Tag Archives: economy

The Dow Jones, Our Financial Recovery, and Your Emotions

The Dow Jones just wrapped up its strongest January in 19 years, climbing 5.8% in just 21 trading days. Last Friday, the Dow closed above the 14,000 mark for the first time since the financial crisis of 2008 sent the stock market in a (seemingly) never-ending downward spiral. And this could be the week that the Dow Jones reaches a new all-time, bypassing the October 2007 benchmark of 14,164.53.

Heady numbers, indeed. But are the Dow’s latest gains – and promises for a new all-time high – a sign of a continuing financial recovery, or are they simply an emotionally-buoyed milestone?

Mixed Signals

Despite the Dow Jones’ recent ascent, which began in earnest after the November elections and only slowed briefly during the peak of the so-called “Fiscal Cliff” negotiations, the economy has been giving out mixed signals.

In the last week alone, we’ve seen reports that fourth quarter GDP slowed to finish out 2012. The contraction was small – just 0.1% between October and December – and was largely driven by a drop in government spending ahead of the cliff, including a 22.5% drop in military spending. Consumer spending, on the other hand, was actually up during that period, as was investment spending on things like housing.

And on Friday, the Dow’s nearly 150-point gain was fueled by a rise in the nation’s unemployment rate for January. The jobless rate climbed from 7.8% in December to 7.9% for the first month of 2013, and has now been above the 7% mark for a whopping 50 months. More than 12 million Americans are still out of work: the majority of them are considered “long-term” unemployed, having been without a job for more than 26 weeks. Yet, most investor saw these tepid numbers as a sign of economic stabilization, and sent stocks soaring.

When We Reach the Mountaintop

At this point – barring any sort of catastrophe – it’s less a matter of “if” and more a matter of “when” the Dow Jones reaches that new all-time high. My question is, what do you make of it?

Do you think the march toward new records in the stock market is a sign of true economic progress, legitimate signs of financial recovery?

Or, do you think it’s a purely emotional milestone? Does it have less to do with actually improving markets and more to do with government involvement and a desire on the part of consumers to just want things to finally, finally be back to normal?

Personally, just like the mixed signals coming from Wall Street, I have mixed feelings when it comes to this inevitable all-time high. Do I think it’s a good thing? Yes. But I also have a sneaky suspicion that there may be more hype than substance to the Dow Jones’ rapid growth.

What do you think about the Dow Jones’ march toward history? What’s really behind it?

What Are the Financial Impacts of the 2012 Presidential Candidates’ Plans?

I’m not very political on this blog, usually politics and the Internet are not a good combination that result more in name calling than actual conversation.

That being said, I found a neat little website that breaks down the financial impact of the 2012 presidential candidates. It’s called Politify, it’s a non-partisan site that bases its forecasts on the candidate’s official policy platforms, as listed on their web sites, BarackObama.com and MittRomney.com.

Sounds pretty cool, right?

I gave it a shot and the site tells me that the net change to my income in 2015 would be $6,646 if Obama were reelected and $9,201 if Romney were elected. That’s a difference of $2,555, which I obviously would like to have, but in 3 years, maybe it that amount won’t be the biggest deal to me.

I took a deeper look at the tax benefits that were being claimed for me from each candidate. As expected, the site says that Romney would give me $9,200 in income tax benefits in 2015. That makes sense considering that Romney has proposed reducing the income tax rates by 20% from current levels.

However, Politify also indicates that I would receive $6,900 in tax benefits if Obama were elected, $4,739 in income tax benefits and $2,202 in payroll tax benefits. This doesn’t mesh with my understanding of Obama’s plan. I think that income rates would either stay the same or increase for someone in my financial situation.

The only way I see that working is based on what would happen if neither were elected (if tax rates increased back to pre-Bush levels), so I don’t think that Politify makes enough assumptions to be accurate. In relation to each other (that $2,555), their calculations may be close, but I don’t think their pure numbers are close enough to reality.

Financial aspects are far from the only consideration when deciding who to vote for in the upcoming election. However, it’s great to have non-partisan data to look at to determine which candidate will be better for you financially.

Readers, what do you think of the Politify application? Would you use the tool in helping to determine who to vote for?

Would Warren Buffett’s Tax Proposal Make a Dent in the National Deficit?

Last week, the Oracle of Omaha, Warren Buffett, wrote an op-ed piece in the New York Times about raising taxes on the ‘super-rich.’

To start off, here are some amazing statistics about the national deficit:

  • Each citizen’s share of the national debt comes out to $46,932.73, so it’s pretty clear that we won’t be paying off this debt anytime soon.
  • If Buffett gave his entire fortune ($47 billion) to the IRS, the government would go through that money in about 12 days.

Buffet claims that his tax rate is just 17.4% of his taxable income, a rate far lower than most people reading this article pay, and as he has bragged about time and time again, lower than even the receptionist in his office.

The reason this happens is because of the 15% capital gains tax rate, the rate at which most income belonging to the super-rich typically gets taxed.

Buffett proposed a plan that would leave the tax rates for 99.7% of American taxpayers unchanged. He also advocates continuing the current 2% reduction in the employee payroll tax that was instituted for 2011.

The plan proposes taxing those making more than $1 million a year (236,883 such households existed in 2009) and an additional tax on those making $10 million a year (8,274 existed in 2009).

Those numbers sound pretty reasonable, and while many argued against Obama’s plan of adding a tax to the “rich” making $250,000 or more, it’s harder to argue against a plan that only taxes 0.03% of Americans.

But will Buffett’s plan really help bridge the large gap between the giant deficit we are facing and the income we need to decrease it? Brian O’connell from TIME Moneyland looks into the question and gives us some specific numbers to put to Buffett’s suggestions.

Now, going back to Buffett’s plan, The Wall Street Journal estimated that taxing the millionaires in America would raise about $500 to $600 billion in additional revenues over the next 10 years, which sounds like a lot, but in reality, is about $50 billion a year, just 3% of the annual federal deficit.

So would Buffett’s plan single handledly fix America’s problem? No. But is 3% a good start? Definitely, and if it’s a choice between the rich and the poor paying that 3%, I think the choice is an easy one.