Stock Market Commentary
For the week of October 27, 2008
The Market
Declines in global markets and some disappointing third-quarter corporate earnings reports took the markets lower last week. The Federal Reserve meets this week in its last session before the presidential election. Economists expect the Fed to drop its rate a quarter to a half percentage point. This would reduce the prime rate, which banks and credit card companies charge consumers, to 4.25 percent or 4 percent, depending on the depth of the cut. For the week, the Dow lost 5.31 percent to finish at 8,378.95. The S&P fell 6.76 percent to 876.77, and the NASDAQ declined 9.31 percent to close the week at 1,552.03.
Drop Of Oil – On Wednesday, oil hit its lowest price in 16 months, dropping to $66.75. Just over three months ago, on July 3, oil set a record high closing price of $145.29 a barrel. That’s a drop of more than 50 percent.
Depression Junkie – Ben Bernanke became the Fed chairman on Feb. 1, 2006, or more than two and a half years ago. A Dec. 7, 2005, Wall Street Journal article (i.e., two months before Bernanke took office) titled, “Long Study of Great Depression Has Shaped Bernanke’s Views,” quoted him as saying, “I am a Great Depression buff, the way some people are Civil War buffs.” Bernanke attributed his early fascination with the Great Depression to conversations he had with his maternal grandmother, who had lived through the Depression in Norwich, Conn. (Source: Wall Street Journal, BTN Research).
More Buyers – The number of new and existing homes that were sold in the U.S. in 1990 was 3.4 million, essentially the same total as the 3.5 million home sales from 10 years earlier (1980). By 2005 however, the number of new and existing homes sold in the country during a single year had more than doubled to 7.5 million (Source: Joint Center for Housing Studies, BTN Research).
Mint Green – The U.S. Mint is spending about $12 million on initial promotion for a new dollar coin series featuring U.S. presidents. Back in 1995, the Federal Reserve estimated that using coins rather than bills would save $500 million annually, because coins last about 30 years – 16 times longer than paper dollars. That amount would be higher today because there are more $1 bills in circulation. The dollar coin presidential series began last year with George Washington and will continue with deceased presidents in the order they served.
WEEKLY FOCUS – Early AMT Patch
The Emergency Economic Stabilization Act of 2008, the so-called “bailout bill,” included this year’s patch for the alternative minimum tax (AMT). Congress waited until December last year to pass its annual patch, which temporarily increases the exemption amounts to prevent the tax from applying to tens of millions of Americans.
The act set 2008 AMT exemptions at $69,950 for married taxpayers filing jointly and surviving spouses; $46.200 for unmarried individuals; and $34,975 for married individuals filing separately. For 2008, the act allows individuals to offset their entire regular tax liability and AMT liability by the nonrefundable personaltax credits, according to Forefield.
Created in 1969 to ensure that the nation’s wealthiest citizens could not tax shelter all of their income from taxes, the AMT did not include a provision for indexing the tax to inflation. As a result, as the average American income grows, the number of taxpayers affected grows exponentially. Without the 2008 patch, the number of taxpayers subject to the AMT would have been approximately 24.2 million compared to 5 million last year.
By acting earlier in the year, Congress has saved the IRS from rewriting and reprinting tax forms, as it was forced to do last year. The measure is still temporary, however; the AMT exemption will reset to its stated levels of $58,000 for married couples filing jointly and $40,250 for single filers – unless Congress passes a patch again in 2009. A permanent repeal seems unlikely. The Treasury has estimated the resultant loss to the tax coffers would be $500 billion over 10 years.
If you haven’t finalized your strategies for minimizing your 2008 tax obligation, call our office soon for a review. We will gladly work with your tax advisor to analyze your situation.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Written by Securities America. SAI# 289171
