The Presidential Election Cycle JIM’S JOURNAL
T he core concept of the
Haas Financial Money
Management Program em-
stimulus package of his own design. Usually, a stimulus
package consisting of tax cuts, target spending, rate cuts
or budgetary changes begins in the second year of office
bodies sector rotation and to make sure the economy and stock market are looking
market momentum. By that I good in time for re-election to a second term. In most
mean the various segments of cases, that results in a stock market bottom during the
our investment spectrum new President’s second year in office.
(DOW, S&P500, NASDAQ, indi-
vidual sectors, international, Most of us would probably agree by now that our current
commodities, bonds etc.) start economic and stock market conditions are far worse
at a certain point, rise to a than many of the recessions of the past 70 years. How-
peak and then eventually fall back to their starting point. ever, the solutions offered to our current dire conditions
The time involved could be only a matter of days, how- are not that different than solutions offered from Presi-
ever, in many instances, the bottom to top to bottom cy- dents of bygone eras. The current stimulus efforts actu-
cle may last weeks or years. In its simplest terms, the ally began in the last year of the Bush administration.
concept is to discover which investments are starting to Our hope is that the next bull market could logically be-
produce the strongest returns and invest in them. The gin earlier than the second year of the Obama admini-
second part of the equation is to sell before too many stration. With conditions being as bad as they are it is
profits are lost. It is a relatively easy concept to concep- very unlikely that will be the case. It is more plausible
tualize but can be reasonably difficult to implement in that 2010 will be the time before markets truly turn bull-
practice. In a nutshell, that is how I have managed the ish again. In any bear market there usually are rallies
Money Management Program until about March 2008. and sometimes very strong ones. The real question is
sustainability of the rally for an extended period of time
March 2008 brought about quite a watershed because and that is not likely to happen for awhile. If history re-
sector rotation and market momentum came to a grind- peats itself, the recovery will probably not take place for
ing halt. Almost every stock market sector and almost another year.
every bond sector was producing losses, many in double
digits. My eclectic nature told me it was time to look at I received a number of positive comments on my Time-
other strategies to possibly salvage the year and that is shares article last month in the Money Monitor. One of
what I set about to do. (As a postscript, that is how I our clients brought up the point about “disposing of the
ended up in positive territory for 2008. I used a strategy timeshare” that is no longer wanted. His idea is well
other than my core concept of sector rotation and mar- worth sharing with you if you are considering a timeshare
ket momentum.) In looking at several other strategies, I purchase. Timeshares are easy to buy but may be very
became aware of Presidential Cycles in the stock market difficult to sell when you want out of them. Until title
and thought that I would share some of my findings with passes to a new owner, you or your estate will be respon-
you. sible for maintenance fees and taxes. It may even be a
good idea to have a real estate attorney review the con-
Historically, the first term of a new president usually tract. That is where a problem comes in because if you
sees economic and stock market declines that fre- do not sign the contract before you leave the presenta-
quently extend into the second year of the administra- tion, the extra incentives offered at that time do not carry
tion. After inauguration, a new President magically dis- over for a contract signed later. Very slick! Make sure
covers that the economy is even worse than what he and check out the rescission clause before you sign and
spoke about on the campaign trail. And, the only way that will possibly give you some time to get the contract
that he can get the country out of this mess is to pass a professionally reviewed.
INSIDE THIS ISSUE: GREG’S INSIGHT DON’S DISCOURSE
Page 2 APRIL 2009
GREG’S INSIGHT Tax Credits and Deductions New for 2009
First Time Homebuyers Credit
• Available if it has been 3 years or longer since you last owned a home
• Extended through January 1, 2010
• Must stay in the home for 36 months, or credit must be repaid
• Phase outs start at $75,000 for single taxpayers or $150,000 for married taxpayers.
• At an income level of $95,000 or $170,000, the credit is no longer allowed.
• 10% of purchase price
• Credit limit of $8,000
Making Work Pay Credit
• Equal to the lesser of $400 or 6.2% of earned income
• $400 for singles, $800 for married couples filing jointly
• Available in 2009 and 2010
• Income limits; $95,000 for singles, and $190,000 for married couples
• Credit is received as an increase in payroll
Economic Recovery Payment
• Credit of $250 for Social Security recipients, retired railroad workers, and disabled veterans
• Distributed as soon as possible but starting no later than 6-19-2009
• People who qualify for this payment and the Making Work Pay Credit will have their Working Pay credit reduced
by the amount of the Economic Recovery payment.
Residential Energy Efficient Property Credit
• The credit has been increased from 10% to 30%
• Applies to cost not installation
• Credit varies per property type
• This credit will apply to property placed in service in 2009 and 2010.
• Solar panels, solar water heaters, geothermal heat pumps, wind energy systems, and fuel cells are each eligi-
ble for a no-limit credit.
New Car Sales Tax Deduction
• Allows purchasers of new cars to deduct sales or excise taxes on the purchase without itemizing their taxes.
• Limited to the first $49,500 of the purchase price
• Will be phased out at income levels of $125,000 or $250,000 for joint returns
• Only for autos purchased after February 17, 2009 and before January 1, 2010.
Benefits for the unemployed
• The first $2400 of unemployment will be exempt from tax
• If you pay 35% of the COBRA coverage, it is treated as being paid in full
• Remaining 65% will be picked up by their former employer.
All income limits are based upon Adjusted Gross Income (AGI).
The Great Depression Ahead-
DON’S DISCOURSE To Be or Not To Be?
In the past month, I’ve listened to presentations by Dana Johnson, PhD, economist
with Comerica, Robert Kleine, Treasury of Michigan, and John Smith, executive with
GM. These three intelligent people all said: Depression—no way.
I’ve subscribed to Trends an e-magazine issuing a monthly CD relating their extensive
analysis of the economic outlook and how research is and will affect our future. It
states: Depression—maybe! But, they strongly lean toward no depression. However, it
emphasizes that the USA and a lot of the world will see some hard times over the next
couple of years (at least). The March 2009 issue of Trends rendered a significant
analysis of Harry Dent’s new book, The Great Depression Ahead It agreed with most of
what Dent wrote, but differed on some important issues.
I’ve been studying Dent’s analysis of the econ-
omy for almost 20 years, when (in 1990) he
predicted that we would move into very poor
economic times by 2010. He has maintained
this position for almost 20 years and continues
to state that we will have a depression during
the decade, 2010-2020, hence, the title of his
new book. I’ve just completed reading and
studying his book, The Great Depression
Ahead and find his argument very compelling.
One issue that Dent bases a large portion of
this conclusion is on very extensive demo-
graphic studies of how people spend their
money at different ages and in different cir-
cumstances. From his analysis, he created
“The Spending Wave,” which states that as
masses of people travel through their eco-
nomic lives, they spend in patterns. Dent ac-
cepts the premise that consumerism drives the
economy (at least 70% of it) and that as a large
mass of people reach their greatest spending years, the economy is best.
The baby boomers, according to Dent, are obtaining the height of their spending wave right now and with only two-
thirds as many people in the next cohort of masses, they will, of course, spend less in aggregate, hence a weaker
Dent’s analysis states this height of spending is reached during the ages 46 to 50. The baby boomers started
reaching age 50 in 2007. Of course, millions have passed this age with many more each year starting a reduction
in spending. In his book, Dent states there are several reasons—living longer, working longer, and an attitude of
youth. However, this peak spending demographic is changing and will change from age 50 to age 60 over the com-
ing years. The effect will be to extend the date when spending decreases sufficiently postponing the date of a de-
pression. Dent obviously doesn’t believe this change is here yet.
You say, “Well, Don, that’s all very interesting, but what should I do NOW?” Let’s first establish that no one really
knows, and that includes Alan Greenspan down to everyone I’ve talked with and listened to. It certainly includes
me. That’s no help you say, and you are right.
In my last article in Money Monitor I stated the path I plan to take. It has not changed, even with the input of many
sources. I believe that Dent has it right to a strong degree.
In 2009, we will have a small recovery in the stock market. Some false turns, of course, as always, but (hopefully)
the Dow will reach 9,000-11,000. When these markers are reached, start divesting your stock market portfolio.
OF COURSE, IN OUR MONEY MANAGEMENT SERVICE, JIM WILL MAKE THESE CALLS FOR YOU.
I intend to be out of the U.S. stock market before the end of 2009.
I intend (subject to change) to stay out until at least 2012 or 2014,
when I MIGHT venture back in a little, but again, I plan to get out by
2017 and maybe stay out until 2023 (that’s my optimistic life ex-
So, what do you do with all that cash? It’s extremely important that
you stay in close contact with Mark and Jim to answer that ques-
tion. They are doing on-going research of the best places to put
cash. As a matter of fact, the services of a professional are more
important now than anytime in my 50+ years as an advisor. Take
advantage of these two great minds to help you get through these
potentially very difficult times. Depression or not, the key is to stay
flexible—don’t fight change—seek it out and stay awake. This is not
a time to snooze.
Thanks to all the readers of Money Monitor over the past 20+ years. I have loved this communication with you and
benefited from our interchange. Please contact me with your comments (248-645-1638). We can certainly have
differing views, and I welcome your input.
The following bullets are intended to provide information for those clients who own the subject investments:
• Inland Western REIT reduced its dividend to five percent and changed from a monthly to a quarterly payment.
This is a temporary response to the changing loan environment. The REIT is building up cash reserves.
• Inland American REIT reduced its dividend to five percent. The REIT slowed its acquisition program to take ad-
vantage of better deals as the markets continued to weaken. As a result, Inland American had too much cash
earning less than one percent.
• Capital Income Builder lowered its dividend and announced it would not accrue dividends. To receive dividends
for the quarter you must be invested on the ex-dividend date.
• Thornburg Investment Income Builder and Franklin Income did not announce a change in dividends.
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