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

Motivational Quote of the Week

2012-01-31T18:30:00Z

"Success is often the result of taking a misstep in the right direction."

Al Bernstein

Real-Life Situations

2012-01-31T18:27:10Z

Questions: My Net Worth is in excess of $1,400,000 and my wife and I own most of our property in joint name. I understand the estate tax law permits us to transfer up to $5 million when we both pass away. Does this mean I do not have anything to worry about?

Answer:

Yes and No. Current estate tax law permits each individual to pass $5 million to his or her heirs at death ESTATE TAX FREE. But, the exemption goes back to $1 million in 2013. It is anyone’s guess as to whether this law will be changed (again) by 2013.

There are several opportunities in the new estate tax law provisions to plan for 2013 no matter what Congress decides. It is important that we review these provisions with you.

Feel free to contact me if you or someone you know has this type of situation. Financial 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.

"Your Financial Choices" on WDIY 88.1 FM

2012-01-31T18:22:19Z

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

Personal Notes

2012-01-31T17:21:57Z

My boyhood home in the wilds of Western PA lies a few miles from Punxsutawney- a place that draws the media’s attention one day each year – this Thursday, on February 2nd.

The Meaning of Groundhog Day

Punxsutawney Phil, the "seer of seers and prognosticator of prognosticators," is a groundhog resident of Punxsutawney, Pennsylvania, USA. On February 2, (Groundhog Day) of each year, the town of Punxsutawney celebrates the beloved groundhog with a festive atmosphere of music and food. During the ceremony, which begins well before the winter sunrise, Phil emerges from his temporary home on Gobbler's Knob, located in a rural area about 2 miles east of town. According to the tradition, if Phil sees his shadow and returns to his hole, the United States will have six more weeks of winter. If Phil does not see his shadow, spring will arrive early. The date of Phil's prognostication is known as Groundhog Day in the United States and Canada.

The Economy

2012-01-31T15:56:10Z

Last week the number of POSITIVE developments exceeded NEGATIVE developments -barely.

Below is a succinct list of last week’s events:

Positives:

1) Italian and Spanish bond yields continue lower, 10 yr in Italy below 6%, Spain’s below 5%

2) German IFO business confidence rises to 8 month high

3) German consumer confidence at best since April

4) Euro zone mfr’g and services composite index unexpectedly moves back above 50, led by Germany

5) US Durable Goods orders in Dec surprise to upside but how much was pulled forward from 2012 due to 12/31 expiration of full depreciation expensing?

6) Jan UoM confidence rises to best since Feb ’11

7) Richmond and KC mfr’g survey’s both rise

8) Bank of Thailand cuts rates.

9) Reserve Bank of India cuts reserve requirements

Negatives:

1)Portuguese yields spike, 5 yr CDS up 150 bps on week to new high

2) Spanish unemployment for Q4 rises to 22.9%

3) Italian consumer confidence holds at lowest since at least ’96 when survey began

4) Q4 US GDP rises 2.8%, a touch below expectations but nominal GDP gains just 3.2%, the weakest since Q3 ’09. If deflator was in line with expectations, Real GDP would have been up just 1.3%. Real final sales up just .8% vs 3.2% in Q3

5) Initial Jobless Claims normalize at 377k after holiday distorted 356k last week

6) Inflation expectations within UoM rise to 3.3%, the most since Sept and remains above the 20 yr avg of 3.0%. Expectations also rise to multi month highs in TIPS market

7) New Home Sales remain anemic, prices fall 12.8% y/o/y

8) FOMC stretches out zero rates until late 2014, US$ resumes downward trend against everything. Fed destroying the price mechanism as if interest rates are artificially priced, what are assets really worth? If we don’t know what assets are really worth, how can capital be efficiently allocated? And, if Zero Interest Rate Policy was effective, Japan’s economy would have boomed over the past 10 yrs.

The Markets This Week

2012-01-31T15:51:48Z

The major U.S. indexes finished mixed, but little changed last week, unable to hang on to gains that came Wednesday after the Fed said U.S. interest rates would remain low into 2014.

Instead, the January rally was slowed by soft economic results, and fourth-quarter earnings reports that were—apart from Apple's (ticker: AAPL) spectacular results—lackluster. Slowing corporate-revenue growth may also be rearing its head.

Some price support may have come from an increasing sense that negative euro-zone events, which pummeled U.S. shares last year, are losing the power to destabilize stocks here.

The Dow Jones Industrial Average fell 60 points, to end the week at 12,660.46, off 0.47%, ending a three-week win streak. The Nasdaq Composite managed to add 29.85 points, or 1%, ending at 2816.55.

This year so far, the U.S. market seems to be doing a lot better job of "taking shots from Europe," says Ryan Larson, head of trading at RBC Global Asset Management. The economic data were mixed and earnings muted. "The U.S. market is finding its own legs now, so it will be important to see if we can continue" to ignore Europe.

Barry Knapp, chief equity strategist at Barclays Capital, concurs. "The European Central Bank has done enough for now to stop the low-level run on the European banking system. There's been a mitigation of the contagion risk."

The proof, he adds, comes in various measures of market risk, which have returned to more normal levels. For example, during the August to November market maelstrom, the correlation among stocks was high at 0.9, meaning most stocks were moving in unison, either up or down. Now, that correlation is 0.15, he says.

Meanwhile, the fourth-quarter earnings season is "weak, once you take out Apple," Knapp avers. Profit margins are coming under pressure in some sectors, particularly consumer-related, and global growth is falling to U.S. levels. And gross-domestic-product growth came in under forecast.

These headwinds aren't enough to justify a sharp selloff, but a near-term correction is possible, he says, as investors realize that the U.S. economy is only bouncing back to trend, rather than improving; Apple distorts the numbers and it's almost "its own asset class," Knapp adds.

Apple said on Tuesday that continued strong demand for its products boosted sales by over 70%, to $46.3 billion, in its first fiscal quarter, ended Dec. 31, 2011. Earnings were $13.06 billion, up from $6 billion in the year-earlier period.

For once, the economic news last week was mixed, breaking a stretch of mostly expansive data. In particular, the U.S. fourth-quarter GDP figure released Friday was somewhat weaker than expected, at 2.8%, versus the 3% forecast. More importantly, the number was less impressive than it looks, as most of the growth came from inventory-building, which contributed 1.9% of the expansion.

With more than 180 of the companies in the S&P 500 index reporting, there have been 1.81 fourth-quarter positive profit surprises for each disappointing report, according to Zacks' chief investment strategist, Dirk van Dijk. A more normal ratio is 3:1—so corporate profit growth is indeed slipping. Additionally, revenue growth is tracking lower, an aggregate 6% rise seen so far, down from 9% in the third quarter (Source: Barrons Online).

The Numbers

2012-01-31T15:35:19Z

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

Returns through 1-27-2012	1-week	Y-T-D	1-Year	3-Years	5-Years	10-Years
Bonds- BarCap Aggregate Index	.3	.4	8.4	7.1	6.7	5.7
US Stocks-Standard & Poor’s 500	.3	4.9	3.8	18.9	.6	3.6
Foreign Stocks- MS EAFE Developed Countries	1.6	5.9	-12.8	9.8	-6.3	3.1

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.

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

2012-01-24T18:20:13Z

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.

Motivational Quote of the Week

2012-01-24T18:18:14Z

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

Author Unknown

Real-Life Situations

2012-01-24T18:12:46Z

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.

"Your Financial Choices" on WDIY 88.1 FM

2012-01-24T18:11:00Z

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

Personal Notes

2012-01-24T18:08:53Z

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

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

2012-01-24T18:04:27Z

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

The Markets This Week

2012-01-24T17:57:33Z

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).

The Numbers

2012-01-24T17:53:59Z

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

Looking Ahead...

2012-01-17T17:04:45Z

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:

http://www.irs.gov/taxpros/article/0,,id=237099,00.html

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.

Motivational Quote of the Week

2012-01-17T16:57:19Z

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

--Stan Smith

Real Life Situations

2012-01-17T16:06:49Z

Question:

I would like to give my children solid financial advice. Do you have any recommendations on what to tell them?

Answer:

“Pay yourself first”. Many consumers have heard that term but fail to implement it as a strategy in their own personal finance. A great way to save for a financial goal (or retirement) is to set up a routine, automatic periodic investment program into a solid growth and income mutual fund. It’s less complicated than its name. Just specify the amount per month (say $100) that you think you can afford. The amount can be withdrawn automatically from your checking account. And, try to save at least 25% of annual bonuses or windfalls by writing a check and depositing using a tear off coupon-type deposit slip you receive after the first routine deposit. This investment style, sometimes referred to as “dollar cost averaging” is a good approach to investing because you end up purchasing more shares when the price of the fund is low. It’s a proven technique, but remember, dollar cost averaging does not assure a profit or protect again loss in declining markets.

"Your Financial Choices" on WDIY 88.1 FM

2012-01-17T16:05:33Z

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP. This week Laurie will discuss:

"Get ready for some new tax filing forms!!"

Laurie will take your calls on this subject and other financial planning topics at 610-758-8810. This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

Personal Notes

2012-01-17T16:03:07Z

I am proud to not only live in Bethlehem, PA but also maintain my main office here, too. My fellow residents of Bethlehem are proud of its progress-and the attention it receives nationally and internationally. Fellow Lehigh Valley residents are pleased to see the renaissance permeate throughout the entire valley. Bethlehem is a microcosm of America. It was founded by individuals seeking freedom to express their religious views. Many possessed highly skilled craftsmanship which helped form an industrial base. This eventually grew to a world renowned heavy industrial center. Bethlehem then transitioned through the disassembling of America’s industrial base in the last quarter-century to emerge with a broad based economy, fast becoming a regional center for the arts, entertainment and historical/cultural programming.

Arts, entertainment and historical/cultural programming are making a big impact within Bethlehem and the Lehigh Valley. Employers are choosing to locate their companies in the Lehigh Valley over competitors, in part, because of these. Three new hotels were opened in Bethlehem last year, the only city its size to do so in Pennsylvania-and one of very few in America. As Jeff Parks, President of Bethlehem-based ArtsQuest was quoted in the Morning Call on Saturday:

“What we are doing at ArtsQuest is simply not being done anywhere else. We are, in many respects, on the cutting edge of arts and cultural programming in communities of less than a million people.”

Personally, if I am going to “Talk the talk” then I will “walk the walk” by increasing my involvement in my community. I fulfill this community service ambition, in part, by serving on both the Historic Bethlehem Partnership Board and the ArtsQuest (Musikfest, SteelStacks, & The Banana Factory) Foundation Board. Perhaps, you too would like to increase your community involvement. Click on the hyperlinks below to explore membership or other ways of involvement in these two (which are just a couple examples of many fine organizations in the LV):

http://www.historicbethlehem.org

http://www.artsquest.org

Through the many discussions with Bethlehem and Lehigh Valley clients and the involvement on the Historic Bethlehem and ArtsQuest Boards, I am developing a 30,000 feet look at what is happening in Bethlehem and the greater Lehigh Valley– and its moving in the right direction. Perhaps, if Stanley Kubrick were here, he might say, “The most extraordinarily amazing things are about to happen”.