What’s Going on in the Markets-August 4, 2011

August 4, 2011 — Sam H. Fawaz

I probably don’t have to re-hash for you what’s been happening in the markets over the past couple of weeks as we’ve suffered what feels like the worst decline in the markets since they recovered in March 2009. The media does a pretty good job of instilling fear and I don’t expect the newspaper headlines to be happy ones on Friday morning. So let me give you my take on what’s going on and what I’m expecting.

Coming into this week amid the uncertainty over the passage of the debt ceiling vote in Congress, we had already endured about seven days of selling in the markets that seemed to pick up steam on Monday. The euphoria on Sunday evening over a possible debt deal in Congress was over within minutes of Monday’s market open and the selling began in earnest. So what gives? If a deal was such a good thing, why did the markets sell off on the news and passage of the increase in the debt ceiling?

In reality, the significance of the debt ceiling vote was elevated by the media, and while it added to market anxiety, many were actually more concerned about the signs of slowing in the economy. The usual concerns over jobs, housing, spending and overall goverment regulation of business have been weighing on consumer and business confidence for a few months now. Downward revisions in the gross domestic product for past and future quarters haven’t help encourage companies to hire or spend on capital improvements. Once the focus was taken off the debt ceiling issue, the economic concerns were brought to the forefront.

Another Recession Already?
You’ll hear talk in the media about whether we’re heading for another recession this year, whether we’re already in a new recession or whether the recession never ended. As for the last two assertions, the economic statistics simply don’t support the notion that we’re in a recession. As for whether we’re heading for another recession in 2011, so far, the economic statistics don’t support that either (though some unfortunate members of the unemployed or those under water on their mortgages may not agree.) While we’re seeing a slowing of economic output, hiring and capital spending, we have not seen any evidence of negative or no growth. Could we see one in 2012? Anything’s possible, but no one can predict this; not even me.

My take on all this is that while the recovery has been anemic, I don’t believe that we’re heading for a recession this year. While I’m no economist, the Japan earthquake, Eurorpean and U.S. debt “crises” and other weather related factors have really thrown 2011 for an economic loop. When you consider that fiscal stimulus takes 18-24 months to make it out of the capital markets into capital spending, we may just be experiencing a temporary slowdown in growth.

As an example, commercial traders of lumber futures deny a slowdown in demand, and that usually doesn’t happen if a recession is around the corner. Corporate profits are at record highs (thanks to a dearth of hiring) and many are raising estimates of earnings for the next quarter. Credit is cheap and readily available, and companies are buying other companies and their own stock back at record levels. With the Federal Reserve on the side of the consumer, you’d be hard pressed to bed against them. So I believe that reports of an impending recession may be a bit exaggerated.

So What Happened Today?
To be honest, I came into my office today fully expecting an “up” day in the markets since we finally “bounced” yesterday. All technical indicators pointed to a severely “oversold” market (a market where selling is exhausted in the short term) that we were ready to bounce higher. In fact, I had prepared and positioned for it.

But overnight, Japan intervened in the capital markets to stem the seemingly unstoppable rise in the value of the Yen (which adversely affects their exports) right after Switzerland lowered their short-term interest rates to near zero yesterday (just like the United States). In addition, brewing concerns over Italian and other European debt problems were not helped by ambiguous comments made by the head of the European Central Bank on how they are dealing with their crisis. Suffice to say, with a 400,000 print in the weekly unemployment figures reported today, we were down from the start and never looked back.

As so often happens on a day when everyone starts to sell, the selling feeds upon itself and others join in. While we didn’t see any moments of panic, the selling was steady and relentless all day. What started out with gold and silver making highs in the morning ended the day with both at their lows.

Why? I believe it was because of forced selling and margin calls. When margin account balances need to be replenished, the most liquid of assets (like gold, silver and even Apple Stock) get sold off to cover the margin. So while there is nothing fundamentally wrong with many stocks and funds, they get sold along with everything else to raise cash for margin calls and for mutual fund shareholder requests for liquidations.

So Now What?
Despite the intense selling over the past couple of weeks, the S&P 500 is only 10% from the highs this year, just right in correction territory. You may recall that the markets corrected 16% last summer, and that’s never fun. Many then were predicting a double-dip recession around the corner and a return to a bear market. Neither of those happened; instead we moved up 30% to new highs in May. While past performance is no guaranteee of future results, I still don’t see any impending techincal signs that we are entering into a new bear market phase right now. If I did, I would be taking appropriate action. However, though this could change on any particular day, I believe this bull market still deserves the benefit of the doubt.

At the moment, as alluded to above, the market is extremely oversold and should bounce over the next few days. After that, it’s anyone’s guess what might happen, but I suspect that the remainder of the summer and into early fall will remain choppy, volatile and “lean” with a negative bias. While I expect more short-term downside, I don’t think panic selling is the right response now. While you may choose to cull some profitable positions, it may already be too late to sell most. As always, you should check with your financial advisor (or us) about the right course of action for your portfolio. Remember, no one can guess how high or low a market can go.

To be certain, I was not expecting the kind of response that we got from the market this week. But I could not foresee the actions and responses from central banks around the world either.

For our client portfolios, I’ve been keeping a good portion of investable funds in cash and had liquidated some positions ahead of this decline. Of course, I wish I had liquidated more, but alas, my crystal ball is still in the shop.

I’ve been wanting to put on some hedges via inverse ETF’s for some time now. But those funds are “too hot to handle” right now and with an oversold bounce overdue, they would only compound losses in the short term. Other hedges are also way too expensive right now as volatility is at 52 week highs. I usually like to wait for a bounce in the markets before putting on hedges, but the only bounce we got yesterday was a bit tepid and shorter than expected. I will look to put them on as soon as market conditions allow. If the selling continues in the short term as I expect, then I’ll look to lighten up other positions as appropriate as well.

On Friday, we’ll get the monthly jobs report for July, which is widely expected to be lousy and show a continued unemployment rate of 9.2%. Any selling that transpires in the morning will more likely result from margin call covering rather than a reaction the jobs number (or if we get more bad news overnight from Europe).

Please be sure to contact me if you have any questions or concerns about the markets. I’ll be happy to help, but please don’t take action based on the contents of this message. It’s not my intent to render actionable financial advice to anyone pursuant to investment advisor restrictions and regulations.

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What’s Going on in the Markets – Tuesday June 21 2011

June 22, 2011 — Sam H. Fawaz

As communicated in my post last week, the stock markets were overdue for a rally.  And as expected, we rallied for the fourth day in a row today.  What distinguishes today’s rally from the previous three days is that the market has now switched from a downtrend to a new confirmed uptrend.  The real tell was the amount of volume traded on the stock exchanges and it was much higher today than the previous three rally days.  Thus, today we got what is known as a “follow-through day” in the markets. 

Expectations of a Greek bailout, an upcoming great 2nd quarter corporate earnings season (beginning in July) along with lower oil prices have helped improve investor and institutional optimism.  Institutions are also facing quarter-end, so they help buy up the market in the last couple of weeks to make their results look better.  As you know, we closed out our hedges (profitably) in the middle of last week in anticipation of this rally.

With any follow-through day, there are risks that the rally fails and the downtrend reasserts itself.  This is why a follow-through day comes on the fourth day of a rally attempt and no earlier.  Unfortunately, it sometimes takes two or more failed attempts before the rally succeeds. In fact, a failed follow-through day occurred most recently on May 31 when institutions sold into the rally the day after the uptrend was confirmed.  So while all signals point to a rally in the short term (my guess is that it lasts perhaps 1-3 weeks), we have to be cognizant that markets are on edge these days as we digest the news of a global economic slowdown, the prospect of more European debt woes and the prospect of a delayed extension of the national debt ceiling in Congress. 
A new rally is most vulnerable in its first few days and, once those have passed, the chances of succeeding increase dramatically.  In any case, volatility and low volume, as I’ve mentioned before, are characteristics of summertime stock markets.  So markets are more easily pushed around in this environment.

What this means for client portfolios is that new investments of cash are safer during a confirmed uptrend, which is what I started doing today.  But in the current environment, just like with hedges, new investments could turn into short-term trades if the market decides not to cooperate.  So even though we are investing for the long term with the majority of the portfolios, a small percentage of each portfolio is invested on a short-term (or very short-term) basis to take advantage of market swings and volatility.  This could be hours, days or weeks depending on how the markets behave.  In my opinion, proper diversification of portfolios includes both long-term investments and short-term ones as well.

I hope this helps you understand a little better how I’m approaching this market and trying to help manage portfolios.  As usual, please don’t rely on my prognostications as a basis for any investment or trading decisions; consult with your advisor or us if you have any questions about how to invest in these markets.  My crystal ball remains in the shop, so I’m no better at predicting the future than the next fortune teller.  What I do best is act as your risk manager and thereby mitigate the risk of bad things happening to portfolios while enhancing portfolio returns.

I welcome your questions and appreciate your referrals.  Happy first day of summer 2011!

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What’s Going on in the Markets – Thursday June 16 2011

June 22, 2011 — Sam H. Fawaz

The past several weeks in the stock markets have been quite trying for anyone paying close attention to what’s been going on.  As of today (Thursday June 16), we are working on a possible seventh down week in a row in the stock markets.  Since 1933, this has only happened three times, while the markets being down six weeks in a row has occurred seventeen times. Tomorrow is our last hope of an upside rally that takes the markets positive for the week and avoids making history by being the fourth time we see seven down weeks in a row.  Despite how bad this may sound, the selling has not been so intense to be considered anything more than a normal stock market correction within this bull market.
 
Why are the markets so intent on going down? Well, as I described in my last couple of writings, the end of quantitative easing by the Federal Reserve (buying treasury bonds), an apparent slowing in the economy, continued debt woes in Europe (Greece is in the forefront this week), and the failure of Congress to pass an increase in the debt ceiling.  Employers remain reluctant to hire new employees due to uncertainty surrounding health care and other financial legislation (e.g., the burdensome health care costs involved with hiring a 25th employee).
 
Of course, with several weeks down in the markets, every doom and gloom scenario and “Johnnie’s come lately” hawking another “End of the World” book come out of the woodwork, make the talk and news show circuits and call for Dow 5,000 and S&P 300 (they’re around 12,000 and 1,268 right now.)  Just yesterday, noted economist and academician Robert Shiller declared that we are definitely headed for another recession (of course we are, but it won’t be this year and probably not next year!)  Am I concerned that the economy may be slowing? Of course I am.  But to date the weight of evidence is that we are slowing, not stopping or switching to negative growth.  We endured a similar “soft patch” last spring and summer and the markets have made new highs since then. I continue to believe (guess?) that the disruption in the global supply chain caused by the Japan earthquake tragedy has thrown a wrench into the worldwide economic recovery story and that the second half of 2011 will see growth re-accelerate. Those who state otherwise are also guessing.
 
I stated in my last “What’s Going on with the Markets” newsletter that I believe that we are probably headed to test the 1,257 (the Japan earthquake low) or 1,250 level on the S&P 500 stock market index. Today we hit 1,258 before settling up at around 1,268. Was today the bottom? I really don’t know (neither does anyone else).  But all the signs and indicators that I pay attention to would indicate that today’s successful test of the Japan low might be sufficient to give the market a bit of a lift, at least temporarily.
 
So what do we do in the case of a market correction like this? If the decline is more than modest or is expected to be more than modest, we hedge client portfolios with leveraged inverse funds or options. This helps us keep our investment positions in place while hedging the risk a bit.  While this doesn’t totally protect the downside, it does allow us to mitigate (and perhaps profit) from the downside in the markets.  When we hedge portfolios in this manner, we take a portion or all available cash and buy the inverse funds on a temporary or “rental” basis. We may be in these inverse funds for a few hours, days, weeks or months depending on the market action. 
 
By definition, a hedge may be a drag on overall returns while it is on, but it can also be profitable if you manage it properly and the markets are not too volatile.  When market indexes give signals that the downturn may be over and a new uptrend may be afoot, we take off the hedges to fully benefit from the uptrend.  While no one person (including me) can perfectly time the market top or bottom, you can learn the rhythms, signals and technical indicators of the market and protect portfolios.  While some may be concerned with trading costs of hedging a portfolio, keep in mind that commissions are relatively cheap (and quite cheap compared to the protection the hedges provide).
 
I expect that we will bounce back a bit tomorrow and perhaps rally over the next week or so because the market is quite a bit “oversold”.  As a result, I removed our portfolio hedges today (at a small profit) to take advantage of such a rally.  Summer markets tend to be low volume and volatile, so I’m not sure that any rally will be sustained throughout the summer, but I don’t see us selling off in a big way.  When a new confirmed market uptrend asserts itself, I will be the first to deploy new cash into the market.  I will however reiterate, as I have in the past, that no one should trade or invest based on my prognostications. While I continue to be positive on the market, you should consult with your own advisor (or us) before making any investment decisions based on my comments. 
 
We are happy to speak with anyone who might be interested in discussing financial planning or money management.  As usual, there is no obligation, pressure or cost for speaking with us. If you have any questions about this market update or any other financial matters, please don’t hesitate to contact us.

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What’s Going on in the Markets – Monday June 6 2011

June 22, 2011 — Sam H. Fawaz

Today marked the fourth day in a row of intense selling in the stock markets immediately after the markets gave a technical “buy” signal last Tuesday.  Last Wednesday, the markets staged a hard reversal to the downside and have not yet recovered.

Economic indicators of late have been coming in worse than expected with recent slowdowns in manufacturing and hiring and higher unemployment claims. Last Friday the labor department reported the creation of 54,000 new jobs during the month of May while analysts were projecting 150,000-175,000 new jobs created.  Needless to say, the markets were disappointed and continued the sell-off that started last Wednesday.

While there are many possible reasons discussed for the market’s indigestion (e.g., the end of the Federal Reserve’s bond buying program in June, the earthquake in Japan, continued sovereign debt woes in Europe, lack of agreement in Congress on extending the debt ceiling, lower consumer confidence, high joblessness), no one really knows the exact reason why the markets sell off on any particular day.  As I indicated in a previous message, institutions take profits periodically on positions to help reset prices and make the market more enticing for those standing on the sidelines waiting to buy at lower prices.  While the institutions (who make up the bulk of buying and selling in the markets) may view slower growth as reasons to sell, they have not been selling with wild abandon by any means.  So one could say that the correction has been somewhat orderly (but any declines in prices are never pleasant).  In other words, institutions don’t appear to be positioning for a bear market or a recession in the near future.

My intermediate and longer term indicators are still bullish even as this 5% correction (so far) may get to 10%.  As a reference point, the markets corrected 13-15% last summer and that set us up for much higher stock prices.  While the gains we’ve seen so far will likely not be repeated, I still expect a respectable finish for the year with a positive return in the stock markets (though my crystal ball is in the shop, so please don’t make any investing decisions based on this prognostication.) The summer months tend to be volatile and of low volume, so market swings are frequent and sometimes abrupt.  I believe that corporate earnings (which ultimately drive stock prices) will continue to surprise to the upside (if they’re not hiring, then costs stay low).  The effects of the tragic Japanese earthquake, which caused a hiccup in the markets this quarter, will begin to wane and offer opportunities for companies to help with the rebuilding, and thereby also help with future corporate earnings.  Finally, the costs of oil and other commodities overall have come down and will ultimately reduce inflation pressure.

How should you handle this correction? For most, doing nothing may be the right answer and simply “ride out” this correction.  For my clients, I have once again begun hedging portfolios in case the correction proves to be more protracted than expected.  I have already become more defensive by reducing more risky types of positions and adding more defensive ones.  But in an overall stock market correction, ultimately 3 out of 4 stocks will follow the market down, so there’s no good place to really hide. As this correction plays out and support wanes for certain sectors, I will slowly scale out of those positions and wait to buy them back at lower prices as appropriate.  If necessary, I will add more to our hedges to reduce our overall equity exposure and risk.  New positions are on hold until a new uptrend is confirmed.  This is by no means a recommendation of what you should do with your portfolio if you’re a “do-it-yourselfer”, so please consult with a professional (like me!) if you’d like to protect your portfolio or figure out what you should do.  Every investor and his or her goals are different, and that’s how we handle each client–individually.  In any case, the correction may take us down to the 1250 level in the S&P 500 index (the March 2011 Japan earthquake low) or down to 1200 (less likely in my opinion).

With four down days in a row, we might see a bit of a relief rally tomorrow (Tuesday), but I’m not expecting any type of big reversal.  With the amount of selling that has been going on lately, I just don’t expect the markets to turn around that quickly and “rip” to the upside without a catalyst. Ultimately, corrections are healthy for the markets and they will recover in time. It’s just never fun to watch the markets (and our portfolios) go down, but if you’re a long term investor, this is merely a bump in the road.  If I see that circumstances have changed and my technical indicators flash warning signs, you can bet that you’ll hear from me again and I’ll be taking appropriate action.

I welcome your questions and feedback. If you’re not yet a client, keep in mind that your first consultation is complimentary and comes with no pressure and no obligation whatsoever.  As a fee-only advisor, I put your interests first and work as your fiduciary. Not all advisors can make this statement.

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What’s Going on With the Markets-March 10, 2011

March 10, 2011 — Sam H. Fawaz

Since the beginning of last September, the stock markets have enjoyed a nearly uninterrupted bull uptrend which has been unprecedented in market history.  Fueled by improving economics and Federal Reserve actions, the uptrend has withstood many geopolitical, fiscal and news driven setbacks.  But today the political unrest in the Middle East, issues with Spanish debt repayment and a higher than expected weekly first-time unemployment claim number (497,000) were the 1-2-3 punch that the markets could not recover from and therefore we suffered a 1.5-2.5% setback.  Be it stocks, gold, silver or oil today, they were all down today.

Normally, up-trending bull markets such as the one we’re in take rest periods, or “corrections” as they’re called, every couple of months while individuals and institutions take profits on stock positions and reset stock prices back to normal levels. Corrections (usually 10-20% of an index value such as the S&P 500) are healthy for the market and while uncomfortable if you watch them unfold from day to day, allow the markets to set up for the next leg up.  Two years to the day yesterday into this bull run have seen us move up about 100% from the March 9, 2009 lows on the S&P 500 index. Without a doubt, this has been an incredible run and I hope you’ve been participating.

As I’ve discussed with clients and prospects recently, a correction in the market has been long overdue and anticipated.  While today was the first big down day where we really tested key levels in the indexes, there have been several signs of exhaustion in the market. Despite this, I cannot say with certainty whether we’ve definitively entered into a correction period (technically we have, but it needs to be confirmed with follow-through on Friday and next week.)  If the bulls get their act together tomorrow and “rescue” the market by pushing it back up through heavy volume buying, then this decline may be “all she wrote.”  If not, we could head down to test the 1275 level of the S&P 500 index (we closed at 1295 today).  A failure to hold the 1275 level means that large institutions have decided to continue selling and a drop to 1240 may need to exhaust sellers.

With the “Day of Rage” demonstrations scheduled for Friday in Saudi Arabia, rocketing oil prices and sovereign debt issues, the odds of avoiding a deeper correction are not very high.  Besides, this correction is long overdue and may occur regardless of how peacefully the Middle East situation is resolved or even if oil prices come back down to earth.

What do I think? As I’ve mentioned before, the Federal Reserve has made investing in anything but the stock market earn near zero returns. That is, the government wants us to buy equities, push the stock market (and IRA’s and 401(k)’s) higher, to make us feel richer and more confident and therefore spend more.  Spending more creates demand which in turn creates jobs and so on.  So I believe that the gentle (if somewhat invisible) hand will come in to help support the market and avoid a protracted decline that might scare off the latest entrants into the market. While my crystal ball is still in the shop, I believe that a decline beyond 1275 in the S&P 500 (another 1.5%) is a stretch.  While that would make it a very shallow correction, it may be enough to breathe new life into the stock market and help resume the uptrend.

So what should you do now in light of a possible correction?  Basically, you shouldn’t do much if anything since nothing is confirmed.  If you’re investing on your own, trying to time your “in’s and out’s” of the markets is nearly impossible and not recommended unless you’re an experienced trader.  If you have a profitable position and worry about it turning into a loss, you may decide to sell a portion or all of it.  More savvy investors may be able to hedge their positions with options or inverse ETF’s if the decline proves to be protracted.  From our end for our clients, I’m watching the market technical levels on a daily basis like a hawk and already have begun to harvest some profits and protect some positions. If a protracted downturn does materialize, I may also hedge portfolios with inverse ETF’s and selectively liquidate partial positions.  But we’re not there yet and I’m not making any recommendations.  And by no means do I think we’re entering another bear market (by definition, a bear market begins when we decline 20% from the last peak in a major index).  Non-clients should consult their current advisor (or me) if you’re unsure what to do in the event of a protracted decline and should not treat this as a recommendation to buy or sell anything (see disclaimer below).

Last year we declined nearly 15% from May through August amid sovereign debt worries and economic uncertainty and then proceeded to push up nearly 25% over the next six months. I still believe that we will end 2011 with double-digit gains in the markets as this economy matures from recovery to expansion.  All economic indicators point positively and last month we even added nearly 200,000 new jobs.  We may even see housing perk up a bit later this year.  Without a doubt, sustained oil prices above $125 per barrel and $4 gasoline for an extended period (6 months or more), will put a crimp into the expansion, but I don’t believe we’re heading for a long term spike in oil prices.  Let’s just say that the oil producing countries learned what supply constraints and speculation did to oil demand the last time oil spiked to $145 a barrel. More electric and hybrid cars is just one example of how we are learning to live with less demand for foreign oil.

I hope this message helps alleviate any anxiety over the recent down days in the market.  Remember that the media loves good negative stories to help sell newspapers and advertising. Avoid the noise and try to keep your sanity during the days when it seems like there’s always something bad going on in the world.  Middle Eastern concerns have been a worry for decades, if not centuries now, and likely won’t be resolved during our lifetimes.  Like every other world incident, the markets get back to normal and we get through them.

Enjoy the upcoming weekend and don’t hesitate to contact me if I can be of any help.  If you’re not a client, your consultation with me is complimentary, no-pressure and with no obligation.  I’d love to talk to you whether or not you’re considering hiring a financial planner or money manager.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

My no-nonsense no-spam policy: If you’d prefer not to receive future updates, just reply and let me know by typing “unsubscribe” in the subject (please don’t hit the spam button-it just puts me on a universal spammer’s list which is tough to get off of.)I’ll take you off my list immediately and permanently.  I will never sell, share, rent or give away your e-mail address to anyone.  Period.

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Highlights & Summary of the Tax Relief Act of 2010

December 17, 2010 — Sam H. Fawaz

I promised to keep you updated on the tax bill that was before congress which essentially extends the Bush era tax cuts for two years. Here are the highlights and full summary with more details to come in the next couple of weeks:

On Thursday December 16, 2010, Congress passed the Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010. President Obama just signed the bill this afternoon Friday December 17, 2010.  This legislation, negotiated by the White House and select members of the House and Senate, provides for a short-term extension of Bush era tax cuts made in 2001.  It also addresses the Alternative Minimum Tax (AMT) and Estate, Gift and Generation-skipping Transfer taxes.

The following summary will provide you with key information and highlights from the bill with help from the Financial Planning Association. If you have any additional questions, please do not hesitate to contact me at (734) 447-5305 or at hf@ydfs.com. I hope that you find this summary useful for your personal and business affairs.

HIGHLIGHTS

Two-year extension of all current tax rates through 2012

  • Rates remain 10, 25, 28, 33, and 35 percent
  • 2-year extension of reduced 0 or 15 percent rate for capital gains & dividends
  • 2-year continued repeal of Personal Exemption Phase-out (PEP) & itemized deduction limitation

Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010, 2011, 2012

  • Reunification of estate and gift taxes
  • 35% top rate and $5 million exemption for estate, gift and GST
  • Alternatively, taxpayer may choose modified carryover basis for 2010
  • Unused exemption may be transferred to spouse
  • Exemption amount indexed for inflation in 2012

AMT Patch for 2010 and 2011

  • Increases the exemption amounts for 2010 to $47,450 ($72,450 married filing jointly) and for 2011 to $48,450 ($74,450 married filing jointly).  It also allows the nonrefundable personal credits against the AMT.

Extension of “tax extenders” for 2010 and 2011, including:

  • Tax-free distributions of up to $100,000 from individual retirement plans for charitable purposes
  • Above-the-line deduction for qualified tuition and related expenses
  • Expanded Coverdell Accounts and definition of education expenses
  • American Opportunity Tax Credit for tuition expenses of up to $2,500
  • Deduction of state and local general sales taxes
  • 30-percent credit for energy-efficiency improvements to the home
  • Exclusion of qualified small business capital gains

Temporary Employee Payroll Tax Cut

  • Provides a payroll tax holiday during 2011 of two percentage points. Employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800.

FULL SUMMARY

Reductions in Individual Income Tax Rates through 2012

  • Income brackets remain 10, 25, 28, 33, and 35 percent
  • Capital gains and dividend rates remain at 0 or 15 percent
  • Repeal of the Personal Exemption Phase-out (PEP)
  • Repeal of the itemized deduction limitation (Pease limitation)
  • Marriage penalty relief
  • Expanded dependent care credit
  • Child Tax Credit
  • Earned income tax credit

Education Incentives Extended Through 2012

  • Expanded Coverdell accounts and definition of education expenses
  • Expanded exclusion for employer-provided educational assistance of up to $5,250
  • Expanded student loan interest deduction
  • Exclusion from income of amounts received under certain scholarship programs
  • American Opportunity Tax Credit of up to $2,500 for tuition expenses

Extension of Certain Expiring Provision for Individuals through 2011

  • Above-the-line deduction for qualified tuition and related expenses
  • Tax-free distributions of up to $100,000 from individual retirement plans for charitable purposes.  Donors may treat donations made in January 2001 as if made in 2010.
  • 30-percent credit for energy-efficiency improvements to the home
  • Deduction of state and local general sales taxes
  • Parity for employer-provided mass transit benefits
  • Contributions of capital gain real property for conservation purposes
  • Deductibility of mortgage insurance premiums for qualified residence
  • Estate tax look-through of certain Regulated Investment Company (RIC) stock held by nonresidents for decedents dying before January 1, 2012
  • Above-the-line deduction for certain expenses of elementary and secondary school teachers

Alternative Minimum Tax (AMT) Relief

  • The legislation increases the exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly).  It also allows the nonrefundable personal credits against the AMT.

Temporary Estate Tax Relief and Modification of Gift and Generation-skipping Transfer Taxes

  • Higher exemption, lower rate. The legislation sets the exemption at $5 million per person and $10 million per couple and a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount is indexed beginning in 2012. The proposal is effective January 1, 2010, but allows an election to choose no estate tax and modified carryover basis for estates arising on or after January 1, 2010 and before January 1, 2011. The proposal sets a $5 million generation-skipping transfer tax exemption and zero percent rate for the 2010 year.
  • Portability of unused exemption. Under current law, couples have to do complicated estate planning to claim their entire exemption.  The proposal allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse without such planning. The proposal is effective for estates of decedents dying after December 31, 2010.
  • Reunification of estate and gift taxes. Prior to the 2001 tax cuts, the estate and gift taxes were unified, creating a single graduated rate schedule for both. That single lifetime exemption could be used for gifts and/or bequests. The proposal reunifies the estate and gift taxes. The proposal is effective for gifts made after December 31, 2010.
  • As noted above. the look-through of RIC stock held by non-resident decedents is extended through 2011

Temporary Extension of Investment Incentives

  • Extension of bonus depreciation for taxable years 2011 and 2012
  • Small Business Expensing: increase in the maximum amount and phase-out threshold under section 179. Sets the maximum amount and phase-out threshold for taxable years 2012 at $125,000 and $500,000 respectively, indexed for inflation.  (Previously-passed legislation raised the 2010 and 2011 max amount and phase-out at $500,000 and $2,000,000 respectively.)

Extension of Certain Expiring Provisions for Businesses through 2011

  • Enhanced charitable deduction for corporate contributions of computer equipment for educational purposes
  • Enhanced charitable deduction for contributions of food inventory
  • Enhanced charitable deduction for contributions of book inventories to public schools
  • Special rule for S corporations making charitable contributions of property
  • 15-year straight-line cost recovery for qualified leasehold improvements
  • Employer wage credit for activated military reservists
  • Tax benefits for certain real estate developments
  • Extension of expensing of environmental remediation costs
  • Treatment of interest-related dividends and short term capital gain dividends of Regulated Investment Companies (RICs)
  • Work opportunity tax credit (WOTC)
  • 100% Exclusion of qualified small business capital gains held for more than 5 years
  • Research credit
  • Qualified Zone Academy bonds

Extension of Unemployment Insurance

  • The unemployment insurance proposal provides a one-year re-authorization of federal UI benefits.

Temporary Employee Payroll Tax Cut

  • The legislation creates a payroll/self-employment tax holiday during 2011 of two percentage points. The employer’s share of the payroll tax remains unchanged.  This means employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800.  The social security trust fund is made whole by transfers from the general fund.

Please check out my January-February 2010 Money Magazine Portfolio Makeover-Can I retire Early? http://bit.ly/5aGwIO

Have a small business?  Don’t miss out on these business tax deductions http://bit.ly/a49I1K

6 Ways To Gift Money to Family http://bit.ly/aDG90W

Follow me on Twitter at http://twitter.com/TheMoneyGeek for relevant personal finance advice and tips on great deals.

Read our blog: http://themoneygeek.com

YDream Financial Services, Inc. is providing this information as a service to its subscribers. While this information deals with tax and legal issues, it does not constitute tax or legal advice and cannot be relied upon as such for avoidance of penalties in matters before the IRS. If you have specific questions related to this information, you are encouraged to consult us, a tax professional or an attorney who can investigate the particular circumstances of your situation.

Sources: U.S. Senate Committee on Finance; U.S. Congress Joint Committee on Taxation

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP® and the Financial Planning Association(of which Sam is a member) and is provided by YDream Financial Services, Inc.

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Happy Thanksgiving and a Quick Market Update

November 26, 2010 — Sam H. Fawaz

I just wanted to post a quick note to wish you and yours a very Happy Thanksgiving Holiday.  Here’s hoping that you are celebrating it in good health surrounded by family and friends.  Without both, life would be such a drag.

I am thankful for my family and friends, good health and the best clients and readers in the world.  I can’t imagine myself doing anything else that I would enjoy more in life than what I’m doing now.  I hope that you feel the same way about what you do, and if not, I hope you’ll take steps in your life to move closer to the activities that bring you joy and happiness.  It’s really about getting what you need and want out of the day rather than getting through the day.

A Quick Stock Market Update

The last few weeks have been quite volatile in the stock markets, and to be honest with you, it was really all my fault.  Right after I sent out my last newsletter update about the Federal Reserve pumping up the markets, we entered into a long overdue correction (a decline in prices).  As I had mentioned, the markets had gone straight up during September, October and early November, so it was no surprise that a correction was coming. We have swung up and down and sideways without much upside and thankfully without much downside either.

In some cases, I took advantage of this correction to “prune” (sell) certain client positions to lock in profits or avoid losses.  This past Tuesday, a day when everything was trending downward and things looked like they were about to fall apart (a day where about 90% of all asset classes were down) due to the events in Europe and South Korea, I took 95% of our available cash and invested it at the lows of the recent market range.  We were immediately rewarded yesterday as all the markets were up “big” to kick off what I hope to be a great year-end Santa Claus rally.  Seasonally, this period of the year tends to be the strongest for gains in the markets.  While we are technically still in a correction phase, I expect the uptrend to resume soon (but my crystal ball is still in the shop).  Recent economic news has been very positive, some much better than expected, and first time unemployment claims this week surprised nicely to the downside.

I still remain optimistic about a positive finish to the year and the rally continuing into 2011 as the economy recovers.  I believe that this is the best time to be invested in the markets as Uncle Sam has told us that he wants the markets higher. Consider taking advantage of this recent market correction to dip your toes into the market.  I like that most are pessimistic about the markets since that tends to propel them higher.  Yes, we have economic worries, future inflation, high unemployment and a moribund housing market, but those problems didn’t develop overnight, so they won’t be solved overnight either.  We are making progress, and that’s what really counts.

Later in December, I will send out my 2011 market and economic outlook newsletter.  In the meantime, year-end tax planning is in full swing and hopefully you’ve benefitted from my year-end tax planning newsletter and tips.  Remember, if you’re thinking about an IRA to Roth conversion in 2010, you only have about five weeks to complete it.  Don’t hesitate to contact us to discuss whether this option is appropriate for you. I am also available to help with your year-end financial or tax planning.

Enjoy your holiday weekend and please let me know if I can be of any help.  And remember: 50%+ off sales are great, but the best sales are those that save you more than 100% (that is, when you save and invest the money instead..sorry I couldn’t resist).  By the way, I was recently quoted in another online financial story-see the link below about Six Ways to Gift Money to Family.

New: 6 Ways To Gift Money to Family http://bit.ly/aDG90W

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

Posted in General, investing, markets, retirement. Tags: , , , . Leave a Comment »

What’s Going On With Gold Part 2

July 5, 2010 — Sam H. Fawaz

Back on November 18, 2009, I wrote for the first time about what’s going on with gold as an investment.  Since that date, gold has appreciated 8.4% while the S&P 500 index (a proxy for stocks) has declined 7.1%.  All indications are that the price of gold will continue to rise.

To date, I have personally not been able to bring myself to invest any of my own money in gold, and I remain a bit skeptical of it as an investable asset class.  However, as I’ve said before, I cannot ignore the fact that the uptrend that started in March 2009 has continued and has every indication that it will continue until the trend is broken.

In the past, the price of gold has appreciated while inflation was a threat or was marching upward (an inflation hedge.)  The price of gold usually continues to increase up until the point when the Federal Reserve raises interest rates enough to no longer make gold an attractive alternative; that is, until the actual interest rate paid on money market funds is something greater than the current 0.01%.  But today, we are facing the opposite environment: a potential deflationary environment in light of high unemployment, plenty of available factory capacity and low consumer demand.  Gold is not supposed to go up in this type of environment, but with governments around the world running sky high deficits and debasing their currencies (through either printing money or deficit spending), gold seems to have become a de facto currency in of itself.  Several legendary hedge fund managers and institutional investors have invested significant sums of money in gold and countries and central banks around the world continue to accumulate it.

Here’s what a fellow trusted investment writer and money manager Jon D. Markman wrote about a recent Credit Suisse report on gold:

Investment banker Credit Suisse (CS) recently increased its long-range forecast, arguing in a new report that gold should remain near current levels for at least the next four years. CS analysts’ 2014 target is now $1,300, vs. their previous forecast of $1,120, as investors have become more supportive of the yellow metal.  That may not seem like a very brave forecast since gold is already trading at $1,242, or less than $60 under the long-term forecast, but it’s likely that the estimate will go further up.

The rationale for the change: Credit Suisse believes there is an 80% chance of a renewal of quantitative easing — or money printing — due either to a full-blown sovereign debt crisis or a new recession. This enthusiastic and inflationary activity would rev up the safe haven buying that has pushed gold prices up over the past few years. The feeling is that companies and government officials may cheat and lie, but gold is steady as a rock as an irrefutable, trusted source of value.

Also, the ultra-low interest rate policy of the world’s central banks will keep gold prices on the move. Historically, gold prices tend to rise when short-term interest rates are below 2%. This relationship has been particularly strong over the last few years. With the Fed likely to stay on hold through 2012, and the potential for inflation-adjusted interest rates to move further into negative territory with another round of quantitative easing, there’s little reason to think gold’s run higher will end anytime soon.

Complicating matters has been the decline in new gold production. Global gold production has been falling since 2001 at an average rate of 1.3% per year. Increased demand and less supply equals higher prices. Credit Suisse research in 2003 and 2005 indicated that the decline was being caused by a reduction in exploration targets and exploration efficiency. In other words, it was becoming harder and more expensive to find new untapped sources of gold.

While a number of new projects are about to get started, the long-term picture looks tight. From 2013 onward, CS predicts global production to fall at an annual rate of 2.5%. Gold has always had its allure based on scarcity value. Well folks, it’s about to get a heck of a lot scarcer.

Now gold doesn’t pay any dividends or generate any income, has limited industrial uses, has not kept up with inflation, and garners unfavorable ordinary income tax (not capital gain) treatment outside of retirement accounts.  You’ve probably seen and heard the ads on TV and radio of companies trying to sell you gold coins or buy your unwanted gold jewelry (you can safely ignore them.)  In some countries, you can now buy gold bars from a vending machine, and right here in the “good ole’ U.S. of A”, department stores are hocking gold bars like perfume and cologne.  Normally this would indicate a top in the price of gold, but all evidence to date indicates that the buyers of gold have been mostly institutional, not retail (consumer) buyers.  Of course, like any other investment, gold has the potential to go parabolic and become a bubble (and it likely will), but we’re not there yet.  My worst fear about gold would be to wake up one morning and find out that the price has dropped $200-$400 an ounce overnight.

Fun gold fact: Just last week, a 200 pound Canadian collectible leaf gold coin (face value $1 million) was auctioned off for $4 million at exactly, you guessed it, the spot price of gold at the time of sale. http://news.bbc.co.uk/2/hi/world/europe/10425194.stm

If you are interested in investing in gold, I would look into the price of the SPDR Gold Trust GS (Ticker symbol: GLD) and invest on any weakness like we saw last week, and I would keep it on a “tight leash.”  I would say to invest no more than 2-10% of your investable portfolio in this commodity and be prepared for wide price swings (volatility).  It’s possible to use options to hedge the position to mitigate the risk of a sudden sharp decline or a mass exodus.  With weakness in the price of gold last week, you may be able to take advantage of a good entry price, but this article is by no means a suggestion, recommendation or an advisory to buy gold.  Some believe that the unwinding of Euro currency short interests that were invested in gold may have caused last week’s weakness (i.e., investors bought back borrowed Euro’s with the gold that they sold last week to cover their short interests).

I would appreciate your thoughts, feedback and inclination to invest in this commodity.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.
Posted in General, investing. Tags: , , , , . Leave a Comment »

What’s Going On With The Markets?

June 29, 2010 — Sam H. Fawaz

Well that was quick!

I’m referring of course to the short uptrend from the stock market correction that had seen a bottom on June 8. As of today, the S&P 500 index undercut the lows of the last correction and has put us back into another market correction. With all the overhang from worldwide events and mounting evidence of a slowing recovery, investor, consumer and institutional sentiment are at their lows.

In last week’s statement from the Federal Reserve, where it continued to hold interest rates at 0-0.25% for an extended period, the “Fed” acknowledged a softening recovery and lackluster employment growth. Hints of another fiscal stimulus or monetary easing emanated from Washington to help avoid a possible double-dip recession. Now you may have heard about the G-20 Summit meeting this past weekend in Toronto where the United States was the lone voice in encouraging a coordinated effort of more fiscal stimulus to heed off a global recession; instead, most European nations were insistent that austerity measures and tax increases were the way to go to bring their fiscal houses in order. While I’m totally in favor of balanced budgets and fiscal conservatism, simultaneously cutting spending and raising taxes are the surest way to plunge your country into recession or worse, depression (history has demonstrated this time and time again.) At a time when the recovery is so fragile, doing one of the two is risky; doing both is simply economic suicide.

The Conference Board reported a sharp drop in Consumer Confidence today which caught Wall Street completely off guard. However, today’s figures are in sharp contrast to last Friday when the University of Michigan reported its Consumer Sentiment gauge at the highest level in two years. Although the 9.8 point drop in the Conference Board numbers was higher than expected, keep in mind that Consumer Confidence fell over 10 points in February just before the last stock market rally. These numbers really don’t mean a whole lot to the markets, so I’d caution against reading too much into today’s report or market reaction.

As I’ve written before, the stock markets hate uncertainty. With the BP Gulf disaster getting worse, the European Union is still arguing who should pay for whom and how much, financial regulation passage still uncertain, new job creation largely absent, and slowing growth in China, we have the makings of a “bad news salad.” Even though yields on money markets and Treasuries are at their lows, it seems that there is no appetite for risk or conviction in the markets by both the bulls and the bears. With poor May retail sales, jobs, and housing numbers, the bulls haven’t had much to hang their hat on lately. But keep in mind that one month does not make a trend.

So we find ourselves once again at a critical level in the markets today. At a closing level of 1,041 in the S&P 500, the bulls must come in and rescue this uptrend or risk dropping another 6% from here to about 980. I must admit that I believe that our only short-term hope of averting this drop is a very favorable June jobs number on Friday (on the order of 100,000 new jobs created.) Tomorrow (Wednesday), ADP will release their preliminary estimate of the jobs number (of mostly private employment; it does not include government jobs) and it is widely expected to show 60,000 new jobs created. The ADP report is widely anticipated as an indicator of the main jobs report, but it has been known to be way off. However, many institutions and traders treat it as a preview of Friday’s number. Let’s hope that the Labor Department has a nice 4th of July weekend send-off for us.

So much bad news, negative sentiment and consecutive down days are built into the market that a bounce is overdue and may come tomorrow (Wednesday) if the ADP jobs report is favorable. For our portfolios, I will be closely watching the 1,041 level on the S&P 500 index for support. If that support line is definitively broken, I will look to reinstate the portfolio hedges that have served us well in the past. Even at these market levels, we are still considered to be in a correction, not another bear market. By technical definition, a bear market is a 20% decline from a market high, which was 1,220 in the S&P 500 index. That gives us running room to 976 to avoid descending into another bear market.

I personally believe that with an undoubtedly positive 2nd quarter earnings season coming up and a good jobs report, we can avert the drop to bear market levels. I am not in the camp that believes that a double-dip recession or depression is in our near-term future. Short-term, a negative jobs report and poor earnings guidance combined with severe austerity measures around Europe will likely mean bad news for stocks. My broken crystal ball predicts however that we will pull out of this malaise and that the recovery, albeit tepid, will carry the markets upward through the rest of the year. However, if the markets insist on going lower into bear market territory, I will look to liquidate a portion of equity portfolios and increase our hedges. Recall that earlier in the spring I mentioned that the summer months would be both volatile and bumpy…and here we are.

I am working on my 2nd half 2010 market and economic outlook and will send it out to everyone later this week. I wish I had better news for you right now. Nonetheless, I hope this update helps you understand a little more of what’s going on with the markets. Please feel free to forward this message to anyone who might benefit from reading it. If you have any questions or comments, please don’t hesitate to contact me. If you or someone in your family or circle of friends is considering hiring a financial planner, please visit our website or consider a complimentary financial roadmap via the link below. Your first consultation with us is complimentary and there is no pressure to make any decisions.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.
All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.
Posted in investing, markets, retirement. Tags: , , , , . Leave a Comment »

Market Update for May 20 2010

May 20, 2010 — Sam H. Fawaz

Today marked the 9th day out of the last twelve where the market sold off in a clear message that world governments need to get their acts together and control their fiscal, spending and regulatory policies.  With the Euro currency at historic lows, demonstrations in Greece, an environmental offshore oil catastrophe, German bans on naked short selling, higher than expected weekly job claims, and financial regulatory reform debates going on, we’ve had the perfect storm to extend this market correction.  Stock markets don’t like uncertainty and wishy-washy policy making, so they express their dismay by selling off risky assets.  As of today, the major indices have given back all their 2010 year-to-date gains and then some.  Nonetheless, the long term stock market uptrend remains intact, though as I’ve indicated before (May 6), we’re in for some bumpy times in the market for the summer.

I wish I could say that my crystal ball knew when this short-term pain to the downside would be over.  However, all technical indications is that this move downward is a bit overdone, though admittedly the move to the upside was also overdone in the short-term.  I believe that we’ll see a short or intermediate-term bounce in the next couple of days as value investors and bargain hunters swarm the markets.   We will do the same as the waters calm down.

Indications from Washington are that we may get a vote on the financial reform bill (being debated) tonight and perhaps remove some of the uncertainty in the markets.  I’m not sure what the Obama Administration will tackle next (immigration reform, tax reform, ban on sovereign bailouts, take your pick), but you can bet that it will also rattle the markets when it gets underway.  The European Union appears to be working on a few measures to further restore confidence to the markets and those measures may come to light over the weekend or early next week.  Longer term, we will have to contend with overseas currency and economic weakness, further sovereign debt issues, huge budget deficits, and a stubbornly high unemployment rate.  For the time being though, we have an improving fundamental economic picture, ultra low interest rates, excellent corporate earnings, and plenty of unspent stimulus to keep the market uptrend going for awhile.

Because I felt that it was more likely than not that the majority of the short-term move downward was over today, I decided to lift about 50% of the contra-position hedge that I held on client accounts.  This will allow portfolios to more fully benefit when the uptrend resumes. Leaving 50% of the position “on” allows me to be at least half-right in case there is more downside to come.  This is just prudent hedging.  Should the markets show signs of continuing their downward trend, then it’s just as easy to put the position back on and perhaps add to it.  As of this moment, I see no negative longer term indicators in the markets that tell me that I should be liquidating equity positions and moving to a higher cash position.

Please check out my January-February 2010 Money Magazine Portfolio Makeover-Can I retire Early? http://bit.ly/5aGwIO

Have a small business?  Don’t miss out on these business tax deductions http://bit.ly/a49I1K

Follow me on Twitter at http://twitter.com/TheMoneyGeek for relevant personal finance advice and tips on great deals.

Read our blog: http://themoneygeek.com

Reach Your Goals with a Complimentary Financial Roadmap: http://www.boulevardr.com/welcome/SamFawaz

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

My no-nonsense no-spam policy: If you’d prefer not to receive future updates, just reply and let me know by typing “unsubscribe” in the subject (please don’t hit the spam button-it just puts me on a universal spammer’s list which is tough to get off of.)I’ll take you off my list immediately and permanently.  I will never sell, share, rent or give away your e-mail address to anyone.  Period.

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