Blog
Bernanke Addresses Economic Recovery in Wyoming (August 27, 2010)
When you watch the news the “doom and gloom” reports can be quite depressing. The news is urging everyone to get out of equities and that a double dip recession is looming, we are not of that opinion. We think that we will continue through a recovery, but it will be a slow one.
Stocks enjoyed their biggest rally in nearly three weeks today, thanks to Federal Reserve Chairman Ben Bernanke's promise in a Wyoming speech to do whatever it takes to support the economic recovery. He said that the Fed would consider making another large-scale purchase of securities if the slowing economy was to deteriorate significantly and signs of deflation were to flare.
"Growth during the past year has been too slow, and joblessness remains too high," Bernanke said in a speech at the Federal Reserve Bank of Kansas City's annual symposium in Jackson Hole, Wyo. "Financial conditions are generally much improved, but bank credit remains tight."
Bottom line is that neither the labor market nor the economy is performing as expected and unemployment remains at the center of our economy’s concerns. Many predict that the economy could recover next year.
The good news is that as concerns for a double dip recession loom over the United States’ economy, the sovereign debt crisis that was going on in Europe is continuing to fade away, lead by strong growth in Germany. Europe traditionally being lead by exports is beginning to be entering a self sustaining domestic demand growth. To fuel the recovery is economic growth in developing countries, a trend that supports U.S. exports, business investment in equipment and software, previously deferred consumer purchases of durable goods, record low long term interest rates, and a benign inflationary environment that will allow the Fed to keep short term interest rates at zero until late 2010 or even into 2011.
Although most economists believe the odds are relatively low that the United States will slide into deflation, it can't be ruled out given the economy's weak growth, they say.
Despite the economy's recent slowing, Bernanke, however, continues to believe there will be "some pickup" in growth in 2011, but not enough to substantially drive down unemployment and reduce the vast ranks of the unemployed.
"We have come a long way, but there is still some way to travel," Bernanke said.
Just a Goose: What Steve Jobs’ Resignation Means to You
If the golden goose stops laying golden eggs… it’s just a goose.
As you probably heard this week, Steve Jobs suddenly resigned from his position as CEO of Apple Inc., and while the reason was not specific we can assume it was due to his continued battle with pancreatic cancer or some other health concerns.
There now appears to be a void in the Company, and some are concerned about the future success of Apple without Jobs at the helm. While Tim Cook was named as his successor, there is no denying that it will be extremely difficult to replace the key roles that Jobs played at Apple. As Art Levinson commented, “Steve's extraordinary vision and leadership saved Apple and guided it to its position as the world's most innovative and valuable technology company. Steve has made countless contributions to Apple's success, and he has attracted and inspired Apple's immensely creative employees and world class executive team.”
Regardless of whether or not there was a plan in place, the public may perceive this event as un- or under-planned. Because of the loss of their CEO, the Company now faces challenges that you can avoid in your own business, including a loss of valuation due to stock price drops.
As it relates to privately-held business owners, my advice is as follows:
- Implement a plan to not only grow, but protect, the value of your Company. By insulating the business’ performance from the loss of an owner or executive, you can better predict the impact of events like this.
- Create a contingency plan for unexpected events. These may include the premature death or disability of an owner or executive, as well as the owner’s planned exit (through the sale or transfer of his or her interests).
- Identify your key roles in the business, and who can replace you in those roles. Without knowing which person or persons can take over those responsibilities, your team and your business will have a much harder time “picking up the pieces.”
If you are worried about the impact your planned or unplanned exit could have on your business, call us. We can review the plans you have in place now and help you to find the potential holes.
Recently Downgraded U.S. Credit Rating
The rating agency Standard & Poor’s (S&P) downgraded US government debt Friday night lowering the nation’s rating from AAA to AA+ for the first time in 70 years. The timing is a textbook example of a “Friday Night News Dump” apparently hoping the markets will digest the information over the weekend and potentially avoid an immediate knee-jerk reaction.
After reviewing S&P's original report, the White House had revisions to the analysts' math, arguing that the rating agency overstated the deficit over 10 years by $2 trillion. S&P resolved this issue; however, with S&P's target of $4 trillion of budget cuts a far cry from what was passed, this downgrade should not come as a surprise as S&P attempts to rebuild its credibility after the financial crisis.
Many strategists and economists expected a downgrade, yet the prospects of a significant impact on yields are yet to determine but perhaps overhyped. Regulators said that the downgrade would not affect how banking rules treat Treasury bonds — as risk-free assets. Below is an excerpt from the official report.
- “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.”
- “The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”
- “Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers.”
- The transfer and convertibility (T&C) assessment of the U.S. – our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service – remains 'AAA'.
How does this affect you?
Just when we thought it was safe to go back in the water…
The market’s downside volatility over the last two trading weeks is reminiscent of those dark days of 2008-2009, when the financial crisis and swirling rumors drove clients out of equities.
This time is very different — so far. Yes, we have a financial crisis, this time with European sovereign debt at the center of it. The problems have been ongoing and worsening since the U.S.-driven crisis of three years ago, spreading from the smallest states to the medium-size members of Euroland. At some point, the equivalent of TARP may be required to stop the bleeding. But U.S. banks have only modest exposure to Europe’s problems, and any damage to the U.S. would seem containable.
More critical is the possibility of a double-dip recession here in the U.S. Growth in the first half of 2011 was less than 1%, which some economists have dubbed “stall speed,” a rate which can’t be sustained – either we accelerate, in which case all is well; or we stall out and go down.
Ironically, even as the economy showed little first half growth, corporate profits soared, as they did in 2010. Most companies beat revenue and earnings estimates. Some expressed optimism for the second half, some saw a deceleration or leveling off of their businesses, and a weak June led others to express concerns about an outright decline. There were enough companies in the third group to raise fears of a return to recession. Our view is that the economy will pick up after Labor Day — but our confidence in that view has been shaken by recent developments in Washington.
A poll taken in the last few days indicates that 82% of the American public gives Congress a negative job approval score. We assume the other 18% either are relatives of Congressmen and women, or are owed money by them. The circus surrounding the historically routine raising of the nation’s debt ceiling hurt business and consumer confidence at home and diminished America’s standing in the world, a world on which America is dependent to finance the debt already created, and still to come. Worse, the debt ceiling “debate” will be resumed in the Thanksgiving to Christmas Eve period — not the ideal backdrop for retailers’ biggest selling season.
The above are real concerns. They may drive the market lower, especially over the next couple of months when business is slow anyway. But if the market does go lower, we expect cash-rich businesses which have been buying in stock to buy back even more. We expect them to take advantage of low interest rates and a receptive bond market to raise more cash — money that can be used to pay higher dividends and buy in stock and to invest in their businesses when the time is right. Today is very different from the scarce money period the financial crisis engendered.
Oh, and in case no one noticed, the price of oil has fallen sharply. Doesn’t that mean consumers will have more money in their pockets in the fourth quarter? The latest report on payrolls showed a strong increase in private payrolls in July – the most recent data on the economy that we have. More jobs is good news.
There will be negative data also, as there already has been, for manufacturers’ new orders, for car sales (hurt by the absence of Japanese brands), and construction spending continues to weaken. But we think it’s way too soon to throw around a word like “recession,” when corporate profits are growing at a double-digit rate.
Remember, volatility can work in our favor when the winds shift again. We believe the odds argue for remaining cautiously bullish, given how difficult it is to raise cash and then try to pick a reentry point.
Mark Tavel, Rothschild Asset Management
Shane Morrow, Independent Portfolio Consultants
Second Quarter (2011) Commentary
Overview of The First Half of the Year:
It has been a rough year for stocks. After getting off to a solid start, the S&P 500 finished the first half of the year up 5.0%. The markets have spent the better part of the last couple of months “trudging through the mud,” while digesting a wave of discouraging economic data. Macro events seemed to have dominated the year, which have impacted both the market and the economy.
This year started with an unusual mass of major events, including natural disasters, war, inflation, quantitative easing, food riots, civil wars, and near-sovereign debt defaults. Probably the biggest two events impacting the markets were the earthquake and resulting tsunami in Japan, which occurred in early March, and the continuing saga of Greece. The earthquake and tsunami impacted supply chain logistics in many industries, most notably in electronics and the auto industry. Additionally, weaker than expected demand from Japan, as well as a major shift in spending towards clean-up efforts, have impacted a number of companies and industries. The Greek issues are eerily similar to the state budget crises in the US as the government is caught between the needs of creditors, public unions, taxpayers, and those requiring state assistance. It’s a tricky balancing act; just how long the U.S. economic slowdown will last is probably one of the biggest worries plaguing the markets right now.
The top performing sector in the S&P was the long-dormant Health Care, rising 12.7%. Health Care is typically a defensive sector and started its run of outperformance around late February, as concerns about the strength of the recovery became prominent. This was also the time when economic data began deteriorating. Health Care struggled in 2010, primarily due to concerns about the impact of the Health Care reform package passed in the spring of 2010.
Energy was the second best-performing sector. Fed quantitative easing, incremental demand from emerging market economies, and a tight supply-and-demand relationship helped to push oil prices up from $94 at the beginning of the year to almost $115 by the end of April, and now returning to $94 range. These reductions are the result of political tensions in the Middle East, which help push oil prices to levels slightly lower than those seen in the spring. This, in turn, will have a positive effect on US consumers, who will be able to use the money they save at the pump on retail spending.
Consumer Discretionary was the third best-performing sector in the S&P 500, rising 8.1% in the first half of the year. The combination of Health Care, Energy and Consumer Discretionary is an unusual one, as typically Health Care outperforms as the economy slows, energy in the mid-late portion of an economic cycle and Consumer Discretionary in the early to mid-portion of the cycle. Consumer stocks did well because of their moderate valuations – a small uptick in consumer spending – and a consolidation over the past three years, which lowered the total number of stores in the US. Additionally, take-out activity has been very robust in the retail space as private equity firms have been taking advantage of the attractive valuations.
The worst-performing group in the S&P 500 was the Financials, which declined 3.7% and was the only sector down for the first half of the year. After rising from the start of QE2 in November until mid-February, financials suffered for the next four months as the weak fundamentals of their business began to overtake the benefits of cheap Fed funding. Balance sheets are moderately better than they were two years ago, but there are still billions of dollars of non-performing and under-performing loans on the balance sheets of banks. They are slowly cleaning up their balance sheets, but there is no incentive to do it quickly because there really isn’t a market for many of the assets.
Looking Ahead at The Second Half of the Year:
There are several main issues that we will be keeping an eye on in the second half of 2011. First what will be the impact of the end of the second quarter? It is thought that treasury yields will gradually move to a higher level, but that the bottom won’t fall out of the treasury market (Morningstar). Offsetting the lower demand for treasuries resulting from the official end of QE-2 will be an increase in demand from investors as the economy continues to moderate.
Job growth is going to be key in the recovery of the US economy. In May, the labor department reported that only 54,000 new jobs were created; it does not help build confidence, especially given that the year started off so strong with a job growth tracking on a 220,000-monthly pace. Job creation will regain momentum as companies hire to support their growth; unfortunately, it is expected to be slow. In addition, most people have more of their wealth tied to their home value than their portfolio, even as stocks have staged a two-year comeback. So far, home prices have failed to respond to the recovery, even with the affordable homes and mortgage rates sliding near 50-year lows. Once again, this goes back to jobs.
Meanwhile, inflationary pressures exist and the root of these pressures is China – with its seemingly inexhaustible demand for basic materials – has begun to show some friction between a government keen to cool speculation and a market that is running hot. Any slowdown in China has the potential to send commodity prices down and take the edge off the inflationary pressures in the United States and the rest of the developed world. Morningstar's senior equity analyst specializing in China research, Dan Su, believes that while signs of excesses in China (especially in construction projects) exist, the situation is more complex. Government policies designed to restrain real estate speculation seem to be working, but China does have a bona fide need for a great deal more infrastructure improvements. For the short term, analysts do not foresee an end to the China/commodities story, though the government will need to show great restraint and wisdom over the longer term to sustainably develop its potentially enormous economy.
The bottom line is that profit growth remains healthy, and Corporate America is in great shape. We now just need the domino effect to take place and have that trickle throughout the job, housing, and banking market.
Sources:
Market Commentary (April 8, 2011)
This first quarter has been particularly eventful. At the beginning of the year, there were major political uprisings in North Africa and the Middle East as well as the ouster of long-time dictators. There is a civil war in Libya, a halt to all Libyan oil exports, and the US entering the war on the side of the rebels. There has been a 17% spike in the price of oil and a sharp decline in the US dollar. Even more amazing, a 9.0 earthquake and tsunami devastating Japan — the world’s worst natural disaster in terms of economic losses. As part of the aftermath, six aged nuclear reactors, lacking back-up power, would face the possibility of meltdown, potentially causing a major environmental catastrophe.
If an investor knew of these extraordinary events months before they occurred, it is likely that he or she would have been inclined to sell their equity holdings. Clearly, the stock market typically does not react well to negative news. However, in the face of major unsettling events, the stock market, as measured by the S&P 500 Index, had its best first quarter since 1998, producing returns of 5.9%.
The market did suffer a minor correction during the quarter, declining by 6.4% during March, but then rallied to close the quarter within 1.3% of its post-crash high. Since it bottomed on March 9, 2009, the S&P 500 has risen 96.0%. It now stands 15.3% below its all-time October 2007 high.
With their recent performances, the S&P 500 and Russell 2000 indices now display positive returns for the current quarter, 1, 3, 5 and 10-year periods. It is the first quarter-end since September 30, 2007, that shows positive returns for all time frames. While the 3, 5, and 10-year returns are below the long-term average for stocks of almost 10%, moving into positive territory will go a long way toward restoring investor confidence in equities.
While the market has moved beyond the fears of a double-dip recession that alarmed it in the middle of 2010, most of last year’s nagging problems still exist. Several European countries struggle with massive debt problems, the US faces large budget deficits at the federal, state and local levels, and the housing industry shows almost no signs of recovery.
To explain how the market rose in the face of all of the pessimistic news is almost as difficult as trying to predict the stock market’s next move. The most obvious explanation for the strong stock market performance is that the US economy continues to show signs of recovery, and that the current expansion is unlikely to be derailed by recent negative events. GDP is growing, unemployment is declining, and corporate earnings are rising. While significant problems exist, most indicators point to continued improvement. In addition, investors who had moved money into low-returning fixed income securities as a safe haven over the last several years are now more comfortable investing in stocks.
The last quarter taught us once again, it is virtually impossible to predict the short-term course of the stock market, or any of the events that might impact it, or how the market will react to those events. Despite many investors’ focus on market-timing strategies, this endeavor will usually prove futile and generally have a negative impact on portfolio performance. Alternatively, it is my belief that good long-term equity performance can generally be achieved by owning reasonably valued, well-managed companies that have competitive advantages within their respective industries and as always diversification and active management of the overall portfolio.
Fixed income investments produced modest returns in the first quarter as interest rates inched higher. The BarCap Aggregate Bond Index, which measures the performance of the taxable bond market, generated 0.4% return during the quarter. The BarCap Municipal Bond Index produced 0.5% return. The yield on the benchmark 10-year Treasury bond rose from 3.30% to 3.45% during the quarter. Most observers believe that the Federal Reserve’s purchase of Treasury securities as part of its current quantitative easing program has resulted in maintaining a low interest rate environment <(as the Fed intended). There is some concern that interest rates will begin to rise when this program ends in June. Rising interest rates generally result in lower prices for fixed income securities.
The events of the last three years have been difficult for many Americans. Almost everyone suffered in some way — the loss of a job, the loss of value in their home and investment accounts, and the general anxiety caused by a global financial crisis. While prosperity has not returned for everyone, most recognize that the current trend is showing steady improvement. Although significant problems need to be resolved, further progress should contribute to positive results for investors.
Hulbert, Mark. “Are markets heading for an all-time high”. www.morningstar.com
MARK HULBERT, April 5, 2011, A bullish six-month forecast, Commentary: Sam Eisenstadt is nearly as upbeat as six months ago. www.marketwatch.com
Equity Performance for Periods Ending on March 31, 2011
Total Returns
| Index | Sector | Quarter | 1-Year | 3-Year | 5-Year | 10-Year |
| S&P 500 | Large Company | 5.90% | 15.70% | 2.40% | 2.60% | 3.30% |
| Russell 2000 | Small Company | 7.90% | 25.80% | 8.60% | 3.40% | 7.90% |
| MSCI EAFE | International | 2.70% | 7.50% | -5.80% | -1.40% | 2.90% |
Third Quarter Commentary (2010)
Third quarter performances have been pretty remarkable, with a market rally in July and a big one in September. It was a volatile summer, but after bouncing around a bit, all the major stock indices closed the third quarter with healthy double-digit gains, as well as posting their best September performance in over 70 years. What contributed to this was the unwinding of a lot of investor concerns, particularly about the possibility of a double dip recession accompanied by deflation. I think they were also heartened by Chairman Bernanke’s talk about the Fed’s willingness to buy Treasuries, mortgage-backed of what we call quantitative easing, combined with the National Bureau of Economic Research announcement that the recession was over.
June 2009 officially marked the end of the recession beginning in December of 2007; the 18 month slowdown was the longest since the 43-month Great Depression. Moreover, a slowdown doesn’t necessarily entail a recession, but perhaps merely a period of subpar economic performance, after which the economy may recover and resume strong growth.
The concern over the Euro zone’s sovereign debt crisis eased during the quarter as the equity markets were driven by macro forces rather than fundamentals. Growth stocks had a clear advantage over value, and we remain optimistic that there are a number of opportunities to drive up equity prices.
Highlights
- Corporate profits remain strong and corporate balance sheets look solid.
- Cash is continuing to build on corporate balance sheets, and the pressure to position it is rising.
- Business spending seems to be increasing.
- The credit markets have normalized.
- Yield curves remain steep.
- Manufacturing markets are rebounding.
- Monetary policy is working in our favor.
Pitfalls
- Consumer confidence will not be present until unemployment increases.
- Unemployment is at 9.6% with the GDP at 2.7%, just enough to maintain the pace of the expanding labor force but not enough to recover the jobs lost through the recession.
- Higher Taxes
- Housing Market
Going forward, we are still concerned about the effect of the housing situation, as well as the potential threat of inflation. Unemployment is clearly still an issue, however history shows that temporary high unemployment is actually good for the stock market. We are still maintaining a fairly healthy earnings improvement over the coming year. We also don't think we're going to be slipping into a double dip recession, even though the economic expansion will be a half speed one. We are confident that it will be healthy enough to support good earnings growth in the coming year.
Although past performance does not guarantee future results,historically, fourth quarters tend to be positive as they herald the start of the stronger performance half of the year (November to April) and the approach of various positive events, like the holidays. This year, various election cycles are coming into play right now, all of which bode well by historic measures. Historically, this has been a good quarter for stock market performance, regardless of whether the mid-term elections cause the balance of political power to change hands or remain with the status quo. Furthermore, the third year is the strongest year of the Presidential Cycle, with long-term average returns in excess of 17% (Logan Capital).
Charitable Giving in 2010
The year 2010 presents a unique opportunity for taxpayers to maximize the tax benefits of making contributions to their favorite charities. Since 1990, the tax laws have limited the itemized deductions allowable for high income individuals and couples under Section 68 of the Internal Revenue Code.
Section 68 provides that taxpayers may lose the benefit of up to 80 percent of their itemized deductions, depending on their level of income. The limitation imposed by Section 68 reduces overall itemized deductions of taxpayers whose incomes exceed a certain threshold. In 2009, that income threshold was $166,800. The deductions to which this limitation applies include property taxes, home mortgage interest, and charitable contributions.
The good news is that effective for 2010, the provisions of Section 68 have expired. This means that itemized deductions claimed in 2010 will not be disallowed based on income. For those inclined to support charitable causes, some possibilities for maximizing the tax savings from this opportunity include: prepaying one or more years of future annual gifts, satisfying any sums due under multi-year pledges, or creating a charitable trust that can be funded currently with distributions to charity over a period of time.
While current law provides for the permanent expiration of Section 68, the indication from lawmakers is that some form of limitation on itemized deductions will take effect for 2011, perhaps with more severe restrictions than those effective for 2009. If you are considering taking advantage of this window of opportunity, it is best to begin to plan for funding these deductions now. The end of 2010 is just a few short months away.
Looking Back at the Second Quarter of 2010 (July 10, 2010)
In the first quarter we experienced the much anticipated recovery, however in the second quarter we saw a downturn. Investors are still nervous about the government’s impact on Wall Street and what will happen with taxes this fall. Investors want to see the economy stand on their own two feet without government-led stimulus.
- China is the leader of the economy right now and they just announced that they are intentionally going to slow their economy because they feel as though their economy is getting over heated. This has caused concern in the economy and the fear is how this will affect the global economy.
- Greece and the sovereign debt issues caused uncertainty as well because we were not actually sure who held the debt. The Euro is relatively new and a lot of bickering was going on over who was going to provide stimulus to the suffering countries. This has caused some political instability. However, these bigger countries like Germany are doing better than ever with the lower euro the exports have increased significantly. Overall Greece is not a big player when it comes to the global economy, and when reasonable heads prevail, the political issues going on should iron out. But again this caused uncertainty in the market and investors were worried whether this would implode.
- Regarding the BP Oil Spill, investors are worried about oil prices if off shore drilling is prevented. Four platforms have already moved out of the Gulf, which is affecting the area surrounding the Gulf. Another major problem is that the people were watching the oil spilling out 24 hours a day and it ultimately the human psychology really impacted spending, prior to the spill consumers were beginning to come back.
The good news is that the overall market sell-off was not fundamentally based. There is no overall economic concern; it was solely based on those three macroeconomic events. Unemployment is still up, but one thing most investors do not realize is that higher unemployment the better outlook on corporate earnings. It is showing that corporations are doing what they have to do to get earnings back up through layoffs and fewer pensions and benefits. The bad news is for the person out of a job and also the long term effects of higher unemployment levels. Going forward we are trending towards positive corporate earnings. Larger, more quality companies should do better, as the fundamentals come back into play. The emerging markets are supposed to be another good area as well, and again you will see that the larger and higher quality companies are the big players here.
Unlike a typical recovery driven by pent-up consumer demand for homes and durable goods, the current recovery has been driven so far by strong corporate profits, an increase in business spending and inventory rebuilding.
Business Owners’ Exposure to Fiduciary Liability (September 13, 2010)
Business owners and managers who have retirement plans or benefits for their employees need to understand the fiduciary liability exposure they face, especially in an economic climate that is prone to reducing staff and/or employee benefits. Often, employees who find themselves ousted are more likely to take legal action against their employers, especially if their 401(k) plans sustained losses prior to the termination. Luckily, employers can effectively reduce the fiduciary liability lawsuits by alleviating those liabilities.
“The U.S. Supreme Court’s ruling in LaRue v. DeWolff and regulatory changes have helped empower individual plan participants to bring actions for losses to their own accounts, paving the way for other claims against the fiduciaries,” said Charles Jackson, a labor and employment partner and co-chair of the ERISA litigation practice at Morgan Lewis.
The U.S. Labor Department reported 910 corrected violations resulting from the 1,042 investigations of violations of the Employee Retirement Income Security Act (ERISA) it conducted in 2009.
There are options available that eliminate fiduciary liability completely. Larger companies virtually never make a decision regarding their qualified retirement plans without consulting professional advisors. The reason is simple: they do not want to be sued. Imagine a corporate executive charged with the responsibility for making decisions regarding a $500 million retirement plan. As a decision-maker, they are de facto a fiduciary, meaning they are personally liable for the prudent management of someone else’s money. It is not viable for an individual to be personally liable for a $500 million retirement plan.
A look at the following year reveals 2000 case citations from the 10th and 11th federal circuit courts: Hurd v. Ross; Herman v. Schwent; Rhoades v. Casey; Bowles v. Reade. Those names are the names of people, not corporations. Those people are the fiduciaries of their companies’ retirement plans and they were sued as individuals for breaches of fiduciary duty. “Breach” in this context means “error”—these individuals were sued by their companies’ employees for making mistakes. When an individual loses a case, it is the individual who is held accountable for paying the damages. Naturally, the plaintiff’s attorneys go after the deepest pockets, so the companies are invariably named in the suits, but one point of law is clear to the judge, the attorneys and the retirement plan consultants they call as expert witnesses: fiduciaries are personally responsible for the retirement plans they oversee.
Sadly Amazing - Escaping the Estate Tax (July 19, 2010)
Amazing as it may sound, the passing of both Texas billionaire Dan Duncan and Yankees boss George Steinbrenner came at an amazing time, financially speaking. For the first time since the first estate tax was invoked in 1916, this is the first year that there has been no estate tax (expiring on Dec. 31).
So what does that mean?
Consider this. Had either man lived to see another New Year’s day, their family's wealth would have been subject to a whopping 55% tax - almost $5,000,000,000 (that's Billions!). That tax alone is greater than the GDP of a large number of other countries.
Given that the Duncan estate probably didn’t sock away $5B in cash, assets would have to have been sold the pay the tab to Uncle Sam. Consider, too, that only our government could have put its citizens in the following predicament.
What would have happened if Mr. Duncan had survived until December of this year, fallen ill and put on life support? This family, like many other families in this position, would have been left with the dilemma of making medical directive decisions with a (significant, in this case) financial consideration. If Mr. Duncan survived past midnight on Dec. 31st… his family would have faced the mother of all tax tabs!
Read the article below, and ask yourself if our forefathers ever dreamed that the government they originally founded, would ever put its citizens in this position.
Sadly amazing.