fiscal cliff Archive
by Jason Jenkins, Investment U Research
Thursday, December 13, 2012
I don’t know if you’ve heard or not… but we’re supposedly about to fall off this fiscal cliff at the end of the year.
First the Mayans predicted the end of the world in 2012, and now it’s our own government and media yelling about doom and gloom.
This increase in taxes, coupled with government spending cuts, has the Congressional Budget Office (CBO) forecasting an expected recession in the first half of 2013. The International Monetary Fund (IMF) stated in October that if we reach the cliff, it could “at the extreme… result in a fiscal withdrawal of more than 4 percent of GDP in 2013.”
But what affect would the fiscal cliff have on the stock market? What history shows us may surprise you. Falling off the cliff may not be as devastating to your portfolio as some have predicted.
A recent study in October done by O’Shaughnessy Asset Management took a look at the historical effects of high or increasing tax rates on the market. The study looked at “historical data on tax rates, market returns, and stock selection factor criteria to evaluate the impact that income, capital gains, and dividend tax rates have had on stock portfolios.”
And what they found may surprise you…
What they found is that tax rates – or changes to the tax system – have not necessarily had any meaningful bearing on stock returns. And what really doesn’t make sense is that dividend-paying stocks did their best during times of higher taxes.
Let’s look at how they came up with their results.To continue reading, please click here...
by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, December 12, 2012: Issue #1924
Like a lot of kids, when I was little, I was afraid of monsters under the bed.
Fortunately, I quickly realized that there were in fact no monsters and my fears shifted to what would happen when my Mom realized I hadn’t cleaned up my room after she asked me for the umpteenth time.
Just like the national media that preys on your fears, there are a lot of bloggers and financial writers who are trying to scare you into freaking out over the looming dividend tax increases.
Among the most commonly used scare tactics is scaring investors into believing that a higher tax rate means their dividend stocks will tank.
Perhaps the initial knee-jerk reaction will be to send those stocks lower. But as I’ve been shouting from the rooftops lately and in the national media, there is no correlation whatsoever between higher taxes and lower returns in the stock market, and particularly dividend-paying stocks.
If anything, what we might see is lower dividend growth next year by companies that have announced special dividends or pushed their dividend raises up in order to get them in under the 2012 tax year and the 15% rate.
It remains to be seen whether the agreement between the President and lawmakers will return dividend taxes to ordinary income rates or a simple flat rate. My prediction is dividend taxes will be capped at 30%. We should have more information over the coming weeks.
The other scare tactic by media and bloggers is constantly mentioning the 43.4% potential top tax rate on dividends. As I discussed in last week’s column where I pretended to interview the President, even if the rate goes up to 43.4%, that’s not an automatic 43.4% haircut to an investor’s take-home amount.To continue reading, please click here...
by Alexander Green, Investment U Chief Investment Strategist
Monday, December 10, 2012: Issue #1922
A few weeks ago, The Oxford Club held its special Post-Election Conference at the luxurious Willard Intercontinental Hotel in Washington, D.C.
We were there to talk about the election results and how they are likely to impact your stock portfolio in the months ahead. Here is a brief re-cap of my analysis.
Before the election, the Democrats controlled the Senate, the Republicans controlled the House and Obama was in the White House. The same is true today. This is dispiriting to many, not least of all because this is the same gang that has dithered on important policy issues, spent like drunken sailors, and generally hampered the recovery over the last two years.
There are good reasons for optimism, however, beginning with the so-called “fiscal cliff,” approximately $600 billion in automatic tax increases and spending cuts set to take place beginning January 1.
How can this be good? First, because it isn’t going to happen. And, second, because it will set the stage for genuine reform. Here’s what I mean…
The first rule for an educated citizenry is to forget everything your politicians say and watch only what they do. And what they are not going to do right now – despite the claims of the fear mongers and propagandists on both sides of the aisle – is throw the economy back into recession by letting the fiscal cliff become a reality.
I know both politicians in both parties are saying they are far apart but this is simply how the game is played. In particular, if Republicans are going to cave on their promise not to raise taxes they have to wait until after January 1. Why? Because then the top tax rate rises to 39.6% automatically.
Once it becomes law, they can restore all the Bush tax cuts except for the top 2%, lower their new top rate to, say 38%, and try to save face by claiming they cut the top tax rate instead of raising it. (Even though it will be higher than the current top rate of 35%.)To continue reading, please click here...
by Mike Kapsch, Investment U Research
Wednesday, October 17, 2012
A little over a year ago, I gave guitar lessons around the West Palm Beach area.
Turned out, one of my students’ fathers, Mike, was a former hedge fund manager. Mike was in his mid-forties, retired, and living comfortably with his family on a catamaran yacht in Delray Beach.
When he realized I wrote about finance, we often talked about the markets, the economy, and investment ideas.
And one day, he said something to me that I’ll never forget. Mike said, “I love it when the markets tank.”
At first, I thought it was an incredibly pompous thing to say. But after he had a chance to explain himself, in actuality, Mike was saying what every investor should really be thinking.
No, he didn’t mean that he enjoys watching people lose money or seeing the economy go down the tubes.
Mike meant that when investors are scared, they often make irrational decisions with their portfolios. And he knows that’s when it’s his best chance to find shares of companies at deep discounts.
In other words, Mike understands that when the markets are volatile, there will be a number of opportunities to take a risk and potentially make a lot of money.To continue reading, please click here...