Wall Street has become nervous lately about Europe’s public debt problems.  These worries are reflected in the recent correction in stock prices, which was not completely unexpected. 

Unfortunately, the fear is that what Europe is facing now at some point we could be facing the same thing here in the U.S.  Historically, government bonds are considered the safest investment vehicles since they are guaranteed to be repaid (principal and interest).  This guarantee is backed by each government’s ability to raise taxes to cover their obligations.  However, if a government’s debt becomes too large, the fear is that the government cannot raise taxes enough to repay their debt without creating great financial hardship for their citizens and businesses.  Low economic growth is one concern, but depression-like conditions and a lower standard of living are quite another.

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Mamma Mia (the movie) and a recall notice for financial black boxes!

Mamma Mia

The light hearted, musical film Mamma Mia shows the beautiful landscape of Greece and embraces the romantic side its culture.  Yes, it’s a fun movie and Greece is a beautiful country.  On the other hand, it is a small country of approximately 11 million people; however, you would think it was a major economic power based upon its impact on world stock markets.  Not only has the Greek government spent well in excess of its tax collections, the Wall Street Journal reported today that a recent World Bank study ranks Greece as one of the most business unfriendly countries in the world.  Its ranking is below Egypt, Zambia, Rwanda and Kazakhstan. 

The combination of rich, unsustainable benefits for (unionized) government employees and a hostile business environment is deadly.  You cannot offer what some consider luxurious employee and retiree benefits and then take a hostile approach with businesses.  Basically, the Greek economic model actually is killing the golden goose (businesses) that it expects to continue to lay golden eggs (income taxes).  

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There is a big difference between doing what is right and doing what is legal!

What’s the difference and why is it important to me and my money? 

Most investors are not aware of the different standards of service / care as it relates to their money.  With all the controversy surrounding financial reform and the SEC’s pending lawsuit against Goldman Sachs, now may be a good time to explain the differences.  I will touch base on each one’s role and its potential impact to you as an investor.

Registered Investment Advisor (RIA) = Fiduciary responsibility

RIA’s are registered with and overseen by the U.S. Securities and Exchange Commission.  For example, IIA is a fee-only RIA firm.  Under this arrangement, the work that we perform for our clients requires that we put their best interests first. 

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Here are some positive economic nuggets:

This week it was reported that home sales were up and jobless claims were down. 

Microsoft saw higher revenues from corporations increasing spending on computers. 

Amazon saw profits surge in the first quarter as consumers felt comfortable buying online.  Reinforcing this was American Express noting that it saw a big jump in cardholder’s spending in the first quarter. 

Restaurants and hotels are beginning to see customers return.  This is especially good for hotels because this is a sign that business travelers are back, which means business activity is picking up and/or these companies are feeling more confident.

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This week Intel, JP Morgan, CSX and UPS all reported earnings in excess of analysts’ expectations, and this is in addition to the last week’s good news when various retailers (i.e., Macy’s, GAP, Target) reported sales gains.       

The real positive is that companies across various industries – technology, finance, transportation and consumer services are seeing a rebound.  A broad based rebound is exactly what this economy needs, and the stock market is responding quite positively to the news. 

 In addition, I particularly liked reading that a representative with CSX (a railroad company) stated that the company sees “gradual and steady growth” in the economy, and UPS noting that it cited strong growth in overseas shipments.  There must be economic activity taking place: otherwise, there would be no need for shipping.

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As a birthday present to myself, I am taking a break today from the weekly commentary.  Read more

The Wall Street Journal (WSJ) reported today that manufacturing is up globally, but in particular the U.S. manufacturing index in March registered its best month in nearly six years.  As a result, most economists believe that a double dip recession is not in the cards for the U.S.

Also announced in today’s WSJ was that U.S. car sales surged 24% in March.  Thus, supporting the prior claim that manufacturing is rebounding.  It appears to me that many consumers that have held off purchasing / replacing cars, appliance, etc. are no longer waiting to do so.  In spite of this good news, unemployment still remains stubbornly high because most companies are holding off on hiring.

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Fed Chairman, Ben Bernanke, testified before Congress yesterday and implied that he is in no hurry to raise interest rates.  Bernanke said the Fed “will not be able to wait until things are completely back to normal” before it starts to boost rates.   However, the Fed wants to make sure the economy is on a sustainable growth path, jobs are being created and wants to see more lending by banks before it starts tightening credit, Bernanke said.  It could be this fall before the Fed actually makes the tough choice to begin raising interest rates, no matter when it happens it is a balancing act of not undermining the current recovery or waiting too long and risking higher inflation and possible bubbles in stocks, commodities or other assets.  

Companies are beginning to react

Quite honestly, I don’t know if anyone has all the facts behind the new health care reform and probably won’t for a while.  However, several large U.S. corporation; John Deere, Catepillar, Medtronics,  Verizon, Boeing Co., Con-Way Inc., Exelon Corp., Navistar Inc., Verizon, Xerox Corp., Public Service Enterprise Group Inc., and Met Life Inc., just to name a few, have made some recent announcements regarding its impact on them.  In effect, these companies have stated that they are going to incur increased costs via higher income taxes, may reduce or drop employee and retiree health benefits, and lay off workers as a result of higher costs. 

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Maybe it’s a case of Spring Fever a few days early.  However, this week instead of boring you with market and economic news, I thought it may be a nice break to give you some words of wisdom and whit on money:

“Understand yourself, protect yourself.  And care enough to fight the hidden enemy of our system (economic ignorance) before it does indeed destroy us.”

                        Sylvia Porter

 “Never spend your money before you have it.”                     

                        Thomas Jefferson      

“The easiest way to teach children the value of money is to borrow from them.”

                        Anonymous

“Make all you can, save all you can, give all you can.”                       

                        John Wesley

“The art of living easily as to money is to pitch your scale of living one degree below your means.”

                        Sir Henry Taylor

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April 15^th is a little over a month away.  As such, anyone interested in making their 2009 traditional or Roth IRA contribution needs to have them in the mail / postmarked by that date.  The contribution limits are $5,000 for taxpayers under 50 and $6,000 for those 50 and over.  Please note that your contributions could be limited by your income or spouse’s retirement plan.  Feel free to contact our office or your tax professional for the specific details.  For those who qualify, I strongly recommend you take advantage of contributing to a Roth IRA (it is one of the few tax-free investment options currently available to you).

Along this line, the big financial / tax item for 2010 is whether to convert your IRA to a Roth IRA.  By converting an IRA (tax-deferred investment) to a Roth IRA, you are paying normal income taxes on the amount you convert, but all future earnings grow tax-free.  In addition, you are no longer subject to required minimum distributions upon obtaining age 70 ½.  If this is something that may be of interest to you, please let us know.  We have a program that allows you to analyze your specific situation and access whether it may be advantageous for you to convert.  That being said, you can then take this information directly to your tax professional and let them guide you as to what may be best for you.  Thus far, I have not seen a big demand for individuals to convert to a Roth IRA because they are very reluctant to pay any additional income taxes now. 

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