What do we do now?
Coming up on 9 years in this business, many of us have seen things that have never been seen before in our lifetimes. Sources show our government borrows better than .40 on every dollar spent, something that we cannot sustain as a country. The alarmists state we are heading to a double dip recession, something I do not fundamentally believe. The facts of the matter are that economic data, as it rolls in day after day, is much softer than anyone expected. The Consumer Price Index for inflation is showing slower third quarter growth and is estimated to be 2%. Some economists indicate that it's heading more toward 1.5%. The outlook for 2012 is 2.3%, which is certainly softer than anyone has anticipated and really is being driven by food and gasoline prices.
The Fed, namely Fannie Mae and Freddie Mac, are expected to allow for refinancing of mortgages in their respective portfolios regardless of the "loan to value ratio". Somehow that does not sit well with me and I'm uncertain of the economic impact of such a move. My friends at McVean Weekly believe that the housing problem is still a major concern, and I agree. Until housing demand exceeds supply, banks will be reluctant and or refuse to make loans because of the collateral ratios and the risk of further decline in those ratios. We experienced some additional easing of interest rates again this week, (really??) exactly how much lower can they go? Most of the stimulus attempts at this point seem pretty lame, from my point of view.
Look, people are essentially not spending money, and when they do they are very calculated on how much and where they spend. Consumer confidence is a critical element in any economy and is particularly critical in a recovering economy. People need to spend and that's a difficult thing when you are scared. Further fueling of all that fear are things like the dowgrading of bank credit ratings, like Wells Fargo, Bank of America and Citibank and that's just this week. Lets pile on some downgrades on some of the European Union participants, like Italy, the ongoing problems in Greece, etc. etc. etc. and its no wonder people are afraid. Our government has tried to interceed in some of the EU issues, but its hard to dole out advice to others when your own house is not exactly in order.We need to cut spending, its pretty clear, and we need jobs. Hopefully, the "Super Committee" gets the first part of that and to the second problem, well, I guess time will tell on the job front. I've heard lots of promises with little to show in the way of results. The good news is, if your retired, as most of our clients are, then the job issue is not a problem. However, keeping your portfolios in tact is and keeping the emotion out of it is certainly not easy. Making constant progress is critical and the "home run" is becoming less and less likely. Consistency and guarantees are the name of the game.
Taxes and Estate Planning
Hard to believe that 2011 is almost over. With its ending we'll see, under current law and assuming no changes, the elimination of the Qualified Charitable Distribution, (QCD). For those of you unfamilier with this tactic, if you are taking your Required Minimum Distribution, (RMD,) and making chartible contributions, the QCD allows you to directly contribute your RMD to a Charity while safisfying the RMD. The advantage here is the RMD does not count against your taxable income. If you're in any sort of tax bracket, this strategy is a great way of fulfilling your charitable obligations and take advantage of the non taxability of those donations, pretty cool stuff. If you want some help with this, give Robin a call, and she can guide you through the process. Some other things that will be coming up in 2012 will include the rollback of the estate tax exemption to 1m. Though I doubt it will go back to 1m, I'm certain it will not be maintained at the current level of 5m. Time will tell, but if history is any indication of when our leaders will deal with this issue, in 2010, they waited until 12.17.10, to establish the current levels.
Safe money is the name of the game in times like this. Make some base hits, keep what you have and spend what you need, within your means. We've been doing lots and lots of income planning and its no wonder given the current economic conditions. People want to know if they have enough money and is it going to last long enough for their retirement years.