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MAKING CENTS OUT OF THE NEWS
Blog #15
(October 23rd, 2008)
AH, GOVERNMENT! LOOK BACK IN HUMOR
By Tom McAllister, CFP™
I don't make jokes. I just watch the government and report the facts. (OK, I wish I'd said that, but truth be told, it's a quote from Will Rogers.) As for me, I'm justifiably tired of the presidential campaign, which began three Novembers ago, for goodness' sake! I can only imagine what Will Rogers would have to say about it all were he alive. As this blog is being written, it appears Mr. O. is set to win the presidency. On his coattails, we will have an even larger majority of Democrats in Congress. I think I know what Mark Twain would have said about that: "No man's life, liberty, or property is safe while the legislature's in session."
Looking back over my more than forty-six years as an investment and financial planning adviser, I can gain some perspective about what's in store going forward. Looking months and years ahead, I see a balancing factor: the state of our economy is likely to hamper the implementation of overblown campaign promises, which should in turn allow cooler heads to prevail in Congress. Nevertheless, some form of higher taxes on "the rich", those making over $250,000 a year, is probably in the cards. Lower corporate taxes? Unlikely. "Lower taxes on 95% of taxpayers"? It will become quickly obvious we cannot afford that. Some Bush tax cuts will be allowed to expire in the year 2010; others might be retained. The "death tax" will be continue to apply only at estate levels above $3,000,000, eliminating that concern for all but the very rich. Ah, government! 19th century economist Frederic Bastiat put it best: "Government is the great fiction through which everybody endeavors to live at the expense of everybody else."
Ready or not, a new administration is coming. So, what's a savvy investor to do? Sit tight, first and foremost. The time to sell is l-o-n-g past. To the extent you have the cash to invest, this is a good time for bargain hunting in both the equity and fixed income markets
(see
“Flight – Or Fight?”
).
Shorter term municipal bonds are a very attractive buy, but stay away from maturities longer than seven years. Some common stocks are worth a look, particularly those with dividends at historic highs. The thirty stocks in the Dow Jones Industrial Average now yield more than
the ten-year U.S. government bond! Remember, too, federal income tax on stock dividends is only 15% (versus 35% maximum for bond interest). The rational conclusion - sell government bonds, and buy municipals and high-yielding stocks. Doing nothing, while tempting (given our inborn fear response), is not the most intelligent option, I would emphasize.
One of America's greatest leaders, Thomas Jefferson, remarked wryly and, I think, so very aptly for our own time, "A government big enough to give you everything you want is strong enough to take everything you have." As I pointed out in my last blog, we can praise the Lord, but it's up to us ordinary citizens in the trenches to stay alert and "pass the ammunition".
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