Our good fortune has continued with expanded growth in the markets. This is typical of an election year and if history is any indication, there should be more of this to come. The Dow Jones Industrial Average is up over 13,000 and the NASDAQ Composite has reached a new high as well (much of this due to Apple’s meteoric rise this year). Unfortunately, as I have mentioned in previous letters, trillions of investor monies continue to sit on the sidelines in money markets, savings instruments and CD’s. Stocks continue to be cheap. When the market is bullish and on a tear: this is the place to be!
Jobs news is favorable. Nonfarm payrolls increased by 120K in March. While this was softer then expected, the reasoning is due to weather effects rather than fundamental weakening. The unemployment rate fell to 8.2%. This is only a slight drop, but it continues to go down as both the public and private sectors create more jobs. Housing continues to give us mixed results from month to month. Housing permits dropped but pending home sales are up and have reached a 23-month high. These sales numbers are up 12.8% from a year ago.
I don’t like to make it a habit of talking about politics, but there are a few things I need to mention. The first one is the growing concern of Iran and their nuclear weapon capabilities. There has been a lot of discussion in the media about Israel potentially bombing Iran or the US stepping in and doing the same. Two threats here are: 1) Iran’s attempt to block the Straits of Hormuz and 2) Iran’s 28-year quest for nuclear weapons. Iran is not the Soviet Union. They do not have the infantry (currently 650,000 soldiers) nor do they have the economic power. Their 300 billion economy is small in comparison to the United States’ 15 trillion GNP. The war of Iraq (1980-1988), in which Iran walked 12-year old boys through minefields, is in the past. The American forces defeated and liquidated their military in 22 days. While all of this could certainly have an impact on domestic and global markets, I believe it would be temporary and short-lived. While we have certainly had some tough times during the last few years, I don’t think I stand alone in saying; “It’s great to be an American.”
The second item I’d like to mention is income taxes. As it currently stands, long-term capital gains rates are set to rise from the current 15% at year’s end. This would be a problem for many investors who depend on dividend income for living expenses. Another item worth mentioning is the current Federal Estate Tax exemption. It’s currently 5MM per individual but set to drop back to 1MM at the end of this year. This will occur if Congress sits on their hands. This is going to cause many problems for people who plan to pass on wealth to the next generation. Keep these points in mind when going to the election box and choosing our next President.
