End of the Year Thoughts

As we approach the end of the year, several items come to mind.  While we normally begin to see all sorts of lists like this at this time of the year, this list is likely to be a bit different than what you might expect.  Here are some of my thoughts or concerns as we approach the end of 2010:

  1.  What will the impact be of the mid-term elections both nationally and locally?
  2. Will the stock market continue its strong run?
  3. What will Congress do, if anything, in regards to the estate tax?
  4. What will Congress do, if anything, in regards to the expiring tax cuts?
  5. How should one invest based on the above?


Let’s take a brief look at each item…..

  1.  The elections will define any new policy initiatives that come out of Madison and Washington for at least the next two years but also will impact our economy and therefore the markets in ways that are yet to be determined.  Budget deficits are on everyone’s mind from Washington on down to the local level and this election will go a long ways in determining how best to handle them.  National items such as taxes, health care, and entitlement programs such as social security, Medicare, and Medicaid will be discussed while issues such as trains, taxes, business development, and more will be discussed locally.  The markets generally like some sort of grid-lock but they also want to see things get done which may be a struggle if we have a split Congress or at least a split between the presidency and Congress.
  2. The stock market seems to have some momentum as we approach the end of the year.  My concern is have we come too far too fast over the last couple of months and is this rate sustainable?  While the elections will have something to say about this, there may be some room to run yet based on corporate earnings, which continue to come in at strong levels, and the fact that there is still a lot of cash on the sidelines that is earning next to nothing. 
  3. The estate tax rate has been a cause for headaches for estate planners for the last several years.  Yes, the taxable estate level had risen for several years and in 2010 the estate tax essentially went away but unless Congress does something the numbers return to the levels last seen in 2001 with a taxable estate beginning at $1,000,000.  Expectations are that something will get done during 2011 and that the estate tax exemption would be somewhere in the $3.5 million level. 
  4. The so-called Bush tax cuts end at the end of this year unless extended by Congress.  I am one who thinks that once tax cuts are enacted (unless over an extremely short time period) that they are the new rates that we as taxpayers are held to.  Therefore, any increase in taxes – whether due to an expiration of the tax cut or whatever – actually creates a tax increase.  So, if Congress doesn’t act it has effectively increased the tax rate on all of us.  That means less spending and possibly an added drag on our economy.   Who knows what a lame duck Congress might do in this regard.
  5. Because the markets have seen volatility lessen to some degree and it seems that fixed income rates are going to remain low for an extended period, it should be steady as she goes on the investment front.  Certainly, we have to watch corporate earnings, interest rates (any increase could have a detrimental effect on fixed income portfolios), the unemployment level, and more for signs that will provide greater direction but in the meantime now may not be the best time to make big bets one way or the other.  Stay vigilant.


Of course, I haven’t even discussed two of the biggest concerns we all share as we approach the end of the year….will the Badgers run the table and end up in the Rose Bowl or at least a BCS game and will the Packers make the Super Bowl?  Only time will tell.  Write and let us know your thoughts on these and the other issues discussed above.


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