In The Weekly Commentary of April 5, 2010, we discussed several issues: The economic stimulus coming out of Washington will dry up as the year unfolds.  What will the economy do?  Will it stagnate and perhaps fall back into recession (the so called “double dip”)?  Or does the economy have sufficient “escape velocity” to continue a healthy expansion as the economic stimulus is used up?   And, how about the income tax increase scheduled for January, 2011 – will that be the straw the breaks the economic camel’s back?  Investors are debating whether a double-dip will occur during the next 12 months.

Meanwhile, I was on vacation last week in western Pennsylvania.   I had to regularly feed my addiction for economic and investment information. Over the course of a few days I started the process of preparing our “mid-year review” – a report we intend to supply to you in The Weekly Commentary on Tuesday, July 6.  I ran across several economic studies reported on by John Mauldin.  (I love it when someone else does the work for me while I’m on vacation!).  These reports address the questions posed in the previous paragraph.  Stay tuned next week for this mid-year review.  I tend to be an optimistic individual, but …..

I spent some time reviewing the much-discussed (proposed) legislation which appears destined to become law.  I have been struck by one thought:  If it were law since the year 2000, the only provision that would have prevented, or at least slowed down the 2008 financial crisis, was the new minimum underwriting standards for mortgages (by forbidding “No Doc” loans”).  Lenders must verify income, credit history and job status certainly would have prevented the worst cases of sub-prime and exotic mortgages from ever being written, or subsequently securitized by Wall Street.  Other than this provision, there is not a single element of the reform that would have prevented the last crisis. I suspect that anything else in this reform package is going to prevent the next one, either.

Question:   My husband lost his job due to budget cutbacks.  We have decided to relocate and we have been busy travelling to different locations looking for the right situation for a new job.  Are our job-hunting expenses deductible?

Answer:                

Yes, but the total of your job hunting expenses must exceed 2% of your “adjusted gross” income.  They are deductible as miscellaneous itemized deductions.  So, make sure you keep track of all of your job-hunting costs. As long as you’re looking for a new position in the same line of work (your first job doesn’t qualify), you can deduct job-hunting costs including travel expenses such as the cost of food, lodging and transportation, if your search takes you away from home overnight.

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.

1. Brain Stimulation Technique Boosts Language Ability in Alzheimer’s Patients – Repetitive transcranial magnetic stimulation of the brain boosts the language ability of patients with Alzheimer’s disease suggests preliminary research published online in the Journal of Neurology, Neurosurgery and Psychiatry. Repetitive transcranial magnetic stimulation (rTMS) is a non-invasive technique that involves the delivery of a rapid succession of magnetic pulses in frequencies of up to 100 Hz. Source: PhysOrg.com

2. Computers Make Strides in Speech Recognition – A host of companies — AT&T, Microsoft, Google and startups — are investing in services that hint at the concept of machines that can act on spoken commands. They go well beyond voice-enabled Internet search. Later this summer, a new model of the Ford Edge will recognize complete addresses, including city and state spoken in a single phrase, and respond by offering turn-by-turn directions. Certain emotions are now routinely detected at many call centers, by recognizing specific words or phrases, or by detecting other attributes in conversations. Voicesense, an Israeli developer of speech analysis software, has algorithms that measure a dozen indicators, including breathing, conversation pace and tone, to warn agents and supervisors that callers have become upset or volatile. Source: NYTimes

“Your Financial Choices” airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®.  This week, Host Laurie Siebert, CPA, CFP® will discuss “Financial Planning Light – Rules of thumb, “What’s your number?” with guest, Mike Ippoliti, CFP and financial advisor with Valley National Financial Advisors. Mike will discuss a recent research study that found that 54% of Americans do not know how much money they will need in retirement. He will provide some useful “financial rules of thumb” to help you answer this question and many others.  He will also identify a few “rules of thumb” that you should ignore.

Laurie will take your calls on this subject and other financial planning topics at 610-758-8810. 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. 

INDEPENDENCE DAY – one of my favorite holidays:  great golf weather and a relaxing family picnic – activities that many Americans enjoy.  But, the celebration of our Independence Day should take on thankfulness that our forefathers had the intestinal fortitude to sign the document 234 years ago.  Each of the signers faced certain death as a traitor if captured by the British. 

Many Americans would be surprised to discover that Americans do not celebrate Independence Day on the date that the Continental Congress severed ties with the British government…

In the United States, Independence Day, commonly known as the Fourth of July, is a

federal holiday commemorating the adoption of the Declaration of Independence on July 4, 1776, declaring independence from the Kingdom of Great Britain. Independence Day is commonly associated with fireworks, parades, barbecues, carnivals, fairs, picnics, concerts, baseball games, political speeches and ceremonies, and various other public and private events celebrating the history, government, and traditions of the United States. Independence Day is the national day of the United States

During the American Revolution, the legal separation of the American colonies from Great Britain occurred on July 2, 1776, when the Second Continental Congress voted to approve a resolution of independence that had been proposed in June by Richard Henry Lee of Virginia.  After voting for independence, Congress turned its attention to the Declaration of Independence, a statement explaining this decision, which had been prepared by a Committee of Five, with Thomas Jefferson as its principal author. Congress debated and revised the Declaration, finally approving it on July 4. A day earlier, John Adams had written to his wife Abigail:

Adams’ prediction was off by two days. From the outset, Americans celebrated independence on July 4, the date shown on the much-publicized Declaration of Independence, rather than on July 2, the date the resolution of independence was approved in a closed session of Congress.

One of the most enduring myths about Independence Day is that Congress signed the Declaration of Independence on July 4, 1776. The myth had become so firmly established that, decades after the event and nearing the end of their lives, even the elderly Thomas Jefferson and John Adams had come to believe that they and the other delegates had signed the Declaration on the fourth.  Most delegates actually signed the Declaration on August 2, 1776 (source Wikipedia).

THIS MARKET MOMENT, IT’S all about the “bips”. In trading-desk slang, bips means basis points, or hundredths of a percentage point, the elemental unit of measure for bond yields. And the most important bips of the past week, arguably, are the mere 65 of them that make up the yield on the two-year Treasury note.

This yield has been dragged lower by a series of weaker-than-anticipated economic readings on housing and a predictable (if not widely predicted) downgrade of the Fed’s scoring of the recovery. The yield on the 10-year note, also in fast retreat to 3.11%, has tracked the U.S. economic data surprise index tick for tick.

The bond and stock markets consider the chance of an important economic slowdown with roughly the same frequency with which women and men, respectively, choose to talk seriously about their relationship–the former too often, the latter not often enough. But it is women and the bond market who ultimately determine the frequency.

In case you’ve been trapped in the 1990s, note that stocks these days move in step with bond yields, both falling as economic worry and deflationary anxiety rises. Thus, last week’s 3% drop in the Dow industrials, which brought the index toward the lower reaches of the trading range that has taunted, bedeviled and bored investors this year.

Bips can also serve as an acronym for Big Intractable Problems, the cable-news-ready messes that are quite clearly weighing on public psychology, from vexing fiscal issues at every level of Western government to the unstoppable oil spill to fractured loyalties among war commanders.

At times like these, when the market is indisputably in the sway of the macro forces, company-level fundamentals matter less than most investors would hope, and equity valuations get discounted until marked to market with Wall Street’s best guess about the plausible adverse scenario.

For sure, the macro story is now the loudest one. Bloomberg last week reported that macro-strategy hedge funds are pulling in new cash at twice last year’s rate. And correlations among individual stocks has stretched up toward 2008 panic levels in recent weeks, as the whole market has traded as one real-time gauge of economic anxiety.

The only question that ever really matters for investors is what sort of outlook is now priced into stocks. With the Standard & Poor’s 500 trading a few percent above its 2010 low and valued at 15 times the past 12 months’ earnings and 12 times the forward year’s forecast, it seems the slow-and-erratic growth path is the market’s baseline view.

Google Trends, which tracks search-term volume, is a wonderful group psychologist. Lately there’s been a surge in searches for “double dip,” as surfers fretted over this dreaded but rare form of recession relapse. Searches for “ECRI,” or Economic Cycle Research Institute, have likewise ramped up. The firm’s weekly economic leading indicator dipped to worrying levels a week ago–to the point where ECRI researchers have been moved to downplay its efficacy in handicapping recessions. This is reminiscent of the spike in online searches for “soft patch” in 2004 and 2005, as that economic recovery segued from torrid to tepid.

The fact that the market didn’t blink upon Friday’s downward revision of first-quarter GDP hints that a softer outlook is largely discounted. Another thin reed is the fact that a Barclays Capital slashing of Goldman Sachs’ (ticker: GS) second-quarter profits to $1.95 from $5.35 Wednesday didn’t faze the bellwether stock.

The market is back near a level where fundamental investors have detected some value, but bulls have lately made a poor showing. Trading volume has been greater in declines than on bounces, a sign of a vulnerable tape. And if this bout of macro fear and headline fright requires one of those panic-spreading shakeouts before energizing the bargain hunters, then we haven’t yet gotten it, and if we do it would likely culminate below 1000 on the S&P 500.

Yet with nominal GDP now running at an all-time record, every day the market just sits there makes valuations less demanding. So it’s too early to dispense with the idea of an anxious summer trading range— but one in which the lower end isn’t far off. (Source: Barrons Online).

U.S. Stocks and Foreign stocks both dropped this week while bonds were rose.  During the last 12 months, STOCKS have substantially outperformed bonds. 

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.