By Edward Leone Jr. DMD MBA CFP RFC
Contact Information: leonee@vzw.blackberry.net
SPECULATION!!! This the nature of news reporting regardless of the source coming up just two days before elections. What about the fiscal cliff? What about healthcare reform? What about federal debt? What about growth in the US economy and the potential for vital job growth? What will a lame duck Congress do to address these issues? How does the result of Tuesday’s elections impact the actions of the Congress through the remainder of 2012? What do you think??
Bill Gross of Pimco recently said that there is no evidence that investments are being incented by the Federal Reserve’s quantitative easing. The money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production. It appears that lower interest rates are being used to consume rather that invest according to Gross. Investors need to recognize that asset and currency values rest on the ability of the economy to grow. We are not seeing this to a great extent at this time. It may be that future returns on investment will be severely stunted.
On the other side of these speculative issues, Robert De Lucia of Prudential suggests that we will see a fundamental shift in the US economy from consumption, government and financial services to capital spending, manufacturing, export and energy production. He projects that this trend is in its early stage and will extend well into the future and that the shift in investment to equities from the safety of bonds will be significant.
On another subject, we find ourselves if over the age of 70 1/2, facing the calculation of RMDs (required minimum distributions) from retirement savings accounts such as IRAs and 401ks. The rules and the strategies available based on current law can be a bit complicated and do require consultation with a financial planner to be sure that the best advantage of the situation is achieved. While on this subject, it is important to note that our national savings rate is at 3% according to John Bogle of Vanguard. There have been several obstacles here other that our habit of heavy consumption such as inadequate retirement savings accumulation, equity market recent collapse, under funded pension programs and other inefficiencies practiced in the financial service industry. Once again, the guidance of a financial planner can help an individual navigate this ocean of savings challenges.
My speculation on activities of the Congress after elections are over is as follows:
1. Increase Federal revenues by modifications in the tax code and increases in some taxes.
2. Reduction of federal spending including Social Security, Medicare and Medicaid along with countless special interest funding obligations included in the federal budget which represent political spoils. Congressman Ryan has identified over 50 of these.
3. A reintroduction of discipline in stewardship of the currency. This may require another look at the gold standard.
4. More rapid economic growth as a result of elimination of government barriers to industry.
Let’s see what happens.
For the Record:
DJIA 13,093.16
NASDAQ 2,982.13
S&P 500 1,414.20
Suggested Reading: “Guide to High Performance Investing” by O’Neil Data Systems
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