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Market Commentary - Week of 9/9/13

The Markets

Confluences are the building blocks of the world’s waterways. When two or more rivers meet, changes in velocity and turbulence tend to result in geologic scouring; erosive activity that may alter the shape of the river and its bed. The action may produce a ‘scour hole’ downstream from the confluence. For a river runner, a hole creates “potential for trouble and the need for deft maneuvers.” America may be heading toward a scour hole that is being shaped by a confluence of factors and events, domestic and global, economic and demographic.

Several of these factors were highlighted by last Friday’s employment report which showed unemployment has fallen to 7.3 percent. This may seem like a positive development until you realize just 63 percent of working-age Americans have a job or are looking for one. According to The Washington Post, that’s the lowest workforce participation rate in 35 years.

The change in American employment is rooted in the Great Recession and relatively slow pace of economic recovery, as well as a confluence of demographic trends. Younger Americans of working age are staying in school longer before looking for a job. In addition, and perhaps more importantly, the Baby Boom generation has begun to retire at a rate of about 10,000 a day or 300,000 a month, according to PBS NewsHour.

America’s changing employment picture may be a significant challenge to economic growth, but other factors will influence the shape of our future, as well. Congress returned from recess on Monday. They may not get to all of it this week, but their agenda includes determining: America’s response to Syria, the government’s operating budget, the debt ceiling, and funding for the Affordable Healthcare Act.

As if that weren’t enough, next week, the Federal Reserve will be making an important decision about tapering quantitative easing (which could be complicated by a potential government shutdown and debt ceiling expiration if Congress waffles).

We live in interesting times.

Data as of 9/6/13
1-Week    Y-T-D    1-Year    3-Year    5-Year    10-Year
Standard & Poor's 500 (Domestic Stocks)    1.4%    16.1%    15.6%    14.9%    5.5%    4.8%
10-year Treasury Note (Yield Only)    2.9    NA    1.7    2.6    3.7    4.4
Gold (per ounce)     -0.6    -18.1    -18.5    3.6    11.4    14.0
DJ-UBS Commodity Index    0.3    -6.0    -10.4    -1.2    -6.1    0.9
DJ Equity All REIT TR Index    0.6    0.0    0.3    11.5    4.4    9.5

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

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

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

in 1835, in Democracy in America, Alexis de Tocqueville said:

“AMONG the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people... it gives a peculiar direction to public opinion and a peculiar tenor to the laws; it imparts new maxims to the governing authorities and peculiar habits to the governed… The more I advanced in the study of American society, the more I perceived that this equality of condition is the fundamental fact from which all others seem to be derived and the central point at which all my observations constantly terminated.”

One wonders what he would make of the difference in pay between lawmakers in various states today. A recent chart published in The Economist showed pay for state legislators ranges from nothing in New Mexico, where the median household income from 2007 through 2011 was about $44,600, to more than $90,500 in California where the median household income was about $61,600 during the same period.

If you believe having a greater number of legislators means the opinions of the masses are better represented, then it would seem citizens in states that pay lawmakers more are less well represented. The average number of legislators per million people in the 10 states that pay the most is about 22. In the 10 states that pay the least, it’s about 112 per million people. The exceptions appear to be Alaska, which pays about $50,000 a year and has about 82 legislators per million people, and Texas which pays less than $10,000 and has about 7 legislators per million.

The Economist pointed out lawmaking may be less costly in other ways, too, in states that offer lower salaries to policymakers. As it turns out, about one-third of state legislatures are part-time. States like Texas, Montana, Nevada, and North Dakota, where lawmakers meet every second year, tend to spend less than states where legislators meet more frequently.

Weekly Focus – Think About It

“Democracy cannot succeed unless those who express their choice are prepared to choose wisely. The real safeguard of democracy, therefore, is education.

Should You Put Your Home Into a Trust?

Should You Put Your Home Into a Trust?

The arguments for & against this estate planning decision.

 

Provided by PlanningWorks

                                                       

Uncommon, or uncommonly wise? Occasionally, a couple or a family will elect to put their home into a revocable living trust, a charitable remainder trust (CRT) or a qualified personal residence trust (QPRT). There are advantages and disadvantages to doing this.

 

People make this move for a variety of reasons. They may want to save money on probate and reduce estate taxes. They may want a little more protection against “creditors and predators”. They may be looking for a way to gift real property to their adult children. They may want an orderly transfer of such property to a particular heir, free of interfamilial squabbles. By putting a house into a trust, they may accomplish some or all of these objectives.1,2

 

If much of your net worth is linked to the value of your home, you may be considering this. As the federal estate tax exemption is higher than it once was, placing your house into a trust may have slightly less merit today than it once did. There are significant potential benefits, however.

 

Putting your home into a revocable living trust. In this arrangement, the title to your house is transferred to the living trust during your lifetime. Besides being the grantor of the revocable living trust, you may also name yourself trustee and beneficiary. This gives you the power to a) add other real estate to the trust, b) gift or sell the real estate held within it while you are alive, c) unwind the trust and put the real property back in your estate within your lifetime.1,3  

 

At your death, the trust becomes irrevocable. Control of the real property is then transferred to a named successor trustee, presumably one of your adult children.1

 

A revocable living trust may spare your home from probate and facilitate the transfer of title to your heirs. There may be some estate tax savings, and if you become incapacitated, another trustee can be chosen to manage the trust.1

Market Commentary - Week of 9/3/13

Last week was crunch time in the National Football League (NFL). With the 2013 regular season approaching rapidly, NFL teams cut about 700 players from their rosters over the Labor Day weekend.  That was a big cut—about a 40 percent drop in player employment—as rosters were pared from 90 to 53 players.  However, it’s not likely to have a significant effect on U.S. unemployment data—and that’s really what the week ahead is all about.

Last week, markets jittered and slumped on news that Syria was thought to have used chemical weapons against civilians. According to The New York Times, 70 percent of stocks that trade on the New York Stock Exchange finished Friday lower, and 73 percent of those listed on the NASDAQ lost value.

There were signs of renewed optimism on Labor Day. Although U.S. markets were closed, world markets responded well to news that there would be no immediate American military action against Syria. Encouraging economic data from China and Europe helped share prices, too, although it didn’t do much for government bonds, gold, or the Japanese yen.

Post Labor Day, investors will be anticipating employment data with the zeal of Green Bay Packer fans decked out in foam cheeseheads awaiting the opening kickoff at Lambeau field. The Financial Times, a British publication that has little interest in American football but great interest in U.S. Federal Reserve policy, put it this way:

“Members of the U.S. Federal Reserve open market committee will get their last pieces of information about the labor market before their all-important September meeting, which has been heavily trailed as posing the first real opportunity for the Fed to embark on a taper… The US economy has been recovering at a painfully slow but steady rate for more than two years now and with no sign of any step-up in the pace of improvement, the Fed policy-makers face a finely balanced decision.”

No matter what happens, emotions are likely to be running high this week.

Data as of 8/30/13
1-Week    Y-T-D    1-Year    3-Year    5-Year    10-Year
Standard & Poor's 500 (Domestic Stocks)    -1.8%    14.5%    16.7%    15.9%    5.0%    4.8%
10-year Treasury Note (Yield Only)    2.8    NA    1.6    2.6    3.8    4.6
Gold (per ounce)     1.3    -17.7    -16.0    3.9    11.2    14.0
DJ-UBS Commodity Index    0.2    -6.2    -10.1    -0.4    -6.6    0.9
DJ Equity All REIT TR Index    -1.9    -0.6    1.4    13.1    4.9    9.5

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

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

SOBERING STATISTICS AND INVESTMENT IDEAS SOMETIMES go hand-in-hand. When one of America’s favorite fast food chains unveiled a new product in Japan, some people wondered how long it would be before this fine innovation — a three-quarter pound, 1100 plus calorie serving of potatoes called Mega Fries— would reach our hungry shores. Others deliberated on the ways in which higher consumption of nutritionally deficient foods may affect obesity rates and illness in countries around the world. They may even have done a Google search to ascertain which companies are working on cures for diabetes, developing treatments for heart ailments, or bio-engineering organ replacements.

A key measurement in evaluating the ill effects of diseases and health conditions is the Disability-Adjusted Life Year or DALY. According to the World Health Organization:

“One DALY can be thought of as one lost year of "healthy" life. The sum of these DALYs across the population, or the burden of disease, can be thought of as a measurement of the gap between current health status and an ideal health situation where the entire population lives to an advanced age, free of disease and disability…DALYs for a disease or health condition are calculated as the sum of the Years of Life Lost (YLL) due to premature mortality in the population and the Years Lost due to Disability (YLD) for people living with the health condition or its consequences…”

It’s depressing to note that mental disorders and drug and alcohol abuse are the biggest drivers of disability. They account for more than 7 percent of DALYs. That’s more than diabetes, HIV, or tuberculosis, and almost as many as cancer. Globally, in 2010, depression and anxiety were responsible for about 11 million lost years of healthy life in the 20- to 24-year-old age group. Drug use also appears to peak at about this age. The number of DALYs for depression and anxiety appears to decline with age.

Perhaps the best idea is corporate wellness programs. Research published by Harvard University in 2010, found that medical costs declined by about $3.27 for every dollar spent on wellness programs. In addition, the cost of absentee days decreased by about $2.73 for every dollar spent.

Weekly Focus – Think About It
“When you are offended at any man's fault, turn to yourself and study your own failings. Then you will forget your anger.”
Epictetus, Greek Stoic philosopher

Retirement Plan Solutions for Small Business Owners

RETIREMENT PLAN SOLUTIONS FOR THE SMALL BUSINESS OWNER

 

The SEP, the SIMPLE IRA, and more.

 

provided by PlanningWorks

What options do hands-on owner-operators have? If you have a small company and want a retirement program, you want to consider these plan choices.

The SIMPLE IRA. These plans are very easy to create, and they have very low administrative costs and no annual IRS reporting requirements. You set up traditional IRAs for each eligible employee; they can contribute to the IRA on a tax-deferred basis (via payroll deductions, and you can either match the contributions of plan participants or contribute a fixed percentage of all eligible employees’ pay. The employees own the money in their IRAs.1,2

The SEP. A Simplified Employee Pension plan lets you make contributions toward your retirement and your employees’ retirements. (You can even have a SEP and another kind of retirement plan at your business simultaneously.) A SEP allows business owners annual tax-deductible contributions equal to 25% of your compensation (if you have a corporation) or 20% of self-employment income (for a sole proprietor).3,4

Market Commentary - Week of 8/26/13

Weekly Market Commentary
Week of August 26, 2013

The Markets

“So much depends / upon / a red wheel / barrow / glazed with rain / water / beside the white /
chickens.”

Well, the U.S. Federal Reserve’s monetary policy is a lot more complex than the simple tools mentioned in the oft-memorized William Carlos Williams’ poem, The Red Wheelbarrow, but an awful lot is depending on it. In some of those countries that have been affected negatively by changing expectations about quantitative easing, the importance of chickens, wheelbarrows, and other basic tools to a family’s economic well-being has not been forgotten.

Market Commentary - Week of 8/19/13

 

 

 

PlanningWorks Presents:

 

WEEKLY ECONOMIC UPDATE

 

 

 

WEEKLY QUOTE

   

“If you are not criticized, you may not be doing much.”

 

- Donald Rumsfeld

 

 

WEEKLY TIP

       

Sometimes a sector or industry is touted as the “wave of the future” or the next hot trend. Beware of shifting your investment mix in response to hype or headlines – you may end up with a less diversified portfolio and greater exposure to risk.

 

 

WEEKLY RIDDLE

       

There are three cups of flour on a counter and you take one away. How many cups of flour do you have now?

 

 

Last week’s riddle:

A cat falls into a hole 14.5' deep. The cat can jump 3' high, but she slides back 1' with each jump. How many jumps does it take her to get out of the hole?

 

Last week’s answer:

Every 3' jump accompanied by a 1' slide equals jumps of 2' high; at that rate, the cat’s seventh jump, starting at 12', will put her 15' above the bottom of the hole and offer her an escape.

 

 

Week of August 19, 2013

 

CONSUMER PRICES RISE 0.2% IN JULY

That was exactly the increase that analysts surveyed by Briefing.com expected, and it was a relief after the 0.5% rise in the Consumer Price Index for June. As for July’s Producer Price Index, it was flat – a welcome contrast to June’s 0.8% jump.1

 

RETAIL SALES IMPROVE

July didn’t see as much car and truck buying as in spring, so the gain was 0.2% compared to 0.5% in May and 0.6% in June. The impressive news was the 0.5% rise in core retail sales (excluding auto, gas and construction purchases). That particular indicator hadn’t been so positive since December.2

 

HOUSEHOLD SENTIMENT SLIPS

Analysts polled by Briefing.com expected August’s preliminary University of Michigan consumer sentiment index to be unchanged from the final July reading of 85.1. Instead, it dropped to 80.0 – a 4-month low.1,3,4

     

RESIDENTIAL CONSTRUCTION INCREASES

Housing starts were up 5.9% in July, according to the Commerce Department; building permits rose 2.7% last month. Both increases were in line with the estimates of analysts surveyed by Reuters.4

     

A 2-WEEK LOSING STREAK ON THE STREET

Shares fell during a week in which 10-year Treasury yields hit a 2-year peak of 2.86%. The S&P 500 (-2.10% to 1,655.83), Dow (-2.23% to 15,081.47) and NASDAQ (-1.57% to 3,602.78) all pulled back. The Dow suffered its poorest week of 2013.3

 

THIS WEEK: Urban Outfitters announces Q2 results on Monday. Tuesday, Dick's Sporting Goods, Medtronic, BHP Billiton, Home Depot, Best Buy, TJX, Barnes & Noble, JCPenney, Saks, Analog Devices and La-Z- Boy come out with earnings. Wednesday, the July 31 FOMC minutes will be released, and NAR comes out with July existing home sales numbers; earnings arrive from Target, JM Smucker, Lowe's, Staples, American Eagle, Toll Brothers, Hewlett-Packard and L Brands. Thursday, we get a new FHFA Housing Price Index, the Conference Board’s July index of leading indicators, new initial jobless claims figures, and earnings from Abercrombie & Fitch, Gold Fields, Hormel Foods, Dollar Tree, Gamestop, Sears, Autodesk, Gap, Marvell, Ross Stores, Aeropostale and Pandora. On Friday, quarterly results from Foot Locker and Ann complement July new home sales figures.

 

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+15.09

+13.82

+5.87

+6.18

NASDAQ

+19.32

+17.65

+9.38

+11.17

S&P 500

+16.10

+16.98

+5.51

+6.71

REAL YIELD

8/16 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.68%

-0.42%

1.66%

2.36%

 


Sources: cnbc.com, bigcharts.com, treasury.gov - 8/16/133,5,6,7

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

 

Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our distribution list, please reply with their address.
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Planning for the Not-So-Surprising 3.8% Medicare Tax in 2013

Here is the draft of the new IRS Form 8906 for the 3.8% Medicare Tax on Investment Income over the $250,000 Threshold.

Click here to view draft IRS Form 8906

Allow us to help you help your top clients better manage their 2013 tax liability.
 
Do not hesitate to reach out to a member of the PlanningWorks team at 512 498-7526 or info@planningworks.biz
 
This information is for general guidance. We are not authorized to provide tax advice. This information may not be complete or accurate for tax-reporting purposes due to the complexity of tax regulations and individual client circumstances.

The Cross Purchase Buy-Sell Agreement

THE CROSS PURCHASE BUY-SELL AGREEMENT

Taking Care of Your Business After You’re Gone

 

Provided by PlanningWorks


Business owners are builders. They spend their lives building a business that provides goods and services to their clients and provides themselves a living. But nothing can tear down that lifetime work faster than their own death, or the death of a business partner. Often, much of the value of a business dies with the owner.

Each business encounters different problems. The questions facing a sole proprietor are two-fold. First, if he or she dies, how can the heirs continue the business or keep from selling the business at fire sale prices? The executor of the estate can continue the business, but must find someone willing to run it. They can sell the business, if the heirs wish, but must find a buyer. This is made harder by the fact that any potential buyers will be in a better negotiating position, knowing the business is becoming less valuable with each passing day following the owner's death. Also, the heirs may be in disagreement over what to do with the business. Some may want to keep the business, while others want to cash out. If the business is kept running by some heirs, those wanting out would need to be compensated. If the cash to do this can't be found, this could potentially force a liquidation of the business.

Market Commentary - Week of 8/12/13

PlanningWorks Presents:

 

WEEKLY ECONOMIC UPDATE

 

 

 

WEEKLY QUOTE

   

“When the only tool you have is a hammer, you tend to see every problem as a nail.”

 

- Abraham Maslow

 

 

WEEKLY TIP

       

If much of your net worth is tied to the value of your home and you are seeing home equity as a tool to help fund your retirement, recognize that the ups and downs of your local real estate market may alter that possibility.

 

 

WEEKLY RIDDLE

       

A cat falls into a hole 14.5 feet deep. The cat can jump 3 feet high, but she slides back 1 foot with each jump. How many jumps does it take her to get out of the hole?

 

 

Last week’s riddle:

I am usually only as wide as a thumb, and I typically travel across the nation for less than a dollar, all while lying flat. What am I?

 

Last week’s answer:

A postage stamp.

 

 

Week of August 12, 2013

 

IMPRESSIVE SERVICE SECTOR GROWTH

Last month saw solid expansion in U.S. service industries, according to the July non-manufacturing PMI from the Institute for Supply Management. ISM’s latest service sector PMI came in at 56.0 compared with 52.2 in June. July’s new orders index rose 6.9% to 57.7, and July’s business activity index climbed 8.7% to 60.4.1

 

OBAMA: FANNIE MAE & FREDDIE MAC SHOULD GO

Last week in Phoenix, the President said that “private capital should take a bigger role in the mortgage markets” and advocated the passage of bipartisan legislation circulating in the Senate that would “end Fannie and Freddie as we know them” and create a Federal Mortgage Insurance Corporation to regulate the home financing system. Even though winding down Fannie and Freddie has widespread support, mortgage interest rates would likely rise without their credit guarantees.2,3

 

HOW DOES EARNINGS SEASON LOOK SO FAR?

The short answer: it looks better than many analysts had expected. Just after Friday’s close, Bloomberg reported that 447 firms in the S&P 500 had reported quarterly results; 72% of them had beaten the profit projections of analysts and 56% had exceeded sales forecasts.4

     

OIL & GOLD FINISH THE WEEK WITH A FLOURISH

NYMEX crude settled up at $106.03 per barrel Friday after rising 2.54% in a trading day. On the COMEX, gold ended the week at $1,314.60 an ounce, up $3.90 Friday.5

     

STOCKS BEAT A RETREAT

The big three all traded lower last week. The Dow went -1.49% to settle at 15,425.51 Friday, the NASDAQ went -0.80% to end the week at 3,660.11, and the S&P 500 went -1.07% to wrap up the week at 1,691.42.6

 

THIS WEEK: Monday brings earnings from Sysco. July retail sales numbers from the Census Bureau, a report on June business inventories and earnings from Flower Foods and Cree arrive Tuesday. Wednesday, the July Producer Price Index appears, plus earnings from Cisco, NetApp, Deere, Macy's and NetEase. July’s Consumer Price Index comes out Thursday, along with the August NAHB Housing Market Index, numbers on July industrial output, and quarterly results from Nordstrom, Applied Materials, Kohl's and Wal-Mart. Friday, the initial August consumer sentiment index from the University of Michigan appears, along with numbers on July housing starts and building permits.

 

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+17.71

+17.17

+6.29

+6.78

NASDAQ

+21.22

+21.25

+10.32

+12.26

S&P 500

+18.60

+20.57

+6.10

+7.30

REAL YIELD

8/9 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

0.33%

-0.58%

1.72%

2.27%

 


Sources: cnbc.com, bigcharts.com, treasury.gov - 8/9/136,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

 

Please feel free to forward this article to family, friends or colleagues.
If you would like us to add them to our distribution list, please reply with their address.
We will contact them first and request their permission to add them to our list.

 

Are REITs Right For You?

Are REITs Right for You?

You can own real estate without having to be a landlord.

 

Provided by PlanningWorks

 

What is a REIT? A real estate investment trust (REIT) is a real estate investment company that manages a portfolio of income properties, distributing the lion’s share of its profits as dividends. By getting into a REIT, you can gain an ownership interest in prime commercial real estate … without the headaches of commercial real estate management.

 

How do REITs work? On one level, a REIT is an agreement with the IRS. In choosing a REIT structure, a real estate investment company agrees to pay out 90% or more of its taxable profits in dividends in exchange for avoiding corporate income tax.1

 

In the typical public REIT, investors buy shares in the trust. (You may have heard the term “real estate stock” before; that’s what we’re talking about.) Like any other stock, REIT stock offers you the potential for dividend income and share value appreciation. REIT dividend income tends to be stable, as REITs usually invest in large commercial properties involving long-term tenant leases. The REIT may choose to make some of the dividend a nontaxable return of capital, which results in tax deferral and a lower taxable income for the investor during the period he or she holds the stock. That can boost the after-tax dividend yield. REITs don’t pass their losses onto investors, and they usually don’t have minimums.2

 

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