Wealth Management Articles

Looking for a Recovery in Odd Places
The business world loves a good economic indicator. Chief executives, budget planners, small-business owners and others who must make assumptions about the health and direction of the economy take a keen interest in popular indicators such as consumer confidence, gross domestic product, housing starts, stock prices, employment data and even the price of gold. Read more...

Get Your Retirement Reality Check
Do you have any idea of how much you need to save for the retirement lifestyle you envision? If not, you’re like the majority of Americans who have never done the math. According to a retirement survey, only 47% of workers have tried to calculate how much money they will need for a comfortable retirement. Read more...

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Wealth Management Bullets

• Oil has continued its ascent from the low $30s and is now back up around $70 per barrel. Gasoline prices have followed, and some pundits are beginning to draw analogies to last summer when oil peaked at almost $150 per barrel. Before the summer is over, oil prices will likely have risen to the $80 per barrel range, and gasoline prices will probably average $3 at the pump. What’s behind this surge in oil prices? Much like last year, a good portion of it is due to speculation. There is speculation that, worldwide, economies are beginning to recover, which will cause them to need more oil. There is speculation that the dollar will continue weakening; therefore, the price of oil needs to increase. There is speculation that the major oil producers have been holding back on their exports causing a decrease in the supply. It is unlikely that the current speculative fever driving the price of oil will reach the crazy heights that it did during the summer of 2008, but it will still be uncomfortably high.
   
• Don’t ask us why, but for some reason we kept the Business Section of the St. Pete Times from Sunday, March 15, 2009. You might recall that it was on March 9th that most of the major indexes hit their lows for the bear market. The headline was “Sizing up the Bear” with a sub headline, “How far will it fall…how long will it last?” The article went on to do a comparison of other bear markets. It might be hard to believe, but on that date, the Dow hit 6440 and the S&P reached a low of 673. (Source: Wall Street Journal Financial Pages 3/10/09) As of the end of June, those same indices closed at 8447 and 919, which represent increases of 31.2% and 36.6%, respectively, in about three months and three weeks. (Source: Wall Street Journal Financial Pages 7/1/09) Earlier in June, they were even higher, but the markets have cooled a little. In that Sunday edition of the St. Pete Times, the prognosticators ran the gamut of talking about the bear market continuing to talking about the market rebounding, but no one predicted the magnitude of the rebound that has occurred in such a short time. In fact, for some time we have been talking about the Rip Van Winkle effect. If, like Rip Van Winkle, you fell asleep after having imbibed too much on New Year’s Eve and woke up on June 30, you would have found that the S&P 500 was up 3.16% year-to-date, (Source: Standards and Poors Total Return website 6/30/09) and of course you could have assumed that not much had really happened during the first six months of 2009. If you were like Rip Van Winkle’s grandfather and had been asleep for the past year, you might have asked, “By the way, what’s the price of a barrel of oil? When I went to sleep last year, the price was at almost $150. It’s half that today? My goodness, everyone should be ecstatic.” The purpose of these examples is to help you step back from being in the moment to looking longer-term. By no means are we being Pollyannaish in believing that “things have not been bad”…they have been. Job losses are at around 6 million; in some areas of the country, residential real estate prices have declined as much as the stock market and the government is running an even larger deficit than before. But in spite of all of this, as some sanity returns, we find ourselves in a realm where a base can be built upon and begin the next push toward growth in America. It’s always hard to find perspective when things are going really well, and it’s hard to find perspective when things are going poorly. It’s only with the benefit of hindsight that we can say, “Gosh, I should have known it wasn’t going to be that good/bad forever.”
   
• It shouldn’t come as any surprise to learn that the delinquency rate on credit cards is rising. However, it might surprise you to learn that the rate was 1.32% for the first 90 days of this year versus 1.19% in 2008. It appears to be a small number on a percentage basis, but when you apply it to the number of people with credit cards, it obviously becomes quite large. The average total credit card debt also increased to about $5,776 - $200 higher than it was last year. (Source: TransUnion)
   
• Not all tax legislation is necessarily bad. Some of it could actually be helpful. Let’s look at two Bills currently in the House and one currently in the Senate. Bill HR883 would repeal the 1993 provision to tax Social Security benefits up to 85% and roll the tax back to “only” 50%. If this Bill passes, it will be effective for tax years beginning 2009. Don’t hold your breath on this one! Bill HR882 raises the mandatory distribution age on IRA accounts from 70-1/2 to age 75, and if passed, the change would go into effect in 2010. It also allows people to make contributions to their IRAs through age 74 rather than 70-1/2. We give this Bill a 75% chance of passing. Let’s turn to the Bill in the Senate. Bill F978 increases the capital loss provisions from $3,000 to $10,000 and, if passed, would begin in 2009 and then be indexed for inflation going forward. This Bill probably has a 50/50 chance of passing.
   
• It was only a few months ago when many people thought that the end of the world might be coming. Then, a strange thing happened as people spent less during March and April, and spent only slightly more in May, they also began saving much more. In fact, 6.9% of income was saved during May. This is the same country that had reached a zero percent savings rate only a few years ago. While the spending of this savings would help bolster the economy, it clearly indicates that America is becoming more conservative in the use of money – at least in the short run. Some of this money will eventually find its way into various forms of investment. The question remains whether new habits have really developed or whether this is simply a short term phenomena, such as a surge in demand for hybrid cars when gas costs $4 per gallon.

Somerset's Wealth Management Team is pleased to provide this reprint with permission from ProVise Management Group, LLC, a SEC Registered Investment Advisor

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