Death and Taxes

If you’re lucky enough to pass away this year, your heirs will be sitting pretty as there are no limitations to the size of the estate that is exempted from Federal Estate Taxes. Next year the tax holiday will be repealed and reset to 2001 levels for the amount of tax levied on estates over $1 million. So, act now or you’ll miss the opportunity of a lifetime!

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For the rest of us, lucky enough to be alive we are going to be facing the harshest tax regime in decades. Punitive taxes against the rich, you know those folks who can make ends meet a little better than others, are set to kick in. The first salvo will be the repeal of the tax reductions put into place by the Bush presidency. Personal rates will head back up and so will rates on dividend income. Health care taxes will kick in for those considered “wealthy” and there will be more. much more.

The United States has no choice but to raise taxes whether under the guise of expiration of older tax policy or increases in the age ranges for Social safety net payments. We’ve all seen it coming for years and now the time is upon us. We’re not going to balance any books by bearing higher rates for years to come. No, that would be something worthwhile to contribute to. No, my friends our increased tribute to the Treasury will go to fund huge social welfare programs and interest, yes interest on the huge debts that have been piled up over the past decade. It’s not the Republicans fault, nor the Democrats – it’s both their faults. Sadly, there is not much that can be done at this point to fix anything.

If there is a silver lining, at least you can count on your kid’s accounting degree appreciating in value by the day.

So, if you are still looking for more sand to bury your head under, listen up. It’s time to take action in your portfolio. It’s time to take the gains and start substituting your holdings so that you can take advantage of the last year of low rates. Of course, be sure to consult your CPA today because he won’t have time to see you six months from now when everyone will be knocking on his door.

Are We There Yet?

If you haven’t noticed, the market is acting like a real market again. Lots of buying, selling, momentum, worry and elation. In one word, the market is uncertain again. That means you have to put on your trading shoes or just run and hide for a while.

So far in the past 30 days we have seen more days where the markets have swung by more than 1% from intraday high to low. That my friend is a Goldman Sachs fantasy come true. From day to day there is either really good news or really bad news.  If you’re looking to buy and hold, stop looking. Nothing is safe and everything is a buy – at the same time no less.

If you’re wondering what you should do with your cash right now it’s a tough call. Hedge your bets by being in some short positions by using options that can be sold to reduce your basis or bought to protect your downside.  Insurance is never a great thing to buy. It’s a sunk cost, but at times like these it’s better to have protection and pay for it. What you shouldn’t do is buy long dated US treasuries. Right now the long bond (30yrs) is trading with a 4% yield. That might look like an attractive option for your cash, but beware. Locking yourself into a fixed rate of return, a low one at that may give you peace of mind over the short-term but ask yourself if you can:

a)    live with a 4% return
b)    discount the fact that inflation is in the pipeline
c)    think that the government will reduce its debt load by paying it down

If the US continues to issue debt, and there is little indication that it will stop anytime soon, then the US Treasury yield will have no where to go but up and investors will demand more rent for their money. Bond prices will fall under their own weight and when prices fall because of over supply in the bond market, rates go higher and the value of your holding will decrease in value and your “fixed” returns will doom you to watch your wealth erode from the sidelines.

BP and Toyota

BPs folly is good news for natural gas and Toyota. Why Toyota you ask? Because no one is talking about them anymore! BP is now the talk of the town.

We are not paid here to make political or social judgments – although we do anyway. Our goal though is to make you money or help you hold on to what you have. One way to do this is to interpret what the market is saying.

The market is now saying that oil drilling in the US is dead, especially in areas that are environmentally sensitive.  Remember the Arctic National Wildlife Refuge (ANWR)…forget about it! If the Sierra Club were a public company I would recommend loading up on shares. The big winner in all of this? Natural gas. If you don’t have exposure to this commodity, get some now. It’s going to be the story du jour for some time to come. It’s a wonder that it wasn’t high on the list prior to now.

Natural gas is trading nearer its all-time lows than its all-time highs. It has still not really moved higher. The best way to play it? Long dated natural gas futures followed by natural gas stocks. Don’t play the ETF unless you understand how it works.

It will be some time before natural gas becomes the fuel of choice for the masses. A lot of infrastructure needs to be built out. Sure there’s a ton of gas out there, but few places to stop and fill up your car. Worse, there are few cars or trucks that can operate on gas. But, you can bet your bottom dollar that the government will soon be offering incentives to all manner of natural gas applications. Look for any pullbacks in the price of Natural Gas to take positions. It could very well be the trade of the decade.


Best Regards,

Kevin Raymond

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