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Listener Question – Why is the stock market holding up? & what will happen?:
Bottom Line: Today’s question was regarding the recent stock market performance (market holding in the face of the fiscal cliff uncertainty). He also offered up a hypothesis that special dividends are playing a role. Let’s dive into this question. First some numbers / factors to consider:
- 82% of Wall Street economists / firms believe a deal will happen before Jan. 1st
- The average economist believes that tax rates on investments won’t rise above 20% for cap gains or dividends
- Ten year Government bonds are only yielding 1.6% - shorter duration even less than that
- Average CD rates are 1%
- Average money market rates are under 1%
- A record December for special and accelerated dividends (set to top $100 billion)
So what’s the relevance of those numbers? The overwhelming majority of money managers and the economists the advice their firms have factored a deal getting done into current stock prices. They’ve also factored in a deal that includes lower taxes on investment then President Obama is fighting for. The President has proposed taking tax rates on dividends to ordinary income levels and dividends to 20-25%. Both levels would be higher than what the market has factored in currently.
Here’s where the rest of those numbers factor in to the recent stock market performance… Where else are you going to go with your money? Real-Estate is really the only sector that’s currently providing good opportunities right now. The stock market has been holding up rather well mainly by default. People don’t know where to go with money so it’s status quo for the moment.
The hypothesis regarding the special dividends payouts also is valid. We’re seeing a record amount of dividends being paid out in December as companies accelerate payouts into 2012 anticipating higher tax rates on dividend income. To receive a dividend you must own the equity until the ex dividend date. Many of those dates are later in December which does encourage investors to stay in those investments.
So what do you look for based on all of this?:
- There is far more downside risk to the stock market if a deal doesn’t get done than upside to the market if a deal does get done
- On investment taxation: there is only upside if taxes on investment are at 20% or less for capital gains and dividends. If tax rates are higher than 20% on either there is downside risk
- Dividends traditionally represent 67% of all stock market returns – what happens once the advance payouts end?
If it sounds as though I’m a bit pessimistic on the market short term… I am. The stock market has traditionally returned over 8% per year on average. Easily the highest return of any investment class (real-estate is 2nd at 4%). However right now real-estate is the most attractive investment opportunity in 2013, in my view.
Foreclosure rate jumped in November – why it’s great news for the housing market:
Bottom Line: The November foreclosure numbers were just what we’re looking for in a recovering real-estate market.
- Actual redemptions up 5% year over year
- New foreclosure filings down 28% year over year
Why are increased redemptions a good thing? Because of the recovering marketplace banks are able to more quickly clear the pipeline of pre-forclosed properties. The market place is digesting the increased foreclosed properties and is still appreciating at a 10% rate nationally and 25% rate year over year locally. More significantly…
New foreclosure filings were down 28% year over year showing significantly fewer distressed home owners and the guarantee of significantly fewer foreclosures a year to two years out.
http://news.yahoo.com/bank-repossessions-hit-9-month-050429657.html
Important take aways from the Fed – interest rates & money printing:
Bottom Line: Staying with the housing theme… So the Fed made a policy announcement yesterday. What actually happened and what does it mean?
First what happened:
- Fed announced it will continue to monetize the debt (print money) tfn
- Fed announced it won’t raise interest rates until unemployment rate is at 6.5%
What it means:
- US dollar will continued to be watered down meaning commodity prices will continue to remain inflated
- Interest rates will remain basically as low as they are right now for all of 2013
The implications:
- The super low mortgage rates will continue to favor real-estate next year
- The super low interest rates will continue next year meaning fixed income investments will continue to yield 1% or less
http://www.cnbc.com/id/100307060
New Google Maps app for iOS:
Bottom Line: It’s here and it’s a winner. The fully functional Google Maps app for iOS 6 devices. Apple’s map app has been the biggest failure in awhile and Google has taken advantage of the opportunity. The new Google Maps app is ready for downloading now & it includes most of the functionality of the Maps app only available on Android devices previously.
http://www.bbc.co.uk/news/technology-20694028
Update – TV ads regulation:
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