to be fighting like little children; each wanting to get their way, or they will take their toys and go home.  Or are they really?

Let’s take a step back and look at this.  There have been so many people selling investments and companies declaring larger than normal dividends before the end of the year, to avoid higher taxes in the future, that the taxes that will be collected for the year 2012 tax year should jump up substantially!

If I were the President, Congress and Senate I would not want to settle the budget and tax issues by the end of the year.  I would want just what is going on right now. I would want to have the wealthiest American’s panicked even more, selling more and more of their investments to avoid higher future taxes that may or may not actually happen and/or last.  It helps Washington to reduce the budget deficit. In the long run it might even make all those people in Washington look smarter than they actually are?

Why All The Special Dividends

One of the oddest things to come out of the Fiscal Cliff headlines is the sudden proliferation of so-called "special" dividends. According to a recent article in the Wall Street Journal and another in CBS News, 349 publicly-traded companies have already moved up the date that they are paying their dividends or are paying additional dividends to shareholders, above what they would normally pay.

What makes these dividends so special? Technically speaking, the owners of the shares of a publicly-traded company are, collectively, the owners of that company. You can think of "ordinary" dividends as the money that the company has decided to return to its owners from the profits of its business operations. Each year, the company's management and board of directors decides all over again how much of its profits to distribute; it can increase, decrease or maintain its dividend payout, and even pay out more than its earnings. And, of course, many companies pay no dividends at all; they reinvest their profits in their enterprise or other business activities in hopes of generating more profits and making their company (and stock) more valuable, or they buy back shares of company stock.

These dividends receive special tax treatment under current law; the money is taxed at a maximum 15%--0% for people who fall below the 25% income tax rate. But that special rate will expire at the end of the year, resulting in a maximum rate of 39.6%, as dividends are taxed as ordinary income, and the ordinary income rates rise. Of course, the Fiscal Cliff negotiations in Washington could result in an extension of current rates; the truth is that nobody knows, at this point, what is going to happen with next year's tax rates.

Special dividends are simply a company's decision to pay its shareholders before rather than after the dividend tax rates are expected to go up.

They fall into two categories. In one category, you have companies like Johnson Controls (a technology company) and Bon-Ton Stores (fashion apparel) that are paying their normal dividends early. Instead of paying out their dividend as scheduled in, say, January, they will pay it instead in December as a convenience to shareholders. Other companies, like Oracle, have gone a step further, and announced that they will bundle several future dividend payments into one bigger pre-December 31 payment. Oracle will pay 18 cents per share in December to replace the dividends it would have paid out over the next three quarters.

In the other category, you have companies like Costco, Carnival (the cruise line company) and Brown-Forman (a wine and spirits distributor) that are actually borrowing money in order to pay a big dividend before the end of the year, on the theory that they are paying future earnings to shareholders at current tax rates, rather than at higher tax rates down the road.

The implication of some the news reports is that this is a special opportunity, where an astute investor can buy companies that will pay out a hefty dividend. But in fact, this is almost certainly the wrong strategy. Companies that are going into debt to make dividend payments are robbing Peter to pay Paul. To make a special $7 dividend, Costco will borrow $3.5 billion, tripling its long-term debt and has already caused the Fitch rating service to downgrade the company/s bond rating.

In addition, the payment of a dividend results in a simultaneous drop in the stock's share price. If you buy a company that makes a dividend payment of 79 cents a share, the share price of that company will drop by 79 cents at the same time. You come out exactly where you were before, all-in, except you have to pay taxes on that dividend payment.

And some of these special dividends seem to be driven more by the interests of insiders than a convenience to the outside shareholders. The board of directors of Opt-Sciences, a company that makes special coatings for glass used in cockpits, has announced a special dividend amounting to 65 cents a share, in order, the company said, "to secure for the shareholders the benefits of the soon to be expiring current dividend tax treatment." A nice gesture? It would seem so until you are told that the family of one director, Arthur Kania, controls nearly 66% of the company stock. He may be more concerned about HIS tax bill than yours.

Another problem with these special dividend strategies is that higher taxes are not inevitable. And even if Congress takes us over the fiscal cliff, or if part of the next Grand Bargain is to eliminate special treatment of dividends, it won't be the end of the world--or even the end of tax-efficient ways to reward shareholders. As you can see from this chart, companies shifted strategies dramatically toward dividends precisely when the new lower tax rate was enacted back at the start of 2003. Before that, and perhaps in the future, those same companies will redirect the same money they have been paying in dividends into the repurchase of company stock, raising the value of the shares owned by their investors, or reinvesting the money, raising the value of their enterprises and thereby (again) increasing the value of their stock.
Both options would reward shareholders without forcing them to pay immediate taxes on the amount of the reward--a more tax-efficient strategy that some "special" dividend payers might consider before they go into debt to create a tax liability for their shareholders.

Financial Planning and the National Health Care Tax

With the new National Health Care Tax (3.8%) and the strong possibility of a larger Capital Gain Tax in 2013 (Elections), we need to think differently about our financial tax planning.

New Tax, New Planning: At the start of next year, America's entire tax regime is set to change, as the Bush-era tax rates shift back to their previous (higher) levels, and preferential (lower) rates on capital gains and dividends phase out. The estate tax rates will go up and the exclusion amounts will go down. Congress may intercede between now and then, but in an election year, any meaningful compromise is far from certain.

This has created an unusual level of uncertainty among financial advisors and planners. However, the recent Supreme Court ruling on the 2010 Patient Protection Affordable Care Act (sometimes colloquially referred to as "Obama care") has taken one uncertainty off the table. We now know that a new tax will have to be planned for as of January 1. As a way of shoring up the shaky finances of our Medicare Trust Fund, the budget reconciliation bill that was passed in conjunction with the health care reform bill will impose a 3.8% "Medicare Contribution" tax starting in tax year 2013.

What does that mean to you? For 97% of all house holds individuals whose current taxable income fall below $200,000, or couples with a joint income below $250,000 the tax is irrelevant; it only applies to persons above those income thresholds. (Technically, the actual number would be a modified adjusted gross income, with any net foreign income exclusion amounts added back in.)

People whose income does exceed those thresholds will pay the 3.8% tax on the lesser of two calculations. You would first calculate your overall taxable income minus the threshold amount; the amount above this would be subject tax if it happens to be lower than the second calculation. The second amount is your net investment income; that is, how much you made, in aggregate, on taxable (but not muni bond) interest, plus dividends, distributions from annuities, royalties, net rental income (after deducting for expenses, property taxes, interest expense from debt service and property depreciation), income from passive investments like partnerships, from actively trading financial instruments and commodities, plus the gain from selling non-business property. Of course, you get to subtract out losses and expenses related to those investments.

So, for example, suppose a husband and wife completed their tax forms, and found that they had adjusted gross income of $400,000 in 2013. The first number that the 3.8% tax might be applied to is $150,000 ($400,000 - $250,000). Moving to the second test, let's suppose that they earned interest income amounting to $40,000, and had sold some stocks for a capital gains profit of another $40,000. But they had also sold some stocks at a loss, amounting to $15,000. Their net investment income comes to $65,000. That's obviously lower than $150,000, so that is what the couple pays the Medicare Contribution taxes on. Their MC tax comes to $2,470.

Suppose the couple only earned $265,000 in that same year. They would pay taxes on $15,000 ($265,000 - $250,000) rather than on the investment income.

You might have read that this tax will be imposed on the gains from the sale of your house, but that may not be true. If your income is above the threshold limit, you and your spouse would still have to make a profit of more than $500,000 ($250,000 for singles) on the sale of your house before the tax becomes applicable.

The investment calculation does not include payouts from a regular or Roth IRA, 401(k) plan, Social Security or veterans' benefits, or any income from a business on which you are paying self-employment tax. It also doesn't apply to the appreciation of your stocks or mutual funds until or unless they're sold and gains are taken. However, IRA and qualified plan distributions DO raise your modified adjusted gross income, and this, of course, can put you over the threshold. In years when you have is little investment income, this income amount above the threshold may become the applicable tax base, so you could end up paying taxes on these amounts.

Because the amount of investment income determines, in part, your total income, this is one tax that is rich with planning possibilities. Suppose, for example, that the couple mentioned earlier, whose total taxable income would have been $265,000 if they had taken gains on stocks, decided to take fewer gains, so their total taxable income fell to $249,000? The 3.8% would no longer apply to them, even though they had other investment earnings.

Since the Supreme Court decision, advisors are talking about doing just the opposite of what we normally do: deliberately taking gains this year and deferring losses into next year, either to lower 2013 income below the income threshold or to lower 2013 investment income hit by the 3.8% tax. Others have mentioned the new attractiveness of municipal bonds, whose income isn't affected by the Medicare Contribution tax.

A longer-term strategy is to convert IRA assets to Roth IRA assets in 2012, and pay the taxes out of outside assets. Distributions from the Roth IRA never show up in any of these 3.8% calculations, and the money paid up-front in taxes lowers the taxable income amounts in the future. As a potential bonus, the tax rates in 2012 might be lower than they would be if all the tax rates jump on January 1. Still, it is important to remember that taxes are only one component of your total investment picture. A strategy that simply tries to lower your payments to Uncle Sam may not be the best one for your personal needs, or for building retirement income.  

Medical Insurance Tax Penalties: After the Supreme Court ruling upholding the recent Health Care act, everybody is required to buy health insurance. Or are they?

People who earn less than $9,500 are exempt from the requirement; above those income levels, you would have to pay a tax that depends on your income level. There is a phase-in of rates from 2014 through 2016, but just looking at the 2016 rates, any person with taxable income between $9,500 and $37,000 would have to pay $695 in additional taxes to the IRS.

At higher incomes, the uninsured person would pay 2.5% of taxable income above that $9,500 threshold, meaning somebody with $100,000 of taxable income would have to pay $2,250 in additional taxes, while a taxpayer with $200,000 of AGI would have to pay $4,700 on top of normal tax amounts. Beyond that, the tax would equal the cost of a "bronze" health insurance plan at your state exchange--estimated by the Congressional Budget Office to cost between $4,500 to $5,000 per person, and $12,000 to $12,500 per family.

 In other words, the tax equals the cost of health insurance for persons who earn more than $200,000, and is somewhat less costly than the health coverage would be for persons with lower incomes. As a result, we may see taxpayers simply decide to pay the tax rather than buy the (more expensive) coverage.

Politics drives me crazy!

The recent release of Republican presidential candidate Willard "Mitt" Romney's 2010 and 2011 tax records--all 500 pages of them--has generated a lot of buzz among financial types and mainstream voters. Indeed, people who work with financial planners might be wondering: "why the heck can't my advisor get my federal taxes down to a 14% rate? Couldn't I be parking money in Bermuda (page 52 of the 2011 return) Switzerland (position sold in 2010 after the Swiss bank UBS came under federal investigation for facilitating tax fraud) and the Cayman Islands (called "various countries" on the return) if my advisor were just a little more creative?"

You can see the estimated 2011 return for yourself here: http://mittromney.com/learn/mitt/tax-return/2011/wmr-adr-return, although the home address and the Social Security numbers for Willard M. and Ann D. Romney have been blacked out. What you DO see is a little over $4 million in taxable interest, a little over $3 million in dividends, $10.7 million in capital gains, $2.8 million in income from rental real estate, $110,500 as a member of (the listed profession) "independent artists, writers, performers" and zero for wages or salaries. The estimated tax bill: $3,226,623--about 14% of the nearly $21 million in total income.

This percentage could go down between now and the next filing date. Page 11 of the return says that the Romneys expect to receive a foreign tax credit, which is not yet factored into the tax payment. Pages 30, 31, 32, 33, 34 and 35 note that the K-1 tax information on various partnerships (one called "Rob Rom Enterprises, LLC") is also unavailable, and the tax calculation "may change significantly when the final 2011 K-1 is received."

If you're feeling envious of the low rates, and the fact that much of it was exempt from Social Security payroll taxes, you aren't alone; according to one report, Romney's secretary paid taxes at a higher marginal rate.

There are several ways to look the situation. One is that Romney actually paid MORE than his fair share--in fact, you could argue that he paid much more.

How? The argument goes something like this: if you walked into the grocery store to buy a loaf of bread, would the cost be dependent on your income? If it was, the average American would be paying roughly $2.00 while Mr. Romney's cost would be closer to $300. If we all receive the same basic package of services from the government, and the total cost is about $6 trillion, then each of the 300 million people who live in America would owe about $20,000. Mr. Romney, by paying about $3 million a year, might be considered to be overpaying for his share of those governmental services.

Another way to look at it is that people who have more income or assets have more to protect, and therefore need those government services more than most. A progressive tax system that is capped at the top forces wealthier people to pay proportionately more, but they also get to keep a majority of what they earn. If you buy this philosophy, then the question becomes: how do you decide what is fair for everybody, the high earners as well as the low earners?

One traditional answer is that everybody should pay something. You hear a lot about low-income wage earners paying no income taxes, but in fact they are all required to pay Social Security payroll taxes, which are actually higher than income taxes for the majority of Americans. On the other end of the wealth spectrum, there are so many nuances to the tax code, so many deductions and loopholes, that it was possible for General Electric to largely escape corporate taxes. That isn't possible for individuals, ever since, in 1969, the U.S. Treasury Department disclosed that 155 high-income households had paid no income taxes. In the ensuing uproar, Congress passed the alternative minimum tax--and has been trying to fix it ever since.


There were two reasons why candidate Romney was able to escape the highest tax rate. The first is that his "job" at Bain Capital Management was to--as Warren Buffett has recently described it--"move money around." Specifically, he was investing his own and others' money into companies and then restructuring them. People on Wall Street and in Silicon Valley will tell you that this is real work, hard work, but all too often the result is to shift money from the company to the pockets of the investors. For this sort of work, the tax code applies the same tax rate as the taxes on dividends and capital gains--15% at the high end--rather than the maximum 35% rate that a corporate employee earning similar compensation would have to pay. Even somebody who sweeps the floors or answers the phone at Bain's offices, who earns more than $35,000, would pay taxes at a 25% rate.

The second--lesser--reason why candidate Romney's taxes were so low is that he voluntarily gave $2.6 million a year to his church and a total of more than $4 million in total to charities (Schedule A and page 68). One could argue that his actual financial contribution to society--to his church, to the Bush presidential library, to other charities and the federal government--was actually $7 million a year. That amount would equal roughly a 33% tax rate.

If nothing else, those voluminous tax returns, detailing offshore accounts, capital gains taxes for the same kind of work that corporate executives do and charitable donations, will create a new awareness of the implications of different candidates' positions on tax reform. The New York Times recently noted that candidate Romney's own tax reform proposals would require him to pay less than he does now, suggesting that he supports the idea that he's paying more than his fair share. The Newt Gingrich tax proposal would, if passed, essentially eliminate candidate Romney's tax burden altogether. Interestingly, Mr. Romney has labeled this "irresponsible."

One additional note: the Romney tax return checked the boxes to donate $3 for each spouse to support the Presidential Election Campaign.

Congress fiddles while U.S. burns!

Politicians around the world seemed to have messed things up so badly our investments were making little or no sense, based on history. Or were they? All great empires come and go: Greece, Rome, Italy, Spain, Great Britain and now the United States?

You see we have been looking at the last 10 year wondering what was wrong with the stock markets. We were wondering why they were not performing like they did during the last century. Here is a persuasive argument that we may be overestimating future equity returns and return estimates in our investments, and maybe investing in all the wrong places.

Financial Advisors in the United States (U.S.) tend to use long-term U.S. equity returns as their guidepost for what they expect stocks to do in the future in the United States. Most advisors adapt historical assumptions based on PE ratios and other valuation measures. But if you go back to the beginning, where did these returns come from? They came from our country at the start of the 20th century until now. The United States at the turn of the century was basically an emerging market economy. Then it moved to a developed market and then to the leading economy in the world. During this time the dollar became the world's reserve currency.

Here's the point that affects our planning assumptions: going forward, are U.S. equity returns going to reflect the rapid growth of an emerging market becoming developed, or a developed market becoming the dominant global economy? Have we built in return assumptions that were extraordinary once-in-a-lifetime trajectory of economic growth, along a path which almost certainly cannot be sustained going forward?

If we have: we need to look outside the U.S. to find the returns that would reflect that growth. What we want to do is consistently hitch our wagon to the emerging, developing economies around the world; to the extent we can identify them. That's what U.S. investors did for 100 years in the U.S., by investing in the United States. That may be the only way we get returns like we got from U.S. equities over the past century.

There are a lot of implications here, and potentially a lot to change about our current thinking. So let's start by taking a closer look at the U.S. growth story. In 1900, the estimated total market cap of the world was $18 billion. Europe made up 56%, with Britain comprising 24% all by itself. India accounted for 10% of global market cap, Russia 11% and the U.S. 16%. The U.S. was a smaller, less wealthy country. You could have described it as an emerging economy, even though the term didn't exist back then."

Between 1900 and the mid-1970s, the U.S. share of the world's market cap grew from 15% to over 70%. Be-tween the mid-70s and the end of 2010, the rest of the world caught up dramatically, and the U.S. share of the world's $47 trillion share value had fallen back to 32%. Since 2000, our equity returns haven't been exactly world-beating. Is it possible that this is a better predictor of the future than the time period when the U.S. was increasing its percentage of total market cap and global GDP?

I know we have all be raise to believe that the United States is the best, biggest and most wonderful country in the world and I would agree with you right up until sometime around March of 2000. Looking forward, Jeremy Siegel has projected that by 2050, the U.S. share of global market cap will have fallen to 17%, almost exactly where it was in 1900.

Looking at the situation another way, the U.S. economy grew by an average of 3.8% a year from 1946 to 1973, right around the time when America's share of market cap peaked. Since then, GDP growth has averaged 2.7%, and the most recent decade has not lived up to even that average. From 2000 to 2010, the U.S. accounted for just 15% of total global GDP growth, less than Europe (21%) or China (23%). The U.S. share of global GDP peaked in 1985 at 32.74%. In 2010, the U.S. accounted for 24% of global GDP.

This is not to say that the U.S. will fall into some kind of severe slump, or that U.S. companies won't continue to generate profits. But it does suggest that the long, rapid run up from an emerging economy to global super-power was an extraordinary wagon to hitch your portfolio to. A long projected decline from the world's dominant economy to a market share under 20% might generate lower annual returns going forward.

A better way to say this is that U.S. investors have been spoiled by extraordinary domestic growth that helped produce extraordinary domestic stock returns not found anywhere else. If we anchor on the returns that investors enjoyed during that probably never-to-be-repeated era in the U.S., and project them forward in our portfolios, there is a strong possibility of disappointment.

So how do we want to deploy our assets in the global opportunity set, if the U.S. is mature and likely descending from its peak? Who or what is ascending? Where can we find similar growth to what the U.S. had enjoyed? And how can we position our investments to capture that growth?

Our search led to those economies that are currently emerging and what was most surprising was how rapidly this is taking place today. The term "emerging markets" was been coined in 1981, defined as countries with in-come per capita of $10,000 or less. The threshold today is around $15,000. The first EM indices seem to date back to 1995, when this obscure niche of the global economy made up 3% of the world's market cap. By the end of last year, that percentage had grown to 28%. Goldman Sachs recently issued a report that suggests that by 2030, the market cap of what we used to call emerging markets will exceed that of the traditional developed markets. Jeremy Siegel forecasts that EM countries will make up 67% of total market cap by 2050.

Turning back to GDP, during the 2000-2010 decade, China alone contributed 23% of total GDP growth, India 8%, Japan 3%, and other Asian nations 12%. For the next five years, while the U.S. is projected to contribute 13% of world economic growth, China's projected contribution is 29%, India's is 10%, Japan's is 3% and the rest of Asia is projected to contribute 11% of the world's growth. My calculator says that this makes up more than half (53%) of the world's growth coming from Asia, mostly from the less developed economies.

While China gets the majority of the press coverage, it is not the only country that is growing rapidly. According to the International Monetary Fund, by the year 2015, there will be 17 countries with an annual GDP over $1 trillion, compared with only ten today." In the first half of 2010, Asia, notably including the Hong Kong market, accounted for 60% of global IPOs, vs. 16% for the U.S.

Okay, so what do we DO with this information? Step one is to overcome our homeboy bias and recognize that much of the GDP and portfolio return growth is going to come from abroad in the years ahead. Our homeboy bias will be harder to cure because it worked so well for U.S. investors in the past well, until ten years ago, anyway; and because we probably have unrealistic expectations about future U.S. stock returns.

Step two is to recognize that what we call emerging markets are not what they were in 1995. Most of Asset Allocations in the U.S. allow only 3% of a portfolio to be allocated into emerging markets. They just assume, without really thinking about it, that our emerging markets allocation should be somewhere in that range. But if that's where the majority of the world's growth is going to come from, it needs to be a bigger part of our allocations.

Step three is to recognize that the traditional indices severely underweight the places where the growth is expected to come from. The MSCI EAFE Index allocates 66% of its weightings to Europe and another 20% to Japan. The EAFE EM Index, meanwhile, allocates just 7% of its assets to Indian stocks, and 18% to China. We have an unusually high 40% allocation to non-U.S. equities. If you have 20% of client portfolios in EAFE, and another 20% in the EM index that means your total allocation to India is 1.4%. To China (including Hong Kong): 5.2%. To other Asian countries: 12.2%.

In all, this aggressive international investor would have just under 20% of his client’s portfolios invested in the economies that are projected to generate 50% of the world's economic growth over the next five years.

Step four is to reexamine the argument that you can get all the exposure you need to international and emerging markets growth by investing in U.S.-based multinational firms. There are 5,000 companies worldwide with a market cap over $1 billion, and 75% of them are located outside the U.S. There are 25 stock markets with an average company size of $1 billion or more. Ten of these are considered emerging markets, and the U.S. is number three on that list.

Step five, it may be time to retire the term "emerging markets" altogether. "There's a real lack of consistency in how some of these countries are defined and categorized. China is the obvious example; if you look at coastal China, you see all the signs of a major economic power, a country with 1.1 millionaire households. True, many people in the interior are impoverished, but given China's importance in the global economy, and the sophistication of its technology and its overall wealth, how much longer can you say it is "emerging”? Plus, Hong Kong is considered a developed market, and China's and Hong Kong's stock markets are clearly intertwined. Half of the market cap on the Hong Kong stock exchange is made up of mainland Chinese companies.

Rethinking Allocations
Once you make all of these mental adjustments, what then? The Americas, including the U.S., Canada and Latin America make up 40% of the world's market cap. So that becomes the reference percentage you start with before making any tactical or strategic adjustments. Note that this allocation includes a number of developed markets, Canada and the U.S.; and a number of emerging economies, Latin America. Instead of drawing a lot of distinctions about how developed each country is, focus on capturing the region and its various economies.

The Asian/Pacific region currently makes up 30% of the world's market cap. Europe, which includes many developed and some emerging Eastern European economies, makes up 25%. An "other" category, which includes many Middle Eastern and African nations, currently makes up 5%.

That's the base allocation. If you still have a U.S. bias you could raise the Americas allocation from 40% to 45%. You still want to stay ahead of the strong growth in Asia, so increased the Asia allocation a little bit, up to 32%. Next you reduced the Europe allocation from 25% to 20% to make room for the slightly increased expo-sure to the Asian region. The last piece of the puzzle is to reduce Middle Eastern and African nations from 5% to 3% of client portfolios.

Another advantage is that this approach is easy to implement. Within each of the broad allocations are a variety of country-specific ETFs, plus ETFs that focus on the different regions.

There could be a problem with two very popular ETF the Vanguard Emerging Markets Index and the iShares Emerging Markets Index. Both funds are based on MSCI criteria, what happens when MSCI determines that China is no longer an emerging market? It could be a huge mess. We need to keep track of this situation, since we currently use them in our client allocations.

When you look at the years since 2000 in this larger context, the lost decade doesn't seem quite so strange any more. We are starting to experience what everybody else in the world would consider normal market returns, perhaps even subnormal since the U.S. is now on a course that is opposite to its remarkable 20th century burst from relative obscurity to preeminence.

The difference between what we have come to expect and what we can actually expect from U.S. equities may not be as enormous as the big picture would make it seem. To satisfy my curiosity, I pulled out the Credit Suisse 2011 Global Investment Yearbook, which has stock returns for various countries and regions since 1900. The real (after-inflation) growth in U.S. stocks over that time period has been 6.3% a year. During much of that century and a decade, at least the first 80years or so, the U.S. was taking global market share away from Europe; in other words, America was ascendant and Europe was being passed, the way America is now being passed by the more rapidly-growing Asian economies.

Wrangling Over a Phantom Stimulus By Bob Veres

The headlines are screaming again, this time about the Capitol Hill controversy over payroll tax cuts. And, as usual, there is more to the story than what you're reading.

First the good news. Earlier reports said that a stalemate on the tax cut would shut down the government, but before the Senate went home for the holidays, it passed a separate bill that finances the government through next September.

Better news: by all reports, Republicans and Democrats were--and are--in general agreement that there should be some kind of stimulus to the still-recovering economy, and the biggest, least-stimulated sector is consumer spending. The Republicans argued for more tax relief for the wealthiest Americans, and want to reduce pollution controls and force the President to approve the proposed Keystone XL pipeline, which would deliver oil from tar sands in Alberta, Canada to refineries in Texas. Meanwhile, the Democrats wanted a broad-based stimulus measure that would put spending money in the hands of more mainstream American consumers. And they supported environmentalist opposition to the pipeline and the pollution proposals.

Naturally, the two sides couldn't agree on a compromise, so the Senate, by an overwhelming majority, kicked the can down the road for two months by agreeing to continue the reduction in Social Security taxes from 6.2% to 4.2% until Congress could get back in session early next year.

It seems clear that the Senators expected their colleagues in the House of Representatives to follow this simple solution. But nothing is simple in this partisan political atmosphere, and the House (for now, at least) has rejected the measure.

There are several interesting complexities here that should have gotten more attention. One of them is the problems that this wrangling has created for employers, who will have to scramble at the last minute to change their payroll systems to reflect either the 6.2% rate or the 4.2% rate. Which will it be? Who knows? All anybody knows for sure is that the withholding amount will need to be correct starting January 1, and the National Payroll Reporting Consortium has already said that, as a result of the brinkmanship, there is now not enough notice to accommodate any changes that quickly.

Of course, if and when the whole issue is taken up at the end of the proposed two-month extension, companies would face exactly the same dilemma. Chalk this up to a Congress that is oblivious to the consequences of its actions on the business community--especially small businesses.

Behind the scenes, there are other dramas. One involves the very complicated way that the Social Security tax reduction is structured. Reducing the payroll tax would obviously reduce the flow of money into the Social Security trust fund, which is famously experiencing solvency troubles of its own. Neither side wanted to be seen as making the entitlement mess any worse, so the stopgap bill would have had the U.S. Treasury pick up the payments--a sideways accounting move has no real substance. The bill also prevents doctors who accept Medicare payments from receiving a 27% reduction in reimbursement payments, which would weaken the financial stability of another entitlement program, so the Treasury will pay that out of its pocket as well.

But the surprising thing here is that this is actually a revenue-neutral piece of legislation. The Treasury coffers would be replenished through a side door that nobody seems to have noticed. Title IV, entitled "Mortgage Fees and Premiums," would have raised the amount that Fannie Mae and Freddie Mac--the organizations that back a majority of home loans in the U.S.--would collect in mortgage fees after January 2012. In all, the raised mortgage fees--which would increase the cost of homeownership at a time when the housing market is staggering--would pay for the two month extension of the payroll tax cut (estimated at $20 billion) plus two months of additional jobless benefits for 2.5 million out-of-work Americans (an estimated $8.4 billion) and two months of added Medicare reimbursements to doctors (an estimated $6.6 billion).

Can we call this a stimulus, when money comes out of the pockets of home buyers and put in the pockets of payroll workers, the unemployed and doctors? Since the bill seems to be stuck in partisan wrangling, maybe the question is moot anyway.

Don't Kill The Messenger

Don’t kill the messenger!

In days of old messengers were often killed by leaders, if they brought bad news to them, after awhile the messengers would defect or leave the country rather than bring bad news that would get them killed. Can you blame them?

Since the middle of August there has not been that much good news to talk about. I know some of you have been pretty disappointed that investments have not done better. Most people just want some good news. However, my job is to tell you the truth and safe guard your investments during times like this.

November 30th the DJIA was up almost 500 points and people were disappointed that we were not completely back into our investments. Yet if you understand what caused the rally you might be happier with cash.

First, China cut its reserve ratio requirement by 50 basis points overnight, which is the most effective means it has for trying to boost bank lending. This sent the markets up a bit over 1%. This is the first time since 2008 they have done so, indicating that the recent weakness in housing and construction markets in China is bad enough that China had to do something. The part that should be worrying you is China’s economy has hit a wall despite massive amounts of bank lending and deficit spending by China equal to at least 37% of its GDP in each of the last three years.

Second, there was a coordinated global central bank action to lower swap rates for European banks borrowing dollars. The U.S. Fed, ECB (European Central Bank) and other central banks are trying to make it attractive for banks in the Euro-zone to borrow dollars directly from the ECB instead of in the private or interbank markets. This keeps interest rates low. This was good for another 2% or so move in the markets. However, this does nothing to solve the underlying credit issues that are plaguing Europe, but merely postpones the day of reckoning. Everything I see and read tells me Europe will be in a recession like we had in 2008 within 18 months.

Third, the markets were oversold and trading on light volume which makes the sustainability of this move suspect. Despite the big move the markets stopped dead in the middle of the resistance band of 1245 to 1250 on the S&P 500.

Don’t Miss the Ten Best Days in the Stock Market

We have all seen the articles “Don’t Miss the Ten Best Days in the Stock Market” which all show that missing just a small percentage of the market's best days dramatically reduces an investor’s return. This assertion has been repeated so often that it's become unquestioned. Have you read an article that disputes this belief?

If you look at the top one-day gains and losses for the Dow Jones Industrial Average (DJIA), you will notice an interesting phenomenon.

1.The worst days seemed to be in close proximity to the best days

2.In the majority of cases, large percentage gainers were no more than 90
trading days away from a large percentage loser, sometimes before and sometimes
after.

3.In 50 percent of the cases, gainers and losers were separated by no more than
12 trading days.

4.When looking at Nasdaq's the largest gainers and losers, all but two have
occurred since 2000.

These observations make it hard to believe that investment success rested upon being fully invested in order to catch the winning days. Rather, especially in the case of the Nasdaq crash of 2000, it suggests that it was more important to miss the worst bear market which brings us to the other side of the coin: All of the "Don't Miss the Ten Best" articles fail to mention what would happen to your portfolio if you missed the ten worst days. We know that it takes a 100% gain to make up for a 50% loss and Monte Carlo retirement analysis shows that low volatility portfolios often last longer than those tuned for high returns especially during your retirement years when you are drawing on your investments. So it's more important to avoid large losses than it is to pursue large gains.

What happens if rather than missing the ten best days, you miss the ten worst?

Paul Gire, CFP®, from Strategic Advisory Services decided to study this. He examined one of the most bullish periods in Dow history, from 1984 to 1998. In addition, He examined the impact from missing not just the 10 best and worst days, but also examined the 20, 30, and 40 best and worst days. What he found was simply remarkable.

1.The buy-and-hold return for this 15-year period was 17.89%, one of the most
bullish periods in the stock market’s history.

2.As expected, missing the best days lowered returns, and missing just 40 of
the best days over this 15 year period cut returns nearly in half.

3.Missing the worst days has the expected result of increasing returns
substantially, improving the return by 77% for missing the 40 worst days.

However, how realistic can it be to get in and out of your investments and be in your investments on the best days and out of your investments on the worst days, if 50% of those days are within 12 trading days of each other and all the rest are within 90 days of each other? Paul’s next discovery was really remarkable and to me the final key to my puzzle.

By missing both the best and the worst days between 1984 to 1998 you got a remarkably consistent return. Whereas missing just the best or worst had a magnified impact as the number of days increased, missing both produced a consistent return of approximately 20%, as shown by the chart at the beginning of this post.

Not only does missing both result in superior returns, imagine the benefits from lower volatility:

1.Lower mental and physical stress.

2.Less volatility on retirement income making it last much longer.

As investors learned during the 2000 to 2002 and 2008 to 2009 market meltdowns, it's one thing to stay the course when investments are booming, yet quite another when market meltdowns are rapidly eroding gains from years of careful saving and investing. The 30 months 2000 to 2002 stock market meltdown erased half of the market gains made since 1974, the previous 26 years. Then came 2008 and early 2009. Now look at what is happening in 2011.

Is it possible we are missing something when we look at the last 110 and 10 year periods? Stay tuned for next month's post!

World problems and November 23rd:

The current worldwide problems have so many twists and turns you just don't know what to do next. Let’s take a look at what I am seeing right now.

Europe: Every time one of the PIIGS (Portugal, Italy, Ireland, Greece & Spain) appears to have or not have a solution to their debt problems your investments go crazy. The DJIA can move up and down 500 points in a day. The problem as I see it is that we have five countries with debt problems and only one or two have been working on their problems. So does this mean we will continue to have 500 point swings until all five countries get things under control? Probably?

United States: The Presidential cycle tells us that we have 7 ½ months before the market volatility will slow down in the United States. Our unemployment is way too high, with no hope to go lower until after the election next year. Does that last statement surprise you? It should not. The Republicans do not want the country to get better, or they won’t be able to put a Republican in the White House.

Inflation and Interest Rates: Here the government maybe down right lying to us. They tell us that we have no inflation and it is better for the recovery to keep interest rates low.

I was buying this for a while. Then I heard the statement, “If Italy could pay 2%, rather than 6% on their bonds, Italy would not have its current debt problems.

That got me thinking, since I was also told that higher inflation would help the recovery rather than hurt it. With inflation housing prices would go up, companies could raise prices, profits would go up, individual wealth would increase, companies would have a reason to start hiring and the economy could get better.

So why has the Federal Reserve stated that they will keep interest rates low for the next two year. The Government maybe afraid if inflation and interest rates were to be allowed to move freely, the interest rate the government would have to pay on their bonds would go up so high that the United States could be in the same shape that the PIIGS are now.

The Super Committee: Before you start thinking of Thanksgiving turkey or holiday shopping, there’s a big hurdle we have to surmount. The Nov. 23 deadline for the “Super Committee” of the U.S. Congress to come up with at least $1.2 trillion in cuts to the federal budget deficit over the next 10-years. If they don’t work out a deal, automatic budget cuts will take effect, as ordered by last summer’s debt ceiling agreement. While we’ve been watching Greece and Italy, this small group of legislators has been trying to work out an agreement on how to do this. Neither party wants their members to give in to an agreement that does not help their own party in the coming election.

If there isn’t some give and take now, the consequences could be draconian cuts in everything from the military budget to all social programs, not to mention what this would do to the stock markets.

There are other possibilities. The committee could ask for a deadline extension. The goal is to have the Congressional Budget Office “score” the savings in time for Congress to pass the package by the end of the year. They will only have four weeks to do that, after the 23rd, if they want to go home for Christmas.

If the committee is deadlock and fails to agree, it could put the United States in the position that Italy and Greece are currently in.

If they could come to agree on even deeper cuts than the minimum, it could set America back on the right course for the next generation. Today's voters would not like what it would take to do this, but it would have a very positive effect on the future of the country and the stock markets. What do you think the chance of this happening is?

The results that come out of the Super Committee will create a significant turning point for the economy. So we want to be prepared to adjust your long-term investment allocations, but we don’t want to jump before thinking about the consequences.

If the Super Committee and Congress can’t come to an effective resolution, gold will surely soar; inflation or debt default will push interest rates much higher. The stock market’s immediate reaction would be downward as market participants don't like uncertainty, but stocks historically have been a very good hedge against inflation. If the Super Committee does not come up with a solution by November 23rd and the stock markets fall; any cash you currently have will look pretty good. Yet, you will need to get that cash invested while the markets are down to profit from our government’s inability to do what it should do.

So how should you invest if that happens?
That just went out in my latest newsletter to clients.

U.S. Debt: YOU CAN BE PART OF THE SOLUTION!

Since April 2011 Americans witnessed a political theater over the U.S. debt ceiling. The Standard and Poor’s review of that performance resulted in a downgrade of the federal government’s credit rating.

While Congress raised the debt ceiling for now, the U.S. debt remains a problem and the short-term solution offered by the deal in Congress does little to give us a long-lasting solution.

The creation of a “super” deficit committee by Congress merely kicked the can down the road. Congress, and its long years of indecision regarding what to do about deficits and the national debt, is the problem!

The U.S. is currently experiencing historically high levels of debt. The best way policy experts have of measuring debt burden is comparing the national debt to total Gross Domestic Production (GDP). Today, the total net debt is 75% of GDP. This type of high debt is normal during periods of war like that of WWI and WWII. We are at war in Afghanistan and Iraq; however, that is nowhere near the wartime mobilization of WWI and WWII.

The U.S. debt is an accumulation of many years of deficits, which has been brought about by exceeding revenues during past fiscal year. These deficits did not cause our current situation alone. The U.S. has run an annual deficit in almost every year since 1945. But we have never encountered debt levels as perilous as the one we have now.

Our debt is due to structural causes brought about by poor political choices. These poorly designed public policies directly contributed to the housing bubble, loose oversight of Fannie Mae and Freddie Mac, lack of regulations on sub-prime lending and low-interest rates for far to long.

Public policies in response to the 2008 meltdown led to even higher debt with its fiscal stimulus and monetary policy. We should not fault the federal government’s response to the crisis in 2008; there were very few alternatives available once we got into that mess.

So you see, our large debt burden problem is structural and will not be reversed when the economy picks up. The hole the Congress has dug for our country is far to deep and getting deeper at an accelerating rate. We are coming to a tipping point. If we reach that point, several negative consequences could result.

1. The national debt will crowd out private investment.
2. Spending will have to be cut and taxes raised to pay off just the increasing interest on the U.S. debt.
3. The debt load will severely restrict the government’s ability to act in times of an emergency.

There is time to start reversing the trend; we are not doomed to the fate of countries such as Greece and Ireland. Yet, it will take a bipartisan approach and shared sacrifice to correct our present course and here in lays the problem. We have seen how our Congress and Senate work together, or should I say do not work together. If the U.S. continues down the same road it has been on for the last 12 years, we are going to get the same results: recessions, higher U.S. debt and continued high unemployment.

The definition of insanity is continuing to do the same thing you have always done an expecting a different results.

You can be part of the solution. We are about to go through the thing that has always made this country GREAT! A National election! You need to meet with our candidates and listen closely to them. You also need to be heard by them. You need to be heard saying that you will not stand for politics as usual. You know in your heart of hearts that to actually fix the problems of the U.S. debt, unemployment and our country; we will have to raise taxes and cut spending. Don’t stand for a politician that is promising “No new taxes” or “We can cut spending” alone. They are simply saying what you want to hear to get elected. Stand up for what you personally feel it is going to take to fix our country!

Did anyone get the license number of the truck that just ran over the stock markets?

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…” These words, penned in 1859 by Charles Dickens, could well describe the technical picture of our current market.

Without the help of any particularly bad news announcements, the stock market fell hard today, August 4th, with Dow Jones Industrial Average down nearly 513 points.

We moved our bond money back into markets during the first of the week just before the debt problem was fixed. Yes, Washington just kicked the can down the road and did not fix the problem, but they did enough that the markets should have been happy for now. However, look what is happening?

I have checked the Yield curve, oil prices and transportationals and only the transportationals show any signs of a problem.

I am not sure what is causing the current problem, except Washington’s dragging out the debt crisis and other problems like the air traffic control problem. Washington may have spooked the world by their ineptitude and lack of understanding of what goes on in the real world. Congress and the Senate went on vacation while the U.S. Markets (Roman) burns.

Every year the stock markets have a 10% or 15% correction. We had a 10% correction caused by the Japanese Tsunami. I had hope that would be the only one this year. However we are down 10% this week, during a period of time that we should be going up? It feels like October 1987?

Stay tuned for tomorrow!

God bless!

How to use your computer to get high quality low cost hotels!

Priceline, Bidding For Travel and Trip Advisor.

This information was originally given to me by a friend. I have changed it a little to try and make it easier to understand and use. OK,I’ll admit it: I’m on a mission to teach others how to get high quality hotel rooms at the lowest cost possible when they travel. So I would like to share how to make the most of Priceline.com, the website that helps users obtain discount rates for travel related services like airline tickets, hotels and rental cars. Priceline is not a direct supplier of these services. Instead, it facilitates its suppliers’ services to its customers.

http://www.priceline.com

Priceline offers two basic services:

1. A fixed-price travel service just like any other travel agency.
2. The other is the “Name Your Own Price” feature.

Priceline’s fixed-price service offers nothing special in terms of pricing, unless Priceline happens to posts a mistake rate that users can jump on if they act quickly. But that’s rare.

However, the “Name Your Own Price” feature can save you up to 60 percent on hotel costs
if you know how to use it.

To make the most of Priceline, you have to start by becoming familiar with four other sites: BiddingForTravel.com, BetterBidding.com, BiddingTraveler.com, and TripAdvisor.com.

BiddingForTravel, TravelBuddy, and BetterBidding are sites that list successful previous Priceline bids for airfares, hotels and car rentals around the world. Along with TripAdvisor, they also list reviews for the hotels in any given city, and by region, and by star rating, Five Star is the best, One Star is really bad. I bid for Four Star and Three Star hotels and, if the reviews are OK, Two and a Half Star hotels in a region where I want to stay.

http://biddingfortravel.yuku.com/

http://www.travelbuddy.com

http://www.betterbidding.com

http://www.tripadvisor.com

To go through the steps, I’ll use a trip I took to see a client a few years ago. He lived in Boston at the time.

First, I went to Priceline.com and the Name Your Own Price hotels and found the various regions listed for the Boston market as well as the top hotel ratings in that zone.

Then:

1. I opened another window and headed to BiddingForTravel.com. On that site, I went to “hotels,” then “Mass,” then “Boston.” I checked previous accepted prices in the various regions of Boston.

2. Then I looked at reviews of the hotels on TripAdvisor.com.

3. Then decided what star level I was comfortable with.

For me the downtown Copley and the Back Bay regions were too expensive. The airport region was best for me and within my frugal budget, especially since it came with shuttle service to the subway stop (“T”) to go downtown and then back to the hotel. On other trips to Boston, I’ve typically gotten the Hyatt Harborside Hotel, at Boston Logan Airport for $56 per night. It’s a beautiful hotel that costs $149 a night on a typical weekend. I always ask for a waterside room. If you do not ask for what you want, when you get to the hotel, they will give you a bad view by the elevators.

The key to being successful at BiddingForTravel.com is to read carefully the section on bidding and re-bidding. It is located in the Hotels FAQ. Suppose you want “Zone Airport” and a Four-Star hotel. From previous bidders, you see that $56 has been won in the past, so your first bid should be: Zone Airport, 4 stars, $50. If you don’t win that one, then add another zone that only has lower star levels available, and this time bid $54. If there are five zones without a hotel over three and one half stars, you get five free re-bids until you get an accepted bid.

Re-bidding allows you to start low and move your price higher without changing your parameters. But I have to caution you again: Read these sections of BiddingForTravel.com before going to Priceline.com where you will actually place your bids. You should even practice this technique with several imaginary cities without hitting the “Buy My Hotel” button. Once you’ve booked on Priceline, there are no refunds.

We have had people stay in Priceline rooms in over 30 U.S. cities, as well as in London, Dublin, Paris and Rome and they have never been disappointed. The key is to do your research on BiddingForTravel.com or BetterBidding.com first, then double-check the reviews at TripAdvisor.com.

It’s also important to remember to bid one star level higher in Europe for accurate comparisons to U.S. hotels. One bad hotel in a given zone and at a given star rating should force you to bid at a higher level or different zone for that city.”

Bottom line: By using these websites in conjunction – Priceline, TripAdvisor, BiddingForTravel, BetterBidding - you can save 60% on your travel expenses for the rest of your travel life.

It takes some work, but a dollar in your pocket is better than a dollar in someone else’s pocket. Play with this a couple of times and it will become easier than you think.