Making Money Alert
Just Stop Teasing Me
12/02/2009
Let’s start off this week’s Alert with a quick glance at a chart of the S&P 500 Index for the past two months. As you can see, we’ve basically been mired in a trading range between 1,030 and 1,110 throughout this entire time. It’s as if the market was just teasing us here, tempting us to go in, but not really giving investors a sense of what its next move likely will be.
A few weeks ago, I said that new money could go into equities as long as you had a tight stop loss. I still feel that way, but I certainly would like this market to stop teasing us and make a move to the upside with some conviction.
Of course, we could see the opposite take place here, and the market could pull back with conviction. If we see the S&P 500 break below its 50-day moving average (blue line), it could mean the start of a year-end sell-off.
But the real action of late hasn’t been in the stock market; the real action has been in gold. There is, perhaps, no more emotion-infused topic when it comes to investing than gold. I remember back in 1981 when lines formed to buy gold at $800 an ounce. Gold continued to go parabolic, and the lines seemed to get longer and longer.
Most people who bought gold coins at that time still own them, and vow never to give up possession. Now, we seem to be in a similar spot with gold. I’m not saying gold can’t or won’t go parabolic again from here, but what I am saying is that I’ve seen this kind of action before.
Below is a chart of the SPDR Gold Shares (GLD) over the past two months. Since Oct. 1, gold is up 20%. But since Nov. 1 gold is up 15%. Can gold go higher? Absolutely it can. Yet, I don’t view gold at these levels as an attractive buying opportunity.
Time to Talk Taxes
You might not be thinking about taxes with the holidays now in full swing, but my friend and CPA Lee Haight called me the other day to remind me that there are several strategies that I can employ before the end of the year to reduce my tax burden. Lee asked me to pull together my tax documents so that he could check on withholdings and payments, to confirm my tax liability and to consider how I can lower my tax bill. Lee's ideas were great, so I asked him if he would put together a few thoughts for you, the Alert reader. I think you'll find the following tax tips very helpful.
Time to Talk Taxes By R. Lee Haight, CPA Year-end tax planning can be very productive, especially this year, because timely actions will result in tax savings that may not be available next year. For individuals, these actions include: the option to deduct state and local sales-and-use taxes instead of state income taxes; the option to take a standard or itemized deduction for state sales tax and excise tax on the purchase of motor vehicles; the option to take the above-the-line deduction for qualified higher education expenses; the option to take tax-free distributions by those age 70 1/2 or older from IRAs for charitable purposes, and the $8,000 first-time homebuyer credit (for purchases before May 1, 2010).For business owners, you should consider taking a deduction that the law allows for extra first-year depreciation for most new machinery, equipment and software; the ability to expense up to $250,000 on qualified asset purchases; the research tax credit; and the 15-year write-off for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements.
Also remember that alternative minimum tax (AMT) exemption amounts for individuals are scheduled to drop drastically next year, and most nonrefundable personal credits won't be available to offset the AMT.
Higher-income taxpayers and investors should consider the possibility that long-term capital gains rates could go up, so it may make sense for some people to take large profits this year. On the other hand, there no longer will be an income-based reduction of most itemized deductions, nor will there be a phase-out of personal exemptions. Also for next year, traditional IRA to Roth IRA conversions will be allowed regardless of a taxpayer's income.
Some tax planning ideas for the rest of 2009 should include:
- Increasing the amount you set aside for next year in your employer's health flexible spending account (FSA), if you have set aside too little for this year. If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2009.
- Realize losses on stock, while preserving your investment position. You can sell the original holding, and then buy back the same securities if you choose to, but remember you must wait at least 31 days to repurchase those securities without penalty.
- Postpone income until 2010 and accelerate deductions into 2009 to lower your 2009 tax bill. This strategy may enable you to claim larger deductions, credits and other tax breaks for 2009 that are phased out over varying levels of adjusted gross income.
- If you believe a Roth IRA is better than a traditional IRA, and if you want to remain in the market for the long term, consider converting traditional-IRA money invested in de-valued securities into a Roth IRA, if you are eligible to do so. Such a conversion will increase your adjusted gross income for 2009.
- If you own an interest in a partnership or S corporation, you may need to increase your basis in the entity so you can deduct a loss from it for this year.
- Estimate the effect of any year-end planning moves on the alternative minimum tax for 2009, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes.
- Accelerate big ticket purchases into 2009 to assure a deduction for sales taxes on the purchases, if you will claim a state and local general sales tax deduction instead of a state and local income tax deduction. Be careful to consider the effect caused by the AMT.
- If you are planning to buy a car, do so before year-end for the deduction of state sales tax and excise tax on the purchase.
- Businesses should consider making expenditures that qualify for the business property expensing option, which is up to $250,000 for assets bought and placed in service this year; the maximum expensing amount will drop to $134,000 for assets bought and placed in service next year. This bonus write-off generally won't be available next year.
- If you are self-employed, and haven't done so yet, set up a self-employed retirement plan.
- You can save gift and estate taxes by making gifts sheltered by the annual gift tax exclusion before the end of the year. You can give $13,000 in 2009 to an unlimited number of individuals, but you can't carry over unused exclusions from one year to the next.
These are just some of the year-end steps that can be taken to save money on your 2009 tax bill.
Lee Haight and his firm Allen, Haight & Monaghan specialize in high-income and high-net-worth taxpayers that need help with tax planning and liability management. Lee can be contacted at:
Allen Haight & Monaghan, LLP
2603 Main Street, Suite 600
Irvine, CA 92614
Phone: 949.852.9433
Email: Allen Haight & Monaghan, LLP
www.ahmcpas.com
ETF Talk: Emerging Markets Present Big Opportunities, Risks
Emerging markets typically offer the greatest opportunities -- and the most risk. If you have tracked the markets closely in just the past week, you likely noticed sizable one-day swings up and down largely due to news of debt problems from Dubai last Thursday. On that day, emerging markets dropped sharply. However, emerging markets rebounded solidly this week when those debt problems seemed isolated, and less severe than first feared.
The past week has been a lesson in why emerging markets require you to accept a heightened measure of risk. It also shows that emerging markets can be profitable whether you trade them long or short, if you do so at the right times. With markets generally trending upward in recent months, taking long positions has made sense. If you ever truly know or expect that a crisis is about to unfold, buying a wisely chosen short position can be a good way to turn a quick profit.
Dubai's move last week to try to delay repaying the debt of its flagship company, Dubai World, scared investors and pushed the markets down. The markets rebounded yesterday when reports surfaced that the Dubai World debt problem only may total $26 billion, rather than the $60 billion initially reported last Thursday. Also yesterday, the Dow industrials rallied 127 points as worry eased generally about the Dubai World debt. The fallout further was limited when leadership of the United Arab Emirates tried to steady the nerves of investors with calming public statements.
I think the worst of this Dubai debt news is behind us. For Dubai itself, there is more than just the future of $26 billion of debt at stake. Although it is quite possible that other companies in Dubai may face similar financial pain, the fallout still unfolding in the Gulf nation likely will not create anything akin to a domino effect that knocks down emerging markets around the world.
For that reason, you may want to consider riding the rebound of emerging markets with a purchase of an exchange-traded fund (ETF) such as the ProShares Ultra MSCI Emerging Markets (EET). The following chart shows that the fund dipped late last week when the Dubai debt woes hit the headlines but now is rebounding.
If you want to wait for the next crisis to hit or if you anticipate one that you think you can time, the ProShares UltraShort MSCI Emerging Markets (EEV) might be worth buying just before, or just after, news is reported about the next financial calamity. If that crisis is short-lived, you will want to sell this fund quickly.
Please be cautious about taking any ultra or ultra-short positions, since they are designed to move double the direction of a non-leveraged ETF. EET is intended to move twice the direction of the daily performance of the MSCI Emerging Markets index, while EEV is created to correspond to twice the inverse performance of the same index.
If you believe stock markets still have room to rise, emerging markets provide the greatest chance for big profits in the short term. However, if you expect the current market rally to fizzle, emerging markets could be among those that pull back the most.
If you want my advice about which ETFs to buy and sell, I encourage you to check out my ETF Trader service by clicking here. Please keep in mind that I am pleased to answer questions about ETFs. To send me a question, simply click here. You may see your question featured in a future ETF Talk.
Mortgage Rates Are Still Low -- Don't Miss Out!
Believe it or not, you still can get a cheap mortgage at some of the lowest interest rates of the year. The professionals at Miracle Mortgage are offering a free assessment of your current financing, so take advantage of this offer now before interest rates start rising.
Click here to get Miracle Mortgage's special report on the "Opportunities and Risks for Your Mortgage." To schedule your free consultation, call 888.536.3453 , or email them.
ETF Investing Strategies -- What You Need to Hear
The world of ETFs keeps getting better and better. We now can invest in almost any asset class, currency or country in the world with just a few clicks of a mouse. But in order to use ETFs properly, you have to learn a few key concepts.
Here are three important concepts you'll learn by listening to my latest audio presentation:
- How to get defensive with your stocks and mutual funds
- How to prepare for rising interest rates and how to profit from them
- Which commodity ETF deserves your attention right now
During the past several months, I have been sharing my views on how to manage your portfolio during these unprecedented economic times via this teleconference series. If you haven't yet had a chance to listen to this FREE audio presentation, then you can do so now by clicking here.
NOTE: Fabian Wealth Strategies is an SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Thoughts on Victory
"In war there is no substitute for victory."
--Douglas MacArthur
As our nation escalates the war in Afghanistan, let's hope that Gen. MacArthur's wise words aren't lost on the political powers that be.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to Ask Doug.
Sincerely,
Doug Fabian
P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.