Fiscally Miffed…How to Invest in 2013 Depends on YOU! …The U.S. is the Best Country in the World!...Beware the Risks in Bonds.
By: Jay D. Ahlbeck, CLU, ChFC
What Just Happened
on Capitol Hill? On November 28, 2012 I wrote “Do not be surprised if Democrats and Republicans hold hands and jump
off the “fiscal cliff” together…It makes political sense.” True to form a deal was made on January 1,
2013 after provisions of the fiscal cliff went into effect.
Technically, despite what you may read, the agreement has no
new taxes because it was executed after rates automatically went up on January first. Hence, it avoids the major Republican bugaboo of new taxes.
Remember George Bush the
elder and “read my lips”? All politicians do.
Yes, families with income over $450,000 will pay higher
taxes but they are the exact taxes that automatically went into
effect on January 1, 2013. While the
agreement provides 99% of the country a tax reduction, those that earn $450,000
and above (400,000 for individuals) received no change in the rate that went
into effect on January 1, 2013. You can
bet that Republicans will go home and claim they did not vote for any new taxes
and reduced taxes on 99% of the country and the Democrats will also claim victory
having raised taxes on the top 1% as they said they would. Although contradictory, both statements will be
technically correct.
Markets are delighted that Congress was able to agree on
anything and that the possibility of complete inaction and chaos has been removed.
Although the deal did clarify important tax issues, the real
big and difficult challenges have once again been kicked down the road for
another day (national debt, tax reform, Social Security, Medicaid and Medicare
reforms are the true challenges ahead). Next stop, the “debt ceiling”
debate.
If You Need to
Take Risk Get Off the Sidelines and Place Your Bets! The global economy
is fragile, many things remain crooked, uncertainty reigns supreme, but that is all currently being trumped by
global stimulus.
Massive and unprecedented amounts of money continue to be
printed by central banks and are flooding the financial system with cash (i.e.
liquidity). All that money has to go somewhere. Stocks, real estate, commodities
are all likely beneficiaries, but this is a grand manipulation and in
some sense not “real”.
It is often said, “do not fight the Fed.” and the Fed. is
purposely making it painful to hold low risk assets. Park your money in bank CDs or US Treasuries
and your real return (after inflation) will be negative.
All the liquidity
sloshing around the world can rush into and out of any asset in the short-term, but as
long as the Fed. continues to push $85 billion of new money into the markets
each month the trend for many asset will almost certainly be up. Rising tides
of liquidity raise all ships. Asset
prices are going up because the U.S. Federal reserve says so. Until the Fed. reverses course, or until all
this money printing backfires it is hard to see what will stop asset prices from
trending upward.
The U.S. is the
Best Country in the World! Right now it looks as though the United
States may win the financial crisis.
Being the least dirty shirt may not be reason for celebration, but many
around the world today envy what we view as a tepid 2.5% projected GDP growth.
Although Europe has avoided, for now, a financial collapse the relative health
of their financial system has not translated into economic health on “Main
Street”. O% GDP growth and high unemployment
is discouraging the people of Europe while here in the U.S. we can point to
glimmers of hope.
We need to protect what continues to make this
country so great. Many of the best and
the brightest around the world still want to bring their families and their
talents to the United States and make a go of it. Yes the story of the United
States is a story of immigration.
The United States, at it’s founding, was the first country
in the world not to have an official religion.
Religious tolerance continues
to set us apart.
What makes our justice
system so great is not that it guarantees justice, but that it gives everyone a
chance at justice. People are drawn to a country based on the rule of law.
Our economic system
of innovation and opportunity is possibly the greatest asset of all. Anywhere in the world, if you want to bet on your own future, the
United States continues to be the place to be.
These attributes make the foundation of the American Dream and what we
all want to pass down to our children and grandchildren. We want a country and economic system built
on integrity that rewards hard work and ingenuity.
As we begin the New Year with great hope for the future
let’s focus our efforts on what makes this country great. Our traditions of immigration, religious
tolerance, rule of law, and a fair and equitable economic system all need to be
re-enforced and strengthened. If we allow these distinguishing factors to
deteriorate we lose the American DNA.
Beware of Bonds. Retail investors have shifted away from stocks and indiscriminately
piled into bonds, often chasing safety and yield. Rising interest rates hurt Bond values. The Federal Reserve today holds rates
artificially low. Rates have trended
lower for over 20 years. Despite being viewed by many as low risk bonds are
likely riskier than stocks right now.
Beware of bonds.
