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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Luke (middle child) just finished his first basketball season a couple of weeks ago.  During the games there was a flurry of activity up and down the court, but very little scoring.  I find this analogous to the U.S. stock market this year.  With all the (economic and political) headlines and announcements, three major U.S. stock indices (Dow Jones Industrials, S&P 500 and NASDAQ) are all just above breakeven as of the close of the market yesterday.  Believe me, I truly enjoyed watching Luke play basketball and actually score.  However, in the previous scenarios, it can be exciting and emotional at times, but in the end not much to record in the scorer’s column.   

Separately, retailers said yesterday that store sales rose in February by the largest amount since November 2007.  Also orders to U.S. factories in January posted their sharpest rise in four months.  Overseas, both Greece and Spain had auctions for their respective countries five-year bonds and each was oversubscribed, with more buyers willing to buy more bonds than were put up for sale.

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Last week in the Wall Street Journal I read that several municipalities are considering filing for bankruptcy because they are cash strapped and can’t meet their bond payments.  The following chart highlights the fact that from 1970 through 2008 (adjusted for inflation) U.S. government spending has risen 221% versus 32% for median household incomes. 

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Instead of drawing from the latest headlines on the current state of the economy or stock market, I am providing some longer term perspectives from professionals whom I admire.   

“Come 2010, only 16 cents of every dollar of global economic growth will come from the U.S., nearly half the level of 1980.  While GDP is tied to the American consumer, S&P profits are boosted just as much by corporate spending and overseas growth.”

            – Kopin Tan, Barron’s, December 19, 2009 

“Advocates of the new normal cite the large U.S. indebtedness as one of the factors behind slow future growth.  However, there’s a vast cache of unused purchasing power in the rapidly growing middle classes in emerging economies, especially India and China.  These rising middle classes represent the largest untapped markets the world has ever known and will drive demand in the next decade.  And they want quality goods and brand names that are produced by firms based in the U.S.”

            –  Jeremy J. Siegel, Kiplinger’s Personal Finance, December 2009 

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Grease Greece is not the word!

Greece is a member of the European Union (EU) (i.e. an economic and political union of 27 European nations).  Greece’s population and economy are both very small in comparison to the entire union of nations; however, it is having a dramatic impact on all EU nations.

Fears of the Greek government not being able to pay off its debts is rooted in the fact that this country has a history of out of control spending, and the inability to get its financial house in order.  This has resulted in investors worldwide concerned that Greece can only meet its obligations via other EU nations bailing them out.  Unfortunately, Germany, France and other EU members’ are struggling from the recession.  As such, they are concerned that if they guarantee or take on Greece’s obligations, then other economically challenged EU members will consider doing the same. 

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