November 29th, 2012
Dear Client:
Four more years! President Barack Obama remains as Commander in Chief, and at the very least, we are not kept in limbo wondering the outcome. The question that remains is will it be more of the same as the first term, or will this be an improved four years for the economy and job creation? I split my time between Minnesota and Michigan and as I’ve talked to people, there didn’t seem to be too many people supporting the incumbent. I dare say there must be quite a few closet Obama supporters in our typically liberal states. Regardless, we made it through another election and now we have many topics that require immediate action.
The key public policy obstacle to be addressed should be the fiscal cliff. Automatic spending cuts and tax increases are scheduled to take effect in January 2013 unless Congress acts. Particularly, the capital gain rate is set to go up from 15% to 20%. The highest income earners bracket could go up from 35% to 39.6% and the dividend income could go up to 39.6% from the current 15% rate. There is also an additional tax on “unearned” income of 3.8% set to begin for taxpayers with high incomes as part of the health-care reform act. Add on the upward shifts to the AMT (alternative minimum tax) scheduled to take effect without some congressional action, and none of these changes are good. If there is ever a time for Republicans and Democrats to work together; now is the time. We need this to be addressed or 2013 will become very uneasy in a hurry. I personally think Congress will get something done in late December or early January and the oracle of Omaha (Warren Buffet) also thinks this is conceivable. He has a pretty good track record.
It has been a very good year for the market. We have had some volatility throughout the year but as it stands the S&P 500 is up 11.2% and the DJIA is up 5.4%. Hopefully we can finish the year with some momentum and good news from Congress. American job creation was improved in October with 171,000 new jobs (just in time for the election) but the unemployment rate edged higher to 7.9%. More jobs are needed and I believe the President will take some steps to improve this over the next four years. New single-family homes fell slightly in October and the government sharply lowered its estimate for the prior month’s sales. This casts a somewhat bleak outlook on what has been one of the brighter spots over 2012. Lastly, we are heading into the holiday season and this is good for the retail sector. If Black Friday and Cyber Monday are any indication, this should be a good December and holiday season.
Safe travels to those of you who will be on the road or in the air, and
Season’s Greetings to you and your families during these holidays.
Sincerely,
J.B. L’Esperance, ChFC