U.S. Stocks and Foreign stocks declined but Bonds rose.  During the last 12 months, STOCKS have substantially outperformed bonds. 

The Numbers

Returns through 4-30-2010     1-week         Y-T-D         1-Year         3-Years         5-Years     10-Years

Bonds- BarCap 
Aggregate Index                       .6                  2.8            8.3                6.3                 5.4               6.4

US Stocks-
Standard & Poor’s 500            -2.5                7.1            38.8             – 5.1                 2.6             -.2

Foreign Stocks-
MS EAFE Developed
Countries                                -1.9                -1.9           30.8             -11.5                1.2             -.7

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.  Assumes dividends are not reinvested.

Question:   How many years back can the IRS audit my tax returns?

Answer:  It depends.  First, there is no limitation if the taxpayer fails to file a tax return or commits fraud.  6 years is the answer for any return that omits 25% of more of the taxpayer’s income.  Absent the situations in the two previous sentences, 3 years is generally the answer.

Feel free to contact me if you or someone you know has this type of situation.  Tax laws can be tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.

Last week Harrisburg announced it will not make a payment on a bond the city guaranteed.  This may lead to Harrisburg declaring bankruptcy.   I am concerned that municipal bond investors will begin to ask, “if Harrisburg, the state capitol of Pennsylvania, can go bankrupt, then we must consider all Pennsylvania municipal bonds as having a higher level of risk”.  This thinking will result in Pennsylvania bonds paying higher interest rates than other states.  Those investors who already own Pennsylvania municipal bonds will experience a drop in value of their bonds.

The American economy is expanding at a healthy rate, the jobless claims have declined, consumer confidence has rebounded, the FED is keeping interest rates low and has promised to continue this low rate environment, and corporate profits have surprised on the upside.  This is the recipe for a strong stock market.