It has been almost two full months since we established Boyer & Corporon Wealth Management, LLC. During that period we have seen the Federal Reserve reduce the fed funds rate twice, watched the dollar decline vs. almost all major currencies and have seen oil trade in excess of $96 per barrel. The Federal Reserve has demonstrated that it will attempt to avert a credit crisis in this country if possible.
We continue to wonder if it is possible. With billions of sub-prime adjustable rate mortgages “adjusting upward” this month and over the next year, we think this country’s ability to absorb the fallout has not ever been tested. This country is already in the worst real-estate slump in many years and we are concerned that many more properties are going to be dumped onto the market from borrowers who have no choice but to default on their mortgage when the monthly payment adjusts.
What is interesting is that, typically when the dollar declines in value, we eventually experience an inflationary environment. Generally “hard assets” (art, collectibles, etc.) and “natural resources” (gold, oil, gas, etc.) tend to increase in value and act as an effective hedge against inflation. The paradox is that, at least for the foreseeable future, real estate does NOT appear to an effective hedge against inflation. With stagnant real estate prices (and less home equity from which to borrow against) and rising energy prices, we are concerned that consumer spending in this country could be constrained. On a positive note, the benefit of a lower dollar is that our manufactured products become cheaper to foreign nations and increases our exports (and eventually correcting our trade deficit). This is not as big a benefit as it was many years ago since the USA does not have as large a manufacturing economy as it used to.
As we enter the final 12 month countdown to election 2008, we can be thankful for the last 10-15 years in which we have experienced the lowest federal income tax rates in our adult lives. It is likely to end soon no matter who gets elected. We don’t think the top marginal tax rate will increase to 70% (that was the top marginal tax rate in 1981 when Richard was hired at Kidder, Peabody, & Co.). However, not only are marginal tax rates likely to increase, the tax breaks afforded to capital gains and dividends will probably be altered or they may disappear altogether, causing them to be taxed as ordinary income again. We will keep you posted as we learn more.
During the months of November and December, we will be looking to determine if opportunities exist to liquidate certain securities for tax reasons. This might entail selling securities that have an unrealized loss, offsetting gains which have already been realized. It may also entail selling securities which have an unrealized gain. The reason for doing that might be because paying 15% capital gains tax now might be preferable to paying a higher tax rate later.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.