-Dividend stocks definitely like the beat
Written by Keith Springer | 1.24.13
I write this letter from 36,000 feet, returning from a much needed, long weekend on Lanai. I took advantage of the MLK holiday and got a 5 night vacation with only two days out of the office and missed only two TV spots. It was great to see and feel the sun after the cold snap we had, and it’s good to be tan. However, now it’s back to figuring out this crazy market, which I will admit, has gone exactly as I expected.
What I find interesting is that we are at the same place we were last January, for the market as a whole at least. I’m hearing the same old song, as I am repeatedly asked how can this market keep going up in the face of all this danger and uncertainty. This time around was the resolution of the fiscal cliff, which really involved more Salsa and Swing moves around the issues, than any remedy of them. That battle will come in a few weeks when the spending cuts will be debated, so prepare your bunkers.
For now the market is celebrating the better than expected limited tax increases, especially for dividends. The dividend tax could have gone as high as 43.8% federal, plus state. However they settled on only an increase to 20% from 15%, and only for folks in the highest tax bracket. That was music to the market’s ears (like my musical references this issue?) as dividend stocks have been on fire.
The overall market also has something to celebrate as earnings have mostly been better than expected, especially for technology stocks. This has been the trend as companies have been steadily replacing workers with technology. Of course, through all of this, Apple (APPL) may have been thrown off its perch as earnings came in below estimates, with their loss being Samsung’s gain.
The elephant in the room is Ben Bernanke and The Federal Reserve continuing with the biggest gamble this nation has taken, by printing money that would lay shame to even the greatest of banana republics. The Fed is up to purchasing $85 billion dollars of bonds, mostly MBS (mortgage backed securities) that will put their balance sheet at over $4 trillion dollars by the end of the year. Are you surprised now as to why the real estate market is recovering? Think you realize what happens when they take away the punch bowl that is laced with LSD, crack, or Viagra?
We’ve seen this before, and it never ends well. That’s why many economists over several centuries have sang the same tune, “We cannot tax ourselves into prosperity … We can, however, deficit spend ourselves into poverty.” Add in the massive demographic overhang of 92 million baby boomers past their peak spending years, which I illustrate in Facing Goliath – How to Triumph in the Dangerous Market Ahead, and a crisis is brewing which will not be kind to unprepared investors. Lacy Hunt, senior economist for Hoisington, recently stated:
“Still valid is the thinking of classical economists like Adam Smith and John Stuart Mill: prosperity derives from the hard work, creativity and ingenuity of a country’s people, not by the federal government spending funds that it does not have. However, by diverting dollars from highly productive individuals and businesses through borrowing or taxes, government policy can spend a country into poverty. Transferring assets from income and wealth generators to consumption, unproductive or even counterproductive uses, however, produces failure.”
Aggressive investors can probably squeeze a bit more out of this market, but should be prepared to jump ship. Our moderate income and dividend approach has really been paying off this year. Continued stimulus can and will push the market higher, but only for so long. We’ve been sung this tune before, it’s called the bubble song. A bubble is created to pull us out of a crash, which pushes stocks to new highs, eventually leading to another burst. That has been the cycle for the last two decades. But, you can make money in any market, if you’re careful and know where to look.
Investors should take an “Invest for need, not for greed™” approach by building a properly structured, and disciplined investment strategy that is tactical and nimble enough to do well regardless of market conditions, which is what our Springer Investment Management strategy is all about. Unlike any buy and hold scheme, mutual fund program, or many other money managers, we utilize an active style to managing our client’s assets. We take what the market gives us, but with a hands-on, “tactical” approach, that can change between strategies quickly and that can go to cash during dangerous times.
If you would like to learn more and/or get a free second opinion on your portfolio, click our Appointment Request Form, or call for a no-cost no-obligation consultation today at (916) 925-8900.