Womack Advisers Blog

Weekly Commentary: Hitting new highs

Sun, 05 May 2013 23:00:00 -0500

Like athletes testing their limits, the Standard & Poor’s 500 and the Dow Jones Industrials Indices both hit new highs last week. The S&P closed the week above the 1,600 level for the first time, while the Dow climbed above the 15,000 mark on Friday before closing lower. Strong corporate earnings, gains in the housing market, and good news from Europe helped support last week’s strong performance.

Corporate earnings season – the period when companies’ managements tell shareholders how well the companies have performed during the previous quarter – is almost over. Seventy-two percent of the companies in the S&P 500 have beaten analysts’ expectations, according to information provided by FactSet and reported on MarketWatch. Since 1994, about 63 percent of companies have beaten expectations on average.

Housing market news was largely positive last week. The Standard & Poor’s/Case-Shiller 20-city index of home prices was up 9.3 percent year-over-year through February which was the largest gain in almost 7 years. Generally, cities that had seen big price declines during the housing crisis realized the biggest gains, including Phoenix, Las Vegas, and Atlanta. Cities experiencing strong jobs growth, such as San Francisco, Seattle, and Dallas, also showed significant price gains.

In Europe, Italy’s elected leaders finally resolved their political impasse and formed a government. The highly-diverse coalition includes a record number of women, as well as Italy’s first non-white minister. The new cabinet was sworn in on Sunday, April 28. On Monday, Italy’s FTSE MIB, an index which reflects the performance of the Italian stock market, the MSCI World Index, and several U.S. stock markets moved higher.

Data as of 5/3/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	2.0%	13.2%	16.0%	10.3%	2.8%	5.7%
10-year Treasury Note (Yield Only)	1.8	N/A	1.9	3.7	3.9	3.9
Gold (per ounce)	-0.2	-13.3	-10.3	7.4	10.8	15.7
DJ-UBS Commodity Index	0.9	-4.3	-3.7	-0.5	-8.8	1.6
DJ Equity All REIT TR Index	2.0	15.0	20.8	15.9	6.7	12.5

Notes: S&P 500, DJ Global ex US, 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 or not available.

DOES MONEY BUY HAPPINESS...OR DOESN'T IT? Many years ago, Richard Easterlin, a Professor of Economics at the University of Southern California, studied the relationship between happiness and money. He found that, over shorter periods of time, happiness and income tend to move in tandem. “Happiness tends to fall in economic contractions and rise in expansions.”

Over longer periods of time, he found satisfaction with life (i.e., happiness) had little relationship to rates of economic growth (i.e., people having more money). The conclusion was once people have enough money to meet basic needs, they are as happy as they are going to be.

A recent paper from the National Bureau of Economic Research, written by economists Betsey Stevenson and Justin Wolfers of the University of Michigan, appears to cast doubt on Easterlin’s happiness-income paradox. The authors relied on data from Gallup polls which asked people throughout the world how much they earned and on which rung of the happiness ladder they were perched. While people in some countries appeared to be happier than people in other countries, everyone – no matter how much money they had – was happier when they had more money.

So, does more money translate into more happiness or doesn’t it?

It may all come down to your definition of happiness. After all, well-being is subjective as Princeton’s Professor of Psychology and Public Affairs, Daniel Kahneman, and its Professor of Economics and International Affairs, Angus Deaton, pointed out in a 2012 paper. The pair evaluated two measures of happiness: life evaluation (satisfaction with your place in the world) and emotional well-being (day-to-day happiness). The researchers found that life evaluation increases steadily with income, while day-to-day happiness maxes out an annual income of $75,000. They concluded “high income buys life satisfaction but not happiness, and low income is associated both with low life evaluation and low emotional well-being.”

Weekly Focus – Think About It...

“All I ask is the chance to prove that money can't make me happy.” --Spike Milligan, British comedian

Weekly Commentary: The power of Twitter and the puzzle of gold

Mon, 29 Apr 2013 23:00:00 -0500

If anyone doubted the power of Twitter, their skepticism was laid to rest this week. Early Tuesday afternoon, a tweet from the Associated Press reported President Obama had been injured by explosions in the White House. Stock, bond, and commodity markets fell sharply on the news and then rebounded when the Associated Press communicated that its Twitter account had been hacked. This wasn’t the first time such a thing had happened on Twitter or the first time false and market moving information had been posted. In February, the stocks of Burger King and Jeep moved after a post on each company’s Twitter account indicated the company had been sold to a rival firm. The lesson to take from these events? Everyone may want to be wary about buying or selling investments based on news reported through Twitter or any other social media feeds.

Economic and earnings news was mixed during the week. Durable goods orders were off by almost 6 percent which was a mark in the negative column. There were fewer jobless claims than analysts expected which was a positive. The initial estimate of U.S. GDP growth for first quarter was released by the Commerce Department. Growth was about 2.5 percent annualized during the first quarter. That was significantly above fourth quarter’s 0.4 percent annualized growth, but below expectations for 3.0 percent growth. An above average number of companies beat expectations for the quarter. Sixty-nine percent of the companies in the Standard & Poor’s 500 beat analysts' expectations, according to Thomson Reuters data reported on Yahoo! Finance. Since 1994, about 63 percent of companies have beaten expectations on average.

Markets generally recovered from Twitter trickery and were unfazed by mixed economic news. Stock markets finish the week higher with the Standard & Poor's 500 gaining 1.7 percent, the Dow Jones Industrial Average rising by 1.1 percent and NASDAQ Composite Index up 2.3 percent. Treasury prices were higher by the end of the week. According to Bloomberg.com, that’s an indication the world still believes U.S. Treasuries are a safe haven.

Data as of 4/26/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.7%	10.9%	13.0%	9.3%	2.5%	5.6%
10-year Treasury Note (Yield Only)	1.7	N/A	2.0	3.8	3.8	3.9
Gold (per ounce)	4.7	-13.1	-11.0	8.4	10.6	16.0
DJ-UBS Commodity Index	0.3	-5.1	-5.5	-1.0	-9.2	1.7
DJ Equity All REIT TR Index	0.2	12.8	19.4	15.6	6.1	12.5

WHAT'S THE STORY WITH GOLD? According to an April 2012 Gallup Poll, Americans believe gold is the best long-term investment. Overall, real estate, stocks, and savings accounts were near-followers. When Gallup broke the statistics down demographically, they found men prefer gold while women prefer real estate, independents prefer gold while Democrats and Republicans prefer stock, and wealthier people prefer real estate and stocks while middle and lower income Americans prefer gold. China for years has been a top importer of gold.

Gold’s popularity is interesting because research suggests investors hold less than 20 percent of the world’s $9 trillion gold supply. Much of the world’s gold is held by central banks – the U.S. Federal Reserve, the European Central Bank, and others – and other financial institutions. One of the world’s largest holders of gold is the International Monetary Fund (IMF). The IMF is “an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”

The IMF and central banks hold gold as foreign exchange currency reserves because gold is universally accepted and highly liquid, according to The Economic Times. The World Gold Council reports developed countries often hold a significant portion of their reserves in gold. The United States has 75.1 percent of its reserves in gold, Germany has 72.1 percent, Italy has 71.3 percent, and France has 69.5 percent and the Netherlands 58.7 percent. In addition, central banks in emerging countries hold gold reserves although their reserves are often smaller than those of developed countries. Early in 2013, 9.5 percent of Russia’s reserves were gold, 9.6 percent of India’s, and 1.6 percent of China’s. In recent months many of the emerging countries have been aggressively importing more gold to build up their reserves. Lately the World Gold Council reported that Russia surpassed China and India as the world’s top importer of gold. It appears the emerging countries are trying to catch up to the big boys; if this is the case, the demand for gold could continue for some time.

Some experts believe high demand for gold from emerging countries combined with limited gold supply may push gold prices higher. Other experts have compared the recent highs of the gold market to the dotcom and housing bubbles. Who’s right? Only time will tell.

Weekly Focus – Think About It...

“Faith consists in believing when it is beyond the power of reason to believe.” --Voltaire, writer, historian, and philosopher

Weekly Commentary: Reflecting on a wild week

Sun, 21 Apr 2013 23:00:00 -0500

It was a wild, wild week.

Last Monday, bombs exploded near the finish of the Boston Marathon. Not long after, media outlets let the public know letters to President Obama and a senator from Mississippi contained the poison ricin. On Wednesday, the town of West, Texas was flattened by an explosion at a fertilizer plant. By the end of the week, a man had been arrested for sending the ricin letters, the city of Boston had been locked down, the bombing suspects had been captured, and folks were returning to their homes in West, Texas.

The week’s economic news wasn’t all that encouraging. The pace of economic growth in China slowed unexpectedly, the International Monetary Fund reduced its 2013 growth forecast for the United States for the fourth time, earnings results were mixed, and an index of leading economic indicators in the Unites States unexpectedly moved lower. On the plus side, new home construction hit a five-year high. All three major indices – the Dow Jones Industrials Index, The Standard & Poor’s 500, and the NASDAQ – finished the week down more than 2 percent.

The most significant move of the week took place in the gold market which lost about 9 percent on Monday. That was the biggest one day fall in 30 years. The market recovered some value later in the week, finishing down about 8.5 percent. According to The Economist, “The usual explanation for sharp price movements, when an economic rationale seems lacking, is that someone is selling off their holdings at any price. Some have pointed at Cyprus which may have to sell gold in response to its debt crisis. Although Cyprus’ gold holdings are small, the fear is that other troubled eurozone nations may follow suit.”

Will this week be calmer? It’s possible, but economic news will include the first estimate of U.S. GDP growth for first quarter. According to Reuters, GDP growth is forecast at 3 percent annualized even though fourth quarter’s GDP growth was 0.4 percent annualized.

Data as of 4/19/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-2.1%	9.1%	13.0%	9.1%	2.3%	5.7%
10-year Treasury Note (Yield Only)	1.7	N/A	2.0	3.8	3.7	4.0
Gold (per ounce)	-8.5	-17.0	-14.8	7.4	8.9	15.4
DJ-UBS Commodity Index	-1.8	-5.4	-4.4	-0.4	-9.1	1.3
DJ Equity All REIT TR Index	-0.3	12.5	22.6	18.3	6.7	12.4

ARE YOU RESPONSIBLE FOR YOUR LOVED ONE'S UNPAID DEBT? It's never easy when someone dies. Grief is a powerful, and sometimes debilitating, experience that often leaves next of kin vulnerable. Unfortunately, there is a group that sometimes tries to take advantage of family members in mourning. No, they’re not scammers or confidence men. They’re debt collectors who try to persuade family members to accept responsibility for hospital bills, credit card balances, auto loans, and other debts incurred by the deceased even though family members have no legal obligation to pay.

People don’t always know when someone dies, their debts die with them. There are exceptions to this, particularly for spouses. If you live in a community property state, typically, spouses share property and debts equally. Non-spouse family members, however, have no obligation to pay outstanding debts of the deceased unless they have co-signed a debt agreement.

Regardless of these facts, debt collectors may contact you after the death of a loved one. The AARP Bulletin reported “debt collection agencies frequently employ specially trained representatives who make sympathetic calls to husbands, wives, children, and other family members to urge them ever-so-gently to pay what the loved one owed.” The Bulletin advised family members who receive these calls to hang up. There is an established procedure for collecting debts from a deceased person. It’s called probate, and it is the appropriate way for debt collectors to pursue collections after death.

After receiving numerous complaints about death-collections practices, the Federal Trade Commission (FTC) investigated the situation by listening to recordings of calls between collectors and mourners. The FTC determined that some debt collectors misled relatives into believing they had to pay the deceased’s debts. As government agencies are apt to do, the FTC issued new guidelines. Debt collectors should discuss a dead person's debt only with the spouse or someone chosen by the estate to discuss the matter.

The next time you revise your will, you may want to designate someone to discuss any outstanding debts after your death. It could save your spouse some unnecessary heartache.

Weekly Focus – Think About It...

“Everything has beauty, but not everyone sees it.”

--Confucius

Looking back, looking ahead at health-care reform

Tue, 16 Apr 2013 23:00:00 -0500

Three years ago, on March 23, 2010, President Obama signed the Affordable Care Act (ACA) into law. While several substantial provisions don't take effect until 2014, many of the Act's requirements already have been implemented, including:

Insurance policies must allow young adults up to age 26 to remain covered on their parent's health insurance.

Insurers cannot deny coverage to children due to their health status, nor can companies exclude children's coverage for pre-existing conditions.

Lifetime coverage limits have been eliminated from private insurance policies.

State-based health insurance Exchanges intended to provide a marketplace for individuals and small businesses to compare and shop for affordable health insurance are scheduled to be implemented by October 1, 2013.

Insurance policies must provide an easy-to-read description of plan benefits, including what's covered, policy limits, coverage exclusions, and cost-sharing provisions.

Medical loss ratio and rate review requirements mandate that insurers spend 80% to 85% of premiums on direct medical care instead of on profits, marketing, or administrative costs. Insurers failing to meet the loss ratio requirements must pay a rebate to consumers.

The ACA provides federal funds for states to implement plans that expand Medicaid long-term care services to include home and community-based settings, instead of just institutions.

The ACA provides funding to the National Health Service Corps, which provides loan repayments to medical students and others in exchange for service in low-income underserved communities.

Medicare and private insurance plans that haven't been grandfathered must provide certain preventive benefits with no patient cost-sharing, including immunizations and preventive tests.

Through rebates, subsidies, and mandated manufacturers' discounts, the ACA reduces the amount that Part D Medicare drug benefit enrollees are required to pay for prescriptions falling in the donut hole.

Major provisions coming in 2014

Several important provisions of the ACA are due to take effect in 2014, such as:

U.S. citizens and legal residents must have qualifying health coverage (subject to certain exemptions) or face a penalty.

Employers with more than 50 full-time equivalent employees are required to offer affordable coverage or pay a fee.

Premium and cost-sharing subsidies that reduce the cost of insurance are available to individuals and families based on income.

Policies (other than grandfathered individual plans) are prohibited from imposing pre-existing condition exclusions, and must guarantee issue of coverage to anyone who applies regardless of their health status. Also, health insurance can't be rescinded due to a change in health status, but only for fraud or intentional misrepresentation.

Policies (except grandfathered individual plans) cannot impose annual dollar limits on the value of coverage.

Individual and small group plans (except grandfathered individual plans), including those offered inside and outside of insurance Exchanges, must offer a comprehensive package of items and services known as essential health benefits. Also, nongrandfathered plans in the individual and small business market must be categorized based on the percentage of the total average cost of benefits the insurance plan covers, so consumers can determine how much the plan covers and how much of the medical expense is the consumer's responsibility. Bronze plans cover 60% of the covered expenses, Silver plans cover 70%, Gold plans cover 80%, and Platinum plans cover 90% of covered expenses.

Weekly Commentary: Markets happy with the Fed

Sun, 14 Apr 2013 23:00:00 -0500

Last week, the term ‘Easy Money’ conjured both comedian Rodney Dangerfield and the U.S. Federal Reserve, and no one was certain how much respect either one should get.

The Fed accidentally e-mailed its market-moving Federal Open Market Committee (FOMC) meeting minutes to congressional staffers and trade lobbyists on Tuesday at 2 p.m. The minutes weren’t supposed to be released to anyone until Wednesday at two. Once the mistake was realized, the Fed released the minutes early on Wednesday morning.

Markets enthusiastically embraced the minutes which appeared to focus on the idea quantitative easing will continue. The Dow Jones Industrial Average closed at a record high more than once last week, and the Standard & Poor’s 500 Index is already nearing analyst’s targets for the full year.

The minutes indicated committee members were less clear on the issue, according to the Washington Post, which reported:

“A few Fed officials think QE (Quantitative Easing) should be stopped immediately; a few think it should be shrunk fairly soon; many think it should be slowed if we see a rebounding job market; a few think it should continue at its current size until the end of the year; and a couple think it may need to be increased. The minutes also make clear Fed officials are not all on the same page in determining the economic climate that would trigger that tapering.”

Committee members are not the only ones who don’t know what to think about the economy. Consumer sentiment has been volatile. According to The Wall Street Journal, the Thomson-Reuters/University of Michigan consumer sentiment index showed consumer sentiment improved significantly from mid- to late-March only to decline again from late-March to mid-April. Bloomberg.com speculated weaker consumer sentiment may have been the result of the payroll tax roll and weaker U.S. economic data.

Data as of 4/12/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	23%	11.4%	14.5%	9.9%	3.7%	6.0%
10-year Treasury Note (Yield Only)	1.7	N/A	2.0	3.9	3.5	4.0
Gold (per ounce)	-2.1	-9.3	-8.0	9.8	10.6	16.8
DJ-UBS Commodity Index	-0.2	-3.8	-5.3	-0.2	-8.7	1.8
DJ Equity All REIT TR Index	2.6	12.8	24.1	17.6	7.7	12.7

IT HAS BEEN SAID STOCK MARKET RETURNS REVERT TO THE MEAN, but what does that mean? Reversion to the mean is a statistical phenomenon. It’s the idea the further something is from the mean – or average – the more likely it is the next thing that comes along will be closer to the mean. For example, if a baseball player has a batting average of .330 and hits .180 in a game, it’s likely that player will hit better in the next game (unless, the player’s in a slump, but that is a different topic).

Reversion to the mean is the theory behind a variety of investment strategies. Analysts who employ the theory may look at an average price, an average return, or another financial statistic they find relevant. For example, they may consider whether a company’s recent performance varies significantly from its historical average performance. If its performance is worse than average, some analysts may decide the company’s price is likely to revert to the mean. In that case, they may choose to invest in the company. If the company’s performance is better than average, analysts may decide to sell shares. Similarly, if a market or index – such as the U.S. Treasury market or the Standard & Poor’s 500 Index – performs significantly worse than its mean, investors may decide better performance is ahead, and vice versa.

In 2009, an article in Forbes stated, “Mean reversion is an odd concept because it's clearly not causal. The market's historic return of 9 percent a year is based on over 100 years of data (what's typically considered the modern stock market), and, of course, the ride to 9 percent is a bumpy one with major double-digit up years and big double-digit down years all averaging to that 9 percent number.” The point is any average is a moving target. After all, a significant downward movement pushes the historical mean lower and a significant upward shift pushes it higher.

Regardless of the investment theories employed by analysts and money managers, investors may want to set financial goals, carefully choose asset allocation strategies, hold well-diversified portfolios, and maintain their long-term perspective.

Weekly Focus – Think About It...

“Thousands of candles can be lighted from a single candle, and the life of the candle will not be shortened. Happiness never decreases by being shared.” --Buddha

Teach Your Children Well: Basic Financial Education

Wed, 10 Apr 2013 23:00:00 -0500

Even before your children can count, they already know something about money: it's what you have to give the ice cream man to get a cone, or put in the slot to ride the rocket ship at the grocery store. So, as soon as your children begin to handle money, start teaching them how to handle it wisely.

Making allowances

Giving children allowances is a good way to begin teaching them how to save money and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.

Some parents expect children to earn their allowance by doing household chores, while others attach no strings to the purse and expect children to pitch in simply because they live in the household. A compromise might be to give children small allowances coupled with opportunities to earn extra money by doing chores that fall outside their normal household responsibilities.

When it comes to giving children allowances:

· Set parameters. Discuss with your children what they may use the money for and how much should be saved.

· Make allowance day a routine, like payday. Give the same amount on the same day each week.

· Consider "raises" for children who manage money well.

Take it to the bank

Piggy banks are a great way to start teaching children to save money, but opening a savings account in a "real" bank introduces them to the concepts of earning interest and the power of compounding.

While children might want to spend all their allowance now, encourage them (especially older children) to divide it up, allowing them to spend some immediately, while insisting they save some toward things they really want but can't afford right away. Writing down each goal and the amount that must be saved each week toward it will help children learn the difference between short-term and long-term goals. As an incentive, you might want to offer to match whatever children save toward their long-term goals.

Shopping sense

Television commercials and peer pressure constantly tempt children to spend money. But children need guidance when it comes to making good buying decisions. Teach children how to compare items by price and quality. When you're at the grocery store, for example, explain why you might buy a generic cereal instead of a name brand.

By explaining that you won't buy them something every time you go to a store, you can lead children into thinking carefully about the purchases they do want to make. Then, consider setting aside one day a month when you will take children shopping for themselves. This encourages them to save for something they really want rather than buying on impulse. For "big-ticket" items, suggest that they might put the items on a birthday or holiday list.

Don't be afraid to let children make mistakes. If a toy breaks soon after it's purchased, or doesn't turn out to be as much fun as seen on TV, eventually children will learn to make good choices even when you're not there to give them advice.

Earning and handling income

Older children (especially teenagers) may earn income from part-time jobs after school or on weekends. Particularly if this money supplements any allowance you give them, wages enable children to get a greater taste of financial independence.

Earned income from part-time jobs might be subject to withholdings for FICA and federal and/or state income taxes. Show your children how this takes a bite out their paychecks and reduces the amount they have left over for their own use.

Creating a balanced budget

With greater financial independence should come greater fiscal responsibility. Older children may have more expenses, and their extra income can be used to cover at least some of those expenses. To ensure that they'll have enough to make ends meet, help them prepare a budget.

To develop a balanced budget, children should first list all their income. Next, they should list routine expenses, such as pizza with friends, money for movies, and (for older children) gas for the car. (Don't include things you will pay for.) Finally, subtract the expenses from the income. If they'll be in the black, you can encourage further saving or contributions to their favorite charity. If the results show that your children will be in the red, however, you'll need to come up with a plan to address the shortfall.

To help children learn about budgeting:

· Devise a system for keeping track of what's spent

· Categorize expenses as needs (unavoidable) and wants (can be cut)

· Suggest ways to increase income and/or reduce expenses

The future is now

Teenagers should be ready to focus on saving for larger goals (e.g., a new computer or a car) and longer-term goals (e.g., college, an apartment). And while bank accounts may still be the primary savings vehicles for them, you might also want to consider introducing your teenagers to the principles of investing.

To do this, open investment accounts for them. (If they're minors, these must be custodial accounts.) Look for accounts that can be opened with low initial contributions at institutions that supply educational materials about basic investment terms and concepts.

Helping older children learn about topics such as risk tolerance, time horizons, market volatility, and asset diversification may predispose them to take charge of their financial future.

Should you give your child credit?

If older children (especially those about to go off to college) are responsible, you may be thinking about getting them a credit card. However, credit card companies cannot issue cards to anyone under 21 unless they can show proof they can repay the debt themselves, or unless an adult cosigns the credit card agreement. If you decide to cosign, keep in mind that you're taking on legal liability for the debt, and the debt will appear on your credit report.

Also:

· Set limits on the card's use

· Ask the credit card company for a low credit limit (e.g., $300) or a secured card to help children learn to manage credit without getting into serious debt

· Make sure children understand the grace period, fee structure, and how interest accrues on the unpaid balance

· Agree on how the bill will be paid, and what will happen if the bill goes unpaid

· Make sure children understand how long it takes to pay off a credit card balance if they only make minimum payments

If putting a credit card in your child's hands is a scary thought, you may want to start off with a prepaid spending card. A prepaid spending card looks like a credit card, but functions more like a prepaid phone card. The card can be loaded with a predetermined amount that you specify, and generally may be used anywhere credit cards are accepted. Purchases are deducted from the card's balance, and you can transfer more money to the card's balance whenever necessary. Although there may be some fees associated with the card, no debt or interest charges accrue; children can only spend what's loaded onto the card.

One thing you might especially like about prepaid spending cards is that they allow children to gradually get the hang of using credit responsibly. Because you can access the account information online or over the phone, you can monitor the spending habits of your children. If need be, you can then sit down with them and discuss their spending behavior and money management skills.

Weekly Commentary: Investors not happy?

Mon, 08 Apr 2013 23:00:00 -0500

U.S. investors puzzled over disparate pieces of economic and world news last week. By the end of the week, major U.S. markets had tumbled indicating investors didn’t like what they’d seen.

Under new leadership, the Bank of Japan (BOJ) announced an aggressive stimulus program that will inject $1.4 trillion into its economy over the next two years. The effort is intended to end decades of stagflation. Stagflation is a period of economic stagnation characterized by rising inflation, higher unemployment, lackluster consumer demand, and lack of growth in business activity. Shares in the Japanese market, which closed before U.S. jobs numbers were announced, rose to almost a five-year high.

Elsewhere in Asia, escalating rhetoric from North Korea kept tensions high on the Korean Peninsula and negatively affected investor sentiment.

In the U.S., economic news was largely disappointing and suggested a slowdown in the U.S. economy may be ahead. Manufacturing and service numbers came in below expectations, and a U.S. Department of Labor report showed far fewer jobs were added last month than expected. On the positive side, a different report showed unemployment had ticked lower, moving to 7.6 percent from 7.7 percent.

After hitting an all-time high on Tuesday, the Standard & Poor’s 500 Index finished the week down 1 percent. The Dow Jones Industrials and NASDAQ Indices also tumbled, finishing the week down 0.1 percent and down 1.9 percent, respectively.

U.S. Treasury markets benefitted from uncertainty about the strength of U.S. economic growth, the outcome of the Japanese stimulus program, and the potential for violence in Korea. The yield on 10-year U.S. Treasury notes fell to 1.7 percent.

THERE'S A NEW BRIC IN TOWN. You've probably heard of the BRIC countries – Brazil, Russia, India, and China. The nickname was created in 2001when Jim O’Neill, an economist and the future Chairman of Goldman Sachs, used it to describe the countries of the world that would drive future economic growth. He was right about the fact they would drive economic growth. According to The Economist, “The BRICS alone have been responsible for 55 percent of global growth since the end of 2009. Dragged down by debt and austerity, the 23 countries that make up the developed world contributed just 20 percent to that growth.”

You may have noticed The Economist capitalized the ‘S’ in BRICS. That’s because South Africa recently joined the team. It’s the smallest BRICS country with a population of just 50 million compared to more than 1 billion for both China and India. South Africa’s GDP isn’t all that impressive either. It ranks 28th in the world, according to The Guardian, while China ranks 2nd, Brazil 6th, Russia 9th, and India 10th. The statistical comparison begs the question: Why was South Africa added to the list of the world’s powerful emerging countries?

According to The Economist, geographic inequity was the driving force behind the new addition. The original BRICs did not include any countries in Africa which currently is the world’s fastest growing continent. Africa’s gross domestic product (GDP) growth is averaging about 6 percent a year, a pace that is expected to remain constant for another decade. Over the decade ending in December 2012 Africa has seen:

Foreign direct investment more than tripled to $46 billion

A 30 percent increase in real income per person

A 74 percent decline in HIV infections

A 30 percent decline in malaria deaths

Mobile communications grow: now there are three mobile phones for every four people

A 10 percent increase in life expectancy

Steeply falling infant mortality rates

An increase in secondary school enrollment

Source: The Economist

Africa is changing so rapidly many believe the continent deserves to have a voice as an emerging region of the world. How to give it that voice? The solution was to add South Africa, the continent’s largest economy, to the BRICS.

Weekly Focus – Think About It...

“A mind that is stretched by a new experience can never go back to its old dimensions.”--Oliver Wendell Holmes, Supreme Court Justice

Last minute tax tips for 2012 return

Thu, 04 Apr 2013 23:00:00 -0500

Here are six last-minute things to keep in mind as the due date for most individuals' 2012 federal income tax returns approaches.

File on time, pay any taxes due

The due date for 2012 federal income tax returns is April 15, 2013. If you're not going to be able to file your federal income tax return by the due date, file for an extension using IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Filing this extension gives you an additional six months--to October 15, 2013--to file your return. It's important to understand, though, that the extension does not give you extra time to pay any taxes due. If you do not pay any taxes you owe by April 15, 2013, you'll owe interest on the tax due, and you may owe penalties as well. Special rules apply if you're living outside the country or serving in the military outside the country on April 15, 2013.

Were you affected by delayed IRS forms?

Special rules may apply if you file an extension for a 2012 federal income tax return that includes one of the forms that weren't available until February or March (because of the enactment of the American Taxpayer Relief Act). Delayed 2012 forms include Form 3800, General Business Credit; Form 4562, Depreciation and Amortization; and Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits).

If you file for an extension, estimate your expected tax liability in good faith, and pay the estimated amount of tax that you calculate by the original due date of the return, the IRS has announced that it will provide relief from the late-payment penalty (the failure-to-pay penalty) in cases where additional tax is owed and paid by the extended due date of the return. In other words, when you do file your return, if additional tax is due the IRS will waive the late-payment penalty (provided you pay the additional tax by the extended deadline). However, interest will still apply to any tax payment made after the original deadline. For more information, see IRS Notice 2013-24.

Remember 2010 Roth IRA conversions

Generally, when you convert funds in a traditional IRA or a retirement plan to a Roth, you pay tax in the year that the conversion takes place. If you converted amounts to a Roth IRA or a designated Roth account in 2010, however, a special rule applied--individuals who did a Roth conversion in 2010 were required to include half the taxable amount in their income for 2011, and half in their income for 2012, unless they elected to include the entire amount in their 2010 income. If you did convert to a Roth in 2010 and did not elect to pay taxes on the amount on your 2010 return, remember to include any required taxable amount from the conversion on your 2012 return. If you received a Roth distribution in 2010 or 2011, the amount you should report on your 2012 tax return may be affected, so check with a tax professional.

Reconsider 2012 Roth IRA conversions

If you converted a traditional IRA to a Roth IRA in 2012, it's not too late to undo the conversion. This is referred to as a recharacterization, and you're treated for tax purposes as though the conversion never happened--you wind up with a traditional IRA again and no tax bill for the conversion. You generally have until the due date of your federal income tax return, including extensions, to recharacterize your 2012 Roth conversion (i.e., an extension of time to file your return also extends your time to recharacterize; and if you file your 2012 return on time, special rules still allow you to recharacterize up until October 15, 2013). If you do recharacterize your 2012 conversion in 2013, you're allowed to convert those dollars (and any earnings) back to a Roth IRA ("reconvert") after waiting 30 days, starting with the day you transferred the Roth dollars back to a traditional IRA. If you reconvert in 2013, then all taxes due as a result of the reconversion will be included in your 2013 federal income tax return.

Review casualty loss deduction rules

If you were one of the many individuals who suffered property damage or loss as a result of late-2012 storms (e.g., October's Hurricane Sandy), you may be entitled to a deduction for storm-related losses that weren't covered by insurance. Review IRS Publication 547, Casualties, Disasters, and Thefts for details of the casualty loss rules.

Understand gift tax return requirements (if you made gifts in 2012)

If you made gifts in 2012, you may need to file a Form 709 gift tax return by April 15, 2013.

A gift tax return must be filed for 2012 if you made gifts during 2012 other than:

· Gifts to your U.S. citizen spouse

· Outright gifts to qualified charities

· Present interest gifts totaling $13,000 or less to any individual

· Amounts paid on behalf of any individual as tuition to an educational organization or for medical care to a medical care provider

You must file a gift tax return if you wish to split gifts with your spouse. You may also wish to file a gift tax return if you make gifts of hard-to-value assets. If you disclose the transaction on the gift tax return, the IRS generally has only three years to challenge the value.

If you file a Form 4868 to automatically extend your due date for filing your 2012 income tax return, a six-month extension of time to file the Form 709 is also granted. If you do not file an extension request for your income tax return, you can file a Form 8892 to automatically extend the due date for the gift tax return to October 15, 2013. An extension of time to file the gift tax return does not extend the time to pay the gift tax; you must estimate and pay the gift tax due by April 15, 2013. But even if you made taxable gifts and have to file a gift tax return, a $5,120,000 (in 2012) applicable exclusion amount is available to protect gifts from gift tax.

Quarterly Market Review: Jan.-March 2013

Sun, 31 Mar 2013 23:00:00 -0500

If domestic equities hit the snooze button for the rest of 2013, they would still have had a pretty good record for the year. The Dow hit an all-time closing high in March, finally erasing all of its losses since October 2007, and the broader S&P 500 finally squeaked out its own new record close--by four points--on the last trading day of the quarter. The Nasdaq struggled with setbacks in the tech sector, while the small caps of the Russell 2000 continued to outpace the other three domestic indices. Despite a strong start for the quarter, the Global Dow suffered yet again from political uncertainties, record unemployment, and a contracting economy in Europe, as well as concerns about potentially slower growth in China.

As equities showed strength, U.S. Treasury yields nudged up over the quarter, while the dollar gained more than 4% against a basket of six foreign currencies. Despite spiking briefly in February, oil prices ended the quarter up only slightly at roughly $95 a barrel, while gold continued its six-month slide to end under $1,600 an ounce.

Equities data reflect price changes, not total return.

Market/Index	2012 Close	As of 3/29	Monthly Change	Quarterly Change	YTD Change
DJIA	13104.14	14578.54	3.73%	11.25%	11.25%
NASDAQ	3019.51	3267.52	3.40%	8.21%	8.21%
S&P 500	1426.19	1569.19	3.60%	10.03%	10.03%
Russell 2000	849.35	951.54	4.44%	12.03%	12.03%
Global Dow	1995.96	2108.55	1.02%	5.64%	5.64%
Fed. Funds	.25%	.25%	0 bps	0 bps	0 bps
10-year Treasuries	1.78%	1.87%	-2 bps	9 bps	9 bps

Equities data reflect price changes, not total return.

Quarterly Economic Perspective

The Bureau of Labor Statistics said the unemployment rate fell to 7.7%; the 246,000 new jobs added by the private sector were partly offset by the loss of 10,000 government jobs. Meanwhile, economic growth during the final quarter of 2012 slowed substantially. According to the Bureau of Economic Analysis, the 3.1% growth seen in the third quarter shrank to 0.4% in Q4, while corporate after-tax profits rose 3.3% during the quarter (though they were down 1.1% year-over-year).

The $85 billion of across-the-board federal budget cuts known as the sequester began going into effect, raising questions about how they might affect economic growth later in the year. However, Congress averted a second potential stalemate, agreeing to a continuing resolution to fund the federal government through September.

Long-term trends in the housing market continued to improve. Home prices in 20 cities measured by the S&P/Case-Shiller index were more than 8% higher than a year earlier. The Commerce Department said new single-family home sales were up more than 12% from a year ago, while housing starts were almost 28% ahead of the same time last year. And the National Association of Realtors® said home resales are more than 10% ahead of a year ago, and have reached their highest level since November 2009, when there was a homebuyer's tax credit.

The Federal Open Market Committee will continue its bond purchases until the unemployment rate falls to 6.5%. However, it has begun to explore options for winding down quantitative easing, and may vary the size of its purchases if economic recovery picks up.

A surge in orders for commercial aircraft helped boost U.S. durable manufactured goods orders during the quarter, according to the Commerce Department. Retail sales saw their biggest monthly increase since September during February, though the Commerce Department said increased spending at gas stations accounted for part of the higher figures. The spike in gas prices also helped push up consumer inflation over the last 12 months to 2%, while the Bureau of Labor Statistics said wholesale prices rose 1.7% during the same time.

It was tiny Cyprus's turn to be the focus of concerns about eurozone financial stability. After first rejecting the terms of a €10 billion bailout agreement with the international lenders known as the troika, Cyprus's parliament agreed to tax bank deposits over €100,000. It also imposed tight limits on bank withdrawals and other transactions to try to prevent capital from leaving the country, which would make debt repayment even more difficult.

European economies contracted during the final quarter of 2012, according to the Organization for Economic Development, while Chinese growth remained relatively stable, though slower than the year before.

Eye on the Month Ahead

Key dates and data releases: U.S. manufacturing, construction spending, auto sales (4/1); factory orders (4/2); U.S. services sector (4/3); unemployment/payrolls, balance of trade (4/5); Federal Open Market Committee announcement (4/10); wholesale inflation, retail sales (4/12); international capital flows, homebuilders' survey, Empire State manufacturing survey (4/15); consumer inflation, housing starts, industrial production (4/16); Fed "beige book" report (4/17); Philadelphia Fed manufacturing survey (4/18); options expiration (4/19); home resales (4/22); new home sales (4/23); durable goods orders (4/24); initial estimate of Q1 economic growth (4/26); personal income/outlays (4/29); home prices (4/30).

Data source: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflects price changes, not total return.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment. The U.S. Dollar Index is a weighted geometric mean of the dollar compared to the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

Weekly Commentary: How fast should US grow?

Sun, 31 Mar 2013 23:00:00 -0500

U.S. stock markets finished the week – and the quarter – on a positive note.

The Federal Reserve’s accommodative monetary policy and strong profit growth helped provide the lift needed to propel the S&P 500 Index to a record high. The Dow Jones Industrials Index also finished the week above its previous record close. For the quarter, the S&P 500 was up about 10 percent, the Dow was up about 11.3 percent, and the NASDAQ finished up about 8.2 percent.

Despite the strong performance overall, markets were somewhat choppy during the week. Concerns about Cyprus and the Eurozone debt crisis overshadowed markets early on. A positive report on durable goods from the Commerce Department helped push markets higher, as did a home-price index report from Standard & Poor's Case-Shiller that showed the biggest yearly increase in home prices since the summer of 2006. This report seemed to have held more sway with investors than either weaker-than-expected new home sales or lower-than-anticipated consumer confidence. Late in the week, the GDP growth rate for the fourth quarter of 2012 was revised upward, but remained sluggish at 0.4 percent annually.

The U.S. Treasury market generally has benefitted from worries inspired by the Eurozone debt crisis. The latest episodes in the crisis – the Cyprus bank bailout and Italy’s failure to form a government – helped nudge rates lower last week. The U.S. continues to be perceived as relatively safe.

Fears about Eurozone debt issues generally have had a positive effect on gold prices, too, helping the precious metal reach a record high price in September 2011. That has not been the case this year. Gold finished the quarter down by more than 5 percent.

Data as of 3/29/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.8%	10.0%	11.6%	10.2%	3.6%	6.2%
10-year Treasury Note (Yield Only)	1.9	N/A	2.2	3.9	3.5	3.9
Gold (per ounce)	-0.6	-5.6	-4.6	13.0	11.3	17.1
DJ-UBS Commodity Index	-0.4	-1.1	-3.3	1.4	-7.8	2.0
DJ Equity All REIT TR Index	1.4	7.9	17.8	16.8	7.1	12.5

HOW FAST SHOULD THE UNITED STATES' ECONOMY BE GROWING? According to The Economist, “In the three years since the end of the recession in mid-2009, growth averaged 2.2 percent, barely half the 4.2 percent average of the seven previous recoveries.” This begs the question: How fast should the economy be growing?

Economists, academics, and policy makers have been trying to figure that out. Many have started with an economic theory put forward by noted economist Milton Friedman in 1964. His “Plucking Model” postulates the business cycle is like a string attached to a board. The board represents “the ceiling of maximum feasible output.” Once in a while, the string is plucked down by recession and then it springs back. The idea is the depth of a recession will be mirrored by the strength of the recovery that follows.

At first blush, the Plucking Model doesn’t appear to apply to this recovery. The Great Recession was the deepest downturn since World War II, and the country hasn’t snapped back. According to several recent reports, there may be a reason for this. Our ‘ceiling of optimal output’ – the fastest rate at which our economy is expected to grow – may be lower than it used to be.

Productivity and Potential Output Before, During, and After the Great Recession, a working paper from the San Francisco Federal Reserve, found growth in the U.S. was slowing in the mid-2000s although the slowdown was largely unrecognized before the Great Recession.

What Accounts for the Slow Growth of the Economy After the Recession, a Congressional Budget Office study, determined about two-thirds of the difference between America’s current growth rate and the average growth after previous recoveries is due to long-term trends including demographic changes. The other one-third is credited to low demand for goods and services.

Disentangling the Channels of the 2007-2009 Recessions, by James Stock of Harvard University and Mark Watson of Princeton University, also found slower growth in the U.S. is largely the result of demographic trends such as a limited labor supply as Baby Boomers have begun to retire and the number of women joining the workforce has leveled off.

Considered together, the reports seem to indicate U.S. economic growth began slowing before the recession and, unless demographic trends shift, our country may continue to experience slower growth.

Weekly Focus – Think About It...

“I've missed more than 9,000 shots in my career. I've lost almost 300 games. Twenty-six times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed.” --Michael Jordan

Weekly Commmetary: All eyes on Cyprus

Sun, 24 Mar 2013 23:00:00 -0500

Like a not-quite-dead villain in a horror film, the Eurozone crisis raised its ugly head again last week, scaring investors and causing many stock markets to close flat or slightly down for the week, according to Barron’s. Investors’ worries strengthened demand for Treasuries, pushing the yield on the benchmark 10-year bond lower.

The hero of last week’s drama might have been the United States which delivered a plethora of stronger economic data that included a steady decline in unemployment claims, an increase in factory activity, and a rise in existing home sales. The positive news suggested that the U.S. economy was gaining momentum. In addition, Federal Reserve Chairman Ben Bernanke reiterated the Fed’s commitment to accommodative monetary policy. He set the expectation short-term interest rates will stay at exceptionally low levels until unemployment falls to 6.5 percent. Some believe that could happen in 2015.

Signs of strength in the U.S. economy were overwhelmed by another crisis in the Eurozone. This time the issue was Cyprus, an island nation that accounts for a tiny portion of the Eurozone’s economic production. Cyprus has relatively robust growth and boasts a small budget deficit, so why did it ask for a bailout? According to The Economist, the issue is the country’s banks are bigger than its domestic economy. Since a bank deposit guarantee is only as good as the country providing it, Cyprus needed assistance. Cyprus is a microcosm of the Eurozone which has about “€8 trillion of deposits and only €4.5 trillion of annual government revenues,” according to BCA Research cited in The Economist.

Eurozone leaders responded to the Cypriot bailout request by suggesting the country impose a tax on bank deposits. The Cypriot parliament rejected the suggestion and the European Central Bank responded with an ultimatum: accept a bailout by Monday or else. The government’s decision will affect Cyprus’ largest banks and, possibly, the country’s participation in the Euro.

All eyes will be on Cyprus on March 25.

Data as of 3/22/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-0.2%	9.2%	11.8%	10.1%	2.3%	6.1%
10-year Treasury Note (Yield Only)	1.9	N/A	2.3	3.7	3.5	4.0
Gold (per ounce)	0.8	-5.1	-1.7	13.6	11.6	17.2
DJ-UBS Commodity Index	-0.3	-0.8	-3.5	1.5	-7.1	2.1
DJ Equity All REIT TR Index	-0.3	6.4	17.9	16.3	5.9	12.4

YOU MAY HATE FILING TAXES, BUT IDENTITY THIEVES DON'T. That's probably because they expect to get refunds. The Internal Revenue Service (IRS) reports tax refund identity fraud is a rapidly growing crime. During fiscal year (FY) 2011 (which started October 2010), 276 investigations were initiated. For FY2012, that number had increased to 898. During just the first three months of FY2013, 542 investigations have been opened.

How does it work? According to the IRS, identity thieves use stolen personal information to file fake tax returns and collect undeserved refunds. In one case, a criminal filed false returns in the names of deceased taxpayers. In another, criminals broke into a tax preparation office, stole files containing personal information, and filed tax returns claiming fraudulent refunds.

The IRS reports it is taking steps to protect taxpayers. They suggest taxpayers take basic steps to protect themselves, as well:

Don’t carry your Social Security card with you

Don’t give your Social Security number or Individual Taxpayer Identification Number to businesses (verbally or in writing) unless it is required

Check your credit report at least once each year

Protect your personal computers with firewalls, anti-virus software, and updated security patches

Choose hard-to-break passwords and change them frequently

Don’t provide personal information to anyone unless you know them well and understand how they plan to use it

Source: Internal Revenue Service

If you have aging parents, it’s important to discuss identity theft and encourage them to take necessary precautions. Developing good habits – such always keeping your personal identification numbers and financial documents in a secure place – can go a long way toward keeping personal information safe.

Weekly Focus – Think About It...

“When you are courting a nice girl, an hour seems like a second. When you sit on a red-hot cinder, a second seems like an hour. That's relativity.” --Albert Einstein, theoretical physicist

Weekly Commentary: Market slows, middle class grows

Sun, 17 Mar 2013 23:00:00 -0500

Like winded runners, stock markets slowed at the end of last week.

Since the start of the year, the Dow Jones Industrials Index has risen by almost 11 percent, hurdling past new highs several times. The S&P 500 Index gained 9.4 percent over the same period. The index moved higher in 10 of the past 11 weeks and finished last week just shy of its all-time high. However, the Dow and the S& P’s momentum – and that of some other U.S. stock markets – slowed on Friday as stronger economic data was offset by an unexpected slump in consumer sentiment.

Economists expected the Thomson Reuters/University of Michigan consumer sentiment index – which gauges Americans’ feelings about their current financial health, the health of the economy over the shorter-term, and growth prospects for the economy over the longer-term – to move higher in March. Instead, the index fell from 77.6 to 71.8, reaching its lowest level since December 2011. Markets fell on the news even though the negative results contradicted those of other consumer confidence measures, such as Bloomberg’s Consumer Comfort Index which has moved higher for six consecutive weeks.

The consumer sentiment surprise also pushed Treasury yields down. Yields on benchmark 10-year Treasury notes fell to 2 percent. The Treasury market remains concerned that stronger economic data could lead the Federal Reserve to change its policy on quantitative easing. The Federal Reserve’s next Open Market Committee meeting is next week, and may provide further insight to the matter.

Data as of 3/15/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.6%	9.4%	11.3%	10.7%	4.1%	6.1%
10-year Treasury Note (Yield Only)	2.0	N/A	2.3	3.7	3.3	3.8
Gold (per ounce)	0.9	-5.8	-3.2	13.1	9.6	16.7
DJ-UBS Commodity Index	0.8	-0.5	-5.0	1.8	-7.7	1.7
DJ Equity All REIT TR Index	0.5	6.7	17.6	17.8	8.0	12.6

THE MIDDLE CLASS IS GROWING. In the United States, households that earn between $35,600 a year and $94,600 a year are considered to be middle class. That’s about 40 percent of U.S. households (another 40 percent earn less than the middle class and 20 percent earn more). Scholars and pundits have noted that job insecurity and stagnant income levels have weakened the middle class in the United States during the past few years, but that’s not what’s happening in the rest of the world.

The global middle class has been growing and is expected to continue to grow over the next few decades. The Organization for Economic Development defines the global middle class as including people earning between $10 and $100 a day with purchasing power parity. (Purchasing power parity is the theory that currency exchange rates should adjust so the same goods cost the same in different countries. It’s what the Big Mac Index measures.) By 2030, according to Ernst & Young, the global middle class is expected to more than double, adding three billion new members. These up-and-comers primarily will live and work in rapidly-growing countries.

As the global middle class grows so should its spending power. Between 2011 and 2030, middle class demand for goods and services is expected to increase from $21 trillion to $56 trillion. Forty percent of that spending will be done by the burgeoning middle class in Asia, including China and India. According to Forbes, these consumers are creating demand for all kinds of goods and services including cosmetics, automobiles, cell phone minutes, personal banking, and retirement planning.

For many decades, consumer spending has been an important driver behind economic growth in the United States. It’s likely to play a significant role in the economic growth of emerging countries, too. As developing countries become developed countries, interesting opportunities for investment are likely to emerge.

Weekly Focus – Think About It...

“A man who carries a cat by the tail learns something he can learn in no other way.” --Mark Twain, American author and humorist

There's still time to contribute to your IRA

Tue, 12 Mar 2013 23:00:00 -0500

There's still time to make a regular IRA contribution for 2012! You have until your tax return due date (not including extensions) to contribute up to $5,000 for 2012 ($6,000 if you were age 50 by December 31, 2012). For most taxpayers, the contribution deadline for 2012 is April 15, 2013.

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don't exceed the annual limit. You may also be able to contribute to an IRA for your spouse for 2012, even if your spouse didn't have any 2012 income.

Traditional IRA

You can contribute to a traditional IRA for 2012 if you had taxable compensation and you were not age 70½ by December 31, 2012. However, if you or your spouse was covered by an employer-sponsored retirement plan in 2012, then your ability to deduct your contributions may be limited or eliminated depending on your filing status and your modified adjusted gross income (MAGI) (see table below). Even if you can't deduct your traditional IRA contribution, you can always make nondeductible (after-tax) contributions to a traditional IRA, regardless of your income level. However, in most cases, if you're eligible, you'll be better off contributing to a Roth IRA instead of making nondeductible contributions to a traditional IRA.

2012 income phaseout ranges for determining deductibility of traditional IRA contributions:
1. Covered by an employer-sponsored plan and filing as:	Your IRA deduction is reduced if your MAGI is:	Your IRA deduction is eliminated if your MAGI is:
Single/Head of household	$58,000 to $68,000	$68,000 or more
Married filing jointly	$92,000 to $112,000	$112,000 or more
Married filing separately	$0 to $10,000	$10,000 or more
2. Not covered by an employer-sponsored retirement plan, but filing joint return with a spouse who is covered by a plan	$173,000 to $183,000	$183,000 or more

Roth IRA

You can contribute to a Roth IRA if your MAGI is within certain dollar limits (even if you're 70½ or older). For 2012, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $110,000 or less. Your maximum contribution is phased out if your income is between $110,000 and $125,000, and you can't contribute at all if your income is $125,000 or more. Similarly, if you're married and file a joint federal tax return, you can make a full Roth contribution if your income is $173,000 or less. Your contribution is phased out if your income is between $173,000 and $183,000, and you can't contribute at all if your income is $183,000 or more. And if you're married filing separately, your contribution phases out with any income over $0, and you can't contribute at all if your income is $10,000 or more.

Even if you can't make an annual contribution to a Roth IRA because of the income limits, there's an easy workaround. If you haven't yet reached age 70½, you can simply make a nondeductible contribution to a traditional IRA, and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you'll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own--other than IRAs you've inherited--when you calculate the taxable portion of your conversion.

Finally, keep in mind that if you make a contribution to a Roth IRA for 2012--no matter how small--by your tax return due date, and this is your first Roth IRA contribution, your five-year holding period for identifying qualified distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2012.

Weekly Commentary: Market strong, but for how long?

Mon, 11 Mar 2013 23:00:00 -0500

During periods of strong market performance, like the one we’ve experienced since the end of last year, it’s important to remember that markets ebb and flow over time. Since December 31, 2012, the Dow Jones Industrial Index has gained 9.9 percent and the Standard & Poor’s 500 added 8.8 percent. Last week, the Dow reached highs last seen during 2007, and the S&P 500 ended the week less than one percent from its record high, which was also realized during 2007.

While the strong performance of U.S. stock markets has given investors reason to smile, significant economic challenges remain. The effect of sequester spending cuts on the American public and economic growth remains relatively unknown. Also, U.S. earnings growth appears to be slowing and that could affect stock prices. (Earnings are a measure of a company’s profitability and influence its share price.)

Global markets were largely up last week, too, as investors seemed to celebrate stronger U.S. and Chinese economic data, as well as the fact that Central banks in Europe, the United Kingdom, Australia, Japan, and Canada met and left their monetary policies unchanged.

In the Eurozone, economic growth remained relatively weak and inconsistent. While the European Central Bank has stepped up to help countries affected by poor demand for bonds, insufficient bank-to-business lending has negatively affected economic growth, especially in southern Europe, leaving some countries mired in recession.

In the United States, yields on 10-year Treasuries rose higher last week despite Federal Reserve assurances that it will continue to pursue its current monetary policy for some time.

Data as of 3/8/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	2.2%	8.8%	13.6%	10.9%	4.0%	6.7%
10-year Treasury Note (Yield Only)	2.1	N/A	2.5	3.7	3.4	3.6
Gold (per ounce)	0.0	-6.6	-6.4	12.0	10.3	16.1
DJ-UBS Commodity Index	1.1	-1.3	-4.8	0.7	-8.6	1.1
DJ Equity All REIT TR Index	0.8	6.2	20.3	18.5	8.7	12.8

IS A WEDDING IN YOUR FUTURE? IF SO, PREPARE YOURSELF. Between the planner, venue, food, flowers, cake, dress, drinks, photographer, videographer, invitations, programs, and all the rest, you’re likely to be hearing a lot of this: Ka-ching! Ka-ching!

More than $50 billion is spent on weddings in the United States each year. According to the 2012 Wedding Report, the average wedding has about 133 to 143 guests and costs more than $25,000, not including the honeymoon. The good news is the average cost of a wedding in 2011 was less than the average cost in 2007. The bad news is that, according to CostofWedding.com, the cost of any wedding could increase by 50 to 100 percent if the planners choose designer labels, popular event locations, custom products and services, or if they invite significantly more guests.

Here are a few tips that may help ensure wedding costs don’t spiral out of control:

Establish a budget. Set a budget for the wedding, but make sure you build in a cushion of 10 to 15 percent for cost overruns, just as you would if you were putting an addition on your house or remodeling.

Understand venue and reception costs. When negotiating the cost of your reception, it’s important to ask for the per person cost, all-inclusive. If you’re given an all-inclusive price and you find the words ‘additional costs may be incurred’ or ‘plus the cost of setup and delivery’ in your final contract, ask what those costs are, specifically, and be prepared to negotiate.

Make smart liquor choices. The drinks served at the reception often are a significant expense. Many venues charge for every bottle opened. To save on the cost, you could opt to serve beer, wine, and champagne for toasts. Alternatively, you could offer signature cocktails that require a single type of liquor, which can help limit the number of bottles opened.

After evaluating costs, you may decide that the best option is for the happy couple to elope, marry in an exotic locale, and celebrate with a big party when they return. If that’s not an option, make sure to take advantage of the plentiful online resources available.

Weekly Focus – Think About It...

“The greatest happiness of life is the conviction that we are loved; loved for ourselves, or rather, loved in spite of ourselves.” --Victor Hugo, French poet and novelist

Government Regulations Describe Minimum Benefits That Must Be Included in Most Health Plans

Wed, 06 Mar 2013 23:00:00 -0600

A major part of the Affordable Care Act (ACA) is the requirement that nongrandfathered health insurance plans offer an essential health benefits package that provides a comprehensive set of services. In February, the U.S. Department of Health and Human Services issued final regulations defining the services that must be included in most health plans, beginning in 2014.

What are essential health benefits?

Essential benefits appear in 10 broad categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. The final rule also clarifies that insurers cannot charge patients a co-pay for a colonoscopy if a polyp is found and removed. Previously, consumers may not have paid for the screening, but would receive a charge for removing a polyp during the procedure.

Also starting in 2014, all types of health insurance plans will include an annual limit on out-of-pocket cost sharing for individuals and families. While the limits haven't been set for 2014, a comparable limit for self-only coverage in 2013 is $6,250.

In addition, beginning in 2014, nongrandfathered plans must come within certain categories based on "actuarial value," or the average share of total plan benefits covered by the plan. For example, if a plan has an actuarial value of 70%, a consumer can expect to be responsible for 30% of the costs of all covered plan benefits. The categories will be defined by four "metal levels." Bronze plans will cover 60% of health-care costs; silver plans, 70%; gold plans, 80%; and platinum plans, 90%. The metal levels are intended to help consumers compare plans with similar levels of coverage.

Does it apply to all health plans?

These rules apply to nongrandfathered individual and small group health plans, as well as plans offered through state-based health Exchanges. Grandfathered plans, to which these requirements do not apply, include health plans created on or before March 23, 2010. However, some ACA provisions apply to all plans (i.e., grandfathered plans), including the prohibition from applying lifetime dollar limits to key health benefits, the requirement that plans can't be cancelled except in cases where the applicant provided intentionally false information, and the extension of dependent coverage to adult children until age 26.

Weekly Commentary: Italy adds to the hulabaloo

Sun, 03 Mar 2013 23:00:00 -0600

It was a bumpy week for stock markets. Early on, markets in many countries were negatively affected by the outcome of Italian elections. Italy’s anti-establishment Five-Star Movement, led by comedian Beppe Grillo, won about one-fourth of the votes in both the country’s upper and lower houses. Markets lost value as investors anticipated political gridlock could delay Italian economic reforms. Since Italy is the third largest economy in Eurozone and its public debt is significantly higher than its Gross Domestic Product, political stalemate in Italy could negatively affect the Eurozone.

As the week progressed, events in Italy were eclipsed. Ben Bernanke reiterated the U.S. Federal Reserve’s intention to keep monetary policy loose until unemployment levels drop. This helped stock markets recover some lost ground. Positive economic news, including higher pending home sales and a rise in consumer sentiment helped push the Dow Jones Industrials, NASDAQ, and Standard & Poor’s 500 Indices even higher, and they finished the week in positive territory.

Concerns about Italian election results affected bond markets, too, pushing yields on 10-year Treasuries lower during the week. Lower yields were also driven by uncertainty about the potential impact of sequestration – $85 billion in automatic spending cuts – on America’s economic growth.

Despite great political hullaballoo, no action was taken to prevent or modify the spending cuts and they took effect on Friday, March 1. Over the next decade, sequestration is expected to cut government spending by about $1.5 trillion. The cuts will reduce defense discretionary spending, including weapons purchases, base operations, construction work, and more. Cuts also will shrink mandatory and discretionary domestic spending. Two of the domestic programs affected are the unemployment trust fund and Medicare (specifically, Medicare’s provider payments).

Data as of 3/1/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.2%	6.5%	10.5%	10.8%	2.7%	6.2%
10-year Treasury Note (Yield Only)	21.9	N/A	2.0	3.6	3.5	3.7
Gold (per ounce)	0.4	-6.6	-7.7	12.4	9.9	16.4
DJ-UBS Commodity Index	-0.7	-2.4	-8.6	0.7	-9.0	1.1
DJ Equity All REIT TR Index	0.2	5.3	18.8	19.8	7.5	12.5

THE NATIONAL RETIREMENT RISK INDEX (NRRI) measures whether Americans will be able to maintain the same standard of living they enjoy today after they retire. When it was updated for 2012, the index showed the number of “at risk” households had increased by nine percentage points – from 44 percent to 53 percent – between 2007 and 2010. In its explanatory comments the Center for Retirement Research at Boston College (the group that compiles the index) attributed the change to the combined effects of the financial crisis, poor investment returns, low interest rates, and the continuing rise in Social Security’s full retirement age.

Americans are not unaware of the situation. The 2012 Retirement Confidence Survey found almost one-half of working Americans are ‘not too’ or ‘not at all’ confident they’ll have enough money to live comfortably throughout retirement. If you fall into either of these categories – and even if you don’t – it’s important to evaluate your current retirement plan in light of key risks that may influence its effectiveness. These include:

Longevity risk. A recent headline suggested that 72 is the new 30. The scientists who made the determination meant that modern man, at age 72, has the same chance of dying as primitive man did at age 30. That makes longevity risk – the chance you'll outlive your savings – an essential consideration when planning for retirement. One way to address longevity risk is by developing a retirement income plan that will allow you to generate income for as many years as you may need it.

Inflation risk is the chance your savings and investment will grow more slowly than inflation, reducing your purchasing power. For example, a gallon of milk that cost about $2.00 in 1990 would have set you back $3.50 in 2012 – and that was after a period of relatively low inflation. One way to address inflation risk is to consider investing in a well-allocated and well-diversified portfolio that may have the potential to outperform inflation over time.

If you have any questions about saving for retirement, or would like to review your retirement plan, please give us a call.

Weekly Focus – Think About It...

When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.

--Chinese proverb

What you need to know about sequestration

Wed, 27 Feb 2013 23:00:00 -0600

What does Sequestration mean anyway? What effect will it have on the economy and the markets?

We thought this timely, informative piece might bring some clarity to the issue. Enjoy!

Greg

Understanding "Sequestration"

If you like political drama, you're in luck. It seems like just yesterday the news was filled with references to the fiscal cliff. Now, coming to theaters everywhere, is "sequestration." Look for more political confrontation to unfold as sequestration gets under way.

What exactly is sequestration?

"Sequestration" refers to a series of automatic, across-the-board spending cuts to federal government agencies that are scheduled to take place in fiscal years 2013 through 2021. The cuts, totaling $1.2 trillion, will be split evenly between defense and domestic discretionary spending. The cuts are effective March 1. (The cuts were originally scheduled to take effect January 1 but were postponed to March 1 as part of the last-minute fiscal cliff deal reached on New Year's Day.)

How did sequestration come into being?

Sequestration was created from the August 2011 standoff over the U.S. debt ceiling. In conjunction with agreeing to raise the debt ceiling (which allowed the U.S. Treasury to pay its monetary obligations and avoid a default), Congress imposed approximately $2 trillion worth of spending cuts--$1 trillion that was spelled out in the debt ceiling bill (the Budget Control Act of 2011) and another approximately $1 trillion that would be implemented through sequestration--a broad, across-the-board series of default spending cuts that would take effect beginning in 2013.

The idea was that sequestration would be a measure of last resort, and that Congress could act to replace the sequestration cuts with an equal amount of alternate spending reductions. Indeed, the Budget Control Act of 2011 created a deficit reduction "supercommittee" that was charged with reaching consensus on additional budget cuts that would avoid sequestration. The supercommittee failed, paving the way for sequestration to take effect.

What's going to be cut?

The automatic cuts are effective March 1, 2013. From 2013 through 2021, sequestration is scheduled to cut $1.2 trillion from government agencies, split evenly between defense and domestic programs. More than $500 billion is scheduled to be cut from the Defense Department and other national security agencies. The remaining cuts will affect a variety of domestic programs, including education, public safety, energy, national parks, food inspections, housing aid, transportation, and law enforcement.

Social Security, Medicaid, and Medicare benefits are exempt from sequestration. Although cuts to Medicare provider payments are on the table, they can't exceed 2% of current payments.

In 2013, the cuts will total $85 billion (sequestration originally called for approximately $109 billion in cuts this year, but the American Taxpayer Relief Act of 2012 reduced the required cuts by $24 billion). The Congressional Budget Office estimates that in 2013, funds for defense spending (other than spending for military personnel) will be cut by about 8%, and nondefense spending subject to automatic reductions will be cut by between 5% and 6%. (Source: Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2013 to 2023, February 2013)

You may have heard a great deal about what's going to happen as a result of the sequester, and much of it has likely been alarming. It's important to understand, though, that the government will not be shutting down. In fact, while it's hard to know exactly how things will play out as the cuts are implemented, most individuals are probably not going to notice a significant, immediate effect. Federal agencies will notify employees of possible furloughs, and the Defense Department will do the same with civilian employees, but those furloughs likely won't take effect for at least a month. In addition to potential layoffs and furloughs, individual agencies will begin announcing and implementing other cost-saving measures.

Wait, there's more ...

While it hasn't received the same level of attention as sequestration, there's another problem rapidly approaching--the government is running out of money again. Federal funding for the current fiscal year expires on March 27, 2013. Unless Congress authorizes additional funding, a partial government shutdown would result.

In addition, a few months later, expect another debt ceiling debate. The federal government reached its $16.394 trillion debt ceiling limit at the end of 2012. Congress subsequently suspended the debt ceiling limit until May 19, 2013, and although the U.S. Treasury has some ability to continue operations beyond that date, at some point the debt ceiling debate will need to be addressed. Thus, it's conceivable that any short-term agreement on sequestration would include provisions that address these deadlines as well.

Whether Congress addresses some or all of these issues over the coming weeks or months is anyone's guess. So stay tuned. And pass the popcorn.

Weekly Commentary: Stocks heading south?

Sun, 24 Feb 2013 23:00:00 -0600

Like Canadian geese migrating in anticipation of winter, stock markets moved south last week in anticipation of monetary tightening. Minutes from the January Federal Reserve Open Market Committee meeting were released mid-week. After reviewing them, many analysts decided that quantitative easing may begin to taper off before the end of the year. Not everyone agreed with this interpretation; however, it caused major U.S. stock markets, as well as some Asian and European stock markets, to dip lower. Many markets recovered ground before Friday, but in the U.S., only the Dow Jones Industrial Index finished the week with a gain.

Interestingly, expectations that the Fed’s quantitative easing program may end relatively soon had little effect on Treasury bond markets. This seems counterintuitive because an end to quantitative easing (the Fed’s program of buying Treasuries to create liquidity and encourage economic improvement) could potentially lower demand for these securities and cause Treasury yields to move higher. Instead, yields moved lower last week. Experts suggested that bond investors’ apparent lack of concern may be rooted in the belief that the Federal Reserve will not ease interest rates even if it changes its policy on quantitative easing. In previous statements, the Fed has said it will not modify interest rates until unemployment rates and inflation reach specific targets.

Last week, The Conference Board announced that itsLeading Economic Index® (LEI) for the U.S. showed America’s economy gaining some momentum. The LEI tracks 10 leading economic indicators to gauge short-term economic outlooks. The Conference Board’s LEI for China also signaled improvement. While this may prove to be good news, the impact of sequester – $85 billion in automatic spending cuts that are scheduled to begin in early March – on America’s economic growth remains unknown and highly debated.

Data as of 2/15/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-0.3%	6.3%	11.6%	11.0%	2.3%	6.2%
10-year Treasury Note (Yield Only)	2.0	N/A	2.0	3.8	3.8	3.8
Gold (per ounce)	-2.2	-6.9	-10.0	12.2	10.8	16.1
DJ-UBS Commodity Index	-1.8	-1.7	-7.8	0.6	-8.0	0.9
DJ Equity All REIT TR Index	0.1	5.1	17.9	20.2	7.5	12.6

IT'S IMPORTANT TO LOOK AT MORE THAN TUITION AND FEES when planning for college. That’s because tuition and fees account for just about 39 percent of the total budget for students who live on campus at public four-year state colleges and universities. Tuition and fees are about 20 percent of the budget for students who live off campus at public two-year state colleges and universities.

If that’s an unwelcome surprise, you won’t be thrilled to learn that during the 2012-2013 school year the average college budget for a student who lived on campus and attended an in-state, four-year public institution and was more than $22,000. That budget included:

Tuition and fees

Room and board

Books and supplies

Transportation

Other expenses

On average, the same items for a student who commuted to a two-year, in-state public college ran about $15,500. At a private non-profit, four-year college or university the average budget was more than $43,000.

Making college possible

So, how do students and their families afford college? The good news is that financial aid is available for many. Total financial aid for full-time students was more than $14,000 on average during the 2011-2012 academic year (the most recent data available). In addition, according to the College Board, undergraduate students received financial assistance from a variety of sources:

39 percent received federal loans and work/study

26 percent received Pell and other federal grant programs

18 percent received institutional grants

9 percent received federal education tax credits and deductions

5 percent received state grants

4 percent received private or employer grants

Is it worth it?

Scrimping and saving to pay for college often has a significant pay off. The median income for a person with a bachelor’s degree who worked full-time, year-round in 2008 was almost $56,000. That’s about $22,000 more than the median income for a high school graduate. In addition, the unemployment rate for college graduates was significantly lower than that of high school graduates during 2008 (the most recent data available).

We’re here to help in this area of planning. Please let us know if you would like a cost projection and how to most efficiently invest for your child’s or grandchildren’s education.

Weekly Focus – Think About It...

“Education is the ability to listen to almost anything without losing your temper or your self-confidence.”--Robert Frost, poet

Weekly Commentary: Still positive, but mixed

Mon, 18 Feb 2013 23:00:00 -0600

Stocks delivered mixed performance last week. The Dow Jones Industrials and NASDAQ Indices moved lower while the Standard & Poor’s 500 and Russell 2000 Indices moved higher for the week. Stocks were helped by positive economic news in the United States, including modestly positive retail sales for January, improved consumer sentiment, and a decline in initial jobless claims. However, these positives were offset to some extent by concerns about weakness overseas. Germany reported that its economy contracted during the fourth quarter of 2012. It’s the country’s worst economic performance since 2009.

Overall, the major stock indices remain in positive territory for the year. They’ve been buoyed, in part, by better than expected fourth quarter earnings. On January 1, 2013, analysts expected profitability of companies in the S&P 500 Index would increase by about 2.9 percent year-to-year. As 2012 fourth quarter’s earnings season headed toward the finish line last week, that estimate had almost doubled to 5.6 percent. About 70 percent of companies have exceeded analysts’ expectations so far. On average, over the long term, about 62 percent of companies beat expectations.

The yield on benchmark 10-year Treasury bonds continued to hover around 2 percent during the week. Reports of weaker than expected economic growth in Europe during the last quarter of 2012 may have increased demand for Treasuries. When demand increases, prices often go up and yields go down. Bond yields also have been affected by the Federal Reserve’s quantitative easing program. The Fed has been buying Treasury bonds in an effort to help support the economy. In general, these purchases are believed to be keeping bond yields lower than they might be otherwise. Quantitative easing will not continue indefinitely which may be the reason the Financial Industry Regulatory Authority issued a statement last week that said, “Many economists believe that interest rates are not likely to get much lower and will eventually rise. If that is true, then outstanding bonds, particularly those with a low interest rate and high duration may experience significant price drops as interest rates rise along the way.”

Data as of 2/15/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.1%	6.6%	13.1%	11.6%	2.4%	6.0%
10-year Treasury Note (Yield Only)	2.0	N/A	1.9	3.7	3.8	4.0
Gold (per ounce)	-3.4	-4.8	-7.0	13.7	12.1	16.6
DJ-UBS Commodity Index	-1.4	0.1	-3.8	1.2	-7.0	1.5
DJ Equity All REIT TR Index	0.4	5.0	18.2	22.5	7.6	12.7

CHILDREN ARE TARGETED FOR IDENTITY THEFT FAR MORE OFTEN than you might think. That’s right. A 2012 report from Carnegie Mellon CyLab found children are targeted for identity theft 35 times more frequently than adults. That’s because the unused social security numbers assigned to children for tax purposes are uniquely valuable to identity thieves. These numbers can be paired with any name and address and used for many years. Often the theft isn’t discovered until a child applies for a student loan or a job, or tries to buy a mobile phone or a car.

The report is based on 42,000 identity protection scans of children, ages 18 and under, that were completed during 2009 and 2010. Researchers found social security numbers for more than 4,300 children – 10.2 percent of those scanned – were being used by someone else (a stranger, a parent, or another family member) to:

Buy homes and automobiles

Establish credit card accounts

Secure employment and get driver’s licenses

Source: Child Identity Theft, Richard Power, Carnegie Mellon CyLab

The youngest victim was five months old. The victim of the largest fraud (about three-quarters of a million dollars) was a 16-year-old girl.

The first step in protecting your child’s social security number is to check with credit bureaus and find out whether a file has been opened using your child’s social security number. In many cases, even if the number is being used, your child’s full identity has not been stolen. In addition to contacting credit bureaus, watch for warning signs your child’s social security number may be in play. These include receiving:

Pre-approved credit card offers in your child’s name

Notices from the IRS indicating your child didn’t pay income taxes

Calls from collection agencies asking for your child

Source: Child Identity Theft, Richard Power, Carnegie Mellon CyLab; Federal Trade Commission Consumer Information, Child Identity Theft, August 2012

If you would like to learn more about how to protect your child from identity theft, visit the Federal Trade Commission’s web site at www.ftc.gov, and click on Privacy and Identity, Repairing Identity Theft, and then Child Identity Theft.

Weekly Focus – Think About It...

“The greatest pleasure in life is doing what people say you cannot do.”--Walter Bagehot, British economist and journalist

What to do after age 70?

Mon, 11 Feb 2013 23:00:00 -0600

If you are age 70 or older, take advantage of this Roth IRA benefit!

Unlike a traditional IRA, If you are age 70 or older, and still work and earn income, you can still contribute to a Roth IRA—allowing your money to grow tax-free and future withdraws of earnings are tax-free! If you fall below the income limitation contribution rules, you can stash away all of your income, up to $6,000 for the year!

If you haven’t made a contribution for 2012, you have until April 15, 2013 to make your contribution. and you can fund 2013 as well--up to $12,000 total for this year and last!

Here are the rules and benefits of the Roth IRA:

http://www.irs.gov/Retirement-Plans/Roth-IRAs

Questions? Just give us a call at 405-340-1717, or email me at greg@womackadvisers.com for more information.

Weekly Commentary: Keep moving up

Sun, 10 Feb 2013 23:00:00 -0600

Like a climber determined to reach a peak, stock markets continued to move higher last week.

Signs of strength in U.S. and international trade data improved the outlook for economic growth at home and abroad. The U.S. trade deficit narrowed in December, a sign that the economy did better than expected during the fourth quarter of last year. In China, robust domestic demand pushed imports significantly higher while exports grew more than anticipated. In Europe, Germany’s 2012 surplus was its second highest in more than 60 years which is a sign of underlying strength in one of the Eurozone’s biggest economies.

Positive economic news hurt gold futures which ended the week modestly lower. However, it made riskier assets, like stocks, attractive to investors, which helped push equity markets higher during the week (although trading volumes were low on Friday because of bad weather in the northeast). The NASDAQ closed at a 12-year high, the S&P 500 Index reached a five-year high, and the S&P 500 posted gains for a sixth consecutive week.

The Treasury bond market gained ground during the week. However, at a symposium at the St. Louis Federal Reserve, Federal Reserve Board Governor Jeremy Stein’s comments seemed to reinforce the idea that Fed officials are concerned that ongoing accommodative monetary policies could cause some sectors of the bond market to overheat. His comments reinforced the idea that the Fed is considering tightening its credit policies down the road.

Data as of 2/8/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.3%	6.4%	12.4%	12.8%	2.7%	6.1%
10-year Treasury Note (Yield Only)	2.0	N/A	2.0	3.6	3.7	4.0
Gold (per ounce)	-0.05	-1.5	-4.5	16.2	12.7	16.2
DJ-UBS Commodity Index	-0.9	1.5	-1.3	-0.3	-5.8	2.2
DJ Equity All REIT TR Index	0.3	4.6	15.1	23.1	7.6	12.6

THERE IS A NEW TREND IN FUNERALS: PLAN YOUR OWN. Susan Boyle, the Scottish chanteuse who was discovered on Britain’s Got Talent back in 2009 wants to leave mourners at her funeral laughing. What is her plan? She wants to have ‘Nellie the Elephant’ played during the service. Whether you applaud her approach or find it appalling, there is a new trend in the funeral industry: preplanning, prepaying, and personalization. Here are a few of the reasons people are choosing to plan and pay for their funerals ahead of time:

Control. When you plan the funeral, you have a pretty good idea about what will happen. You can decide whether there will be a viewing and how your life will be celebrated after the service. You can also create a file with personal information for your obituary, as well as any instructions you have for burial, cremation, or organ donation. Just make sure you leave it with a loved one so they know how to proceed.

Negotiate. Grieving family members are rarely good negotiators. Planning ahead gives you a chance to negotiate and secure a guaranteed price on a prepaid plan offered by a funeral home. Make sure you find out answers to questions such as: What happens if prices increase? What happens if you move? What happens if you change your mind?

Goodwill. If prepaid plans leave too many questions unanswered, you may choose to fund your funeral through a trust or an insurance policy. Regardless of the payment method, providing instructions with your wishes and funds to cover the expenses can relieve some of the anxiety and stress of a funeral.

Personalize. There are many new and unusual options available for funerals and memorial services. Whether you opt for traditional burial, cremation, green burial, mummification, cryonics, a memorial space flight, a memorial reef, or having your ashes compressed into a gemstone, there is a business willing to help.

Funeral preferences are changing. Alternatives to traditional funeral home services are becoming popular, especially among Baby Boomers. If you would like to learn more about the options available, visit the Funeral Consumers Alliance web site (www.funerals.org) and the National Funeral Directors Associations web site (www.nfda.org).

Weekly Focus – Think About It...

“Live as if you were to die tomorrow. Learn as if you were to live forever.”

Mahatma Gandhi, philosopher

Weekly Commentary: Investors are bullish

Mon, 04 Feb 2013 23:00:00 -0600

“The future’s so bright, I gotta wear shades.”

For the last several weeks investors have appeared to agree with the sentiment expressed in the 1980s song by Timbuk3. A high degree of investor optimism has helped push markets higher. The trend continued last week as the National Association of Active Investment Managers’ weekly survey found that professional investors are as bullish as they have been since the survey began six years ago. That may be part of the reason that the Dow Jones Industrial Index moved to within one percent of its all-time high during Friday’s rally.

With markets hitting new highs, investors have to ask: Are stocks fully valued in general? According to noted economist Robert Shiller, stocks are somewhat pricey relative to earnings, but not as expensive as they have been in the past. The Standard & Poor's 500 Index recently traded at about 13 times expected earnings for 2013. It traded at 15.2 times expected earnings in October of 2007 and at 25.6 times in March of 2000. Forecasted or expected earnings reflect analysts’ estimates of companies’ earnings going forward. They are projections that help analysts evaluate companies’ potential and not facts.

While contrarians – individuals who invest against prevailing market trends – may argue that all of this optimism means it’s a good time to bet against equity markets, historically strong performance during January often has been followed by strong annual performance. There have been notable exceptions, of course, including 1987 and 1997.

Data as of 2/1/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.7%	6.1%	14.3%	11.6%	1.6%	5.8%
10-year Treasury Note (Yield Only)	2.01	N/A	1.9	3.7	3.6	4.0
Gold (per ounce)	0.5	-1.5	-4.1	15.4	12.8	16.3
DJ-UBS Commodity Index	1.2	2.4	-1.3	2.4	-5.6	1.9
DJ Equity All REIT TR Index	-0.7	4.2	16.1	21.0	5.9	12.6

THE UNFLATTERING NAMES FOR VICTIMS of elder financial abuse – freeloader’s friend, human ATM, pushover partner – may go a long way toward explaining why the crime often goes unreported. The Administration on Aging (AoA) suggests that for every documented case of elder abuse, up to five cases may go unreported.

Elder financial abuse occurs when someone – a stranger, a family member, a trusted professional, or someone else – illegally takes or uses the assets or property of an older individual or accepts payment for goods and services that are never delivered. Despite underreporting, the cost to Americans over the age of 60 is enormous. A 2011 study of elder abuse estimated that the annual financial loss suffered by victims was almost $3 billion.

In an effort to focus attention on the problem, the AoA declared 2013 the Year of Elder Abuse Prevention (YEAP). The organization has developed materials and resources to raise awareness about and protect against elder abuse. Here are a few of their suggestions

Call or visit elderly relatives, friends, and neighbors regularly.

Offer to fill in for a caregiver for a few hours or days.

Engage older acquaintances by asking them to share their talents and skills.

Ask faith leaders to discuss the issue of elder abuse with their congregation.

Ask the local bank manager to teach tellers the signs of elder financial abuse.

Suggest to the local paper, radio, or TV station that it cover World Elder Abuse Awareness Day or YEAP.

Source: Administration on Aging Fact Sheet

Educating older people about telephone and computer scams may be a wise idea since fraud can be a significant way in which elders are parted from their money. To learn more about YEAP and protecting elders from abuse of all types, visit the AoA web site at www.aoa.gov.

Weekly Focus – Think About It...

“The future belongs to those who believe in the beauty of their dreams.”—Eleanor Roosevelt. First Lady

Greg's take on Aubrey McLendon's departure

Mon, 28 Jan 2013 23:00:00 -0600

Aubrey McLendon was an extraordinary entrepreneur, visionary, and advocate for increased reliance on America’s own natural gas. A new chapter in Chesapeake now unfolds.

I believe investors should view this as a “sweet-sour” moment; its sad to see an iconic energy figure stepping down, however, for the company to create a new chapter, change can be that needed catalyst. As of market close today, the stock is actually up about 10%.

I don’t think Aubrey will disappear form the Oklahoma energy landscape; he is invested in the success of Chesapeake, Oklahoma and America’s energy independence. You can say what you want about Chesapeake’s recent woes with commodity prices down and all, but Chesapeake, and the industry would not be the same without Aubrey McClendon’s leadership.

He will be missed. I wish him all the best in his future endeavors.

Globe catching up with enthusiasm

Sun, 27 Jan 2013 23:00:00 -0600

They say that optimism is catching. The performance of markets across the globe last week certainly supported the idea.

During the second week of January, there was reason for optimism about the housing market as data showed that housing starts exceeded economists’ expectations and home construction appeared to be on the rebound. Last week, the National Association of Realtors disclosed that very low mortgage rates, falling unemployment, and one of the most affordable housing markets on record helped make 2011 the best year for home sales since 2007.

In addition, earnings season – the period of each quarter during which public corporations announce their quarterly earnings to the public – moved into high gear. Generally solid corporate earnings drive markets higher. This helped the Standard & Poor’s 500 Index close above 1,500 for the first time in more than five years.

Across the pond, the European Central Bank announced that banks plan to repay 137 billion Euros next week much earlier than many had expected. Markets interpreted the news as a sign that European financial systems may be on the mend. Global stock markets gained strength and the Euro reached its highest level in nearly a year against the U.S. dollar. Interest rates in Italy and Spain, some of the weaker links in the Eurozone economy in recent years, fell significantly during the week offering further evidence that investors’ optimism and appetite for risk was on the rise.

Data as of 1/25/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.1%	5.4%	13.3%	11.1%	2.5%	5.9%
10-year Treasury Note (Yield Only)	2.0	N/A	2.0	3.6	3.6	3.9
Gold (per ounce)	-1.7	-2.0	0.6	14.9	12.6	16.2
DJ-UBS Commodity Index	-0.6	1.1	-3.4	1.3	-5.6	2.0
DJ Equity All REIT TR Index	1.3	5.0	18.5	21.5	7.4	12.9

TRADITIONAL OR ROTH RETIREMENT PLAN CONTRIBUTIONS? A provision of the American Taxpayer Relief Act of 2012 (ATRA) allows many people with savings in workplace retirement plans to make “in-plan Roth conversions.” They can move savings from traditional, before-tax 401(k), 403(b), or 457 plan accounts to Roth plan accounts without a distributable event (such as death, disability, or reaching age 59½) as long as the employer offers both options.

Traditional contributions

In general, traditional contributions to retirement plan accounts are made with before-tax dollars so they reduce current income. Any earnings in these accounts grow tax-deferred until assets are withdrawn. Generally, that’s at retirement. Distributions from Traditional accounts generally are taxed as ordinary income.

Roth contributions

Contributions to Roth retirement plan accounts are different. They are made with after-tax dollars so they do not reduce taxable income today. Any earnings in Roth accounts grow tax-free. Distributions from a Roth account are tax-free and penalty-free as long as the five-year participation period requirement is met and the distribution is taken for a qualified purpose, such as reaching age 59½ or becoming disabled.

How do I decide whether a conversion is right for me?

The decision about whether to convert a Traditional workplace retirement plan account to a Roth workplace retirement plan account should be based on criteria that are similar to the criteria used when deciding whether to convert a Traditional IRA to a Roth IRA. These include:

Tax brackets now and in the future: If you think you’ll be in a higher tax bracket during retirement than you’re in today, then a Roth conversion may make sense.

Assets available to pay the taxes due: When you convert from a Traditional to a Roth plan account, you will owe taxes on the assets you convert. If you have non-retirement savings available to pay these taxes, a Roth conversion may be a good choice.

Legacy and estate planning goals: If aRoth 401(k) account offers estate planning opportunities that suit your needs, conversion may be a good choice.

Income needs during retirement: If having a source of tax-free income to supplement taxable income during retirement could boost retirement income, then a Roth conversion may make sense. Source: Investment News

It’s important to recognize a retirement plan conversion is different from an IRA conversion. Plan conversions do not allow a do-over while IRA conversions can be revoked for a certain period of time. If you have any questions about this topic, please give us a call.

Weekly Focus – Think About It...

"Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence."-- Helen Keller, the first deaf and blind person to earn a Bachelor of Arts degree

Womack 2013 Forecast Webinar Replay

Thu, 24 Jan 2013 23:00:00 -0600

Did you miss Greg Womack's 2013 Forecast webinar?

Click here to watch it now

Investors appeared to be as optimistic

Mon, 21 Jan 2013 23:00:00 -0600

Investors appeared to be as optimistic as a newly-engaged couple last week. Strong housing data, a positive labor report, temporary easing of debt ceiling pressures, and some stronger-than-expected earnings results helped the Standard & Poor’s 500 and the Dow Jones Industrials indices close at five-year highs.

Commerce Department data showed housing starts climbed by 12.1 percent in December, on an annualized basis, exceeding economists’ expectations. Home construction is expected to continue to rebound, as long as mortgage rates remain low, and experts anticipate sales of new and existing homes will show improvement this week. This continued improvement in the housing market may have contributed to a more positive investor outlook.

The possibility of a debt ceiling compromise also encouraged markets higher. Unlike down-to-the-wire fiscal cliff negotiations, which caused investors to hold back at the end of 2012, discussions of temporary debt ceiling extensions by House Republicans soothed investors’ concerns.

Several companies, including several high-profile Wall Street banks, reported strong results last week, and several companies reported earnings that beat lowered expectations. This helped drive bank, transportation, and housing indices to historic or multi-year highs. Since the Transportation sector includes many highly cyclical and economically sensitive stocks, which tend to underperform when investors anticipate recession, this was seen as positive news for the economy.

According to Barron’s, a secular bull market begins when both transportation companies and the Dow Jones Industrial Average hit new highs. The Dow Jones Transportation Average reached a new high last week, but the Industrials index remains 4 percent below its highest close which was reached back in October 2007. Are we headed for a bull market? Only time will tell.

Data as of 1/18/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.9%	4.2%	13.6%	9.0%	2.3%	5.3%
10-year Treasury Note (Yield Only)	1.8	N/A	1.9	3.7	3.7	4.0
Gold (per ounce)	1.9	-0.3	2.5	14.2	13.9	16.8
DJ-UBS Commodity Index	2.1	1.7	0.2	0.7	-5.5	2.0
DJ Equity All REIT TR Index	1.2	3.6	20.7	18.6	8.9	12.6

WHAT'S THE DIFFERENCE BETWEEN AMERICA'S DEFICIT and its debt, and how do they relate to the debt ceiling? The terms deficit, debt, and debt ceiling are likely to be bandied about by politicians and the media frequently in coming months. It’s important for all Americans to understand these terms.

The deficit

America’s deficit is its annual budget shortfall. Any year the government’s spending exceeds its revenue (the amount of money taken in through taxes and other means), it has a deficit. When the government spends less than it takes in, it is called a surplus. Deficits are controversial and have been for many years. Keynesian economics states deficits can be used to stimulate economies and help countries rise out of recession. Other experts argue governments should not incur deficits because the money paid in interest could be better spent elsewhere.

The debt

The national debt is the full amount the American government owes – all of its deficits and surpluses added together. If the government runs at a deficit of $10 million for five years, then its debt will be $50 million. Every year that a country runs at a deficit, its debt increases.

The debt ceiling

When a government runs at a deficit, it must borrow money to keep operating. The U.S. government generally borrows by selling securities such as Treasury bills, notes, bonds, and savings bonds. The amount it can borrow this way is limited by the debt ceiling, which was established under the Second Liberty Bond Act of 1917.

The United States hit its current debt ceiling, which is about $16.4 trillion, on December 31, 2012. Before it can issue additional debt, Congress will need to raise the debt ceiling. This may make the debt ceiling a popular topic in political conversation during the next few months!

Weekly Focus – Think About It...

Compromise: n. Such an adjustment of conflicting interests as gives each adversary the satisfaction of thinking he has got what he ought not to have, and is deprived of nothing except what was justly his due.

--Ambrose Bierce, American journalist

Payroll tax raise a surprise for many

Fri, 18 Jan 2013 23:00:00 -0600

With all the end-of-year hype surrounding the fiscal cliff and the relief that came with New Year's legislation permanently extending most income tax rates, one change seems to have been veiled by the settling dust: the 2 percent increase in FICA (Federal Insurance Contributions Act) tax. That increase, the result of an expiring provision that was not extended, means that the vast majority of American workers are now receiving about 2 percent less in their take-home pay, an unwelcome surprise to some people.

Background

In the midst of the last recession a little more than two years ago, Congress passed and the president signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This new law included a 2 percent reduction in the Social Security (OASDI) portion of the FICA tax. The provision was designed to help put a little more money into the wallets of American workers during the challenging economic environment of 2011. While the employer portion of the OASDI contribution remained at 6.2 percent, the employee contribution was reduced from 6.2 percent to 4.2 percent. The provision was extended through 2012 by the Temporary Payroll Tax Cut Continuation Act of 2011 and the Middle Class Tax Relief and Job Creation Act of 2012.

The reduction was never meant to be permanent, as it put additional financial pressure on the already stressed Social Security Trust Fund. So during the 2012 fiscal cliff negotiations, both Democrats and Republicans agreed that it should expire at the end of the year.

Impact of 2 percent

Despite media reports warning of the impending payroll tax increase, many Americans were caught off guard when they received their first paychecks in 2013. How much of an impact might the additional withholding have? A family earning $60,000 a year will see their pay cut by about $1,200, or $100 per month, during 2013. Those earning $100,000 will receive about $2,000, or about $167 per month, less. (The maximum amount of an individual's earnings that is subject to Social Security tax in 2013 is $113,700.)

While most experts believe the decrease in take-home pay won't be enough to cause major economic damage, it may encourage families to cut back on spending enough to slightly dampen the nation's overall growth. For example, the 2 percent decrease could represent a family's monthly utility bill, an investment in a college savings account, or a week's worth of groceries.

Medicare taxes for high earners

Also consider that high earners will need to pay a bit more in Medicare taxes beginning in 2013. Taxpayers will pay an additional 0.9 percent Medicare tax on wages exceeding $200,000 for single/head of household, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. Taxpayers whose modified adjusted gross income exceeds those same threshold amounts will also pay a 3.8 percent Medicare tax on some or all of their unearned income. These provisions were part of the Patient Protection and Affordable Care Act of 2010, and like the expiration of the FICA reduction, were not affected by the 2012 fiscal cliff legislation. When combined with the 2 percent Social Security increase, the total hit could mean a difference of several thousand dollars a year to some higher-earning taxpayers.

Questions?

If you have questions about your FICA withholding, your human resources department or personnel manager might be a good place to start. These representatives are typically prepared to answer such questions and can help you confirm that your withholding is correct.

Weekly Commentary: Why turn to stocks?

Sun, 13 Jan 2013 23:00:00 -0600

Why were investors turning to stocks? Was it the generally strong performance of stock market indices during 2012 or something else? Theories were abundant. Some speculated that the surge signaled:

Renewed confidence in the American economy
Relief that capital gains and dividend taxes remained constant for middle income Americans
Faith in the ability of the American government to get things done
Lack of attractive investment alternatives as the average yield on high-yield bonds fell below 6% for the first time ever
There also was much discussion during the week about the contradictory messages coming from the Federal Reserve. The Evan’s Rule, which was named after the head of the Chicago Federal Reserve Bank, was established late in 2012. It ties interest rate guidance to employment and inflation targets rather than calendar dates; a change many had interpreted to mean that monetary policy would remain accommodative into 2014.

Interest rates are just one tool the Fed has been using to encourage economic growth. It also has been engaging in quantitative easing (QE) which is purchasing Treasuries on the open market to inject capital into the economy and encourage growth. Last week’s Federal Open Market Committee meeting notes indicated there was discussion among Fed members about ending quantitative easing earlier than expected, possibly before 2014.

So, which is it? Will policy remain accommodative or will it start to tighten? We may not know for sure for some time. The good news, according to Barron’s, is that tightening monetary policy would not be all bad news. “The end of quantitative easing would mean that the Fed sees sustainable economic growth in the U.S. – and globally.”

Data as of 1/11/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.4%	3.2%	13.9%	8.7%	1.0%	4.7%
DJ Global ex US (Foreign Stocks)	1.0	3.0	19.0	4.3	-0.9	10.6
10-year Treasury Note (Yield Only)	1.9	N/A	1.9	3.8	3.8	4.1
Gold (per ounce)	0.6	-2.1	1.4	12.9	13.2	16.7
DJ-UBS Commodity Index	0.6	-0.4	-3.2	-0.8	-6.1	2.0
DJ Equity All REIT TR Index	0.7	2.4	20.6	18.7	7.8	12.2

SAGE INVESTMENT ADVICE...Almost two decades ago, the CFA Institute published an article that included a letter from a father who was a financial professional to his daughter. His missive included some timeless and practical advice about investing. Among the thoughts he shared with his daughter were the following principles for investing:

A fool and his money are soon parted. Pay close attention to financial matters because investment capital is a perishable commodity when not managed properly.

There is no free lunch. Risk and return are interrelated. Generally, the greater the risk, the greater the potential return and vice versa.

Know thyself.Be honest in assessing your risk tolerance because it’s easy to underestimate the stress of a high-risk portfolio when markets move south.

Don’t put all your eggs in one basket. Diversification helps determine potential rates of return and manage exposure to risk. Make sure you have a well-diversified and well-allocated portfolio.

Take the long view. Make a plan and stay with it. Don’t let short-term market fluctuation or media-fueled frenzies cause you to panic. Investment decisions should result from a rational trade-off of risk and return. Unfortunately, those decisions often reflect fear and anxiety about current events.

Remember the value of common sense. Investing is not a competitive sport. It should be an effort to achieve a pre-determined financial goal within a specific risk-tolerance framework. No system works all of the time and you should not expect it to.

Sound financial advice may prove particularly important during 2013. During the fourth quarter of 2012, markets were volatile as Congress argued fiscal cliff issues. The solution – The American Taxpayer Relief Act of 2012 – resolved matters related to taxation, but left spending issues to be hammered out in the future. As a result, we may see additional volatility during the first few months of this year. If you begin to experience fear and anxiety when listening to news reports or checking market performance, just review the principles above!

Weekly Focus – Think About It...

"If you want to be successful, it's just this simple. Know what you are doing. Love what you are doing. And believe in what you are doing."--Will Rogers, humorist and social commentator.

IRS to Accept Most 2012 Tax Filings Beginning January 30

Wed, 09 Jan 2013 23:00:00 -0600

Due to the changes in the tax law prompted by the recently enacted American Taxpayer Relief Act of 2012 (ATRA), the IRS has announced it will begin accepting 2012 tax filings on January 30. The IRS had anticipated a January 22 start date. However, forms and processes must be updated in response to the ATRA, necessitating the delay. And filing paper returns won't speed up the process either. The IRS suggests filers use e-file with direct deposit for faster tax refunds.

Most households may begin filing tax returns on January 30. However, some filers may not have their returns processed until late February or March because of the need for more extensive form and processing system changes. Filers claiming residential energy credits, depreciation of property, or general business credits may not be able to file until a later date to be announced by the IRS. A full listing of the forms that won't be accepted until later is available on the IRS website, www.irs.gov.

New retirement provisions in the fiscal cliff deal

Tue, 08 Jan 2013 23:00:00 -0600

The American Taxpayer Relief Act of 2012 (ATRA), enacted to avoid the fiscal cliff, includes two provisions that may be important to certain IRA owners and retirement plan participants. The first extends tax-free charitable contributions from IRAs through 2013, and the second liberalizes the rules for 401(k), 403(b), and 457(b) in-plan Roth conversions.

Background

The Pension Protection Act of 2006 first allowed taxpayers age 70½ or older to exclude from gross income otherwise taxable distributions from their IRA ("qualified charitable distributions," or QCDs), up to $100,000, that were paid directly to a qualified charity. The law was originally scheduled to expire in 2007, but was extended through 2011 by subsequent legislation. The law has just been extended yet again, retroactively to 2012 and through 2013, by ATRA.

How QCDs work for 2012 and 2013

You must be 70½ or older in order to make QCDs. You direct your IRA trustee to make a distribution directly from your IRA (other than SEP and SIMPLE IRAs) to a qualified charity.* The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income in each of 2012 and 2013. If you file a joint return, your spouse can exclude an additional $100,000 of QCDs in 2012 and 2013. Note: You don't get to deduct QCDs as a charitable contribution on your federal income tax return--that would be double-dipping.

QCDs count toward satisfying any required minimum distributions (RMDs) that you would otherwise have to receive from your IRA, just as if you had received an actual distribution from the plan. However, distributions that you actually receive from your IRA (including RMDs) that you subsequently transfer to a charity cannot qualify as QCDs.*

Example: Assume that your RMD for 2013, which you're required to take no later than December 31, 2013, is $25,000. You receive a $5,000 cash distribution from your IRA in February 2013, which you then contribute to Charity A. In June 2013, you also make a $15,000 QCD to Charity A. You must include the $5,000 cash distribution in your 2013 gross income (but you may be entitled to a charitable deduction if you itemize your deductions). You exclude the $15,000 of QCDs from your 2013 gross income. Your $5,000 cash distribution plus your $15,000 QCD satisfy $20,000 of your $25,000 RMD for 2013. You'll need to withdraw another $5,000 no later than December 31, 2013, to avoid a penalty.

Example: Assume you turned 70½ in 2012. You must take your first RMD (for 2012) no later than April 1, 2013. You must take your second RMD (for 2013) no later than December 31, 2013. Assume each RMD is $25,000. You don't take any cash distributions from your IRA in 2012 or 2013. On March 31, 2013, you make a $25,000 QCD to Charity B. Because the QCD is made prior to April 1, it satisfies your $25,000 RMD for 2012. On December 31, 2013, you make a $75,000 QCD to Charity C. Because the QCD is made by December 31, it satisfies your $25,000 RMD for 2013. You can exclude the $100,000 of QCDs from your 2013 gross income.

As indicated above, a QCD must be an otherwise taxable distribution from your IRA. If you've made nondeductible contributions, then normally each distribution carries with it a pro-rata amount of taxable and nontaxable dollars. However, a special rule applies to QCDs--the pro-rata rule is ignored and your taxable dollars are treated as distributed first. (If you have multiple IRAs, they are aggregated when calculating the taxable and nontaxable portion of a distribution from any one IRA. RMDs are calculated separately for each IRA you own, but may be taken from any of your IRAs.)

Why are QCDs important?

Without this special rule, taking a distribution from your IRA and donating the proceeds to a charity would be a bit more cumbersome, and possibly more expensive. You would need to request a distribution from the IRA, and then make the contribution to the charity. You'd receive a corresponding income tax deduction for the charitable contribution. But the additional tax from the distribution may be more than the charitable deduction, due to the limits that apply to charitable contributions under Internal Revenue Code Section 170. QCDs avoid all this, by providing an exclusion from income for the amount paid directly from your IRA to the charity--you don't report the IRA distribution in your gross income, and you don't take a deduction for the QCD. The exclusion from gross income for QCDs also provides a tax-effective way for taxpayers who don't itemize deductions to make charitable contributions.

Special rules for 2012

Because the QCD rules were extended retroactively to 2012, two special rules apply:

· You may elect to treat any QCDs you make during January 2013 as having been made on December 31, 2012. This allows you to make QCDs in January 2013 and have them apply against your 2012 $100,000 limit.

· If you received a distribution from your IRA during December 2012 (even if the distribution is an RMD), you may elect to treat all or part of that distribution as a QCD if you transfer the cash to a qualified charity no later than January 31, 2013.

It's expected that the IRS will issue guidance in the near future describing how and when your election must be made.

ATRA also makes it easier to make Roth conversions inside your 401(k) plan (if your plan permits).

A 401(k) in-plan Roth conversion (also called an "in-plan Roth rollover") allows you to transfer the non-Roth portion of your 401(k) plan account (for example, your pretax contributions and company match) into a designated Roth account within the same plan. You'll have to pay federal income tax now on the amount you convert, but qualified distributions from your Roth account in the future will be entirely income tax free. Also, the 10% early distribution penalty generally doesn't apply to amounts you convert.

While in-plan conversions have been around since 2010, they haven't been widely used, because they were available only if you were otherwise entitled to a distribution from your plan--for example, upon terminating employment, turning 59½, becoming disabled, or in other limited circumstances.

ATRA has eliminated the requirement that you be eligible for a distribution from the plan in order to make an in-plan conversion. Beginning in 2013, if your plan permits, you can convert any part of your traditional 401(k) plan account into a designated Roth account. The new law also applies to 403(b) and 457(b) plans that allow Roth contributions.

Weekly Commentary: The Year in Review

Sun, 06 Jan 2013 23:00:00 -0600

Global markets celebrated the New Year on Wednesday with a rally in appreciation of the U.S. fiscal cliff agreement, now known as The American Taxpayer Relief Act of 2012 (ATRA). Many European, Asian, and American markets closed the day sharply higher. The FTSE 100 was up 2.2 percent, Hong Kong’s Hang Seng was up 2.9 percent, Brazil’s Bovespa was up 2.6 percent, and the Dow Jones Industrials Index was up 2.4 percent for the day.

While markets embraced ATRA with unabashed enthusiasm, pundits were less keen on the new law. They greeted the changes with the excitement – or lack thereof – many readers reserve for books with cliffhanger endings. That’s because ATRA failed to resolve key issues related to the fiscal cliff, including automatic spending cuts and the debt ceiling limit. As a result, Americans can soon expect new additions to the fiscal cliff series. The next, which may be called the Debt Ceiling Debacle, will undoubtedly be accompanied by considerable melodrama and bipartisan bickering.

On Thursday, U.S. stock markets faltered after the minutes of the Federal Reserve Open Market Committee meeting were released. The Fed has promised to continue quantitative easing indefinitely; however, the minutes included considerable discussion about ending the program during 2013. That notion spooked Treasury investors and the yield on 10-year Treasuries rose to 1.9 percent.

On Friday, the unemployment report showed the jobless rate unchanged at 7.8 percent. Stock markets bounced higher as investors appeared to interpret the news as an indication the U.S. economy is not yet strong enough for the Fed to end quantitative easing. However, the news that some at the Fed thought easing should end caused gold to drop to its lowest in two weeks.

For the week, the S&P 500 was up 4.6 percent, the Dow Jones Industrials were up 3.8 percent, and the NASDAQ rose by 4.8 percent.

Data as of 1/4/13	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	4.6%	2.8%	14.8%	9.0%	0.77%	4.9%
DJ Global ex US (Foreign Stocks)	1.9	1.9	17.1	4.6	-1.6	10.4
10-year Treasury Note (Yield Only)	1.9	N/A	2.0	3.8	3.9	4.0
Gold (per ounce)	-0.6	-2.7	2.2	13.7	14.0	16.7
DJ-UBS Commodity Index	-1.0	-1.0	-4.7	-1.1	-6.2	2.0
DJ Equity All REIT TR Index	2.9	1.7	22.7	18.8	7.7	11.7

The Year in Review

2012 was a surprising year. Although many of the most notable events reflected ongoing economic and fiscal issues – including crises in the European Union, slowing growth in China, growing debt in the United States, government intervention in Brazilian, and worries about fiscal cliff – investors remained optimistic and many global stock markets delivered rather attractive performance for the year. Here are a few of the headline events which caught our attention during 2012:

China became an economic power, officially

All debate about when China’s economic importance would rival that of the United States was put to rest when The Economist added a section devoted entirely to China. The last time the publication introduced a new country was 1942. It was devoted to The United States.

It’s all relative: the U.S. and global recovery

China’s growing importance did not diminish the role of the United States. U.S. economic growth may have been modest during 2012, but it was positively robust relative to that of other developed nations. In fact, the U.S. was called the sole bright spot in global economic recovery.

Greece? Really?

Greece’s ATHEX composite index was the top-performing stock market in Europe during 2012. Despite five years of recession and record unemployment, it closed about 33 percent higher at year’s end, beating Germany’s DAX. The ATHEX remained significantly below its previous highs.

“For Euro Crisis Relief Bang Head Here”

Bloomberg BusinessWeek’s tongue-in-cheek headline reflected ongoing frustration with events in Europe. While Europe faces complicated issues that are likely to take time to resolve, there are reasons for optimism including the region’s pursuit of a banking union.

The Supreme Court did what?

Offering headlines that rivaled the memorable ‘Dewey Beats Truman,’ both CNN and Fox News misreported the Supreme Court’s ruling on the Affordable Care Act. The Act remains controversial.

Like a phoenix, Bank of America rose from the ashes

After delivering the worst performance in the Dow Jones Industrial Average during 2011, Bank of America became the best performer for 2012. One of the biggest beneficiaries was Warren Buffet who stepped in when no one else would. He invested $5 billion in preferred shares and received 700 million in warrants.

Not ready for prime time: NFL replacement officials

Early in the season, pundits tried to identify the biggest blunders made by the NFL’s temporary referees each week. It wasn’t easy. From cheap shots to reviews for teams that had no time outs to the infamous simultaneous catch call, the temporary refs made fans appreciate the real thing.

Australian police said Apple Maps can kill you

Apple maps were called a lot of things during 2012, but accurate was not one of them. San Francisco had a French Quarter, Stratford-on-Avon disappeared, and the town of Mildura moved to the middle of Australia’s Murray Sunset National Park. Since the park has no water supply, Australian police issued a warning.

Weekly Focus – Think About It...

Don't tell people how to do things, tell them what to do and let them surprise you with their results. --George S. Patton, U.S. Army general

A look at the fiscal cliff deal

Sun, 06 Jan 2013 23:00:00 -0600

Key Provisions of H.R. 8: American Taxpayer Relief Act of 2012

(“Fiscal Cliff Agreement”)

The 112th Congress was recently dubbed the “Do Nothing Congress” for the minimal amount of legislation enacted during the two-year session. Two hours after going over the Fiscal Cliff at midnight on January 1, the Senate voted 89-8, and the House of Representatives voted 257-167 to pass the American Taxpayer Relief Act of 2012 to reverse some of the measures which may have had a severe negative impact upon the economy.

The Congressional Budget Office projects the legislation will add $4 trillion to the U.S. deficit over the next 10 years compared to a scenario where the Bush tax cuts had been allowed to expire.

The Senate bill also sets up what is likely to be an even more heated fight in late February when the Treasury Department must come to Congress to seek an increase in the government's borrowing limit.

KEY PROVISIONS:

Tax rates will be allowed to rise on individual incomes over $400,000 per year, and household incomes over $450,000 per year to a maximum rate of 39.6%.

The tax on estates would rise to a 40% maximum rate, with a permanent exemption of $5 million, indexed for inflation.

Permanently sets maximum long-term capital gain and dividend tax rates at 20% for households making more than $450,000.

Phases out itemized deductions and personal exemptions for those making more than $250,000, $300,000 joint.

Permanently sets maximum long-term capital gain and dividend tax rates at 15% for households making less than $450,000.

The 2% temporary decrease in FICA payroll taxes relief was allowed to expire. This provision has a disproportionate impact on those making less than $113,700 (the FICA limit in 2013). This is expected to take $125 billion out of consumer income.

Extends the tuition tax credit and child and dependent care tax credits for five years.

Workers will be allowed to rollover 401k funds to a Roth IRA while still actively participating in a 401k plan. Think of it as an ‘In-Service’ distribution.

- Pay income tax currently.

- Not subject to Required Minimum Distributions at age 70½.

- Future earnings are tax-free.

Permanent adoption of the Alternative Minimum Tax exemption amounts. Impacts 32 million Americans who may have been subjected to AMT in 2012 and indexes AMT for inflation.

Postpones $109 billion sequester for two months.

Extends unemployment insurance for two million long-term unemployed Americans.

Extension of the 2008 Farm Bill through the end of this fiscal year (September 30, 2013). Keeps the price of milk from potentially doubling.

Prevents a 27% reduction in Medicare payments to doctors and other health care providers treating patients on Medicare.

Annual Market Review: 2012

Tue, 01 Jan 2013 23:00:00 -0600

Resilience in the face of adversity seemed to be the theme for 2012. Hurricanes that shuttered Wall Street for two days and cut oil production, the threat of a "Grexit" from the euro, Europe's record unemployment and second recession in four years, Chinese growth that hit a three-year low, and uncertainty about elections here and abroad--such formidable obstacles slowed the progress of the global economy but didn't bring it to its knees.

Debt-related news out of Europe continued to play a major role in global bond and equities markets. Despite cracks in the French/German alliance, the eurozone finally appeared more willing to take joint action to enforce fiscal discipline. In exchange for fresh austerity measures, Greece got a reprieve on its debt reduction deadline. Despite growth that went from explosive to merely robust, China chose new leaders for the next decade who are considered to favor existing policies. In the United States, strong U.S. corporate earnings had begun by year's end to show the toll taken by a slowing global economy. Solid if not robust economic growth, an improving housing market, lower unemployment, and low inflation all had to contend with concerns worldwide about the fiscal cliff.

Snapshot 2012

The Markets

Equities: Though equities certainly experienced some volatility during the year, the stomach-churning declines of 2011 gave way to 2012's more moderate fluctuations and dramatically improved performance. Optimism about the prospects for an economic recovery powered equities to year-to-date highs in the fall that lost ground in the fourth quarter as the path to a detour around the fiscal cliff seemed rockier. Helped (and eventually hampered) by some key tech bellwethers, the Nasdaq's Q1 gain of almost 19% helped it set the pace for the domestic indices for much of the year and generally remain above its 2007 high. The Russell also powered back from 2011's loss, while the Dow--the strongest of the five indices in 2011--took a back seat last year. It was even outperformed by the Global Dow, which benefitted in the year's second half as Europe managed to avoid disaster. And the S&P 500's 13.4% gain for the year was a definite improvement over the 0.0% of the year before.

Bonds: Rock-bottom Treasury yields somehow managed to drop even further as the 10-year bond briefly hit a record low of roughly 1.43% in July. Treasuries, corporates, munis, junk, internationals--bonds benefitted across the board from investor demand and the Fed's stepped-up quantitative easing efforts. Investors who continued to pull money out of stock funds put much of it into bonds, reassured that higher interest rates were at least a couple of years away from affecting bond prices.

Oil: After starting 2012 at roughly $103 a barrel and remaining above $100 through the first four months, oil prices reversed the previous year's upward trajectory. Despite a slight bump in August/September, mounting concerns about a slowing global economy took oil to $85 a barrel before a year-end rally nudged it back up to end the year at roughly $93 a barrel.

Currencies: After a spring surge pushed the U.S. dollar to the year's high against a basket of six currencies in June, the greenback lost 7.5% over the next three months before rebounding to end 2012 only slightly lower than where it started. Despite a couple of dips, the euro strengthened against the dollar, gaining roughly 2% over the year to end at roughly $1.32.

Gold/silver: After plummeting almost 14% between late February and mid-May, gold spent the summer bouncing along on either side of $1,600 an ounce. By mid-July, a rebound had sent the price to the year's high of just under $1,800 before fading to end 2012 at $1,676. And after spiking more than 60% to a high of $48 an ounce in April, silver prices settled down, ranging between $26 and $37 for the rest of 2012 and ending at $30.

The Economy

Unemployment: The unemployment rate continued to meander downward, ending the year at 7.7%. Though the pace of improvement was frustratingly slow--the jobless rate didn't fall below 8% until September--the employment picture was still better than December 2011's 8.5%. However, the Fed has forecast only minimal improvement in that figure during 2013, and has promised to keep interest rates low until unemployment hits 6.5%.

GDP: Despite a little spring slump, by the third quarter the U.S. economy was growing at an annualized 3.1%--more than double Q2's 1.3% and the fastest growth of 2012--and Q3 corporate after-tax profits were 3.2% ahead of the same time a year earlier. However, there were signs that growth had begun to taper off in the fourth quarter as anxiety about elections and the fiscal cliff mounted.

Inflation: Modest improvements in the economy had little impact on prices at either the consumer or wholesale level. By November, annual consumer inflation was only 1.8%--well within the level the Fed considers acceptable and lower than 2011's 3%. The 1.5% increase in wholesale costs was slightly better, and was far more moderate than 2011's 4.7% wholesale price jump. Consumer spending and retail sales both showed gains for the year, though holiday shopping was reportedly slower than anticipated.

Housing: While not completely healed, the housing market showed signs that a sustainable recovery was under way. By year's end, sales of new homes had hit their highest level since April 2012 and were 15.3% higher than a year ago, while home resales had their ninth straight month of gains. Home prices were up an average of 4.3% from a year earlier, while housing starts, construction spending, and building permits all had strung together several consecutive months of improvement.

However, that resilience could be tested in 2013. Though a last-minute bargain averted a full-scale plunge off the fiscal cliff, headwinds could pick up if Washington can't reach an agreement (again) on the debt ceiling and spending cuts still scheduled to begin in 2013.

Market/Index	2011 Close	As of 9/28	As of 12/31	Q4 Change*	2012 Change*
DJIA	12217.56	13437.13	13104.14	-2.48%	7.26%
NASDAQ	2605.15	3116.23	3019.51	-3.10%	15.91%
S&P 500	1257.60	1440.67	1426.19	-1.01%	13.41%
Russell 2000	740.92	837.45	849.35	1.42%	14.63%
Global Dow	1801.60	1921.70	1995.96	3.86%	10.78%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	1.89%	1.65%	1.78%	13 bps	-11 bps

*Equities figures reflect price changes, not total return.

Data sources: Includes data provided by Brounes & Associates. Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Dept. of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK);www.goldprices.org(spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.

Fiscal Deal made, but taxes still rise

Tue, 01 Jan 2013 23:00:00 -0600

Here is a good article from CNBC. Despite “Cliff’ Deal’s Cuts, Your Taxes are Going Up.

http://www.cnbc.com/id/100348254

Weekly Commentary: This too shall pass

Sun, 30 Dec 2012 23:00:00 -0600

“This too shall pass.”

--Ancient proverb

Like getting emotionally involved with your favorite sports team, it’s easy to get caught up in the drama surrounding the fiscal cliff. Combining politics, money, power, gamesmanship, and national impact makes for a compelling story line. But you know what? “This too shall pass.”

As Reuters reported, “One way or another, Washington will come to an agreement to offset some effects of the cliff. The result will not be entirely satisfying, but it will be enough to satisfy investors.” Unfortunately, we have to go through a totally avoidable wailing and gnashing of teeth before we get the Democrats and Republicans to do what ordinary Americans do when faced with opposing issues—compromise.

Up until last week, the stock market seemed undeterred by the circus in Washington. However, as it became clear that a deal would come down to the wire, investors got nervous and stocks experienced five days of declining prices.

Unfortunately, this partisan bickering could create an unintended consequence.

Back in 2011, wrangling over the debt ceiling triggered the first-ever U.S. credit downgrade. Even though the debt ceiling was raised and the U.S. did not default, credit ratings agency Standard & Poor's nonetheless lowered the U.S. credit rating stating, “the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges.” If the continued discord in Washington leads to another downgrade, it would not be good for the financial markets, according to Jonathan Golub, chief U.S. equity strategist at UBS Equity Research.

Outside of the fiscal cliff, one thing we know for sure will pass this week is the end of one year and the beginning of a new one. And to that we say...may the New Year bring you health, happiness, and family closeness.

NORTH DAKOTA IS A SHINING EXAMPLE of why things are not always what they seem.

Back in 2009, PIMCO coined the term, “New Normal” to reflect their view that the U.S. had entered a multi-year period of balance sheet de-levering and restructuring that would stunt economic growth and keep stock market returns low. So far, they’re half right. Economic growth has been moderate as predicted but the stock market has performed well since the beginning of 2009 as it bounced off the bear market lows.

Implicit in PIMCO’s view is the idea that economic growth comes from three factors.

1) Growth in the workforce (demographics is key)

2) Growth in productivity (helped by improvements in technology)

3) Growth in physical capital (e.g., plant, equipment, machinery)

Source: University of Colorado

Here’s where it gets tricky—trying to predict changes in those three variables is not easy.

For example, let’s turn the clock back to July 1, 2011. On that day, if we asked you to guess which state would have the highest percentage growth in population over the next 12 months, what would you have answered? Would North Dakota have come to mind? Probably not, yet, the Census Bureau recently reported The Peace Garden State topped the list in the past year.

This achievement is even more remarkable considering North Dakota was only the 37th fastest grower between 2000 and 2010. In other words, it essentially came out of nowhere to become a fast grower all thanks to new technology which enabled the rapid development of an oil- and gas-rich shale formation.

Today, fiscal cliff issues, massive deficits, unsustainable government spending, Eurozone problems, and the Middle East powder keg are just a few of the many reasons to be negative on the markets and the economy. Yet, we need to remember North Dakota.

Nobody knows where the next “North Dakota” will come from, but it will likely come. So, while things may be tense in the markets and the economy, chances are our American ingenuity will rise to the occasion and eventually restore us to a position of economic strength.

As that unfolds in 2013 and beyond, we’ll keep doing what we do which is manage your investments according to your goals and doing our best to achieve solid risk-adjusted returns.

Data as of 12/28/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.9%	11.5%	12.2%	7.5%	-1.1%	4.8%
DJ Global ex US (Foreign Stocks)	0.3	13.6	15.3	1.6	-5.3	7.6
10-year Treasury Note (Yield Only)	1.7	N/A	1.9	3.8	4.1	3.8
Gold (per ounce)	0.4	5.3	5.5	14.4	14.7	16.9
DJ-UBS Commodity Index	-0.1	-1.1	-1.1	-0.2	-5.5	2.3
DJ Equity All REIT TR Index	-0.7	18.2	18.8	16.3	5.6	11.7

Wise Move 10: Hurricane Sandy relief

Sun, 30 Dec 2012 23:00:00 -0600

Hurricane Sandy relief:The IRS cautions people wishing to make disaster-related charitable donations to be aware of possible scams relating to Hurricane Sandy. Be sure to deal with recognized charities, and be wary of charities with similar sounding names. It is common for scam artists to impersonate charities using bogus websites, and through contact involving e-mails, telephone, social media, and in-person solicitations. Check out the charity on the IRS website, www.irs.gov, using the search feature, Exempt Organizations Select Check. And don't give or send cash; contribute by check or credit card.

Wise Move 9: Convert that IRA into a Roth IRA

Thu, 27 Dec 2012 23:00:00 -0600

Convert that IRA into a Roth IRA – if you want to reduce your taxes on income in retirement, or if you don’t plan on using that IRA for many years, consider converting all or part of an IRA into a Roth IRA. You will have to include the convertible amount on your 2012 income, but you will eliminate all future taxes on the growth and principal of that Roth IRA if you abide by the rules. Consider increasing deductions or shifting other income into next year to reduce the tax bit from the increased income as a result of the conversion.

Wise Move 8: Consider taking gains/losses

Sun, 23 Dec 2012 23:00:00 -0600

Consider taking gains / losses – capital gains rate and income tax rates are due to increase, unless congress acts to extend them. It’s always smart to take gains at some point; and with the possibilities of higher capital gains taxes, and a market that has not had a significant pullback in price for several years, now may be a good time to take some gains at a lower tax rate. Also, review some of the losers in your portfolio that can help offset those gains. Don’t forget any carry-forward losses you may have left over from last year.

Weekly Commentary: A fluid situation

Sun, 23 Dec 2012 23:00:00 -0600

The situation is fluid.

As politicians scramble and we inch closer to the fiscal cliff day of reckoning, it’s important to keep one thing in mind—the big picture. While the cliff situation dominates the headlines, the underlying economy is quietly marching ahead. Consider this recent data.

Orders for long-lasting goods jumped in November. The data suggested a surprisingly strong and broad increase in corporate spending.

Sales of existing homes climbed in November to the highest rate in three years.

Consumer spending climbed in November “as Americans pushed aside the threat of higher taxes next year, buying gifts for the holidays and making up for shopping lost to superstorm Sandy,” according to Bloomberg.

Car and light truck sales rose in November to the highest annual rate since 2008.

Economic growth, as measured by gross domestic product, was revised up to 3.1 percent in the third quarter from the originally reported 2.7 percent, according to Reuters. That’s more than double the growth rate from the second quarter.

Corporate profits hit a record high in the third quarter and, “Clearly, corporate America is on a roll,” according to Forbes.

Sources: MarketWatch, Bloomberg, Reuters, Forbes

The above paints the bull case for the economy. Yet, it’s not all rosy. The U.S. still faces tough budget deficit issues, tax issues, and an overhang of malaise that could pose stiff headwinds. And overseas, Europe is still problematic.

Returning to the big picture, let’s remember that economic cycles and political wrangling have been and always will be with us (just watch Steven Spielberg’s new movie Lincoln). The players may change and the nature of the issues may vary, but as Led Zeppelin sang, The Song Remains the Same.

The good news…we survived the end of the world last Friday as the Mayan prophecy was a non-event! And we suspect we’ll survive whatever happens in Washington, too.

IS BUILDING A BUY-AND-FORGET PORTFOLIO that tries to capture long-term trends a good idea? Well, FORTUNE Magazine thought it was, so back on August 14, 2000, they published a list of 10 stocks and said, “If you're a long-term investor, these 10 should put your retirement account in good stead.”

To begin, FORTUNE identified the following long-term trends that they felt had the potential to transform the economy.

The lightning-fast changes in communications networking.

The brave new world of entertainment.

The “boomerization” of financial services.

The coming of age in biotech.

From there, the magazine came up with a list of 10 stocks to capitalize on these trends.

So, let’s see how their 10 stock picks performed over the next 12 years and 4 months between August 14, 2000 and December 19, 2012 as reported by Ritholtz.com.

2 of the 10 stocks went bankrupt.

1 received a government bailout.

2 were bought out at prices lower than their August 14, 2000 price.

0 stocks rose in price by the end of the 12-year period.

The cumulative portfolio, excluding dividends, declined by more than 50 percent during the period. By comparison, the S&P 500 index rose more than 20 percent during the period.

Source: Rithotz.com

As you can see, the magazine’s results were not pretty. Here are four conclusions from this buy-and-forget experiment.

1) Don’t get your stock picks from magazines! You have to do serious research.

2) Long-term trends are powerful, but the winners at the beginning of the trend may not be the winners at the end of the trend.

3) Since “winners rotate,” it’s important to have a “sell discipline” to help you avoid hanging on to stocks long past their prime.

4) To paraphrase an old saying, if you follow a static crystal ball, you may end up eating a lot of broken glass.

While nobody can predict the future, trends can last a long time and may offer profitable investment opportunities. However, as this example shows, you still have to diligently manage your portfolio so you don’t get caught on the wrong side if a shift happens.

Weekly Focus – Think About It...

It came without ribbons! It came without tags!

It came without packages, boxes, or bags!

Then the Grinch thought of something he hadn't before!

Maybe Christmas, he thought, doesn't come from a store.

Maybe Christmas... perhaps... means a little bit more!

--Dr. Seuss, How the Grinch Stole Christmas!

Wise Move 7: Review portfolio-time and consider rebalancing?

Sat, 22 Dec 2012 23:00:00 -0600

Review portfolio-time and consider rebalancing? Review asset allocation mix. Re-evaluate your risk tolerance and goals. And then consider selling securities that have increased the most, and buying into those that are down--as long as the holdings still make sound investment sense. Rebalancing is a no-brainer for IRAs, 401ks and other tax-sheltered plans, because there are no tax consequences. Regular rebalancing within a diversified portfolio can help reduce risk and improve returns over a long period of time. Its buying low, and selling high—and takes the emotions out of the process.

Wise Move 6: Deposit catch-up contributions

Wed, 19 Dec 2012 23:00:00 -0600

Deposit catch-up contributions

Catch-up contributions to 401(k)s are also typically due by the end of the calendar year. Workers age 50 and older can contribute up to $22,500 to a 401(k) plan in 2012, $5,500 more than younger workers.

Wise Move 5: Sell vested restricted stock

Tue, 18 Dec 2012 23:00:00 -0600

Sell vested restricted stock

"Vested restricted stock" is really just unencumbered "stock" held by the executive. After the 1-year capital gains holding period is satisfied, the gain on the sale of that stock would be taxable at long-term capital gains rates. By selling the stock held long term in 2012, the 15% maximum capital gain rate can be locked in. If longer term appreciation is expected, the stock can be repurchased with a new higher basis. The tax savings would have to exceed the transaction costs for this to be worthwhile. Those individuals subject to Section 16(b) of the Securities Exchange Act of 1934 must take care not to have purchases and sales of the stock within a 6-month period unless an exemption is available under Rule 16b-3 to prevent matching the purchase and sale, triggering liability. Also, executives subject to stock retention requirements will need to be sure not to run afoul of them.

Weekly Commentary: Fed Steps In Again

Sun, 16 Dec 2012 23:00:00 -0600

There they go again.

Doing its part to keep the economy afloat, the Federal Reserve announced last week, “that it would enter 2013 with a plan to purchase $85 billion a month of mortgage-backed securities and Treasury securities, part of a continuing attempt to drive down long-term interest rates to encourage borrowing, spending, and investing,” according to The Wall Street Journal.

In other words, the money printing not only continues, but expands.

Prior to the financial crisis, the Federal Reserve’s balance sheet stood at about $900 billion. Now, after previous rounds of securities purchases, it weighs in at about $2.9 trillion. With last week’s announcement, it’s on track to reach about $4 trillion by December 2013. And, based on the Fed’s guidance last week, it could hit $6 trillion before the Fed rests.

There are two schools of thought on the wisdom of this balance sheet expansion policy. One school says it will lead to massive inflation and destroy the value of the dollar. The other school says it’s necessary to keep the economy stimulated while giving fiscal policymakers time to fix the structural issues with the economy.

For its part, the Fed says it can manage its balance sheet without causing unwanted inflation.

So far, inflation is calm, the financial markets have stabilized, and the unemployment rate has dropped steadily over the past two years. By those measures, the Fed’s policy has been reasonably effective. Yet, as The Wall Street Journal points out, “Many critics of the central bank believe it has already gone too far in its quest to boost economic growth, and say it might be exposing the financial system to new risks of inflation or a financial bubble by pumping so much money into banks.”

We are concerned about the potential long-term consequences of the Fed’s unprecedented money-printing actions and we’ll continue to keep a close eye for any sign of the market “rejecting” it.

Data as of 12/14/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-0.3%	12.4%	16.7%	8.3%	-0.8%	4.5%
DJ Global ex US (Foreign Stocks)	1.3	12.3	15.7	1.3	-5.3	7.4
10-year Treasury Note (Yield Only)	1.7	N/A	1.9	3.6	4.2	4.1
Gold (per ounce)	-0.3	7.7	5.8	14.7	16.5	17.7
DJ-UBS Commodity Index	-0.7	-0.1	2.9	1.5	-4.9	2.4
DJ Equity All REIT TR Index	-0.6	16.2	23.8	17.6	5.1	11.5

THE BEST PERFORMING STOCKS BETWEEN ELECTION DAY 2008 AND ELECTION DAY 2012 in the S&P 500 index are quite a varied group. It’s interesting to see what companies performed well during this time because it encompassed a good chunk of the Great Recession and the stock market recovery that ensued. Without naming names, here are the industries represented by the top 12 performing stocks, according to a list from Market Watch:

1) Leisure

2) Grocery Stores

3) Auto Dealers

4) Leisure

5) Lodging

6) Computer Systems

7) Restaurants

8) Auto Manufacturers

9) Footwear and Accessories

10) Software

11) Residential Construction

12) Data Storage

The cumulative return during the 4-year period for these companies ranged from 373 percent for company #12 to 1,107 percent for company #1. By contrast, the S&P 500 index rose 47 percent during the period, according to data from Yahoo! Finance.

Notice that only one industry – leisure – is represented by two different companies on the list. This suggests the top performers were indeed a diversified group.

Are you ready for a quiz? See if you can name three companies on the list given the following hints:

Company #1 on the list: Their spokesperson has gone “where no man has gone before.”

Company #2 on the list: It’s sometimes referred to as “whole paycheck.”

Company #6 on the list: Their commercial, which aired only once on TV in 1984, was rated the 12th best ad campaign of the 20th century by Advertising Age.

Stumped? See below for the answers. Let us know how many you got right!

Weekly Focus – Think About It...

“(Holiday) gift suggestions:

To your enemy, forgiveness

To an opponent, tolerance

To a friend, your heart

To a customer, service

To all, charity

To every child, a good example

To yourself, respect”

--Oren Arnold, novelist, journalist, and humorist

Answers to quiz:

Company #1 is Priceline.com

Company #2 is Whole Foods Market

Company #6 is Apple

Gifts that don't cost a penny

Tue, 11 Dec 2012 23:00:00 -0600

This giving season comes on us fast, doesn't it? In the hubbub, you might enjoy three stories I heard recently about gifts that don't cost a penny.

A kind word. Tom Ziglar, son of author and speaker Zig Ziglar, said that one day when they were playing golf, his dad turned to him and said, "Son, I don't think I tell you often enough how proud I am of you and how much I love you." And they hugged. After that, they seldom saw each other without the elder Ziglar expressing the same sentiment again.

A written note. Pastor Chuck Swindoll tells of the time he dashed off a quick note to someone on a yellow pad of paper, thanking them for something. Not too long after that, he found himself in their home, and to his surprise, he found that note framed on their wall! "The first thing I did was check it for spelling!" Swindoll shares, "You have no idea how much impact a simple note in your own handwriting (not emailed or typed) can mean to someone."

A hug. None but his family saw former president Ronald Reagan much after the onset of Alzheimer's disease. His son Michael was a bit frustrated as the disease progressed at not being able to talk to his dad anymore. Michael's wife suggested that he just give him a hug. So although neither one had been a big hugger, they did that every time afterwards. One time, after a visit, Michael was already out the door before he realized that he had forgotten to give his dad a hug. As he turned to go back inside, he found his dad already walking toward him, arms outstretched.

A word, a note, a hug. Free, but priceless.

Merry Christmas, Happy Hanukkah, and Season's Greetings. May you be richly blessed this coming New Year!

Weekly Commentary: Fiscal Cliff or Y2K?

Sun, 09 Dec 2012 23:00:00 -0600

Another week is history and we’re another week closer to the “fiscal cliff.”

You can’t turn on the TV or surf the internet without some reference to the fiscal cliff. But, consider this. Remember all the fuss about Y2K back in 1999? Everybody was worried about planes dropping from the sky at midnight, ATMs freezing up, and the power grid shutting down on January 1. Well, the clock struck midnight and, poof, like Cinderella’s glass slippers, nothing changed.

Perhaps it was all the preparation ahead of Y2K that ensured it would be a non-event. In fact, one could argue that all the upgrading of equipment and intense preparation that went into the buildup toward Y2K helped propel the economy and fan the tech bubble that culminated at the turn of the century. Then, as you may know, it was right after Y2K that the stock market went over its own cliff and fell into a bear market.

Now, here’s where it gets interesting. While the overall stock market has been weak during the 13 years since Y2K, corporate earnings continued to rise. As a result, the Shiller PE10 ratio, a measure of valuation of the overall stock market, has dropped from 44 at the end of 1999 to 22 at the end of September of this year. In other words, the overall stock market is a lot less “expensive” than it was 13 years ago.

This could mean a couple things:

If we go over the fiscal cliff, the stock market may not fall as much as it did after Y2K because the overall market valuation level is much lower now.

Investor psychology and Federal Reserve policy are still wildcards. How investors and the Fed respond to whatever happens with the fiscal cliff could have a significant impact on the markets – good or bad.No matter what happens with the cliff talks, we’re keenly focused on the situation and we’ll make adjustments to your portfolio as appropriate.

Data as of 12/7/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.1%	12.8%	12.5%	8.7%	-1.2%	4.8%
DJ Global ex US (Foreign Stocks)	0.9	10.8	7.6	0.7	-6.2	7.4
10-year Treasury Note (Yield Only)	1.6	N/A	2.0	3.5	4.1	4.1
Gold (per ounce)	-1.4	8.1	-2.0	14.2	16.5	18.0
DJ-UBS Commodity Index	-0.9	0.6	-2.1	1.7	-4.5	3.0
DJ Equity All REIT TR Index	1.4	17.0	21.3	18.8	3.6	11.6

THE OLD SAYING "THERE'S SAFETY IN NUMBERS," may work in some settings, but not necessarily in the financial markets. Doing what everybody else is doing in the markets might make you feel more comfortable, but it’s not a way to get ahead. Famed investor Howard Marks pointed this out in his recent book titled, The Most Important Thing: Uncommon Sense for the Thoughtful Investor.

Marks said, “Unconventionality is required for superior investment results, especially in asset allocation.” Further, he said, “You can’t do the same things others do and expect to outperform. Unconventionality shouldn’t be a goal in itself, but rather a way of thinking.”

To frame this way of thinking, Marks developed the following matrix:

	Conventional Behavior	Unconventional Behavior
Favorable Outcomes	Average good results	Above-average results
Unfavorable Outcomes	Average bad results	Below-average results

Source: Howard Marks

The matrix says conventional behavior will get you average results – either good or bad. By contrast, it’s only through unconventional behavior that we can be in position to achieve above-average results. But, do you see the rub here?

At times, unconventional behavior may lead to below-average results and, since you’re not part of the “safety in numbers” crowd, you could stick out in an uncomfortable way.

As it relates to managing investments, striving for a mix between conventional and unconventional behavior seems like a good strategy. You don’t want to always go against the crowd because the crowd is often right. But, there are times when it makes sense to take a stand, perhaps a more conservative stand than the crowd, and be a little unconventional.

If our portfolio is at times a bit unconventional, it’s because we’re trying to look out for your best interests.

Weekly Focus – Think About It...

“If everyone is thinking alike then somebody isn’t thinking.”

– George S. Patton, U.S. military leader

Wise Move 4: End of the Year Contributions

Mon, 03 Dec 2012 23:00:00 -0600

As the holiday season approaches, with the end of one year and the start of another, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. Charitable giving can be enhanced using income tax deductions, and so it can be much more effective when it is included as part of year-end tax planning.

Example(s):

Assume you are considering making a charitable gift equal to the sum of $1,000 plus the income taxes you save with the charitable deduction. With a 28% tax rate, you might be able to give $1,389 to charity ($1,389 x 28% = $389 taxes saved). On the other hand, with a 35% tax rate, you might be able to give $1,538 to charity ($1,538 x 35% = $538 taxes saved).

Tax deduction for charitable gifts

If you itemize deductions on your income tax return, you can generally deduct your gifts to qualified charities. However, the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). For example, your deduction for gifts of cash to public charities are generally limited to 50 percent of your AGI for the year, and other gifts to charity may be limited to 30 percent or 20 percent of your AGI. Disallowed charitable deductions may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years. And be sure to retain proper substantiation of your deduction for a charitable contribution.

Year-end tax planning

When considering making charitable gifts at the end of a year, it is generally useful to include them as part of your year-end tax planning. In general, taxpayers have a certain amount of control over the timing of income and expenses. You generally want to time your recognition of income so that it will be taxed at a lower rate, and time your deductible expenses so that they can be claimed in years when you are in a higher tax bracket.

For example, if you expect that you will be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction in the next year when the deduction produces a greater tax benefit. Or you might push the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction. And, if the income percentage limits above are a concern in one year, you might move income into that year or move deductions out of that year, so that a larger charitable deduction is available for that year.

A financial or tax professional can help you evaluate how to make charitable gifts in a way that is beneficial to you.

Weekly Commentary: Jumping around in November

Sun, 02 Dec 2012 23:00:00 -0600

After all the huffing and puffing of the election, the fiscal cliff, and the Dancing With the Stars season finale, the U.S. stock market ended the month of November within 0.3 percent of where it started, according to The Wall Street Journal.

Although the return for the month was basically flat, a chart of the daily returns looked more like a healthy man’s EKG. From the closing high of the month to the closing low, the S&P 500 dropped 5.3 percent. Then, from that closing low to the last trading day of the month, the index rose 4.6 percent, according to data from Yahoo! Finance.

Overseas, the markets jumped around, too:

In Europe, the Stoxx Europe 600 index rose 2.0 percent on the month – its sixth monthly gain in a row.

In China, the Shanghai Composite index fell 4.3 percent in November and is now down about 10 percent for the year.

In Japan, the Nikkei Stock Average jumped 5.8 percent on the month to close at a seven-month high.

Source: The Wall Street Journal

What’s happening in Japan is rather interesting. The country will hold an election later this month to elect a Prime Minister. The leading candidate, Shinzo Abe, recently said the Bank of Japan should pursue a policy of unlimited bond purchases and zero-to-negative interest rates in order to rev up the moribund Japanese economy (sounds like the U.S.!). Abe’s easy money policy rhetoric helped lead to a roughly 10 percent drop in the value of the Japanese yen against a basket of developed market currencies between June and November 19 of this year and helped propel last month’s 5.8 percent rise in the Japanese stock market, according to Bloomberg and The Wall Street Journal.

As last month’s results show, we live in an interconnected world with many moving parts. Even something as simple as a Japanese Prime Minister candidate promoting an easy money policy can move markets dramatically.

Data as of 11/30/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.5%	12.6%	13.6%	8.9%	-0.9%	4.2%
DJ Global ex US (Foreign Stocks)	1.1	9.8	8.3	1.1	-6.2	6.9
10-year Treasury Note (Yield Only)	1.6	N/A	2.1	3.2	4.0	4.2
Gold (per ounce)	-0.5	9.6	-1.1	13.7	17.1	18.5
DJ-UBS Commodity Index	-0.9	1.5	-2.3	1.5	-4.2	3.0
DJ Equity All REIT TR Index	0.3	15.4	20.7	19.3	3.8	11.3

Notes: S&P 500, DJ Global ex US, 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 or not available.

ARE STOCK MARKET RETURNS CLOSELY RELATED TO the overall level of growth in the economy? Logically, it makes sense to think as the economy grows, so will stock prices, and vice versa. Let’s test that hypothesis using historical data.

The following table compares the return in the stock market during three different time periods to economic growth during those periods. Two of these periods were weak times for the market and one was strong. They are compared to real growth in the economy (i.e., after removing inflation) and to nominal growth in the economy (i.e., with inflation included).

Period	S&P 500 Annualized Return	Real GDP Growth	Nominal GDP Growth	Market Cycle
1966 - 1981	1.7%	3.0%	9.6%	Weak Period
1982 - 1999	14.6%	3.3%	6.3%	Strong Period
2000 - 2008	-6.2%	2.3%	4.8%	Weak Period

Sources: Bureau of Economic Analysis, Yahoo! Finance
Note: S&P 500 returns exclude reinvested dividends

Here are some conclusions from the table:

Economic growth – after removing the effect of inflation – has remained remarkably stable at 2.3 percent to 3.3 percent during extended strong and weak market periods dating back to 1966.

Stock prices can rise or fall dramatically during extended periods of time regardless of what’s happening to underlying economic growth.

The high inflation period from 1966 to 1981 – as shown by nominal GDP growing 9.6 percent versus real GDP growing 3.0 percent – did not help stock prices as the S&P 500 index only rose 1.7 percent on average per year excluding reinvested dividends.

A combination of strong stock market returns from 1982 to 1999 (which raised market valuation to an extremely high level) and somewhat slower economic growth helped cause stock market returns from 2000 to 2008 to be quite negative.

The change in the rate of inflation or disinflation can have a major impact on stock market returns.

This table is a great example of why it’s so important to do research. The logical thought that stock price movements mirror changes in economic growth is not supported by data going back to 1966.Just like you can’t judge a book by its cover, you can’t always evaluate the stock market by taking logical ideas at face value.

Weekly Focus – Think About It...

“Reason itself is fallible, and this fallibility must find a place in our logic.”--Nicola Abbagnano, Italian existential philosopher

The Fiscal Cliff and Your Taxes

Sun, 25 Nov 2012 23:00:00 -0600

The “Fiscal Cliff” is the combination of tax cuts expiring, and forced spending cuts in the federal budget to take effect before the end of 2013.

2012 may be the final year the Bush tax cuts remain in effect unless Congress acts to further extend them. Regardless, I believe taxes will trend higher from here.

How will the expiration of these tax cuts affect your planning? What steps should you take in 2012 with respect to your investments and tax planning?

You can watch our special report on The Fiscal Cliff and My Taxes here:http://womack.adobeconnect.com/p3mhp8s50ai/

This brief webinar will walk you through a summary of the impending tax changes and how they could affect your investment and financial planning.

You can also review our six page written report entitled: 2013 Federal Income Tax Update. This report will provide a summary of potential tax increases and planning opportunities. Please see below:http://attachment.benchmarkemail.com/c46284/2013_Federal_Income_Tax_Update1.pdf

Please give us a call with any questions you may have. You can also schedule a personal consultation with us to review these items as it relates to your planning.

Weekly Commentary: Poised for a Santa Claus Rally?

Sun, 25 Nov 2012 23:00:00 -0600

What fiscal cliff?

Stock prices rose last week to their best weekly gain in five months as investors cheered the start of the holiday shopping season, encouraging economic data from Germany and China, improved housing data, and confidence from President Obama and Congressional leaders that the fiscal cliff will be avoided.

Is this the beginning of a “Santa Claus rally?”

Jordan Kotick, global head of technical strategy at Barclays, told CNBC, “We are about to head into the best seasonal time for the equity market.” Despite this seasonal tailwind, the market’s near-term direction may still depend on how Washington handles the pending budget and tax cliff. So far, the market seems to be pricing in a compromise that will avoid the worst-case scenario.

Beyond the fiscal cliff and a potential Santa Claus rally, what’s in store for the U.S. economy? Well, here’s a not-so optimistic take from famed money manager Jeremy Grantham:

The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever. Yet, most business people (and the Fed) assume that economic growth will recover to its old rates.

In his view, our economy will grow at a snail’s pace of about 1 percent per year after inflation for the next several decades. Without getting bogged down in details, his gloomy case rests on population and productivity changes.

However, there are some potential bright spots on the horizon. Please read the second half of this commentary to learn about one important part of our economy that could turn Grantham’s pessimistic view upside down.

Data as of 11/23/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	3.6%	12.1%	21.3%	8.4%	-0.4%	4.2%
DJ Global ex US (Foreign Stocks)	4.0	8.6	14.1	0.1	-5.8	6.9
10-year Treasury Note (Yield Only)	1.7	N/A	1.9	3.4	4.0	4.2
Gold (per ounce)	1.2	10.2	3.2	14.0	16.3	18.5
DJ-UBS Commodity Index	2.2	2.4	1.2	2.1	-4.8	3.2
DJ Equity All REIT TR Index	2.6	15.0	29.4	19.1	4.2	11.5

Notes: S&P 500, DJ Global ex US, 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 or not available.

THE YEARS 2020, 2030, AND 2035 could turn out to be pivotal years for the United States and the geopolitics of global energy. Here’s why. The International Energy Agency (IEA) predicts the following will happen by those years:

2020 – The U.S. will overtake Saudi Arabia as the world’s largest producer of crude oil.

2030 – The U.S. will become a net exporter of crude oil.

2035 – The U.S. will become effectively self-sufficient in meeting its total energy needs through domestic sources.

Source: International Energy Agency World Energy Outlook 2012

Today, the U.S. imports about 20 percent of its total energy needs. Can you imagine a world in which the U.S. is energy self-sufficient and not beholden to foreign energy sources? This could deliver a huge boost to our economy.

Five years ago, the IEA predicted the U.S. would pump 10.1 million barrels of oil per day by 2020. In this year’s report, the IEA’s new estimate is 11.1 million barrels per day by 2020. This projected increase in production is, “driven by the faster-than-expected development of hydrocarbon resources locked in shale and other tight rock that have just started to be unlocked by a new combination of technologies called hydraulic fracturing,” according to MarketWatch.

So, we have Jeremy Grantham stating the bear case for the U.S. economy then we have the IEA publishing a report that puts the U.S. in the driver’s seat for the world energy market in the next couple decades.

Now, here’s the thing. Both Grantham and the IEA are making long-range forecasts based on data available today. Yet, we know things can change just as the IEA raised its oil production estimate from 10.1 million barrels of oil per day to 11.1 million.

Trends take time to develop and then, all of a sudden, they could change due to some new technology – as in the case of “fracking.” We do keep an eye on these long-term trends, but we also understand that investment decisions to buy and sell have to be made based on what’s happening now. This “bi-focal” approach is one of the many tools we use to manage your assets.

Weekly Focus – Really?

“Whoever said money can't buy happiness simply didn't know where to go shopping.”--Bo Derek, American actress

Wise Move 3: Maximize your retirement contributions

Sun, 18 Nov 2012 23:00:00 -0600

Maximize contributions into your retirement plan.

You have only a few paychecks left to maximize contributions into your employer provided retirement plan, and thereby reducing your taxable income for 2012. Determine how much you can contribute into your plan and adjust your paycheck withholding accordingly. If you are fortunate to be over the age of 50, then you can do “catch up” contributions—up to $5,000 more than the limitations for 401k plans, or $1,000 more for IRAs. If you are contributing to an employer sponsored plan, like a 401k then your contributions will be tax deductible, thus saving on your tax bill.

Womack attends Schwab IMPACT conference

Sun, 18 Nov 2012 23:00:00 -0600

Greg Womack with Sue Herera, anchor of CNBC recently at the Schwab Impact
conference in Chicago. The Schwab IMPACT is an invitation-only industry
conference where advisors come together with influential presenters,
exhibitors, and subject-matter experts to learn about and collaborate on key
issues and best practices. Every facet of the conference is designed to help
attendees remain at the forefront of the industry. The conference was held
at the Chicago's McCormick Place West November 13-16.

Weekly Commentary: Twinkies and Investing

Sun, 18 Nov 2012 23:00:00 -0600

The announcement last week that Hostess Brands, the maker of iconic treats such as Twinkies and Ding Dongs, was going out of business highlights the need for investors to have a solid risk management strategy.

As you contemplate making an investment, here are three things important to know:

* The rationale for the investment and the research behind it.

* What constitutes “fair value” for the investment.

* What would trigger you to sell the investment.

Number three above is where many folks trip up – they don’t have a sell discipline. Although Hostess Brands long ago ceased being a publically traded company, it’s an example of how a company with well-known brands can run into trouble and fail. To avoid riding an investment all the way down to zero, it’s critical to have a system in place to monitor your investments and hit the sell button if there’s a material change that makes the original investment thesis no longer valid.

Sometimes a risk management strategy causes you to sell an investment only to see it turn around and go right back up. While frustrating, that’s better than not having any sell discipline in place and holding on to an investment that drops dramatically and never comes back.

Viewed another way, it’s better to take a small occasional loss than to hang on to everything forever and be exposed to a potential big loss down the road on your irreplaceable capital.

Risk management is back in the forefront as U.S. stocks continued their post-election slide last week. And, while we would all prefer to see the market go up, we remain focused on our risk management discipline as a key component of our overall portfolio management process.

Data as of 11/16/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.5%	8.1%	9.9%	7.0%	-1.4%	4.2%
DJ Global ex US (Foreign Stocks)	-2.1	4.5	2.2	-1.6	-6.8	6.6
10-year Treasury Note (Yield Only)	1.6	N/A	2.0	3.3	4.2	4.0
Gold (per ounce)	-1.4	8.8	-2.4	14.9	16.8	18.3
DJ-UBS Commodity Index	0.1	0.2	-5.5	1.2	-5.0	3.1
DJ Equity All REIT TR Index	-2.0	12.1	17.4	17.4	3.1	11.3

Notes: S&P 500, DJ Global ex US, 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 or not available.

ARE LOW INTEREST RATES GOOD OR BAD for the stock market? As you are painfully aware, interest rates in general are very low. There are three main reasons for this:

* Consumer demand for interest-bearing products is relatively high.

* Business demand for loans is relatively low.

* Central banks in many developed nations are engaged in an “easy money” policy.

Source: The Economist

All three of the above are associated with the fact that our economy is relatively weak. In difficult economic times like today, central banks have a vested interest in keeping rates low. The thinking is low rates will reduce the “hurdle rate” for businesses to reinvest and, as a result, encourage them to expand and hire new people. As businesses expand, the economy will grow and begin a new virtuous circle.

So, let’s see if this virtuous circle of low interest rates applies to the stock market, too.

Using data from the Barclay’s Capital Equity-Gilt study, The Economist took a look at U.S. stock market returns between 1926 and 2011 and sliced the data into periods when the real rate on Treasury bills (the rate after subtracting inflation) was positive and negative. What they discovered was startling:

“In the 33 years where real yields have been negative, the average gain from equities has been 2.3%; in the years when real yields were positive, the average gain was 6.2%.”

In other words, low real interest rates (which we have today) have typically been associated with low stock market returns.

As we all know, data can often be presented in ways that support whatever position you’re taking (just like in the past election cycle!). So, putting that aside, the key is to interpret the data. Since we’ve been in a low rate environment for a long time, stock prices have likely had time to adjust accordingly. The key now is to watch for the turning point – the time when rates start a new rising trend.

When rates start to rise, that could signal the economy is on the mend as businesses start demanding more money for loans to expand and central banks pull back on the easy money policy to avoid too much inflation. This would be a “good” reason for rates to rise. Alternatively, rising rates could signal investors are losing faith in our country’s ability to pay its bills. This would be a “bad” reason for rates to rise.

We’re watching interest rates closely for any sign of a new trend and, importantly, the reason behind that trend. It’s just one of many indicators we monitor as we keep a close eye on your investments.

Weekly Focus – Ode to an Icon...

“I love Twinkies, and the reason I am saying that is because we are all supposed to think of reasons to live.”--Stephen Chbosky, novelist, screenwriter, director, and author of The Perks of Being a Wallflower

Weekly Commentary: Special Post-Election Analysis

Mon, 12 Nov 2012 23:00:00 -0600

With the election behind us, what’s next for the economy and the financial markets? In this special analysis, we’ll take a look at what the election means, how the markets are reacting, and where we go from here.

What the Election Means

For starters, the political makeup of the country hasn’t changed much. President Obama remains in the White House, the Democrats are still in charge of the Senate, and the Republicans retain the House. With no significant change in the balance of power, both parties will have to find ways to compromise in order to keep the country moving forward and to avoid the economy falling off the looming fiscal cliff.

Economically, our politicians need to tackle two major issues – the fiscal cliff and unemployment.

The fiscal cliff is perhaps the biggest and most immediate of the two. As a result of previous legislation, deep, automatic federal spending cuts and tax increases will take place in January unless the President and Congress agree to some alternative plan. If they fail to reach an agreement, going over the cliff, “would not only risk another recession, but would intensify anxiety about the dysfunction of the U.S. political system,” according to The Wall Street Journal.

On a related note, our ever-growing national debt is deeply entwined with the fiscal cliff issue. If Washington can effectively solve the cliff issue, it might also put the deficit on a path to sustainability – and that could be great news for the economy and the markets.

The second issue is unemployment and it is deeply entwined with economic growth. While the unemployment rate has come down, it’s still too high as, “roughly 3.6 million Americans have been without work for a year or more and are still looking,” according to The Wall Street Journal. Government policies and regulations have a major impact on corporate America’s desire to hire and expand. If our leaders can enact pro-economic growth policies, it might encourage businesses to reinvest and hire more people.

Here are several other things to keep in mind as a result of the election:

Health care overhaul. Love it or loathe it, it’s here to stay. Among other things, companies with 50 or more full-time equivalent employees will be required starting in 2014 to provide health-insurance benefits or pay a penalty. While small businesses may not be happy about that, at least they can now plan for it.

Tax increases. President Obama has said he’d like to see taxes rise for couples earning more than $250,000 a year. Also, tax rates on dividends and capital gains may rise. Of course, these won’t happen unless Congress passes them.

Tax breaks. Both sides seem to agree that certain tax breaks and loopholes will have to go as part of any compromise. And, while this might avoid raising tax rates, it would mean a tax increase for those affected.

Entitlement reform. Any “grand bargain” on the deficit will likely mean changes to Social Security and Medicare. In other words, we could see Democrats agreeing to reductions in benefits in exchange for Republicans agreeing to tax increases or closing tax loopholes.

Easy money. With the President’s reelection, Federal Reserve policy is likely to remain “easy.” This could mean more rounds of quantitative easing and continued low interest rates.

The economic issues facing our country are serious and the folks in Washington know it. They also realize it will take compromise to get things done. As CNN said, “Both sides agree the best outcome would be a broad deal addressing the overall need for deficit reduction, including reforms to the tax system and entitlement programs such as Social Security, Medicare, and Medicaid.” Let’s hope our politicians put politics aside and do what’s best for our country to get us growing strongly on the road to economic prosperity.

How the Markets Are Reacting

With the polls showing the President in the lead going into Election Day, the financial markets shouldn’t have been surprised when he won – but it appears they were. U.S. stocks dropped 3.6 percent in the two days after the election before finishing slightly higher on Friday, according to data from Yahoo! Finance.

Looking at history, it’s interesting to note that the stock market performed quite well during President Obama’s first term. The S&P 500 index rose 76 percent from inauguration day to last week’s Election Day. By contrast, it declined 13 percent during George W. Bush’s first term, rose 60 percent during Bill Clinton’s first term, and rose 25 percent during Ronald Reagan’s first term, according to MarketWatch. How much of those returns can be attributed to each President’s policies is anybody’s guess, so it’s hard to draw solid conclusions from them.

In terms of sectors to monitor, MarketWatch says the following might benefit from the election results:

Healthcare. Drug companies and insurers might benefit from the healthcare mandate as coverage expands over time.

Home construction and real estate. Continued quantitative easing and low interest rates may bode well for the housing market. This could be very beneficial for the economy as housing plays a significant role in economic growth.

Precious metals. Gold prices rose last week as investors think continued quantitative easing could be bullish for the shiny metal.

Where We Go From Here

Putting the election behind us has removed one hurdle to moving the country forward. With campaigning out of the way, Washington can get back to work.

As Congress and the President engage in posturing and gamesmanship over the fiscal cliff and the tax and entitlement reform issues, be prepared for volatile stock prices over the next couple months. Ironically, politicians may not take decisive action on these issues until forced to through the pressure of lower stock prices.

Aside from the pressing issues, is there a reason for optimism on the economy? Yes. According to Bloomberg, “The median prediction of 37 economists surveyed by Blue Chip Economic Indicators is that during the next four years, economic growth will gather momentum as jobless people return to work and unused machinery is put back into service.” Bloomberg also pointed out the following positive indicators:

Banks have strengthened their balance sheets.

Most households, which borrowed too much during the housing bubble, have pared their debt back to normal levels through a combination of frugality and default.

Upper-income households’ balance sheets are in good shape, although mortgage debt remains a heavy burden at lower-income levels, says Mark Zandi, chief economist of forecaster Moody’s Analytics as quoted by Bloomberg.

Housing prices have gone from falling to rising, buoying confidence.

Increased consumer spending should induce more business investment in a virtuous circle.

There’s pent-up demand for residential and commercial construction.

Stepping outside the U.S., we still have major economic and budget issues in Europe, China is going through a once in a decade leadership change while its economy slows down, and the Middle East, as always, is a wildcard.

As you can see, we have a lot on our plate to monitor! And, as your advisor, we’re doing our best to keep you well positioned to benefit no matter what Washington throws at us.

Data as of 11/9/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-2.4%	9.7%	12.3%	8.1%	-1.0%	4.7%
DJ Global ex US (Foreign Stocks)	-1.9	6.8	3.1	-0.3	-6.8	7.1
10-year Treasury Note (Yield Only)	1.6	N/A	2.0	3.5	4.2	3.9
Gold (per ounce)	3.2	10.4	-2.6	16.2	15.9	18.4
DJ-UBS Commodity Index	0.3	0.1	-5.3	1.8	-5.3	3.2
DJ Equity All REIT TR Index	-2.0	14.4	20.3	19.6	3.6	11.7

Weekly Focus – A Salute to Our Veterans

As we honor our Veterans, we’d like to share an excerpt from the President’s Veterans Day Proclamation:

“Whether they fought in Salerno or Samarra, Heartbreak Ridge or Helmand, Khe Sanh or the Korengal, our veterans are part of an unbroken chain of men and women who have served our country with honor and distinction. On Veterans Day, we show them our deepest thanks. Their sacrifices have helped secure more than two centuries of American progress, and their legacy affirms that no matter what confronts us or what trials we face, there is no challenge we cannot overcome, and our best days are still ahead.”

Thank you to all who are serving, who have served, and to the families and friends supporting our Veterans. We truly appreciate all you do for our country.

Wise Move 2: Adjust Your Withholdings

Mon, 05 Nov 2012 23:00:00 -0600

Adjust your withholdings – Did you receive a large refund from Uncle Sam on 2011 taxes? If so, you may want to consider claim less in exemptions to allow more in your paycheck for 2012 and 2013. Use this money to fund your other goals, i.e. debt reduction, retirement savings, college savings, etc.

If you are coming up short on tax filing day, then you may want to increase your exemptions/withholdings to prevent having to pay. But remember, It’s better to have your money throughout the year if you are using it to enhance your financial planning. Talk to your human resources / payroll department today and review your tax withholdings and make the necessary adjustments.

Here is a IRS Withholding Calculator that can help you determine the amount of tax to be withheld from your pay. You can also get an updated FormW-4 to give your employer.

This is the second in a series of wise money moves Greg Womack recommends for the end of 2012.

Weekly Commentary: Sandy reminds us

Mon, 05 Nov 2012 23:00:00 -0600

As the week wore on, the devastation from Hurricane Sandy became ever more apparent. And, while we talk about the financial markets in this commentary, we know that what happens on Wall Street pales in comparison to the tragedy and hardship facing many people in the northeast. Our thoughts and prayers go out to them.

**************

In addition to the human toll, Hurricane Sandy caused the New York Stock Exchange to close for two days. This closure reminded us of a quote from Warren Buffet who said, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

This quote contains a couple important lessons:

1) Think long term. Rather than flipping investments on a frequent basis, it makes sense to approach investing with a five-year or longer time frame.

2) Don’t check your investments daily. Imagine you planted some tulip bulbs. Would you pull them out everyday to check and see if their roots grew? Likewise, give your investments time to grow.

Keep in mind that stock prices tend to fluctuate much more than changes in the intrinsic value of the underlying companies, according to Investopedia. Unfortunately, these daily fluctuations often scare people into making bad investment decisions. To overcome this tendency, try to ignore the daily noise and take comfort in knowing we are focused on monitoring any changes to the long-term, underlying value of your investments.

And, yes, it’s finally election week. The good news… no more annoying robo calls and attack ads!

Data as of 11/2/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	0.2%	12.5%	14.2%	10.7%	-1.3%	4.5%
DJ Global ex US (Foreign Stocks)	0.8	8.8	4.6	1.7	-7.0	7.0
10-year Treasury Note (Yield Only)	1.7	N/A	2.0	3.4	4.3	4.1
Gold (per ounce)	-1.8	7.0	-3.3	16.6	16.2	18.2
DJ-UBS Commodity Index	-1.8	-0.2	-4.9	1.8	-5.3	3.1
DJ Equity All REIT TR Index	2.0	16.7	19.3	22.3	3.4	11.8

Notes: S&P 500, DJ Global ex US, 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 or not available.

"TODAY, WE'RE LOOKING AT SCIENCE FICTION BECOMING TOMORROW'S REALITY," said California Governor Jerry Brown in late September at Google’s headquarters in Mountain View, CA. So, what “science fiction” was the governor referring to and what are the investment implications?

About 120 years ago, a German mechanical engineer named Karl Benz coupled an internal combustion engine with a chassis and four wheels. Today, we know it as the automobile. While the internal combustion engine was the transforming technology that made the modern automobile possible, we don’t define, value, and think of cars in terms of how well they process gas. Instead, we think of what cars can do for us.

Cars dramatically changed our lifestyle. They allowed the rise of suburbs. They enhanced the family vacation. They played host to many dates and first kisses. They created millions of jobs in road construction, manufacturing, dealerships, repair shops, and, in fuel exploration, processing and distribution.

Likewise, Governor Brown’s announcement of a new law making it legal for driverless – yes, driverless – cars to travel on public roadways in California could dramatically reshape the impact cars have on our lives.

Here are a few ways society could change:

1) With no need for steering wheels, pedals, and other manual controls, manufacturers of those parts would be out of luck.

2) With no driver and very few road accidents, say goodbye to expensive car insurance policies.

3) With few road accidents, say goodbye to most of the roughly 2 million hospital visits per year in the U.S. caused by car accidents (many lives saved!) and say goodbye to all the time and resources spent by doctors, nurses, and staff, devoted to helping these accident victims.

4) Say goodbye to taxi drivers and limo drivers and hello to a driverless “Zipcar” or similar type service.

5) Say hello to electronics and software companies who will provide the sensors and computing power needed by these cars.

6) Say hello to an expanding suburb and rising suburban housing prices as the driverless car will make a long commute more palatable since you can work or play while the car goes on its merry way.

7) Say hello to increased mobility for people with certain disabilities.

Sources: The Economist; Forbes

The driverless car is no longer science fiction. Google already has a fleet of them and some of its employees “drive” them to work.

From an investment standpoint, this is an example of the type of deep research and thinking we do on your behalf as we strive to meet your goals and objectives.

Weekly Focus – Think About It

“The best way to predict the future is to create it.”

Peter Drucker, management consultant, educator, author