Finance Triangle

Starting a Business 101: the top seven tips to starting a business

2009-08-20T23:25:00.001-04:00

Starting a Business 101: the top seven tips to starting a business

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Market week: Up again and a July to remember

2009-08-03T12:02:00.000-04:00

The direction of the stock market was positive during the last week despite easing off the sharp increases of the prior two weeks. The DOW had its best month since October 2002 and the end of July marked the fifth straight month of gains in the S&P 500.

The economic news like sales of new homes, home price index, continuing unemployment claims and new auto sales continue to be less bad and that's a start to a recovering economy. The stock markets may be discounting that news as the markets typically look forward 6-9 months. The auto boost is attributed to the exuberant adoption of the "cash for clunkers" program.

See all the statistics here in my market week newsletter along with last weeks headlines and an eye on the week ahead.

Market Week: August 3, 2009

If you liked this article you may find these articles interesting...

Maryland tax amnesty: tax delinquents get a second chance

You're not too busy for a financial plan

Financial tips for recently married couples

Send your child to summer camp and receive a tax credit

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Chesapeake Financial Advisors or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Market week: S&P 500 up 4.13%, focus on company earnings

2009-08-03T12:01:00.000-04:00

The stock market's short-term rally continued into its second week with all major indexes posting gains of 4% or more.

Year to date that brings the big three (Dow, Nasdaq and D&P 500) stock market indexes into positive territory for the year. See all the statistics here in my market week newsletter along with last weeks headlines and an eye on the week ahead.

Market Week: July 27, 2009

If you liked this article you may find these articles interesting...

You're not too busy for a financial plan

Financial tips for recently married couples

Send your child to summer camp and receive a tax credit

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Chesapeake Financial Advisors or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

You're not too busy for a financial plan

2009-08-03T11:59:00.000-04:00

Don't wait until you are in the midst of a financial crisis to begin your planning process. Often times a crisis is very emotional and that is not the best time to start thinking and planning for your future. The reality is that most people find a decline in their account values, prospects of retirement, death of a family member or change in careers as a time to begin the planning process. However, starting early will give you the road map (the plan) and gatekeeper (the financial planner) to help you face any crisis head on and present options so you can make the right decisions for you and your family. More importantly a financial plan provides financial peace of mind.

See my Financial Planning Guide for beginners at the link below. You'll be surprised how easy it is to get started.

Financial Planning - Helping You See the Big Picture

Financial planning comes in many shapes and sizes and is tailored to your individual needs. It may be as simple as setting an education or retirement savings goal or as complicated as creating credit shelter trusts. No matter, having a plan is critical to your success. For instance, many investors have a "guy" or "gal" that handles their investments. You receive monthly statements and often see buy and sell transactions in your accounts. But do you know where your accounts are headed? Do you have a goal in mind of how much money you will need to retire and maintain your standard of living? For instance, what value will your accounts grow to if you earn 6% a year? Or, what if you add an additional $1,000 to your 401k or IRA each year, what affect will that have on meeting your goal sooner? These are very real questions and scenarios that you should be seeking from your financial advisor.

Many financial plans include a review of your current property and casualty and life insurance coverage. Approach this an opportunity to shop your current coverage and see if you can save money. Any savings can go toward meeting a retirement goal. Couple this with tax planning and you may be able to increase your tax deductions and decrease your taxable income.

Additionally, most people don't realize that they can move an annuity (tax free) from one insurance company to another in order to lower your fees. Your existing provider won't tell you this because it is not in their best interest...however, it is in your best interest. That is critical to your success and an independent financial planner will review potential savings with you.
So start today. Financial planning is the process that can help you reach your goals and achieve financial peace of mind...isn't that worth it?

Find a fee-only independent financial planner in your area by going to www.NAPFA.org. There's no cost to do a search and you will receive contact information for multiple planners in your area. You can even do an advanced search for planners that specialize in certain areas, like providing hourly advice, tax planning or ongoing investment management.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Chesapeake Financial Advisors or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Financial tips for recently married couples

2009-08-03T11:58:00.000-04:00

Avoiding stress at tax time is hard enough and why many people rely on the advice of a CPA or tax preparer to take on the task of filing out all the right forms and maximizing deductions. A CPA can provide financial peace of mind and with the stress of the wedding over, who wants to handle combining two sets of tax returns and financial records.

If you have recently married or plan to get married by the end of the year, there are some simple steps you can take to make your life easier and come tax time, less stressful. Oh by the way, chances are your income tax bracket will increase because of joint income so you or a CPA should run the numbers to see if it makes sense filing "married filing separately" your first year. In some cases it does.

The IRS is out with summertime tips # 4 and it's all about tips for married taxpayers. Follow the link below but to summarize...

Tax Tips for Recently Married Taxpayers

1) update your social security number with any name change. If you normally get a refund and don't do this, your refund will most likely be delayed.
2) notify the IRS of any address change by filing form 8822
3) notify the US Postal Service so all your tax forms (and LL Bean catalog) will be forwarded in a timely manner
4) notify your employer of any name and address change to ensure a proper W2 is received
5) check to make sure your withholding is correct to avoid penalties or tax due at the end of the year

Check out this handy Withholding Calculator.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Send your child to summer camp and receive a tax credit

2009-08-03T11:57:00.000-04:00

Most understand that paying for daycare expenses either at your home or at a daycare facility outside the home, qualifies you for a tax benefit if the purpose of the care is so the taxpayer can work.

However, many families are leaving additional childcare expenses on the table that could qualify them for additional tax savings. Summertime is peak season for camps. Soccer camps, lacrosse camps, baseball camps and yes, the old favorite, chess camps. The cost of the camp can count as an expense towards the child and dependent care credit so long as it is a day camp. Expenses for overnight camps do not qualify. So if you send your child away for two weeks to Camp Wanna-be-a-star, the expenses do not qualify if the child stays overnight.

The IRS is out with a recent Summertime Tax Tip that discusses five tax facts about summertime child care expenses. In addition, find out more about Child and Dependent Car Expenses here.

So hold onto all your receipts or substantial records that show you paid for summertime day camps for a child...it's deductible!

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Quarterly stock market review - 2nd quarter 2009

2009-08-03T11:54:00.000-04:00

Chances are you may be more ready to open your account statements then you have been in the past year. With the rapid stock market declines in October and November of 2008, followed by a near-term market bottom in March 2009, most investors stuck their heads in the sand and refused to open brokerage, IRA and 401k statements. As it appears the economy is no longer on the brink of destruction and the recession is nearing an end, the stock market has discounted a more positive environment and investors may be more inclined to "take a look."

While I believe any financial advisor would not recommend doing so, I concur that it's a natural human reaction to not deal with all the negativity. However, now is the time to talk to your financial advisor to make sure your financial plan is on target and investment strategy is consistent with your risk tolerance, time horizon and goals.

The second quarter of 2009, ending on June 30, 2009 was a different story. The S&P 500 rallied 15.2%, the Dow rallied 11.0% and the leader of the major market indexes, the NASDAQ rallied 20.0%. These gains pale in comparison to the rise in crude oil prices, which gained 44% in the quarter. If you owned a good Energy and Natural Resources fund in your portfolio, chances are you experienced nice gains for the second quarter.

Here's a link to my recent newsletter that covers the quarterly stock market and other market activity during the second quarter. Included is an economic overview and some interesting "investor almanac" data such as what asst class outperforms the S&P 500 the year following each of the last six recessions.

Quarterly stock market review - 2nd quarter 2009

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Interest rates are low, is it time to consolidate your student loans?

2009-08-03T11:53:00.000-04:00

Here's a link to my recent client newsletter on consolidating student loans. We get this question a lot, particularly with our young professional clients.

Is it time to consolidate your student loans?

A good way to think about consolidating student loans is protection. If you have variable-rate federal student loans, you can convert your variable interest rate to a fixed interest rate. By consolidating and fixing your interest rate, you have protected yourself from future interest rate increases. You're unlikely to catch the exact bottom so don't try. Consider the long term ramifications of a variable or fixed rate loan in your financial plan and consider alternatives.
The current fixed rate consolidation loan rate is 2.5%, historically low. In addition, don't be in a rush to pay off the loan if you have alternative investment options available. For instance, let's assume you receive a bonus of $20,000 (after tax) and are looking for things to do with that money. After booking that cruise you've always wanted to do, look around at your investment and debt repayment options. If you are carrying credit card debt and your interest rate is greater than 9%, that's probably a good place to put some of that bonus money to work. You've effectively earned a 9% return on your money by not having to pay future interest to the credit card company. How about a car loan? Pay it off and use the old car payment as a monthly savings plan into your 401k or IRA. Before paying off some of the 2.5% student loan, consider investing in a good growth mutual fund by opening a Roth IRA and saving $5,000 plus all future earnings are tax free. If you believe an investment in an IRA will earn you more than 2.5%, you're ahead of the game.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

The best performing diversified mutual funds so far in 2009

2009-08-03T11:50:00.001-04:00

Be careful what you read in the headlines.
I've provided a list of the best peforming diversified mutual funds so far in 2009 according to Morningstar. The interesting thing about his chart is despite the great year to date performance, all but one, suffered huge losses in 2008 relative to its peer group. Meaning, there were a lot of other funds with similar fund categories that performed better in 2008.

Direxion NASDAQ-100 Bull 2.5X DXQLX
Large Growth
39.66
-82.75

Ancora Special Opportunity ANSCX
Small Value
38.66
-45.77

Elite Growth & Income ELGIX
Large Blend
35.94
-50.32

Rydex Dynamic NASDAQ-100 2X St RYVYX
Large Growth
35.27
-72.76

ProFunds UltraNASDAQ-100 UOPIX
Large Growth
34.59
-72.64

William Blair Small Cap Growth WBSNX
Small Growth
34.18
-46.85

Van Kampen Equity Growth VEGAX
Large Growth
31.59
-50.70

Touchstone Large Cap Value TLCAX
Large Value
31.22
-73.79

Royce Select II RSFDX
Small Blend
30.06
-33.31

AIM Mid Cap Basic Value MDCAX
Mid-Cap Blend
29.91
-51.38
SOURCE: data compiled by Morningstar

And the numbers can be misleading when looking at performace over the last year and a half.
Let's take the case of the Elite Growth & Income fund, ticker "ELGIX." The fund is third on the list and is up an impressive 35.94%. Very good performance relative to the S&P 500's roughly 2% increase so far this year (through Friday. 6/26/09). However that's not nearly the whole story. Chances are not many investors purchased shares in the Elite fund on 12/31/08 to only realize that significant gain. Chances are investors have held the fund for some time in a 401k, IRA or taxable savings account and therefore suffered the -50.32% loss last year. Some will tell you that up 36% this year and down 50% last year means you only lost 14%...not true and here's how you do that math.

Let's assume on 1/1/08 your account value in the Elite fund was $10,000 and you lost 50.32% of your money in 2008 (the actual peformance of the fund according to Morningstar). Your account value on 12/31/08 would have been $4,968. Now you continued to hold onto the fund and are happy with the 36% positive return so far this year. Your account value after the rise is now $6,753...still down -32.47% since 1/1/08.

So be careful in reading the highlights on the investment pages this year. There will be funds that impress with siginificant gains but be sure you know the whole story. The best mutual funds have investment performance relative to their peer group that is better in bulland bear markets, so look at data over the last three, five and ten years as well. An objective financial advisor can help you sift through the headlines and make sense of mutual fund performance.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Maryland tax amnesty: tax delinquents get a second chance

2009-07-19T16:12:00.000-04:00

Mark your calendars, Maryland has approved a tax amnesty plan starting in the fall of 2009. From 9/1/09 to 10/30/09 (the 31st is a Saturday), any unpaid personal income tax, corporate income tax, withholding tax, sales/use tax or admissions/amusements tax are eligible for amnesty protection.

The result, or savings for the delinquents, is all civil penalties and 1/2 interest will be waived. The State's hope is that those taxpayers that are delinquent, primarily due to unforeseen circumstances or current economic conditions, will step forward and take advantage of the plan and raise some much needed revenue for the State.

Taypayer's that are delinquent must apply to take advantage of the amnesty plan and the Comptroller may agree to a payment plan but current rules are that taxes must be paid by 12/31/2010. Check back here for a link to the application when it becomes available. Better still, subscribe to my blog by clicking on the "Subscribe to Email" above, so you will receive an email when I post the link.

Senate Bill 552 is where you can find the actual bill and here's a great link to the MACPA blog that will fill in some more details.

MACPA blog: CPA SUCCESS

If you liked this article you may find the following of interest...

A big rule change for IRAs

Retirement savings contributions, tax deductions and savers tax credit

Bike to work, get a tax credit

New qualified expenses for qualified tuition programs - 529 Plans

Unemployment benefits tax free for 2009
Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Bike to work, get a tax credit

2009-06-10T17:21:00.002-04:00

If you haven't already noticed from the theme of my last few articles, the American Recovery and Reinvestment Tax Act of 2009 or the "Stimulus Bill" is chock full of lots of little and not so widely publicized tax credits that you should be aware of but are buried in the thousands of pages of legalese.

The Stimulus Bill included a provision that allows employers to provide their employees with a $20 fringe benefit per month for the purchase of a bicycle and any bicycle repairs, improvements or storage costs. Not a bad incentive and do we really need to mention the additional health benefits and carbon footprint benefits that will be achieved if you ride your bike to work. How about a big thank you from all the people stuck on 695 in morning rush hour traffic that may get to work a few minutes earlier because one less car is off the road. The benefits are endless.

For employees who regularly commute to work by bicycle, employers may offset the costs of bicycle purchase, improvement, repair, and storage at the rate of $20 per month. Based on how the employer chooses to offer the benefits, the employee may bring receipts to be reimbursed, may sign up for regular monthly payments or devise some sort of voucher system with their employer.

Bike commuters are not allowed to receive transit or parking benefits in addition to the bike benefit.

The bike commuter benefit can be provided by employers beginning January 1, 2009.
Here's a few links you might like to check out...

One Less Car - bicycle and alternative transportaion advocate in Maryland
WABA - the Washington Area Bicyclist Association

If you liked this stimulus bill article you may also find the following of interest...

New qualified expenses for qualified tuition programs - 529 Plans
First time homebuyer credit is hot this spring selling season

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

New qualified expenses for qualified tuition programs - 529 Plans

2009-06-08T11:32:00.002-04:00

Here's another tax update brought to you by the "stimulus bill" or American Recovery and Reinvestment Tax Act of 2009.

The popularity of state sponsored College Savings Plans or 529 Plans is growing and with this little nugget added to qualified expenses, you can see why they are so popular.

In addition to tuition, fees, books, supplies and room and board if the beneficiary is at least a half-time student, the stimulus bill added computers, certain computer equipment and software and services. Many colleges and universities require students to arrive the first day of school with a computer and now, the expenses associated with that requirement are not eligible to paid for through a 529 plan.

For Maryland taxpayers, you can save on taxes while you save for college. You can deduct up to $2,500 of contributions per year, per account from your Maryland adjusted gross income for each of your beneficiaries. So a married couple filing a joint return can deduct $5,000 of contributions per year if each taxpayer opens one account for a beneficiary.

More information on the Maryland 529 plan known as the Maryland College Investment Plan can be found at the following websites:

College Savings Plans of Maryland
What's New in Qualified Tuition Programs or 529 plans

If you like this article you may also find the following of interest:

Tis the season for college savings plans and 529s
Should I save for Retirement or College first?

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management or Taylor & Company in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

Brokers Using Scare Tactics To Badmouth Advisors

2009-06-02T15:01:00.001-04:00

Brokers Using Scare Tactics To Badmouth Advisors

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Dow Jones Industrial Average changes

2009-06-01T09:58:00.000-04:00

After filing for bankruptcy protection, General Motors was ousted from the 30-stock benchmark Dow Jones Industrial Average (DOW) marking the end to 85 years in the Dow. Cisco Systems, the technology company that makes everything from set top boxes and wireless routers to enterprise level networking equipment was added. In a separate move, Citigroup was also replaced in the Dow by Travelers, an insurance company once part of the Citigroup empire.

The inclusion of Cisco Systems is further validation that technology is the leading industry in the US and no longer old line manufacturing. The publisher of the index says they were reluctant to remove Citigroup at the height of the financial frenzy. The Dow has come under scrutiny lately as some believe it is no longer the benchmark it once was as it became less reflective of the overall economy. These moves should stem some of that criticism.

In early stock market trading today the market seems to like the news. Cisco's stock is up nearly 4% with Travelers climbing nearly 3%.

If you liked this article you may also find the following of interest...
20 Small Ways to Save Big
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Household Budgeting: Secrets to Marital and Money Bliss
Personal Budgeting: How to Create a Budget
Household Budget: 10 Sneaky Saving Strategies
Home Budget: Stop Living Paycheck to Paycheck

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA and AICPA.

President signs the Credit Card Accountability Responsibility and Disclosure Act

2009-05-27T11:37:00.000-04:00

This is a consumer alert that has a huge impact on you as a credit cardholder. The Act amends existing law and requires credit card companies to notify cardholders in writing at least 45 days prior to any change in the annual percentage rate (APR). It also gives the cardholder the right to cancel the account before the effective date of the rate increase.

Card companies can increase the APR if 1) the index on which the rate is based changes, 2) it is a promotional rate that has expired, 3) a cardholder fails to comply with a hardship workout plan or 4) the account fall 60 days past due.

There are lots of other provisions and a three page summary is provided by the US Senate here...

The Credit Card Accountability Responsibility and Disclosure Act of 2009

If you liked this article you may also like the following personal finance articles...
20 Small Ways to Save Big
Budgeting for Your Peace of Mind
Household Budgeting: Secrets to Marital and Money Bliss
Personal Budgeting: How to Create a Budget
Household Budget: 10 Sneaky Saving Strategies
Home Budget: Stop Living Paycheck to Paycheck

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

2010 Health Savings Accounts (HSA) contribution limits announced

2009-05-21T16:49:00.000-04:00

HSAs or Health Savings Accounts are gaining in popularity as the cost of health care premiums increase annually. Check with your employer if they offer HSAs that are only available with a High Deductible Health Plan offered by your employer. The nuts and bolts are essentially if you participate in a high deductible health care plan you typically receive a lower monthly premium for paying the first expenses out of pocket. The deductibles are $1,200 for self-only coverage and $2,400 of family coverage. In addition to the lower monthly premium you can save money in an HSA that is tax-deductible, regardless of your income level. The great thing about HSAs is that it's not a use it or lose it plan. You can carry over any unused balance to future years allowing you to save money tax free.

The 2009 annual contribution limits are $3,000 for self-only and $5,950 for family coverage. A catch-up contribution is available for taxpayers 55 and older of $1,000.

The 2010 annual contribution limits are $3,050 for self-only and $6,150 for family coverage. A catch-up contribution is available for taxpayers 55 and older of $1,000.

Check with your CPA or Financial Planner if it makes sense for you but more and more employers are offering the plans and in this writer's opinion, HSA's are a no-brainer.

Here are a couple links to more information on HSAs...

For detailed HSA information, rules and regulations check out www.hsa223.com

For a look at the 2010 contribution limits as published by the IRS check out www.thomacap.com/files/2010%20HSA%20savings%20rates.pdf

If you liked this article you may also like the following personal finance related articles...
20 Small Ways to Save Big
Budgeting for Your Peace of Mind
Household Budgeting: Secrets to Marital and Money Bliss
Personal Budgeting: How to Create a Budget
Household Budget: 10 Sneaky Saving Strategies
Home Budget: Stop Living Paycheck to Paycheck

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

Where to Find Top Yields

2009-05-07T17:23:00.001-04:00

Where to Find Top Yields
Tom Taylor, CPA appears in the June 2009 issue of Kiplinger's Personal Finance Magazine and reviews how investors can earn more yield by investing in preferred stocks.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

Manage and plan your finances for 2009 using online tools

2009-03-20T14:09:00.000-04:00

We all know the economy has slowed down and that jobs are being lost at a rapid pace. That's why, now more than ever, it's important to get a handle on your finances and plan for 2009 and beyond. It doesn't take a lot of time to create a simple budget to track your spending and there are some great online tools to help you.

I help many clients do this but even more prefer to plan on their own. There are some great tools you can use today to start planning. You don't need anything fancy but just get started.

In fact, CBS news recently ran a piece about how consumers can develop a finance plan in nine weeks. One of the first steps was to use a free online service to track spending, like Quicken or Mint. See the CBS story here.

Quicken Online is a great tool that is FREE and easy to use and setup takes just five minutes. You can...

1) create a great budget
2) aggregate all your accounts in one place
3) watch every dime you spend and where you spend it
4) automatically categorize your expenses, saving you time
5) sets goals like saving for a downpayment on a house or buying a car

If you've recently finished your taxes for the year, chances are you will be receiving a refund. Before you spend the refund, setup a Quicken Online account and get a handle on where all your money is going.

If you liked this article you may also find the following articles interesting...
20 Small Ways to Save Big
Budgeting for Your Peace of Mind
Household Budgeting: Secrets to Marital and Money Bliss
Personal Budgeting: How to Create a Budget
Household Budget: 10 Sneaky Saving Strategies
Home Budget: Stop Living Paycheck to Paycheck

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

Can the DOW go to zero?

2009-02-12T15:57:00.001-05:00

The question I get the most is "who is still selling stock?"

I don't think the problem is selling, trading volumes have been relatively normal on the New York Stock Exchange. I think the problem right now, like in the housing market, is a lack of demand-for stocks which means there are limited buyers willing to take risk and buy stocks.

This is typical in bear markets and usually there is a catalyst to bring buyers back to the marketplace. I think we are close to a catalyst, no way to know what it will be, but watch the market, it will tell you. So then my business partner at Thoma Capital Management, Tim Mudd and I were talking...can the Dow Jones Industrial Average (DOW) go to zero? We knew the answer was of course yes, based purely on mathematics. But we wanted to test it.

Tim ran some research and obtained the publicly available DOW divisor. The divisor, regularly published in the Wall Street Journal, is the number you divide the stock price of each company in the DOW to obtain the total value of the Dow. This is the number you see in the newspaper and on TV...currently around 7,800. The current divisor is .1255527090. So if all stocks go to zero, the DOW index goes to zero...but if 29 of the 30 stocks in the Dow go to zero and one stock price is $100...the Dow index is 833.33 (100/.12). Interesting, right?

So then we thought, boy, the stock market is down so much in the last six months, how much further can it go? We chose a number....5,000. Can the DOW go to 5,000? The answer is yes, but we wanted to see how easy or hard it would be for the DOW to fall to 5,000. We wanted to see what the DOW would look like if one day we woke up and papers printed DOW 5,000. Since this is just math, there are any number of scenarios that can be developed but we based our research on the likely candidates, those whose stock prices have already fallen significantly.
We believe this is a sign that we're near a bottom, because as you will soon see, it appears very unlikely that the DOW will fall to 5,000...possible yes, but unlikely without catastrophic destruction in our economic system.

First, the following stocks in the DOW will need to be worthless - Bank of America, Citigroup, JP Morgan and the other two financial companies....American Express and General Electric....and...General Motors and Alcoa would also need to be wiped out. That's having a stock price of zero! That’s right, seven of the thirty companies in the DOW would need to be wiped out. What are the chances? Possible yes, but unlikely. Not without catastrophic affects on life as we know it.

But that’s not all…

So if those seven companies get wiped out...the DOW index only falls to 7,313 as of prices available today, 2/11/2009. The reason is because applying the .12 divisor to that set of seven stocks with already low prices, doesn't move the index value that much. Tim’s research then took the remaining 23 companies and looked at the current 2009 earnings estimates. He combined the projected earnings for the remaining companies and found the current PE ratio is 12.62. He discounted the earnings estimates in half and applied a 15 multiple to the set. He came up with DOW 4,688, a shade below 5,000.

Recapping...in order for the DOW to fall below 5,000 seven companies will need to fail, effectively wiping out our entire money center banking system, one of the Big 3 automakers will need to shut its doors along with Alcoa and the remaining 23 companies that are still standing after that catastrophe will need to have their actual earnings come in 50% below the current analysts estimates. Analysts are usually wrong…but not that wrong.
DOW 5,00 is possible, yes, but unlikely.

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

Tax Tip: Six reasons to file your taxes, even if you don't have to file

2009-02-10T10:14:00.001-05:00

Here's a recent tax release from the IRS that covers some basic rules to decide if you need to file a tax return or if you do not need to file a tax return.

IRS Tax Tip: TT-2009-27

As the tax tip notes, generally speaking a married couple under age 65 is not required to file a tax return until their income reaches $17,900. The rules are different for self-employed individuals. Generally, self-employed individuals must file a tax return if their net income was at least $400.

One reason to file a tax return if you worked but did not earn a lot of money is to take advantage of the Earned Income Tax Credit. The EITC is a fully refundable tax credit and you may qualify for a refund even if you technically do not meet the requirements of filing a tax return.

If you are not sure, it's best to ask a professional. Most CPAs will provide you that advice for free so give one a call to make sure you properly file your taxes. You can find a local Maryland CPA by visiting the Maryland Association of Certified Public Accountants (MACPA) website and clicking on Need a CPA? at the top of the homepage.

If you found this Tax Tip helpful you may also find the following articles useful:

Tax Tip: Read this before choosing a Tax Preparer

A big rule change for IRAs

Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA

Foreclosure rate in Baltimore region jumps 47% but that's not the whole story

2009-01-22T15:39:00.000-05:00

True, as reported in the Baltimore Business Journal and this headline the foreclosure rate in the greater Baltimore region jump 47% in 2008. What's missing is perspective.

The national average jumped 81% over 2007. The decline in the greater Baltimore region equates to roughly 1% of households, even nationally the percentage is still only 1.8% of housholds...still a very, very, very small percentage and not the doom and gloom most would have you believe. The variable is will it get worse? The Fed and US Treasury are doing everything they can to lower interest rates and mortgage interest rates ahead of the Spring real estate season which begins in a few short months. That will be our indication, if homes start moving, watch out this economy will power full steam ahead.

So while the numbers are worse than the prior year, it's not that bad and I've yet to see the stats on how many of the foreclosed houses are second and investment properties. I'd venture a large percentage are non-owner occupied houses. Initially the flood of foreclosures came from speculative properties versus owner occupied homes.

The greater Baltimore/DC region is one of the fortunate areas of the country that typically does better than the national averages. Because of the wealth of government, education and healthcare jobs in the area our economy typically fairs much better in economic downturns.

That's not to say we don't take our lumps, we do, but we don't sink as deep and we recover faster.

Tom Taylor, CPA is a fee-only Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

Tax Tip: Read this before choosing a Tax Preparer

2009-01-22T15:31:00.001-05:00

The IRS recently issued TAX TIP 2009-07 that addresses the single greatest point as to why, if you pay someone to do your tax return, you should choose wisely. The reason, despite popular belief, is that you are legally responsible for what's on your tax return even if it is prepared by someone else. Read the tip for more information but a few of the good points you should consider.

Only use a tax professional that signs your tax return and provides you with a copy for your records.

Avoid tax preparers that ask you to sign a blank tax form.
Before you sign your tax return, review it and ask questions.
Does your preparer have credentials like Certified Public Accountant (CPA), Attorney or Enrolled Agent.
These simple steps can save you a lot of time and money should you ever receive an inquiry.

Tax preparers do not need to be licensed in the State of Maryland. However that may be changing. Senate Bill 817 "Maryland Individual Tax Preparers Act" seeks to require anyone that prepares taxes for a fee to be licensed with the Maryland Department of Labor and Licensing. Definitely a step in the right direction.

I bet you didn't know the IRS gave out tax tips. Subscribe to the IRS Tax Tips.

Tom Taylor, CPA is a fee-only Financial Planner and Certified Public Accountant and can be contacted at Thoma Capital Management in Towson, MD. He is a member of NAPFA and the MACPA.

Does your 401k need a makeover?

2008-12-31T22:30:00.002-05:00

Tom Taylor, CPA was recently quoted in the January issue of Kiplinger's Personal Finance Magazine as saying it's okay to trash your 401k or as many refer to them as the 201k and start over. The most important thing to do is to have a plan before you scrap the old investment allocation.

Check out the article in the January issue of Kiplinger's,

Happy New Year!

Tom Taylor, CPA & Thoma Capital singled out in investment industry publication for Web 2.0 use

2008-12-19T12:50:00.005-05:00

We were recently featured in a national publication targeted toward investment advisors. We thought you might like to hear about some of the uses of technology we are using in our practice to gain efficiencies, communicate timely and proved our clients with better service. We've heard from a few advisors that like our ideas and will be implementing some of the things we do. It's a quick read, here's the link...

http://www.onwallstreet.com/asset/article/2624961/web-20-tools-save-time.html?pg=

Merry Christmas and Happy Holidays!

Baltimore Financial Examiner: Millionaires optimistic on 2009 economy

2008-12-09T23:54:00.001-05:00

Baltimore Financial Examiner: Millionaires optimistic on 2009 economy

Posted using ShareThis

Get your 2009 tax calendar for small businesses and self-employed, it's free!

2008-12-05T13:28:00.001-05:00

One the best freebies around for small businesses and the self-employed is the IRS Tax Calendar. Financial literacy is critical to successful business planning and execution and the calendar is a wealth of great information, tips and deadlines. It's so popular with small businesses that the IRS has already taken orders for all of it's printed copies and there will not be a second run of printing. The good news is that a pdf version is available for download, absolutely free!

This year's theme is "Solving the Tax Puzzle Together," Each month has key dates and reminders but also helpful tools that as a small business owner can be used to efficiently run your business. Here are some key points...

1) The Economic Stimulus Act of 2008 and two tax provisions for small businesses. See this prior article for more tax tips for small businesses.

Year end tax planning for your business

2) Tips for basic business moves like hiring a tax professional, getting a tax id number and choosing a business structure

3) Ready, Set, RETIRE! - a great resources for retirement plans available to small businesses and the self-employed. See this article for more tips on small business retirement plans.

Retirement plans are not just for big business

4) How to maintain good records like what documents are needed for hiring employees or contractors

5) Tips on preventing Identity Theft

This is a must have for all small businesses and self-employed. Get it her at The 2009 IRS Tax Calendar.

You may also be interested in these articles and examiner:
IRS announces 2009 standard mileage rates
Five year-end moves to cut personal tax
Baltimore Small Business Examiner

Tom Taylor, CPA is a fee-only Financial Planner and Certified Public Accountant and can be contacted HERE. He is a member of NAPFA and the MACPA.

IRS announces 2009 standard mileage rates

2008-12-01T16:50:00.001-05:00

Stay on top of the mileage deduction if you drive for business, medical or charitable purposes. With gas prices so volatile, the IRS may change the guidance at any time.

Beginning Jan. 1, the standard mileage rates for cars (also vans, pickups or panel trucks) will be:
55 cents per mile for business
24 cents per mile for medical or moving purposes
14 cents per mile in service of charitable organizations

Related Links:
IR-2008-131, IRS Announces 2009 Standard Mileage Rates
Year-end tax planning strategies for your business
Five year-end moves to cut personal tax

Tom Taylor, CPA is a fee-only Financial Planner and Certified Public Accountant and can be contacted HERE. He is a member of NAPFA and the MACPA.

Year-end tax planning strategies for your business

2008-12-01T16:45:00.001-05:00

Most advice about year-end tax planning involves strategies for cutting personal taxes and I have provided five good ones in a previous article "Five year-end moves to cut personal tax". But there are many moves that businesses, too, can make to reduce tax bills. Here are five possibilities that might work for your company.

Section 179 deductions. Under Section 179 of the tax code, a business can deduct, or “expense,” the full cost of tangible assets (new or used) placed in service during the year. In 2008, thanks to a new law intended to boost economic activity, the maximum deduction has been increased to $250,000 (twice the 2007 limit of $125,000), provided that total purchases don’t exceed $800,000. (For each dollar above that ceiling, your deduction is reduced by a dollar.) Just be sure to get any equipment up and running before January 1, 2009.

Bonus depreciation. The Economic Stimulus Act, which became law last February, also lets businesses claim a 50% “bonus depreciation” deduction for new (not used) business equipment bought and placed in service during 2008. You can also take a normal depreciation deduction for the remaining value of the equipment, and may be able to combine this with Section 179 deductions. Qualified assets must be deductible under the Modified Accelerated Cost Recovery System (MACRS) and have a depreciation recovery period of 20 years or less. Specified water utilities, computer software, and leasehold improvements also qualify. For some property with a depreciation period of 10 years or longer, the deadline for placing into service is December 31, 2009.

Bad business debts. If your business uses the accrual method of accounting and you’re having trouble collecting from customers this year, you may be able to take some consolation by writing off the debts. The IRS lets you deduct unpaid bills during the year they become totally worthless, so consider stepping up collection efforts before the end of the year. You could send a series of dunning letters and follow up with phone calls and emails. Or you might hire a collection agency. Keep detailed records of all your activities.

Travel and entertainment. The tax law generally allows you to deduct 100% of travel expenses when you’re away from home on business and 50% of business-related meals and entertainment. This can be especially helpful during the final months of the year, when you may meet with clients to plan for 2009 or take them out to thank them for their business. You could also host a holiday party for your staff and deduct 100% of the cost as long as everyone is invited.

Business supplies. Finally, don’t forget you can deduct the cost of supplies for the office, ranging from paper clips to laser printer cartridges. Stock up on routine supplies you’ll need soon anyway to increase your deduction this year. The cost is deductible on your company’s 2008 return even if you charge it and pay the bill in 2009.

Tom Taylor, CPA is a fee-only Financial Planner and Certified Public Accountant and can be contacted HERE. He is a member of NAPFA and the MACPA.

Other suggested tax planning articles:
Five year-end moves to cut personal tax
Starting a retirement plan by year end to save on taxes

Five year-end moves to cut personal tax

2008-11-19T17:16:00.000-05:00

As the year draws to a close, there’s still plenty you can do to reduce your personal tax liability for 2008. Consider these possibilities.

Manage your capital gains and losses. Losses realized on your investments can be used to offset capital gains (taxed for most people at 15%), and if you have more losses than gains, you can deduct up to an additional $3,000 against your ordinary income and carry forward to future tax years losses that exceed those limits. But resist the temptation to sell depressed holdings just to generate tax losses. One useful tactic is to sell a losing holding and move the money to another stock or fund in a similar sector or with a similar objective. That way you can harvest a tax loss but still keep your investment plan in place. Be careful, you can no longer sell an investment in a taxable account, recognize the loss and purchase the same investment in your IRA prior to the exhaustion of the 30-day wash sale rule.

Avoid the kiddie tax. For taxpayers in the 10% and 15% brackets (your children, for example), 2008 brings the tantalizing prospect of a 0% rate on capital gains (instead of the usual 5%). But for 2008, investment income above $1,800 received by a child under age 19, or a child in school under age 24, is generally taxed at the parents’ top rate (as high as 35%). This “kiddie tax” could make it counterproductive to give your kids appreciated investments to take advantage of their lower gains rate.

Minimize exposure to the AMT. Staying clear of the alternative minimum tax is more art than science, but in some cases year-end moves could make a difference. The AMT is a parallel tax system that excludes many items you could normally deduct, and exercising incentive stock options or taking large tax credits or deductions that aren’t allowed under the AMT could make you subject to the tax. If your accountant thinks you’re likely to pay the AMT, you may want to minimize those deductions and credits or try to defer them to the following year.

Get credit for your charitable donations. You can generally deduct the full amount of monetary gifts to charity, including donations made by check or credit card. But the tax law imposes stringent record-keeping requirements, and for each deduction, you’ll need a receipt or other written communication from the nonprofit showing how much you gave and when. To beat the end-of-year deadline, you can charge a gift with your credit card in December even if you don’t pay the bill until January or later. Track your charitable deduction along with fair market value at ItsDeductible.com.

Estimate whether you can deduct medical expenses. Doctor bills, prescription costs, and other expenses are deductible only to the extent the annual total exceeds 7.5% of your adjusted gross income. If you’re at or near the 7.5% mark for 2008, you could schedule routine exams or other elective expenses in December to put you over the top. But if you have no shot at a deduction this year, you may as well postpone these expenses to January and try again next year.

Retirement plans are not just for big businesses

2008-11-13T15:17:00.000-05:00

One of the biggest misconceptions small businesses face is thinking they can not afford or have the time to maintain a retirement plan for themselves and/or employees. Quite the contrary. Changes in tax law over the last several years made it easier than ever for self-employed and small businesses to have retirement plans that rival those of big businesses. If you are a self-employed small business owner, you can set up a qualified retirement plan for yourself and your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustee fees if contributions to the plan do not cover them. In all the retirement plans you can buy cash investments, mutual funds and individual stocks and bonds. There are three main small business retirement plans and each has distinct advantages.

1) Individual 401k or solo 401k
2) SEP-IRA
3) SIMPLE IRA

Individual 401k or solo 401k - this is the newest of retirement plans and the one I now recommend most often for sole-proprietors. The individual 401k works just like the big company 401k you may be used to. The sole-proprietor starts a prototype plan (most financial advisors have access to these plans, Charles Schwab has a good one) that works just like if you opened an IRA. The benefit is that you can contribute up to $15,500 for 2008 as salary deferral, assuming you have paid yourself $15,500 this year (your CPA can help you with this), and additional catch-up contribution of $5,000 if you are over 50 years old and if your business is profitable you can contribute an additional 25% of your profits up to a maximum total savings of $46,000 (not including catch-up). The beauty of this plan is that it also applies to business partners and spouses that work in the business. The only catch is that if you have one or more employees you may not have an individual 401k. An Individual 401k must also be setup prior to December 31st.

SEP-IRA - this is the granddaddy of small business retirement plans and I no longer recommend SEPs if you are a sole-proprietor unless in the first year of your retirement plan you miss the December 31st deadline and have not yet filed your taxes for the year. A SEP is a good way to make a large tax deductible contribution after year-end but before you file your first business tax return. Contributions are due by the filing date of your tax return, usually April 15th but with an extension is October 15th. If you have employees the SEP can be expensive in the sense that whatever percentage contribution you make as the owner, you need to make the same percentage contribution for all covered employees. Contributions can be made up to 25% of compensation and each employee has their own account. There is no salary deferral option with a SEP. A SEP is most suited for an employer that wants to make large tax deductible contributions for themselves and employees which could be good in a competitive labor market.

SIMPLE IRA - this is the most common and typically least expensive salary deferral retirement plan for businesses that have a few but not many employees. Most SIMPLEs at some point graduate to full blown big company 401ks as the business grows. Like the SEP, most financial advisors can setup prototype plans with brokerage companies like Fidelity or Schwab. For small business owners that don't want to break the bank, a SIMPLE is a great way to save for yourself and reward those employees that want to all save for retirement. Employees defer salary up to $10,500 in 2008 and an additional $2,500 if over the age of 50. SIMPLEs do require a matching contribution of either dollar-for-dollar up to 3% of compensation for all participants or 2% of compensation to all eligible employees. So that does create a situation where an employer may need to give an employee a match that does not save on their own.

This is just an overview and there are many other benefits and things to consider for each plan but working with an advisor will get you on the right track. With these three retirement plans in hand, contact your financial advisor, planner or CPA and discuss your options. Just do it before 12/31 so that you can maximize all your options. The pros know the rules, all you need to know is that the IRS has made it easy for you to save and deduct like the big companies.

Your IRA strategy for a beaten down market and portfolio

2008-10-29T10:55:00.000-04:00

Make your 2008 contribution now. In the hierarchy of saving for retirement a Roth IRA is better than a traditional IRA because earnings (investment gains) in a Roth are tax free when you take the money out. So if you make a $5,000 contribution to your Roth IRA and it grows to $15,000 by the time you retire, after age 59 1/2 the $10,000 of earnings over your initial $5,000 can be withdrawn tax free. Contributions in a Roth are always tax free upon withdraw. That's a huge benefit.

Run the numbers, convert traditional IRAs to Roths. Since the stock market is down over 35% this year, back to 2003 levels, this is a good year for you to consider converting a traditional IRA to the more beneficial Roth IRA. There are some hurdles, including paying tax on any earnings within the Roth or on contributions that you previously took a tax deduction for...however, it's fairly easy calculations and a CPA can help you through it. You will want to report the conversion to the IRS on your tax return so make sure you fill out the right forms.
The main hurdle for conversion is the income test. Your AGI (the last line on page one of your tax return), whether single or married needs to be below $100,000 in the year you convert. For many, income is also down this year so the timing might be right.

Open your statements and rebalance, rebalance, rebalance. Don't be afraid of the loss this year or the dollar value of the decline. We're all in the same boat but it's more important what you do now. Sometimes doing nothing is OK if your allocation is good, but if the reason your account is down is due to a poor asset allocation strategy, talk to your advisor and rebalance your allocation to be ready to take advantage of the

One other TIP...if you are contributing to your 401k, 403b or 457 plan consider increasing your contribution even by $50 or $100. Right now the stock market is down and it's time to buy. If you wait for the outlook to become more clear, the opportunity will have passed. Along the way, that extra contribution will reduce your taxable income.

Stock Market Update; Food for thought

2008-10-09T18:07:00.002-04:00

The DOW Jones Industrial Average closed today at 8,579.

The last time the DOW was above 9,000 was...YESTERDAY.

The last time the DOW was above 10,000 was...MONDAY.

The last time the DOW was above 11,000 was a week ago today; last THURSDAY.

The move down over the last several days has been swift and extraordinary to say the least. A classic sign of a stock market bottom. Think of it this way...if the DOW continues at it's current run rate of down 500 point a day...as it has each of the last seven days...it will be at zero in 2 1/2 weeks...17 days.

So what do you believe...DOOMSDAY in 17 days or is this a once in a lifetime buying opportunity?

Oh yeah, one year ago today...the DOW was at an all time high of 14,164.53.

Tom Taylor, CPA is a Certified Public Accountant and Financial Planner and can be contacted here. He is a member of NAPFA and the MACPA.

The Credit Crisis Explained, in a nut shell

2008-10-06T10:39:00.002-04:00

Here is an excerpt from an email I mailed clients last week ahead of the historic actions taken by Congress. Keep in mind there is no easy way to explain what is going on in the financial system but my attempt is to put it in a nutshell. While many are angry, scared and have assessed blame, I fall down on the side that at this point it does not matter, we just to fix the problem and move on.

The Reason
When the home down the street from you sells for $50,000 less than what you paid for your house, you are not at risk of losing your house or filing bankruptcy. It does not feel good, but in the end, so long as you continue making your mortgage payment and pay your taxes, you can hold onto your house until the market recovers. However, this is the situation our banking industry finds itself in. Because of accounting rules that require banks to decrease the value of their assets (loans) based on the value the bank down the road sold a similar asset for, the bank now has less money to lend to customers and other banks. A bank's loans are it's assets and deposits are it's liabilities. Every night the banking system lends money to each other to make sure regulatory requirements are met and that each bank is solvent. It's a very good system. However, because of the asset value declines, Bank A looks at Bank B and says, "we're not lending to you because we're not sure if you will pay us back." Further complicating the situation are depositors walking out of the banks with all their money, further tightening the banks ability to lend. So banks have less money to lend because the loans are worth less and less money to lend because deposits are walking out the door. A bank needs both in order to lend and so the banking system becomes frozen.

Why does this affect you?
Our economy runs on credit. When you buy a car, most do not have $30,000 of cash laying around to do so. In fact, financially that may not make a whole of sense. Everything else being equal, if you can earn 8% on your money in the stock market and only have to pay 6% for a car loan, the financial answer is to finance the car at 6% and let your $30,000 grow at 8%. When banks are frozen and don't lend, that potentially stops you from getting that car loan. Which in turn does not allow the salesman to earn a commission, which in turn may affect his spending habits. See our economy is based on consumer spending, two thirds of our gross domestic product is the consumer buying goods and services. If that stalls, our economy suffers.

The Plan
Whether Congress' actions are termed "bailout" or "investment" or "credit stabilization" or if you think it is necessary or not, we do believe at this point, after all of the discussion, it is necessary for Congress to act in some fashion to alleviate the crisis of confidence. Perception is now reality and there is tremendous fear in America and in the world. The stock market had discounted some form of action at the end of last week. Since the Plan failed to pass in the House, the stock market is now lower as it awaits some sort of action. It is clear that if a Plan does not happen there could be significant pressure downward in the stock market. What a Plan does provide is Trust and that mitigates the fear that is so rabid in the financial system. When Trust returns, banks become stable and slowly, banks will begin lending to one another and to customers and then rapidly the economy will recover.

Outlook
We have faith that taxpayers, investors and the economy will be OK. It will get darker before it is pitch black but we have faith that given time we will be OK. We expect the Federal Reserve to lower interest rates in the near future after Congress acts. We expect at least a 0.25% cut in the Fed Funds rate but it could be as much as 0.50%. This will help consumers with home equity loans and potential lower mortgage rates to allow homeowners to refinance at lower rates. It will also help the small businesses that have credit lines. If the Plan passes, we expect the focus of the stock market to shift back to the fundamentals of the economy which are currently deteriorating. In our opinion, the economy will get worse before it gets better. We expect job loses to continue and consumer spending to all but halt expect for necessities. The unemployment rate is currently at 6.3% and we expect that to increase towards 8%. This would not be out of the ordinary based on prior recessions. Slowly, the economy will get better, it won't be next month but if it's six months or two years from now, it will get better. When it does the stock market will react and it will be just as violent going up as it has been going down. We call this the whiplash affect. Missing that turn can be devastating to long term growth. If you believe that we will eventually pull ourselves out of this, then now is not the time to jump off the ship. Now is the time, maybe a once in a generation opportunity, to take advantage of buying depressed assets just as the Treasury seeks to do.

Are your bank deposits insured?

2008-09-18T10:43:00.002-04:00

With the unusual and turbulent stock market conditions and the crisis of confidence in the financial and banking industry, let me be the last to tell you that if you have $100,000 or less in an FDIC (Federal Deposit Insurance Corporation) member bank your money is insured and safe.

I’ll share an experience with you from a client that stood in line at a local Baltimore bank. As my client tells me her experience I am shocked by the actions and pondered that not enough is being done to lessen the fear that so many people have right now. The same fear that often makes them react, wrongly, to market conditions and headlines. So my client is in line at the bank and quickly strikes up a conversation with the two patrons in front of her. She learns that the patrons are at the bank to withdrawal all their money because they are fearful they will lose all their money. After asking what they are going to do with the money, my client learns that each patron is taking their money and “stashing” it at home. I was floored! The obvious question I would have asked is what would you do if the house burns down? But more obviously, I can’t imagine that these patrons actually believe their money is at risk in an FDIC bank. When your deposits are 100% FDIC-insured, you can’t lose a penny, no matter what. The FDIC insurance limit of $100,000 is across all accounts, not per account.

Find out if your bank is insured by clicking here.

The FDIC takes it one step further and provided a calculator that will estimate your FDIC insurance coverage for your bank and your account. If you have over $100,000 at a member bank, you may have more-or-less deposit insurance coverage than you think. Find out how much insurance you have here.

Even at failed banks, most notably IndyMac in California, depositors got all their money back up to the $100,000 limit. In addition, 50% of the uninsured deposits were covered as well. So don’t take your money out of the bank and put it under the mattress.

For more info: FDIC Deposit Insurance FAQs

Gift Cards DO NOT EXPIRE

2008-08-06T12:27:00.004-04:00

http://www.oag.state.md.us/Consumer/125.pdf

I thought I would set the record straight about Gift Cards. Ever popular with Gen-X and Y, gift cards have exploded in popularity. However, there is still some mis-information in the marketplace as one recent experience by me shed light on. I have two gift cards to a popular golf store and website. I recently tried to order some new golf balls (because I tend to loose them, I'll leave that one alone for now) and when I typed in my gift card number I was told by the website that they have expired. Granted, it's been over a year since I received the cards and the disclosure on the back of the card clearly reads "Gift card expires 1 year from date of purchase" however, I knew I had the law on my side. In Maryland, since July 1, 2006 it is illegal for a merchant to sell gift cards that expire in less than four years, or charge fees/percent of the value of the card each month that diminishes the value of the card. I quick call to the customer service line was met with a friendly associate and I was issued new numbers from which I made my purchase. The take-away here is a Consumer Alert, your gift cards most likely have not expired and don't take the website or an in store merchant at their word. I've attached the pdf link above that outlines how consumers are protected. If not in Maryland, check with your State Attorney General for similar laws that protect your gift cards.

A Fantastic Letter from Value Investor Bill Miller

2008-07-31T10:20:00.004-04:00

The letter gives fantastic perspective in this current stock market cycle. In the midst, investors often forget they are investing for the long-term and not trading. No substantial wealth has ever been created by trading stocks consistently over a long period of time. However, buying great companies at a point when no one else wants to own them, is the key to generating fantastic long-term wealth accumulation. Whether you are buying stocks in a mutual fund, ETF or directly, the best time to buy is after a period of new lows, not new highs, yet the behavior of people is to chase performance of mutual funds and stocks making new highs.

The market is rough right now but we've been down this path before. No matter how many times you've heard how good buying low may be over the long haul, investing when the market gets rough can be hard to stomach. History, however, shows that investors who view declines as opportunities can be rewarded with healthy long-term gains. So adding more money to your 401(k) and early funding of your IRA in a declining market is exactly the right strategy. We advise clients to use an asset allocation strategy. We also advise staying diversified among cash investments, bonds and stocks. Further, stay diversified among international and large and small companies. Setting a strategy and implementing a plan in markets like this will benefit you in the long-term, maybe not next week or next quarter, but over the long haul. And the market is down...add to your investments.

Second Quarter '08 Market Commentary

2008-07-18T08:55:00.002-04:00

From the desks of Tom Taylor, CPA and Tim Mudd...

While this past quarter was not as bad as the first, it sure felt like it. The reason was the horrid and rapid decent of markets in June. After setting what many thought was a bottom on March 17th, the market enjoyed a nice steady rally over the ensuing two months. Since the end of May however, renewed fears about higher oil prices, the economy, recession, bank failures, etc. resurfaced and the market started another downward spiral. It wiped out all of the gains from April and May and has continued into July. Fear has taken over as financial institutions are under a microscope and until they prove otherwise, investors and consumers will remain skeptical. Earnings season may add the visibility the markets need to stop the daily downward pressure on financials. The entire market is suffering despite business as usual with many companies. A lot of companies, mainly non-financials, are performing quite well with strong growth but they too are suffering when it comes to their stock performance. It’s the rising tide lifts all boats scenario, except in reverse. This has led us to “irrational pessimism” to borrow the antithesis of the phrase from Alan Greenspan in the late 90’s. The market always overshoots at the extremes and many believe this is one of those times. Times like these should be met with careful analysis of your long-term plan and patience will ultimately reward those investors that continue to follow their plan and reallocate investments when out of whack. Unfortunately, this type of pain comes and it ultimately dictates a decision to either throw in the towel or to hang on and trust your plan, your investments and premise that there is no other place to put your money that will provide the historical returns of the stock market.

IRS increases Standard Business Mileage Rate Deduction

2008-06-25T11:33:00.004-04:00

A quick note that the IRS has increased the standard business mileage deduction to $0.585 per mile from the old $0.505 per mile.

The new rate is effective for business miles traveled on or after July 1, 2008. For business miles driven between January 1, 2008 and June 30, 2008 the old rate applies.

The Bull and Bear Newsletter

2008-06-23T23:57:00.002-04:00

Here's the link to my monthly newsletter for June. Check it out, it's what you've come to expect, short and sweet and to the point.

http://www.thomacap.com/files/June%202008.pdf

Regards!

Making College Saving more Manageable

2008-05-16T09:51:00.003-04:00

Sticking with our recent theme of saving and investing for college, there is an interesting study out by American Funds that highlights the task parents have in front of them when planning for college expenses. Putting a child through college is one of the biggest costs many families face, particularly because the timeframe for saving is relatively short. According to American Funds and based on estimates by the College Board, parents of a newborn today can expet to pay more than $200,000 for four years at a public college...think University of Maryland or Penn State. To reach that goal, parents of a newborn will have to invest $357 per month (assuming an investment that earned 10% a year [which I consider aggressive, 8% is more realistic]). Late starters, such as parents of a 12-year old, will have to invest more than $1,000 per month.

Staggering!

These figures put a face and dollar amount on the savings rate you will need to achieve and are daunting to most. To help move in the right direction we advise establishing a goal of saving half the cost of college tuition and use loans or other forms of aid for the remainder. Using this goal, parents of a newborn have a much more manageable goal of saving $179 per month. Here are some more figures.

Parents of 12 year old - Projected cost of college is $107,578 - Monthly savings goal is $1,088
Parents of 6 year old - Projected cost of college is $152,602 - Monthly savings goal is $548
Parents of newborn - Projected cost of college is $216,468 - Monthly savings goal is $358

Keep in mind this is for a public college, plan on doubling these numbers for a private college or university.

When will I receive my stimulus rebate check?

2008-05-09T15:13:00.002-04:00

http://www.marketwatch.com/news/story/taxwatch-30-million-stimulus-payments/story.aspx?guid=%7B5F68E166%2D91BE%2D4A65%2D9FE4%2DD6E2C2B32DE5%7D&dist=hplatest

Follow the above link to a great article on MarketWatch.com where you can find the mailing date of your stimulus rebate check. It's based on the last two digits of your social security number if you filed an individual return. If you filed jointly it's based on the last two digits of the primary taxpayer on the joint return.

Here's a good time for a financial planning tip. One way to "double-up" on the rebate you receive for each child, which is $300 per child, is to deposit $300 into your state sponsored College Savings Plan or 529 Plan. You will receive the $300 tax deduction and the $300 will grow to $1,198.81 in eighteen years all tax-free if used for college education expenses!

Retirement vs. Education Savings

2008-05-06T20:57:00.004-04:00

Right up there on the list of most frequently asked questions...the frequent of the frequent if you will...is should I save for retirement or education first. The short answer is RETIREMENT...why, because there is no one there to bail you out if you don't save enough. The cost of education is rising at an annual clip of 8% a year, the cost of retirement is only rising at a rate of 3% a year (historical inflation rate) so just trying to keep up with the rising cost of education is a daunting task. Besides, most schools provide some for of assistance, typically a third of the cost of tuition x-room and board and there is always loans, either government sponsored or private.

The long answer is that I recommend a balance. Max out your 401k or 403b up to the employer match. So if your employer matches 50% on the first 6% you save, save 6%. Then switch to eduction. Save at least the maximum allowable deduction in your state's 529 college savings plan. Not the prepaid college trust, those are scary and many have gone defunct. In Maryland for instance this is $2,500 a year per account per beneficiary. So a husband and wife could have two accounts for one child and save $5,000 a year and receive a Maryland State tax deduction! Bonus; regardless of income! Virginia is $2,000. After that, it's back to maxing out that 401k.

I've attached an article published by Morningstar that highlights the best 529 Pland in the country. Maryland and Virginia are two of the best.

http://news.morningstar.com/articlenet/article.aspx?id=234422&pgid=hparticle

How much Stock is enough?

2008-04-25T12:36:00.002-04:00

I'm often asked the question, in passing and sometimes within groups, "How much of my money should I invest in stocks?" The simple answer is to consider the Rule of 120. The rule states to take the number 120 and subtract your current age. The resultant figure is the percentage of your money that you should invest in stocks. For example, if a 25 year old professional is starting out investing within a 401(k) the math looks like this. 120-25=95. So, 95% of this person's 401(k) should be invested in stocks. Another example, if a 65 year old retiree is questioning the current allocation of his retirement portfolio, by subtracting 65 from 120, the resultant is 55 and therefore the retiree can look to have 55% of the portfolio in stocks.

There are other factors to consider such as risk tolerance. If you can't sleep at night seeing your account values go down from month to month than stocks are not for you. Put your taxable money in municipal bonds and retirement money in treasury bonds. Your gains will be limited but you can safely sleep at night knowing your money is backed up by the full faith and credit of the issuing State and US Treasury.

Use the Rule of 120 as a guide but always speake to a financial advisor or CPA that can evaluate your own financial situation.

Higher Rates of Return with Advice

2008-04-04T14:28:00.003-04:00

Here's a quick note taken from Employee Benefit Magazine and something we have been preaching for a long time. Your 401(k) is not something that should be taken lightly and needs to be actively managed by an advisor or passively managed in a target-date retirement fund. On average if you seek advice for your 401(k) allocation, your annual returns are 2.6% higher than someone that does not! Huge difference!

Recent research from Charles Schwab indicates that 401(k) participants, who receive some type of assistance with choosing their investment line-up, whether through advice services, target-date retirement funds, or plan sponsored asset allocation models, receive a significantly greater rate of return than those who go it alone.

For example, 401(k) participants using an advice tool provided by an independent investment adviser earned an average 14% rate of return in 2006, versus 11% for those who did not use advice or target-date retirement funds. In 2005, 401(k) participants who received advice earned an average 9.2% rate of return, versus just 6.6% for those who did not use advice or target-date retirement funds.

The differences are most pronounced among young employees, where the benefits of advice and getting off to a good start can have a big impact on total retirement savings because young workers often invest too conservatively for their age, according to Charles Schwab. Participants under age 25 who received advice earned an average 14% rate of return in 2006, compared to 9% for those in the same age group who elected not to receive advice.

“It’s not surprising that people using advice are more likely to earn higher returns, but it is remarkable to see how much better they are doing, particularly among young people. Even a few percentage points make a big difference over time,” says Jim McCool, executive vice president of Schwab Corporate & Retirement Services.

First Time Homebuyer's Guide to Taxes

2008-03-20T22:38:00.002-04:00

http://biz.yahoo.com/brn/080126/18529.html?.v=1#3

This is a great little article on the tax advantages that every homeowner and first time homebuyer should know. It summarizes the do's and don'ts for tax deductions...and reminds us to hold onto the HUD-1 form for tax time. The HUD-1 is commonly know as your settlement sheet. Take a minute to look it over, there's 10 tips and it's good stuff for any homeowner to brush up on. In times like this when the real estate market is tight and some home values are dropping, it's nice to remember that your home is also a huge tax deduction!

Investing in LinkedIn

2008-03-18T20:55:00.002-04:00

http://susancfa.blogspot.com/2008/03/itll-be-tough-to-sell-advisors-on.html

Here's a link to a finance blog that picked up one of my answers on LinkedIn. It's a great resoure.

LinkedIn is a powerful resource for professionals. I've found the section dedicated to getting "Answers" to those questions you just don't have time researching but you could, to be invaluable. Not only do I enjoy catching up with college friends and checking out what they are doing right now, I've answered many questions, frankly giving my two cents of investment, tax and mortgage knowledge. If you haven't already, reach beyond the surface on LinkedIn, beyond the head-hunter preface and check out Answers. I know you will find it as rewarding as I have.

Everything you wanted to know about the REBATE CHECKS

2008-03-06T16:27:00.002-05:00

I've been getting a lot of questions on the rebate checks. Here is a great link from the IRS that gives you everything you want to know but let me cover the basics.

http://www.irs.gov/newsroom/article/0,,id=179211,00.html

-If you file a 2007 tax return with a valid social security number...you will get a check.
-For each taxpayer you will receive $600, so married couples will receive $1,200.
-Tack on another $300 for each child you list on your tax return with a valid social security number.
-If you do not normally file a return you can still get a rebate check by simply...filing a return. NO FILE, NO CHECK.
-No way to know for sure when your check will arrive but the US Treasury says they will start going out in May.

BEWARE of SCAMS...if someone calls you claiming to be from the IRS and needs your social security number and/or bank account numbers in order for you to get the refund...hang up the phone or delete the email. Keep in mind, the IRS never calls...they just show up or send you a letter.

Despite the political arguements over whether the checks will actually do anything to stimulate the economy...and for all you savers out there...you have my permission to spend a little. For me it's new golf clubs! Woo Hoo!

Warren Buffett's 2007 Letter to Shareholders

2008-03-01T22:31:00.002-05:00

Every year I look forward to the release of Warren Buffett's annual letter to shareholders. Written in a style only a mid-westerner could produce the annual account to shareholders of Berkshire Hathaway, Inc. is a must read for professional investors. I recommend that all my client's read the letter because the wisdom that the world's greatest long-term investor provides is invaluable. Long-term investor. That's right...not day-trader, not fast money spinster or Mad Money entertainer, but investor, long-term at that. Who can argue with Buffett's track record...since 1965 that average annual gain of book value per share in Berkshire Hathaway is...are you sitting down...21.1% To put that into perspective his overall gain since 1964 has been 400,863%. Tah Dah! He's doubling his return just short of every five years. Who can argue? The beauty of Buffett's returns is that he shares/imparts his wisdom onto us each year in the annual letter. Take a few minute, right now, and follow the link. You will not be disappointed.

Free Online Charitable Deduction Database

2008-02-20T22:04:00.002-05:00

WOW

Every once in a while I stumble on a website that not only makes my life easier but the lives of my clients easier as well. Think about the first time you typed something into GOOGLE and clicked on "I Fell Lucky." Remember that feeling of how did it know exactly what I wanted. Well, I just has another one of those moments.

In my tax practice one of the battles I fight with my clients is to make sure they have substantial back up for all the charitable deductions they claim. New IRS guidelines will no longer allow for cash deductions without a receipt....so the $20 cash you put in the offering box at church is only deductible if you get a receipt or better yet, write a check.

For cash and all other donations it's so hard to track them all year long. Our friends over at TurboTax have created a website that is easy to use, intuitive and will give you values for all those items you donate to Goodwill and the Purple Heart. Think about how many paperback books and pairs of jeans you sent to a better home...how much of a deduction should you take? Now there is an easy place to record those donations and get a very reasonable value for your items.

Go to www.itsdeductibleonline.com and setup a free account and voila...you are on your way. You can create summaries and pdf file for your records.

Ah...I know...always remember, Accountants aren't dull people, we just get excited about dull things!

US Coporate Tax Returns Due

2008-02-20T20:13:00.002-05:00

Just a friendly reminder from your friendly CPA that you have less than 30 days to file your 2007 US Corporate Tax return. The due date is March 17, 2008...which every good Irishman and lady knows as St. Patty's Day...it's also the premier night for Dancing with the Stars...go figure that the confluence of three of the most important dates in the calendar would all fall on the same day. Funny. Cheers.

Here's the rest of the tax calendar for 2008, just in case you were wondering...

March 3, 2008 Farmers and fishermen. If you did not make estimated tax payments for 2007, you can avoid penalties by filing your tax return and paying any tax due.

March 17, 2008 Corporations. File a 2007 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. You can apply for an automatic 6-month extension with Form 7004. If you file for extension, you must also make an estimated tax payment.
S corporations. File a 2007 calendar year tax return (Form 1120S) and pay any tax due. Send each shareholder a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. You can apply for an automatic 6-month extension with Form 7004, but you must pay any tax due.
S corporation election. File Form 2553 to choose to be treated as an S corporation beginning with calendar year 2007. If Form 2553 is filed late, S treatment will begin with calendar year 2008.
Electing large partnerships. Provide each partner with a copy of Schedule K-1 (Form 1065-B). This due date is effective for the first March 15 following the close of the partnership's tax year and applies even if the partnership seeks an extension of time.

April 15, 2008 Tax return due. Your 2007 income tax return is due, unless you file for an extension until Oct. 15, 2008.
File for extension. If you want an automatic extension of time to file your 2007 tax return, file Form 4868. Filing the form gives you until Oct. 15, 2008 to file your return. To avoid a penalty, however, be sure to pay any tax that was due on April 15.
Individual Retirement Accounts or Roth IRAs. This is the deadline for making contributions to IRAs or Roth IRAs for tax year 2007.
Estimated tax payment. Your first-quarter estimated tax payment for 2008 is due.
State tax returns. If you are required to file a state tax return, it is probably due -- but check with your state to be certain. Many states automatically extend the filing time for those who have filed for a federal extension.
Household employers. If you paid cash wages of $1,500 or more in 2007 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes by April 15, 2008.

June 16, 2008Filing deadline. If you're a United States citizen or resident alien living and working (or on military duty) outside the U.S. and Puerto Rico, file Form 1040 and pay any tax, interest and penalties due. You can file for an extension until Oct. 15, 2008.
Estimated taxes due. Your second-quarter estimated tax payment (using form 1040-ES) for 2008 is due.

September 17, 2008Estimated tax due. Your third-quarter estimated tax payment (using form 1040-ES) for 2008 is due.

October 15, 2008Income tax return due. Your 2007 income tax return is due if you filed an extension request using Form 4868.

December 31, 200Deduction deadline. The last date to make payments that can be deducted from your 2007 return.
Keogh plan deadline. The last date to establish a Keogh plan so you can deduct a Keogh plan contribution on your 2008 return.

Tax Tip: 2008 mileage rate

2008-02-15T13:45:00.002-05:00

Keep track of your business miles...the tax deductible rate is $0.505 per mile...an increase of 4.12% over 2007.

IRS Announces 2008 Standard Mileage Rates; Rate for Business Miles Set at 50.5 Cents per Mile

IR-2007-192, Nov. 27, 2007
WASHINGTON — The Internal Revenue Service today issued the 2008 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning Jan. 1, 2008, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
50.5 cents per mile for business miles driven;
19 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations.
The new rate for business miles compares to a rate of 48.5 cents per mile for 2007. The new rate for medical and moving purposes compares to 20 cents in 2007. The rate for miles driven in service of charitable organizations has remained the same.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile; the standard rate for medical and moving purposes is based on the variable costs as determined by the same study. Runzheimer International, an independent contractor, conducted the study for the IRS.
The mileage rate for charitable miles is set by law.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), after claiming a Section 179 deduction for that vehicle, for any vehicle used for hire or for more than four vehicles used simultaneously.
Revenue Procedure 2007-70 contains additional information on these standard mileage rates.
Subscribe to IRS Newswire

The week that was in the stock market

2008-02-01T23:00:00.000-05:00

Our friends over at Navellier Investing do an excellent job ta recaping the week in the stock market. I couldn't say it any better. The stock market is a mess right now despite this week being the strongest gains since May 2003...the only problem...it ended the worst January in 17 years! My advice...stay invested...don't panic...and when the market declines again, buy more. The toughest time to buy stocks is when you don't want to. But it always turns out to be the right time. TT

Friday, February 01, 2008
Well, let us give it to you straight. The biggest Fed cut (75 basis points) in decades was very welcome, as was the follow-up 50 basis point cut, but the overall stock market remains a mess. Although the market had massive intraday reversals on January 22 and 23, they were predominately short-covering rallies that were led by battered financials, mortgage insurance companies, homebuilders, and REITS. That’s what we call a “head fake” rally. We definitely don’t like seeing junk stocks, like Pulte Homes and Washington Mutual, leading the market. With this type of rally at hand, the main stock market indices could have to retest the intraday lows set on January 22.
The banking system is an absolute mess. The fiasco with Collateralized Debt Obligations (CDOs) and Structured Investment Vehicles (SIVs) appears to be the tip of the iceberg. What lies under the surface is massive: rising mortgage delinquencies. As such, banks and other financial companies will likely continue to post big write-downs all year and probably well into 2009. Due to 9.6-months of unsold homes inventory (nationally) the housing market is not expected to bottom until mid-to-late 2009. Until then, home prices will continue to decline.
The median sales price of existing single-family homes fell for the first time in the 40-year history of the National Association of Realtors survey. It dropped 1.8% in 2007. Although no hard data is available, most economists believe median home prices hadn't fallen since the Great Depression. Since median home prices were declining at a faster pace in late 2007, further price declines are anticipated. In fact, Merrill Lynch recently forecast that U.S. home prices could decline 25% to 30% over the next three years, as new supply and weak demand weigh on the market. Merrill’s economist, David Rosenberg, wrote in a research note that “This sounds dire ... but [such a decline] would only reverse part of the unprecedented 130% price surge from 2000 to 2006.”
The housing crisis remains severe in Arizona, California, Florida, and Nevada. For example, in Florida, the Miami-Fort Lauderdale, Orlando, Tampa, and Jacksonville regions have a 29, 17.5, 16, and 12-month supply, respectively, of unsold homes. There is no doubt that with rising unemployment and escalating budget problems the state of Florida has slumped into a severe recession. As a result, the economy has become the overwhelming topic this election year.
At the end of this dark tunnel, there is little the Fed can do other than continue to lower key interest rates, but the Fed must be careful not to lower rates as low as former Fed Chairman Alan Greenspan did when the federal funds rate fell to only 1%. Currently, the 3-month Treasury rate is at 2.07%, while the federal funds rate is at 3.0%, so it is only a matter of time before the Fed lowers the federal funds rate again, to at least 2.5%. In fact, we wouldn’t be surprised if another 50 basis point cut occurs on March 18.
Despite the fact that the Fed has already made its most aggressive key interest rate cuts in decades, the “velocity” of money, which is how fast money changes hands, essentially ground to a halt in recent months. Initially, the velocity of money was hindered by a stubbornly high LIBOR rate, which is the rate that banks charge each other, because banks did not trust one another. However, after a series of special auctions, the Fed finally got the LIBOR rate to fall, so there is some hope that velocity will pick up. In fact, the Fed announced today that it intends to auction another $60 billion of loans in February.
In an attempt to spark consumer and business spending, President Bush and House leaders funneled a $146 billion stimulus package to the Senate, but the plan hit some roadblocks. Democratic Senators added amendments that included food stamps, unemployment benefits, and an extension of tax rebates to low-income seniors.
Despite the delay in the Senate, rebate checks should not be held up at all, as the IRS would not be able to issue checks sooner than May anyway, due to tax season.
The stimulus plan calls for more than 117 million families to receive tax rebates of up to $1,200. These checks would go to low-income and middle-class workers, including those who pay payroll taxes but not income taxes. Families with children would get an extra $300 credit for each child. The rebates would be phased out for those families making more than $150,000 and would not be given to families earning more than $187,000.
The stimulus plan also expands business depreciation by 50% on new capital equipment. Frankly, by expanding depreciation benefits, this is the fastest way to stimulate the U.S. economy and lackluster business spending. Although many economists say that business tax cuts are too small and predicted that they will be ineffective, clearly in election years, Congress wants to give voters a check, just to remind them that they are thinking about them. The closer these checks arrive to the November elections, the better it is for the folks in Congress, so they do not seem to mind the delay in getting the checks out.
Overall, there is a lot of stimulus coming down the pipe, such as another big Fed cut, over 117 million checks in the mail, and more aggressive depreciation benefits. Now the big question is will all this stimulus help the U.S. economy avoid a recession? Well, probably not in time to save California, Florida, Michigan, and others states that have already slipped into recessions.
Moreover, employment stats are already showing cracks. This week, jobless claims surged 69K to 375K, well above the 319K consensus, and the highest level since February 2004. What’s worse, payrolls fell 17K in January, well below the +70K consensus. But, investors were somewhat relieved that the unemployment rate nudged down a tenth to 4.9%.
On the positive side, the ISM manufacturing index rebounded to 50.7 in January from December’s 48.4 reading, and durable goods orders jumped 5.2%. Both sets of data indicate that national manufacturing is still growing, but one cannot ignore the weakness in some regions. For example, the Philly Fed region is already in a recession, and the Chicago region almost stalled, according to yesterday’s Chicago PMI.
The advance estimate for Q4 GDP showed a mere 0.6% growth rate, half as much as the 1.2% consensus, and the weakest performance since Q4 2002. As such, there is no doubt the U.S. economy is sputtering.
Nonetheless, we will go out on a limb and predict that the U.S. economy will avoid an official recession, which is defined by two-consecutive down quarters in GDP. We must admit, though, we are not pounding the table with conviction. Things could really slow down rapidly if the Fed stops cutting rates too soon, or if the big bond insurers (Ambak and MBIA) lose their triple-A ratings, which would force another wave of write-downs.
EARNINGS SEASON
Thus far, the average stock in the S&P 500 that has reported fourth-quarter earnings is on track to post a 20.5% year/year earnings decline, which is far worse than the 9.8% drop forecast by the analyst community. However, if you exclude financial stocks, the S&P 500’s fourth-quarter earnings are expected to be up approximately 11.3%, according to analysts. In other words, if you exclude financial stocks, earnings are still vibrant.
Naturally, misery loves company, so Wall Street decided to “throw the baby out with the bath water” when financial stocks, like Bank of America, Citigroup, and Merrill Lynch, were some of the first companies to announce their quarterly earnings.
However, for fundamentally focused and aggressive investors, there are some attractive buys out there. Valuation levels in general are reasonable, but picking an entrance point in this market is like catching a knife.
More conservative investors should wait for safer entry points. Here’s what more risk-adverse investors should be looking for:
The stock market could turn on a dime if (1) monthly payrolls signal businesses have resumed hiring workers; (2) a significant improvement in same-store or retail sales occurs; (3) the Fed stops cutting key interest rates when the fed funds rate is at 2.5% or lower; (4) crude oil prices stabilize during peak demand this summer; (5) inflation drops further; (6) exports continue to grow; and (7) a rebound in housing sales hits this spring or summer. Approximately 4 out of these 7 factors will likely occur within the next few months. Possibly 6 out of these 7 factors will occur within the next several months. Whether the best buying opportunity will be in March after the Fed’s FOMC meeting, or in May when the stimulus checks arrive in the mail is difficult to gauge. But hope should be around the corner sooner than you think.
In the interim, we want to assure you that the underlying fundamentals for our stocks remain alive and well. You can check them here.
SUMMARY
Well it is very obvious that the stock market likes to react first and think second. Wall Street was so upset with the horrendous write-downs at banks and financial companies that they sold everything, despite the fact that excluding financials, the S&P 500 earnings were forecast to grow at an 11.3% annual pace.
With the most accommodative Fed in decades, moderating oil prices, and many hot spots in the U.S. economy being fueled by a weak U.S. dollar, we are now at the stage where the cream should begin to rise to the top again.
Although aggressive investors are jumping in feet first, conservative investors seem to be selling their value and emerging growth investments and going to cash. With money-market funds now at the highest level since 2003, the stock market is poised to surge as soon as investor confidence improves and the recession talk diminishes.
In the interim, between the great earnings for our stocks as a whole, the optimistic presidential candidates rising in the polls, the stimulus package, and the Fed coming to the rescue, there is clearly hope for the future. We believe the U.S. will be able to avoid an official recession, which is defined as two negative quarters of GDP growth.
But, as usual, there are risks. The banking industry remains a mess. The velocity of money, which is how fast money changes hands, stalled recently. Fortunately, LIBOR and other key interest rates are finally falling, so the velocity of money is finally perking up again.
Nonetheless, with a 9.6-month inventory of unsold homes nationally, the housing market has yet to improve, especially in markets like Florida, where there are even higher inventories of unsold homes. As a result, housing remains a major anchor on U.S. economic growth, which is why we insist that you steer clear of financial stocks that have been hindered by rising mortgage delinquencies.
In case you want to play it safe, there could be a great buying opportunity for conservative investors to jump in sometime soon, most likely between March and May.
Until then, a retest of the stock market’s recent lows is probably in the cards, despite the most aggressive Fed intervention in decades. As such, please stay in your seats and keep your belts fastened.
Historically, the stock market heats up just before the Democratic and Republican conventions. Even though the final two presidential candidates may not be selected until these conventions, the news media speculation will be rampant. Presidential election years typically provide hope for the future and this year is no exception. Additionally, the Fed usually keeps the pump primed heading into an election, and after implementing the biggest interest rate cuts in decades, there is no doubt that the Fed is trying to stimulate economic growth.
As a result, we are now in the midst of an incredible buying opportunity. Aggressive investors can jump in any time, despite the fact that the overall stock market might have to retest its recent lows.

Mortgage Rates are coming down

2008-01-29T22:11:00.001-05:00

Here's a great article from Kiplinger that details the decline in interest rates and why now may be a good time for homeowner's to refiance their variable rate mortgages also known as ARMs. In the last several years homeowners have been enticed by low mortgage rates and used them as a catalyst to "upsize" their homes. Often times buying too much home for the money. With ARM resets projected to peak by 2010, too many homeowners may wait too long. The FED, Federal Reserve is on tap to lower interest rates once again tomorrow. Mortgage rates, tied to movements in the 10-year Treasury may fall...and if they do, lock-in your fixed rate, we may not get this opportunity again.