December 2012

Kreitler Financial:

We are pleased that as we head into the home stretch for the year our clients’ portfolios have generally held the gains obtained during the first nine months, this not with-standing the volatile markets and crazy world we are in. As additional good news, for our clients who have been with us for a while, our new performance reporting system shows surprisingly respectable long term returns.

We continue to live in a world with unprecedented issues. They center around the United States, Europe, and China, all of where there are great uncertainties. With what is happening in the Middle East, perhaps we should add this part of the world to our list to watch.

The US elections removed at least one uncertainty. We actually know quite a bit more than before. Most importantly, in Washington the status quo continues. Other major "knowns" include: 1) The emphasis to expand government’s role to help people continues. Those wanting a President who favored a smaller government were defeated. 2) On January 1, 2013, taxes will go up for the wealthy and most likely on all wage earners (see fiscal cliff below). 3) The Federal Reserve will most likely continue its current policies. 4) Health care reform is the law of the land and needs to be implemented.

It is too early to know what President Obama’s style will be in his second term. He could shift further to the left as he no longer needs to win another election, or he could move to the middle to seek a consensus on resolving major policy issues with the split Congress.

Everybody is talking about the "fiscal cliff". This is causing uncertainty in the financial markets and making businesses reluctant to invest. The fiscal cliff is caused by the government withdrawing money from the economy through both legislated tax increases and spending cuts, mostly hitting on January 1. These changes will go into effect unless new laws are passed.

On January 1, virtually everybody with taxable income will pay higher taxes. There are multiple reasons: 1) The Bush income tax cuts expire and tax rates go up. 2) Provisions excluding many tax payers from the Alternative Minimum Tax will expire. The majority of our clients will be subject to this onerous tax system. 3) The "payroll holiday" for Social Security ends and wage earners will be pay 2% more in FDIC payments (these finance the Social Security system). 4) High income people, to help pay for the health care law, will pay a new tax on both earned and unearned income (e.g. dividends and capital gains). This will be between 0.9% and 3.8%. Many of the above are likely to occur even if Washington resolves the income tax law issue and are the reasons we are confident most will pay more taxes to Washington.

For the last eleven months we have been working with clients to prepare for the tax increases. This has entailed a lot of one on one work. The areas getting the most attention are:

  • Roth conversions from regular IRAs
  • Accelerating capital gains into 2012
  • Utilizing the one-time $5 million gift tax exemption
  • Charitable giving
  • $13,000 gifting to individuals
  • Paying for family members’ medical or college expenses

If you would like to discuss any of these further, please give us a call.

Remember the fiscal cliff is created by our politicians, and they have the power to fix it. We suspect our government leaders will enact a broad outline as a remedy and then work on the details for the next year or two. We would like to see them streamline the tax code and make changes to social programs to assure they are solvent in the future. Even if they delay reaching agreement until next year, we doubt the world will come to an end.

Standing back from the headlines, there really is some good news from all this. Over the last several years the debate has significantly changed: more and more people are recognizing the promises we have made are too generous and we cannot afford them. This is particularly true for areas such retirement benefits and health care. Discussions on solving these problems are creeping into the talk about a "grand bargain" and this is coming from both parties. A huge change, but like an ocean liner beginning to alter its course, it takes time. You can even view the act of creating the fiscal cliff as just another step along the way as we change direction. Regardless, the increased taxes on January 1 are existing law and are the base case for planning.

On the fun side, Bob had two spectacular back to back trips this fall. First he spent two weeks in Nepal trekking to the Base Camp of Everest and then ten days in India. Bob will give a talk and share pictures of his journey on January 31 at 5:00 pm at The Graduate Club in New Haven. In Nepal, Bob was with a group of seven from Raymond James. Then with his wife he spent ten days in India at a Raymond James sponsored trip for its Chairman’s Council. This is the 8th year he has qualified for Chairman’s Council.* Through friends and connections, Bob was able to arrange for a former Indian and UN Ambassador to present a comprehensive and fantastic overview of India. You will receive an invitation later for Bob’s talk, but please mark the date on your calendar.

Charlie is heading to a high powered "Advanced Planners Study Group" session in Colorado to be with some of the best financial planning and investment minds in the country. In terms of recognition, Bob and Charlie are listed in the December 2012 issue of Connecticut Magazine as "Five Star Advisors".**

All our best for a wonderful holiday season. We are always available to serve you.

*Membership is based mainly on assets under management, education, credentials and fiscal year production. Re-qualification is required annually.

**Award selection for nominated wealth managers are based on satisfying the following criteria: credentialed as an investment advisory representative, a FINRA-registered representative, a CPA or a licensed attorney, actively employed as a credentialed professional in the financial services industry for a minimum of five years, favorable regulatory and complaint history review, fulfilled their firm review based on internal firm standards, and accepting new clients. Other criteria considered are one and five-year client retention rate, non-institutional discretionary and/or non-discretionary client assets administered number of client households served and education and professional designations.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Kreitler Financial and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results. Investing involves risk and you could incur a profit or loss regardless of strategy selected. U.S. Government Bonds and Treasury Bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.

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