Interest rates will probably trend UP in the foreseeable future. This means the value of most bonds and bond mutual funds will trend DOWN. The new tax law signed Friday by President Obama substantially increases the probability that the economy will expand faster that previously contemplated. We predict that as the economy improves, interest rates will rise.
We recommend:
Savers should avoid purchasing long-term fixed rate CD’s – keep the maturity to no more than 1 year.
Borrowers should either convert variable-rate loans into fixed rate loans or set up a side account with sufficient funds to pay off variable-rate debt.
Investors should switch intermediate and long-term maturity bonds into money market funds, equities (stocks), equity mutual funds, market linked CD’s, and certain types of bonds that do well when interest rates rise.
Question: My Net Worth is in excess of $1,400,000 and my wife and I own most of our property in joint name. I was in the midst of doing estate planning when the new estate tax law was passed last week. Does this mean I do not have anything to worry about? Answer: Yes and No. The new tax law signed on Friday by President Obama, permits each individual to pass $5 million to his or her heirs at death ESTATE TAX FREE. But, the exemption goes back to $1 million in 2013. It is anyone’s guess as to whether the law will be changed (again) by 2013.
There are several opportunities in the new estate tax law provisions to plan for 2013 no matter what Congress decides. It is important that we review these provisions with you.
Feel free to contact me if you or someone you know has this type of situation. Financial Planning advice presented here is general in nature, and individual circumstances make applying these general rules tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.
Science Breakthrough of the Year-The First Quantum Machine – This year’s Breakthrough of the Year represents the first time that scientists have demonstrated quantum effects in the motion of a human-made object,” said Adrian Cho, a news writer for Science. On a conceptual level that’s cool because it extends quantum mechanics into a whole new realm. On a practical level, it opens up a variety of possibilities ranging from new experiments that meld quantum control over light, electrical currents and motion to, perhaps someday, tests of the bounds of quantum mechanics and our sense of reality.” Source: www.kurzweilai.net/sciences-breakthrough-of-the-year-the-first-quantum-machine?utm_source=KurzweilAI+Daily+Newsletter&utm_campaign=57f08c1716-UA-946742-1&utm_medium=email
Researchers Discover Where Unconscious Memories Form – A small area deep in the brain called the perirhinal cortex is critical for forming unconscious conceptual memories, researchers at the UC Davis Center for Mind and Brain have found. The perirhinal cortex was thought to be involved, like the neighboring hippocampus, in “declarative” or conscious memories, but the new results show that the picture is more complex. Source: www.kurzweilai.net/where-unconscious-memories-form?utm_source=KurzweilAI+Daily+Newsletter&utm_campaign=57f08c1716-UA-946742-1&utm_medium=email .
I wish I had more time to pursue my interest in astronomy. But, there is little in common between astronomy and financial planning. I think most clients would appreciate my time being spent analyzing the new tax law instead of observing celestial events. But, I am sure to watch celestial events if they are rare or spectacular like the event tonight.
For the first time in 372 years, a total lunar eclipse will take place on the Winter’s solstice on December 20 to 21, 2010. It will be visible after midnight Eastern Standard Time on December 21 in North and South America. EST/12:17 a.m. PST.
According to space.com, if you are residing in the US particularly in the East Coast, expect to see the lunar eclipse as it begins half an hour after midnight on Tuesday, December 21, 2010. On the West Coast, it begins around 9:30 p.m. PST Monday. In all cases, the whole eclipse will be observable before the moon sets in the west just as the sun is rising in the east. Maximum eclipse is at 3:17 a.m.
This lunar eclipse will be followed by a meteor shower named as Ursids which is expected to peak on December 22 to 23, 2010. The Ursid meteor shower usually coincides with the winter solstice, and is best seen by polar bears since they come from near the celestial North Pole. Generally speaking they produce about a dozen or so per hour at their peak. However, with the lunar eclipse occuring there may be some opportunities to catch an Ursid meteor or two from our region!
Stocks kept their winning streak alive last week, even if in the muted fashion typical of the stretch before Christmas.
The Standard & Poor’s 500 Index gained 3.51 points, or 0.28%, on the week, closing at 1243.91. That was its highest closing since Sept. 19, 2008, just days after the Lehman Brothers collapse. If it moves above its “pre-Lehman level,” as one market watcher called it, of around 1250, there would be some good reason for optimism about 2011.
Small-cap stocks, as measured by the Russell 2000, climbed 0.34%, to 779.51—the benchmark’s fifth consecutive weekly gain. The blue-chip Dow Jones Industrial Average was up 81.59 points, closing at 11491.91, its third straight week of gains. And the tech-heavy Nasdaq Composite notched its fourth week of gains, climbing 0.21% to 2642.97. That marked its fourth straight week of appreciation.
Behind the uniform gains, however, some pros saw an important shift taking place. “You’re seeing people de-risk, to some extent,” says Mike O’Rourke, chief market strategist at BTIG. In other words, they’re starting to take profits from small caps and plow the money into more stable large caps, reversing a big trend of 2010.
FedEx (ticker: FDX) was perhaps the most interesting of the big stocks last week. The shipping giant, considered a proxy for the economy, said its profits fell by 19% in its most recent quarter. Investors, however, didn’t punish the stock, taking comfort in the company’s raised outlook for the rest of the year. FedEx closed Friday down only slightly for the week, at about 93.
The week also brought some good economic news, helping the climate for stocks, including an uptick in sentiment among small businesses. And in Washington, the Republicans and Democrats worked out a deal on extending the Bush tax cuts, long popular on Wall Street. President Obama signed the bill on Friday.
Interest rates backed up early last week, and the dollar strengthened. The 10-year Treasury’s yield climbed to 3.568% last Thursday, the highest it’s been since May, before finishing the week at 3.329% as more buyers emerged. Still, yields have moved up steadily as 2010 has wound down. The U.S. Dollar Index, which measures the greenback against a basket of currencies, was around 80.4, versus 75 and change in early November.
Several weeks do not make a trend. There is considerable debate on whether rates will continue to rise and how much strength the dollar actually has. But no matter how they play out, these two issues are sure to be central to the stock market’s performance in 2011 (Source: Barrons Online).
Last week U.S. Stocks and Bonds both increased. Meanwhile, Foreign Stocks declined. During the last 12 months, U.S. STOCKS outperformed BONDS.
Returns through 12-17-2010
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.1
6.2
4.9
6.1
5.8
5.8
US Stocks-Standard & Poor’s 500
.3
13.7
15.8
– 2.7
1.8
1.4
Foreign Stocks- MS EAFE Developed Countries
-.1
2.6
4.7
– 9.6
– .7
1.0
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.
