Solis Wealth Management Report – May 28, 2013

The Markets

Like guests feeling the first rain drops at a Memorial Day barbeque, markets responded uncertainly to Federal Reserve Board Chairman Ben Bernanke’s congressional testimony and the newly released Federal Open Market Committee (FOMC) minutes last week.

Generally, both Bernanke’s comments and the FOMC minutes reiterated what the Fed has been saying for some time. According to FOMC minutes, quantitative easing – the Fed’s purchase of $40 billion of mortgage-backed securities and $45 billion of longer-term Treasury securities each month – will continue “until the outlook for the labor market has improved substantially in a context of price stability.” The minutes also suggested the Fed’s other method for stimulating the economy – low interest rates – “will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”

Initially, stock market investors responded positively to these messages. On Wednesday morning, both the Dow Jones Industrial Average and the Standard & Poor’s 500 Indices gained more than 1 percent. By afternoon, the indices had lost more than 1 percent each. By week’s end, the indices had experienced their first weekly losses since late April.

Uncertainty about the future of quantitative easing affected bond and gold markets, as well. By Friday, the yield on benchmark 10-year U.S. Treasury note had risen above 2 percent, reaching its highest level in two months. Gold prices firmed during the week.

Fed policymakers will meet twice before Labor Day – in mid-June and late-July. The minutes of those meetings will be released three weeks after each meeting. If markets respond as they did last week, investors may experience a bumpy ride this summer.

Data as of 5/24/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-1.1%

15.7%

25.0%

15.4%

3.6%

5.7%

10-year Treasury Note (Yield Only)

2.0

N/A

1.8

3.2

3.8

3.4

Gold (per ounce)

1.6

-18.0

-11.4

5.4

8.9

14.1

DJ-UBS Commodity Index

0.2

-5.1

-0.3

2.1

-9.5

1.1

DJ Equity All REIT TR Index

-3.6

14.0

24.8

20.8

7.0

11.9

Notes: S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

the taxman cometh. If your ears are burning, it may be because the people who run state and federal governments have been discussing where to find revenue to fill budget shortfalls. Currently, the solutions they’re pursuing focus primarily on U.S.-based companies.

As corporate profits have increased, the tax strategies employed by U.S.-based multinational corporations have come under Internal Revenue Service scrutiny. According to The Economist, America’s corporate profits are at an all-time high. Yet, corporate contributions to Uncle Sam’s coffers have been far lower than they were in the past. In 1947, corporate profits were about 10 percent of Gross Domestic Product (GDP) and corporate taxes were about 4 percent. Last year, corporate profits were about 12 percent of GDP and corporate taxes less than 2 percent.

The United States government recently called a U.S.-based multinational to task because it had employed “a complex web of offshore entities to pay little or no tax on tens of billions of dollars it had earned outside America.” The company responded to the inquiry by pointing out it paid billions of dollars in American taxes during fiscal 2012 and was probably one of the biggest corporate taxpayers in the country.

Internet retailers and catalogue companies also are becoming part of the hunt for tax revenue. Under current law, states cannot compel out-of-state retailers to collect the sales and use taxes owed by residents and businesses. It is up to individuals to declare and pay those taxes. The National Conference of State Legislatures estimates the inability to have Internet businesses collect taxes resulted in about $23 billion in lost tax revenue during 2012. In an effort to help states collect these taxes, Congress created the Marketplace Fairness Act. If it becomes law, states that adopt a simplified tax code will be able to enforce sales and use tax collection by Internet retailers and catalogue companies. The Act was passed by the Senate early in May.

 

Weekly Focus – Think About It

“Adversity is the diamond dust Heaven polishes its jewels with.”

Thomas Carlyle, Scottish philosopher

 

What’s happening at Solis Wealth Management?

Please enjoy this week’s commentary from ~ Bob Medler, LPL Wealth Advisor

Not much news from the Medler household this week.  Viki and I were able to take a week’s vacation to the Mayan Riviera last week.  We enjoyed sitting on the beach and watching the sun come up and then spending the day reading and just relaxing in the sun.

Summer and Robert along with their families were here for Coachella Fest.  It was fun to have the whole family together for the three days.  The wind blew hard on Sunday night with the associated dust and sand but they managed to stay until the last band played.

Time to start getting my fishing equipment ready for our annual 5 day trip out of San Diego in July.   Hopefully the Albacore Tuna will show this year.

As always, please feel free to give us a call if we can be of any assistance. ~Bob

Best Regards,

Greg R. Solis, AIF®
President

Solis Wealth Management
78-075 Main Street
Suite 204
La Quinta, CA 92253
Office: (760) 771-3339
Fax: (760) 771-3181

www.soliswealth.com (http://www.soliswealth.com/)
E-Mail: greg.solis@lpl.com

CA Insurance License #0795867

Greg R Solis is a Registered Representative with and
Securities offered through LPL Financial, Member FINRA/SIPC

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____________________________________________

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

 

Sources:

http://www.economist.com/blogs/freeexchange/2013/05/week-american-monetary-policy

http://news.yahoo.com/column-many-interpretations-ben-bernanke-164318124.html

http://www.federalreserve.gov/newsevents/press/monetary/20130501a.htm

http://www.reuters.com/article/2013/05/27/usa-stocks-weekahead-idUSL2N0E80JW20130527

http://www.miamiherald.com/2013/05/24/3415072/how-the-dow-jones-industrial-average.html

http://www.reuters.com/article/2013/05/27/markets-precious-idUSL3N0E809S20130527

http://www.reuters.com/article/2013/05/26/us-usa-fed-summer-idUSBRE94P07T20130526

http://www.economist.com/blogs/graphicdetail/2013/05/daily-chart-14

http://www.economist.com/blogs/schumpeter/2013/05/apples-tax-arrangements

http://www.ncsl.org/issues-research/budget/collecting-ecommerce-taxes-an-interactive-map.aspx

http://www.forbes.com/sites/davidmarotta/2013/05/12/marketplace-fairness-act-adds-automation-to-tax-confusion/

http://www.prnewswire.com/news-releases/senate-passes-marketplace-fairness-act-208385131.html

http://www.brainyquote.com/quotes/authors/t/thomas_carlyle.html