“If
everyone is thinking alike, then somebody isn’t thinking.”
George S. Patton
Monthly Archives: February 2012
Real-Life Situations
Question:
I own a business, a sole proprietor, so I file my income tax return with a Schedule C. My children, ages 15 and 17, help me around the office to do chores I assign to them. Should I pay them?
Answer:
Yes. There are some very important income tax benefits to do so it is better to put them on the payroll and pay wages to them rather than an allowance. Your net profit from this business is taxed at the highest tax rate of any income; thus, any deductions like wage payments to children will save substantial income taxes. And, you can even set up an IRA or SIMPLE IRA account to benefit them later. Note that the IRS requires the children to perform meaningful work and that you pay them the going rate for such work.
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.
Personal Notes
Today (Monday) my wife Jo Anne and I are visiting Madison Square Garden, NYC for the Westminster Kennel Club Dog Show watching some excellent examples of man’s best friend. You might be surprised to learn the dog show itself has a long pedigree – stretching way back to May 1877. Dogs are judged against their breed standards, to see how close each dog matches the standard, which is a written description of the ideal specimen of that breed. Standards may include references relating form to function in the performance of the job that the dog was bred for, and may also include items that seem somewhat arbitrary such as color, eye shape, tail carriage and more. While many breeds no longer need to perform their original jobs and are bred mostly for companionship, they should still have the innate ability and physical makeup to perform those jobs, and this is what the judge looks for. Our companion at home, Bella, is a personality-rich Bichon Frise.
Economic Reports Last Week
Last week the number of NEGATIVE developments exceeded POSITIVE developments and the stock market maintained a watchful eye on European concerns.
Positives:
1) Initial Jobless Claims fall to 358k, 12k less than expected and the 4 week average drops to 366k, the least since May ’08
2) Job Openings in monthly BLS data rise to match the highest since Sept ’08
3) MBA said avg 30 yr mortgage rate falls to new low of 4.05% and refi’s jump 9.4%
4) German Factory Orders in Dec rise a bit more than expected
5) China’s PPI moderates to a gain of just .7% y/o/y, the slowest rate since Nov ’09
6) Indonesia unexpectedly cuts rates to 5.75% while RBA and SK sit pat
Negatives:
1) Greece on brink, AGAIN, unemployment rate in Nov hits 20.9% from 18.2% in Oct
2) German exports in Dec, the main driver of their economy, falls 4.3% m/o/m vs an expected decline of just 1%, German IP falls 3% vs est of flat from Nov
3) Euros being re-deposited with the ECB overnight remain around 500b, matching the amount borrowed under the LTRO
4) BoE votes for more QE, brings asset purchase program up to 325b pounds.
5) US inflation expectations in TIPS continue to drift higher
6) Feb UoM confidence moderates 2.5 pts after Jan jump of 5
7) Avg gallon of gasoline at the pump rises to most since Sept.
The Markets This Week
Stock prices eased last week, snapping a five-week winning streak for most of the major indexes. Most of the damage came Friday as traders took profits on news late Thursday of a huge foreclosure-abuse settlement between five big banks and attorneys general from the federal and state governments.
It wasn’t a great week, but investors still appear to be gaining confidence in a more “normal-acting” market, or one at least where not all stocks rise and fall together, last year’s bugaboo. Trading activity remains unspectacular.
The Dow Jones Industrial Average dropped 61 points, or 0.5% on the week, to close at 12,801.23. The Nasdaq Composite finished the best of the three main indexes, losing 0.1% last week, to close at 2903.88.
The market is moving from “macro to micro,” says Brian Belski, the bullish chief investment strategist at Oppenheimer. A precipitous drop in stock price correlations this year suggests a market in which shares move more on company fundamentals than on global macroeconomic news, he avers. After last year’s persistently high correlations, over 0.9 at times, a reversion to the mean will assure that low correlations will continue, he predicts.
Continued good earnings reports and U.S. macroeconomic data are helping keep the market buoyant, adds Peter Kenny, director of institutional sales at Knight Capital Americas. Leadership by the large-cap tech and financial stocks—instead of the small caps, as was the case in 2009-2010—gives “legitimate support” and confidence to the market’s positive tone, he adds.
Granted, we are only six weeks into the market’s about-face, but the bears have to pay some attention to this change in market tone.
Sentiment can be fickle, but last year’s worries—the European financial crisis and the U.S. economy—no longer appear to be scary enough to usher in more than a routine pullback in the short term. The Greek boogeyman isn’t going away, but the market doesn’t seem so easily spooked. It’s up to the bears to prove it otherwise.
Increased selling by insiders and abnormally bullish readings from the American Association of Individual Investors’ weekly survey argue for a short-term pullback soon. Potentially worrisome weekend headlines out of Europe—by now customary—could weigh on markets next week (Source: Barrons Online).
The Numbers
Last week, U.S. Stocks and Foreign Stocks decreased. And, Bonds increased. During the last 12 months, BONDS outperformed STOCKS.
|
Returns |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- |
|
|
|
|
|
|
|
US |
|
|
|
20.1 |
|
|
|
Foreign |
|
|
-11.6 |
10.5 |
-6.4 |
|
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 excluding dividends.