For the most part, automakers are beginning to see sales stabilize and level off. Rising consumer confidence is playing a big role. There is still a tremendous amount of caution among investors and business executives. That being said, increasing corporate earnings / profits will be the signal that consumers and businesses are truly feeling better and are spending money. Any positive news, especially from the automakers or housing industry, is welcomed. Corporations will begin reporting their second quarter earnings (March – June) this month and that will give us a good sign as to where we may be headed.
Ironically, this good news regarding cars sales is somewhat offset by an article in today’s Wall Street Journal. The theme of the article is that the Corporate Average Fuel Economy (CAFE) mandating higher gas mileage or fuel efficiencies for cars sold in the U.S. will hurt U.S. car companies and most specifically General Motors. The reasoning is Honda and Toyota have honed their skills on small fuel efficient cars – it’s their bread and butter. However, the U.S. car companies have not done well in this segment. General Motors real niche or specialty is mid-size to larger cars, SUVs and trucks. As a result, it is nearly impossible for GM to come out with a new line of ultra-fuel efficient cars that combined with their current product line will allow them to meet government mandates. This could result in GM paying fines to the government while trying to resurrect the company that is substantially owned by the government.
Separately, the stock market appears to be taking a break today in lieu of the Labor Department’s report that job losses were more than expected in June and Europe reporting unemployment at 10-year highs. As I have noted in prior commentaries, bad news is expected during this market / economic recovery, and the stock market will most often pullback as a result of it. However, it is these pullbacks that allow the market or specifically investors to regroup and often re-enter at lower points, which fuels future gains and eventually a long-term bull market. Patience is something we try to teach our children and grandchildren, but it is extremely hard for us to practice as investors.
Fed and state governments are looking for more taxes
Yesterday, I read an article in the KC Star regarding the federal government considering a by-the-mile or miles driven tax as an alternative to the current fuel by-the-gallon gasoline tax. The federal tax is 18.4 cents a gallon; however, this does not include the state portion. In Missouri, the combined federal and state fuel tax is 35.7 cents a gallon, and in Kansas, it is 43.4 cents per gallon.
Bottom line, the recession has crimped fuel demand and much more fuel efficient and even electric vehicles are hitting the roads. As a result, the federal and state governments believe that more tax revenue is needed to keep roads maintained, but there are problems.
- This new tax could start out at one to two cents a mile and over time and creep up to 10, 15, even 25 cents a mile or higher. This prediction may sound extreme, but we should not forget the historical trend of U.S. income tax rates. In 1913, 36 States ratified the 16th Amendment to the Constitution. That October, Congress passed a new income tax law with rates beginning at 1 percent and rising to 7 percent for taxpayers with income in excess of $500,000. Less than 1 percent of the population paid income tax at the time. To see the full history of the U.S. tax system – please clink on the following link to the U.S. Treasury web site:
http://www.treas.gov/education/fact-sheets/taxes/ustax.shtml
- Would the rate be the same for a Prius versus a Hummer, or large 4-wheel drive pickup?
- Would government try to continue the gasoline tax while introducing the new miles-driven tax?
- Doesn’t this penalize those individuals who paid a premium for a hybrid or even an electric car, for the sake of conservation and the environment?
- Isn’t this a huge invasion of privacy? In that your car would be required to have a GPS tracking unit, and the government would now be monitoring where and when you went.
Another tax grab coming into play are states now going after unused gift cards, even cards that have no expiration dates. Some states are now considering unused gift cards as abandoned property and collecting them. States that collect “abandoned” gift cards require the retailers and third-party processors to maintain a database of when a card is issued and when it is used. In this scenario, the retailer is denied the income of the unused cards and must incur the costs of tracking them. In addition, if this retailer is a public company, then the shareholders lose out on this income and the state gets free money.
I bring up these two examples because the federal and state governments are all clamoring for more taxes to reduce their shortfalls / deficits. If this trend continues, and I believe it will, it will put more pressure on us, the taxpaying public, to keep our expenses in check and maximize the return on our investments. I’m sure the return on investment part sounds ridiculous for many, especially after what has occurred in the past year. However, unless you’ve accumulated a very, very large nest egg, then low-yielding (i.e., 2% – 4% a year) CDs, government bonds or annuities are not going to cut it. As a result, we will be facing decreased pensions, social security payments and higher income taxes. More disciplined budgeting and spending is one course of action. Another may be finding extra income via a higher paying or part-time job. For many investors and especially retirees, the answer will be to either seek a total return (income and appreciation) approach to their money or see it be eaten up prematurely by inflation and higher taxes.
Events Update
Deb Kunz will facilitate a Strategic Life Planning workshop on July 16th. For more details please click the attached link:
Quotes
“You have to love a nation that celebrates its independence every July 4, not with a parade of guns, tanks, and soldiers who file by the White House in a show of strength and muscle, but with family picnics where kids throw Frisbees, the potato salad gets iffy, and the flies die from happiness. You may think you have overeaten, but it is patriotism.”
Erma Bombeck, columnist and author
“Those who won our independence believed liberty to be the secret of happiness and courage to be the secret of liberty.”
Louis D. Brandeis, U.S. Supreme Court Justice
“Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote!”
Benjamin Franklin, inventor and statesman
Happy Fourth of July weekend!
Tony Moeller, President
Integrity Investment Advisors, LLC
12721 Metcalf Ave., #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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