The Weekly Commentary
Observations of the current state of the stock and bond markets.
The Weekly Commentary - Insight on the current state of the stock and bond markets

ACTION PLAN (REPEATED FROM PRIOR COMMENTARY) HOWEVER SCENARIO ONE IS UPDATED

The future holds many possible scenarios for the European crisis.  At the time of this writing on Sunday evening, the Greek government bond holders have failed to agree to terms to avoid an outright Greek default.  It is very difficult to predict the actions of European central bankers and politicians.  Thus, I believe we should consider each of the following scenarios as equally likely:

SCENARIO ONE: Because of insufficient action on the part of the Germans and the European Central Bank (the “ECB”), either the Greek government defaults OR the Italian Government bond rates go higher and higher, making it impossible for Italian Government to honor 100% of its debts (repeat of the Greece story).   This would be a big event.  Probably, the majority of Italian banks would face failure.  And, several of the large French banks would also.  In a matter of days or weeks, the stock markets would spiral downward.  Pressure would build again on the banking system; thus, creating a situation similar to the Lehman Brothers bankruptcy in September 2008.  Our stock market could drop substantially under this scenario.

SCENARIO TWO:  The efforts initiated by worldwide central banks on November 30th and the subsequent announcement of a closer fiscal union are just the first two moves in a series whose end result is to build a lasting solution to the festering problem in Europe.  Germany MUST play a big part in this scenario by placing its impressive cash reserves on the line.  If Germany makes a clear commitment soon to do this, the U.S. stock market will be poised to propel stocks to a much higher level

So, how do you invest in this time of high uncertainty? I recommend the following, depending upon which category fits your unique circumstance:

1. Aggressive investors, moderately aggressive investors,  and investors who do not intend to touch their investments for 10 years or longer – invest (now) one-half of the money you had “parked” on the side-lines.  Invest the other one-half gradually over the next 6 months as you continue to gather more information, and carefully watch to see if Scenario Two unfolds.

2. Investors who need to withdraw from the investment portfolio - continue to “park” any amounts you expect to withdraw within the next 5 years in a short/intermediate term bond fund.

3. Conservative, moderately conservative, preservation minded investors and investors who with start withdrawing from their portfolio in 5 to 10 years– gradually invest the money you had parked on the side-lines over the next 6 months as you continue to gather more information, and carefully watch to see if Scenario Two unfolds.

Posted by The Weekly Commentary at 1/24/2012 1:20 PM | Add Comment

Motivational Quote of the Week


"There is no future in the past, so make the future and live the present."

Author Unknown


Posted by The Weekly Commentary at 1/24/2012 1:18 PM | Add Comment

Real-Life Situations


Question:   My granddaughter, age 21, is graduating from college this spring and will start to work shortly thereafter.  What would be a great gift for her?

Answer:   Consider putting money into a Roth IRA in her name.  The maximum is $5,000.  The money, if untouched until age 66, could be worth $105,000 at an average 7% rate of return. Alternatively, she could withdraw the money in 5 years without penalty to purchase her first home.

(Disclosure:  the rate of return is for illustrative purposes only.  Past performance is no guaranty of future results.)

Feel free to contact me if you or someone you know has this type of situation.  Financial Planning and tax planning advice presented here is general in nature, and individual circumstances make applying these general rules tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.

Posted by The Weekly Commentary at 1/24/2012 1:12 PM | Add Comment

"Your Financial Choices" on WDIY 88.1 FM

Hosted by Valley National's Laurie Siebert, CPA, CFP, "Your Financial Choices" airs every Wednesday from 6-7 PM on WDIY 88.1 FM. Click below for information on this week's episode!

Your Financial Choices

Posted by The Weekly Commentary at 1/24/2012 1:11 PM | Add Comment

Personal Notes


Two great games yesterday to set up an exciting Super Bowl.  The winner will end up with 4 rings.  According to Mid-West Sports, here is the list of past Super Bowl winning teams and their Super Bowl records.

Most Super Bowl Wins & All-Time Super Bowl Records

Team

Super Bowl Wins

Super Bowl Losses

Super Bowl Record

Pittsburgh Steelers

IX, X, XIII, XIV, XL, XLIII

XXX, XLV

6-2

San Francisco 49ers

XVI, XIX, XXIII, XXIV, XXIX

 

5-0

Dallas Cowboys

VI, XII, XXVII, XXVIII, XXX

V, X, XIII

5-3

Green Bay Packers

I, II, XXXI, XLV

XXXII

4-1

New York Giants

XXI, XXV, XLII

XXXV

3-1

Oakland/LA Raiders

XI, XV, XVIII

II, XXXVII

3-2

Washington Redskins

XVII, XXII, XXVI

VII, XVIII

3-2

New England Patriots

XXXVI, XXXVIII, XXXIX

XX, XXXI, XLII

3-3

Baltimore/Indianapolis Colts

V, XLI

III, XLIV

2-2

Miami Dolphins

VII, VIII

VI, XVII, XIX,

2-3

Denver Broncos

XXXII, XXXIII

XII, XXI, XXII, XXIV

2-4

Baltimore Ravens

XXXV

 

1-0

New York Jets

III

 

1-0

Tampa Bay Buccaneers

XXXVII

 

1-0

New Orleans Saints

XLIV

 

1-0

Chicago Bears

XX

XLI

1-1

Kansas City Chiefs

IV

I

1-1

St. Louis/LA Rams

XXXIV

XIV, XXXVI

1-2

 

 

 

 

Minnesota Vikings

 

IV, VIII, IX, XI

0-4

Buffalo Bills

 

XXV, XXVI, XXVII, XXVIII

0-4

Philadelphia Eagles

 

XV, XXXIX

0-2

Cincinnati Bengals

 

XVI, XXIII

0-2

Tennessee Titans

 

XXXIV

0-1

Seattle Seahawks

 

XL

0-1

San Diego Chargers

 

XXIX

0-1

Carolina Panthers

 

XXXVIII

0-1

Atlanta Falcons

 

XXXIII

0-1

Arizona Cardinals

 

XLIII

0-1

Posted by The Weekly Commentary at 1/24/2012 1:08 PM | Add Comment

More Income Tax Complications – And How Valley National Handled Them For You

For our existing clients with brokerage accounts, Valley National has elected to report cost basis to you and the IRS using the “tax lot optimized” method on covered securities.  In the future, this election could save you thousands of dollars of income taxes on capital gains

Choosing a cost basis method- When you sell part of your holdings in a security that you've acquired at different times and prices, brokerage firms use a default cost basis method to determine which shares to sell.

If another cost basis method is more appropriate for your tax situation, you can switch methods. 
If you want to change the cost basis method for a specific trade, you must do so before it settles. 

An investor would change the cost basis method, in almost all cases, so as to create a short term loss or a long term loss.  It is cumbersome to have to change the method each and every time such a situation is available to the investor; so, Valley National has elected, for brokerage accounts carried at Valley National, to use the default cost basis method known as “Tax Lot Optimizer” to determine which shares to sell .  This method can be changed in the rare event that the investor does not benefit by using Tax Lot Optimizer method.

If your investment account is NOT carried by Valley National, and you would like to make sure your tax lot accounting will be optimized, please contact me for further instructions

Posted by The Weekly Commentary at 1/24/2012 1:04 PM | Add Comment

The Markets This Week

[b-TradeDow-0123]
The Lazarus rally continued last week, and stocks raced ahead, this time by more than 2%. Following this month's trend, the worst stocks of 2011 have been raised from the dead and are the leaders of the still young 2012.

The 50 worst-performing stocks in the Standard & Poor's 500 Index last year, for example, have jumped about 11% this year, while 2011's 50 best stocks are up just 2%, according to Bespoke Investment Group.

Trading volumes last week were generally light, and earnings results were taken positively by the market, even though there is evidence of slowing revenue gains at some big companies. No one's going to sniff at last week's rise, but a pullback in the next week or two would seem to be in order.

The Dow Jones Industrial Average rose 298.42, or 2.4%, on the week, to close at 12,720.48, while the Standard & Poor's 500 to 1315. That's the first weekly S&P 500 close with a 13 handle since last July. The tech-heavy Nasdaq Composite gained 2.8%, to 2786.70, helped by strong fourth-quarter profits from Microsoft (ticker: MSFT) and chip maker Intel (INTC). 

While its revenue numbers were light, the biggest Lazarus of them all, Bank of America (BAC), did report better-than-expected fourth-quarter revenue Thursday. The rest of its results were made murky by charges and one-time gains, and its basic banking results weren't stellar. Still, that didn't stop investors from bidding up the market and the stock, the latter now up 27% this year and the leading Dow component.

"Stocks left for dead have come back to life, and people are feeling good about a rally led by financials," notes Nicolas Colas, chief market strategist for ConvergEx Group. "It follows the old-school playbooks, and as long as banks lead, it's going to be hard to suppress the rally" (Source: Barrons Online).

Posted by The Weekly Commentary at 1/24/2012 12:57 PM | Add Comment

The Numbers

Last week, U.S. Stocks and Foreign Stocks increased.  Bonds declined.  During the last 12 months, BONDS outperformed STOCKS

Returns through 1-20-2012

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap  Aggregate Index

    -.5

       .1

   8.1

   6.7

   6.5

    5.7

US Stocks-Standard & Poor’s 500

   2.1

     4.7

   4.9

  20.3

     .5

    3.6

Foreign Stocks- MS EAFE Developed Countries

   4.0

     4.2

-12.0

  10.1

 -6.7

    2.8

Source: Morningstar Workstation. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  Three, five and ten year returns are annualized excluding dividends.

Posted by The Weekly Commentary at 1/24/2012 12:53 PM | Add Comment

Looking Ahead...

Are You Prepared For “One of the Largest Tax Reporting Changes for Investors in over 20 Years”*?

With new IRS regulations going into effect, your brokerage account is required to report your cost basis on “covered securities” to both you AND THE IRS.  The IRS is expected to double-check both the sales and cost of stocks, bonds, and mutual fund sales on your income tax return.

That does not sound so tough – so, what’s the problem?  Well, leave it up to the IRS to make the tax forms complicated!  Many investors will be required to prepare up to 6 additional forms to attach to Schedule D for their stock, bond or mutual fund sales. 
Our tax prep staff has you covered.  We attended a 2 hour webinar last week on this topic and a two day tax update workshop in December.  Not only do we know how to fill out the new forms, we have the entire cost basis for your investments purchased in accounts held at Valley National.

For more information about the new IRS regulations, click:


Contact my office if you have questions about completing your own tax return – we can provide an on-line tax center and an easy to use brochure featuring an overview of the revised reporting requirements.

*As quoted by Deanna Flores of KPMG, an international accounting firm.

Posted by The Weekly Commentary at 1/17/2012 12:04 PM | Add Comment

Motivational Quote of the Week

"Experience tells you what to do; confidence allows you to do it."

—Stan Smith

Posted by The Weekly Commentary at 1/17/2012 11:57 AM | Add Comment
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