Money Managers Live

Spring Housing Market Update

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

This is an interesting article for anyone interested in buying or selling a home in the current environment.  Many regions in the country are now experiencing a lack of supply which has given the sellers the upper hand.  It’s certainly a different market than the last few years to say the least.

To view the article, please visit bloomberg.com

Here is an excerpt of the article:

Strategies for the Spring Housing Scrum

By Carla Fried

It all seems so quaint now: the casual walk-throughs, the drives to check out the neighborhood, the luxury of sleeping on the largest financial decision you'll likely ever make. Trying to buy a home now feels more like being thrust into the trading pit at the Chicago Mercantile Exchange -- the frenzied bidding, the need for lightning-fast decisions, the packs of sharp-elbowed competitors.

In one fraught situation, a home near Union Station in Washington, D.C., drew 168 offers in December and sold for almost twice the asking price. In the tonier neighborhoods of Los Angeles, 20 bids per house is not uncommon, according to real estate agent David Kean. And the speed of deals can be intense. "In the middle of a snowstorm we have seen houses sell in one day," says Sam Schneiderman, owner/broker at the Greater Boston Home Team agency. "At open houses on million-dollar homes you are literally bumping into people, it's that crowded."

Finding an Edge

A dearth of homes for sale has run smack into a suddenly energized buying crowd egged on by rising values. The National Association of Realtors says the number of existing homes on the market in January -- 1.74 million -- was 25 percent lower than a year ago, and the lowest level since 1999. Over the past 12 months the inventory of existing homes for sale has dropped from a 6.2-month supply to a 4.5-month supply, the lowest level since 2005. 

Price is obviously the main lever in all deals. What’s particularly important now is to understand how the seller will handle bids. Some collect all bids and immediately choose a winner, typically the highest offer, which is often more than the asking price. Other sellers give the top three or five bidders the chance to make one counteroffer. In those instances, you want to get into the bake-off but leave yourself room to counter.

In today's tight market, some sellers are asking every bidder to counter. That's what happened to a client of Schneiderman's in the recent sale of a house in Newtown Center, Massachusetts, listed for $975,000. The seller got nine offers -- four to nine offers is the norm now, Schneiderman says -- and asked for counter bids on all nine. Schneiderman's client bid $1,016,000 and lost. The seller's agent said the winning bid was "significantly higher."

To gain an edge in counteroffers from the start, you can put an escalation clause in your original offer. With one of these, you agree to beat the top offer by $5,000, up to a limit. So if you bid $380,000 and have a $5,000 escalation clause up to $400,000, that means if another bid comes in at $385,000, you automatically agree to $390,000. 

Beyond price, buyers need to craft an offer that screams “I’m easy” to the seller. That starts with the buyer’s agent getting vital intel from the seller’s agent on what buttons to push. Some sellers are in a hurry to close. Others would love an extra month before escrow to coordinate their move. Sometimes letting the seller stay in the home for a month or more, rent-free, after a fast close can provide the seller valuable breathing room that seals the deal..........

To view the rest of the article please visit: bloomberg.com

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Potential Energy

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

Bloomberg reported today that the biggest U.S. banks are lending the smallest portion of their deposits in five years.  The banks have been flooded with cash since the financial crisis of 2008 as people have sought to conserve cash and not borrow.  Due to tighter lending standards, less credit worthy borrowers, increased regulation and capital requirements loans have not been exactly flying out the door.  This doesn’t mean banks haven’t been lending but more that they are a lot more cautious and that demand isn’t what it once was.

The economy, while growing, hasn’t felt strong enough for robust lending to reignite…yet.  Could this change?  The economic numbers, while not great, have been getting better and banks have significantly cleaned up their balance sheets and raised capital.  The potential is there.  While lending will probably not return to the levels of the past (at least for a while), it wouldn’t take much releasing of the spigots to keep the economy moving along and get better.  It’s like a virtuous cycle where once confidence and conditions improve it creates a sort of self-reinforcing momentum.

Dare I say we could be entering a sort of boom or “normal” period?  I know that sounds like heresy to so many and contrary to the gloom scenarios that having ruled the day since 2008 but I agree with James Paulsen of Wells Capital Management who says that the economy is now “gearing”.

As I have talked about before, the fly in the ointment is the Fed.  As the economy strengthens it will have to reverse its easy money policy and shrink its tremendous balance sheet and these actions act as a drag on the economy.  This is one of the reasons why I never liked so much QE and have always said that the Fed’s big test comes when they have to start reversing policy and whether they will have the guts to do it.  For now the Fed is in no hurry to reverse course and with their stated target of 6.5% unemployment they could be very slow in the process of reversing course when that time comes.

Politically it will be difficult.  That means we could enter a period where, with the aid of increased lending, the economy picks up for some years before the Fed finally takes away the punch bowl.  That means that stocks and the economy could do well for a while before inflation forces action.   

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

What To Ask When Hiring a Financial Adviser

Written by Dave Young, President & Founder of Paragon Wealth Management

For some reason, it has always been easier to lose money than it is to make it and keep it.

Managing your own investments can be done successfully, but it is not easy. First, it requires a time commitment to research and track your investments. Second, it requires discipline to stick with your strategy through challenging times. Third, and most difficult, it requires you to remove emotion from your investment process.

Studies have shown that most investors would be better off with the help of a financial adviser. Unfortunately, finding the “right” adviser is difficult. Most investors hire someone they “trust”. However, “trust” is very intangible and difficult to quantify. Also, the size of the firm or familiarity of the brand name does not indicate the quality of the advice provided.

To make sure you don’t get stuck with a salesperson when you are really looking for an adviser, make sure you ask these four questions:

• Fiduciary? Fiduciary advisers have a legal obligation to put your interests ahead of their own.  A minority of all financial advisers actually meet the fiduciary requirement.
• Experience? How many years have they been managing money? Ideally, your adviser has experience investing in both good markets and bad markets. In the final analysis, you are paying an adviser for their experience.
• Track record? Legitimate advisers will be able to show you a clear report of what they’ve done for their clients over the years. Any adviser who refuses to show you their past performance should be crossed off your list.
• Conflict of interest? By working only with advisers who are paid through management fees and not commissions you can make sure their interests are aligned with yours. You should never own a product with a surrender charge.

As I mentioned, it has always been easier to lose money than it is to make money. Implementing these tips will help you find a great adviser.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

2013 Opportunities and Focus

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

Overall, we currently see a positive year in 2013 for equity markets.  The negative effects of higher taxes and somewhat lower government spending will be offset by improved corporate spending and economic growth as the year goes on.  Companies and consumers have been cautious now for years and that could finally reverse in 2013 resulting in better economic growth.  This could help the market’s current low to medium valuation multiple to expand thereby benefitting stocks overall for the year.  The Fed should stay in continued easing mode as they try to boost inflation.  Government policy wants you to spend not save.  We remain cautious on bonds and are still avoiding Treasuries and long-dated maturities.  The risk for reward is still very unattractive in this area.  There will be the usual ups and downs throughout the year and the now seemingly ever present uncertainty caused by government action and policy will continue to be over the market’s shoulder.

Starting to Look Abroad

It’s has been awhile since we have had a significant position in foreign markets.  We have been waiting patiently since the financial crisis for the emerging markets to reassert themselves and it looks like the time has finally arrived – or at least started to.  The reason this excites us is because the inherent growth story associated with emerging market countries is now coupled with attractive valuations.  The past few years have seen the U.S. market outperform on a relative basis.  In fact, the S&P 500 has returned about 18 percent for the last two years while the MSCI Emerging Markets Index was down over 3 percent.

We are seeing signs that the tide is starting to shift.  Over the last three to six months the emerging markets area has outperformed the S&P 500 on a relative basis.  The deceleration in growth rates for many emerging market economies appears to be stabilizing.  Chinese manufacturing PMI improved for the fourth month in a row in November to the highest figure in seven months.  This adds to the evidence that the Chinese economy is on the mend and starting to recover.  By the way, when I say recover, I mean returning to an 8% growth rate.  Due to their stronger fiscal situations, many emerging market countries have more flexibility in enacting economic stimulus measures.  Recent moves by many countries indicate that they are starting to move more aggressively on this front.  Brazilian policy makers recently cut reserve requirements for lenders to stimulate investment in Latin America’s largest economy.  The recent leadership change in China has heightened speculation that more measures will be introduced to boost consumption. 

Growth Potential

The main reason why emerging markets matter is because of their growth potential. Stronger economic growth turns into strong earnings growth over the long term and that is what ultimately drives stock prices higher.   Over 80% of the world’s population lives in emerging markets and their workforces are young and increasingly educated.  These economies experience a structural change as middle classes emerge with individuals achieving rising levels of wealth.  They are often rich in resources and labor.  Their gross national incomes and per capita incomes are small compared with developed economies.  As these countries open their economies and enact policy reform there is dramatic potential for their incomes to climb.

Compared with developed markets, emerging markets have historically had greater return and volatility.  The volatility rises from the ever present risks inherent with emerging markets:  political uncertainty, regulatory and corporate governance issues, and the dominance of state owned firms.  Because of these factors, investors demand greater return to compensate for the heightened risks.  The higher volatility normally associated with emerging markets will still be a factor going forward.  In addition, the currencies of many emerging market countries could strengthen on a relative basis due to their stronger fiscal situations offsetting some of the possible advantage.

Normally, stocks or sectors with higher growth rates command higher valuations.  Emerging markets currently have higher growth rates and lower valuations.  This spells opportunity.  The current price to earnings multiple for emerging markets is about 11 compared to 14 for the S&P 500.  This is about a 27% difference and indicates some of the relative value that we believe exists in this area.  These low valuations could help to cushion any downside if markets fall and provide more upside if markets rally.  The main reason that valuations in emerging markets have come down is because their growth rates have come down from the lofty levels usually experienced when growth first kicks in. Part of the reason for the slowdown has been from the effects of the worldwide recession which emerging markets are not immune from.  However, part of the slowdown comes as these economies start to develop more domestic demand and transition from relying primarily on exports.   For example, China and India had growth rates of 14% and 10% respectively in 2007.  Those rates have now come down to 8% for China and about 5.5% for India.  By comparison, U.S. GDP growth estimates are currently around 2.5%.  On the whole, we believe the better growth and cheaper valuations of emerging markets offer a compelling opportunity compared to the risks.

Other Areas of Focus

Closer to home, the U.S. sectors we like are healthcare and some of its sub-industries such as healthcare providers and pharmaceuticals.  The financial sector looks favorable as it has gone through years of cutting costs and employees and is no longer burdened by toxic assets.  This could set the area up for better profitability going forward.  We see other intermittent opportunities in technology, homebuilders and energy throughout the year.   As U.S. fiscal contentions could last all year with no quick fixes it might be time to look outside the U.S. for the best relative opportunities.  U.S. valuations are reasonable at current levels considering artificial low interest rates.  Retail investors are still woefully underinvested as they continue to fight the specter of 2008.  This bodes well for equity markets overall and emerging markets in our opinion could be one the best areas of the market.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

The Year In Review

Written by Dave Young, President & Founder of Paragon Wealth Management

2012 continued the volatility that’s characterized markets since the global financial crisis, which will be marking its fifth anniversary in September.  This year's market moves were driven by three primary issues, Europe, the Middle East, and U.S. Politics.

We had a back and forth flow of good and bad news all year out of Europe.  Positive indications for Europe’s economy in the first quarter led to the strongest start for markets in recent memory.  These gains were promptly given back as concerns rose in the second quarter. Markets then rallied in the second half of the year when the European Central Bank announced that it would provide liquidity to governments and financial institutions – to the point that for 2012 as a whole, Europe’s stock market actually outperformed the U.S.

Middle East problems added to the mix this year.  This time it was Syria, Libya, Egypt, Israel and Iran that kept things stirred up.  Problems there always add an element of fear to investors in the U.S. 

Our politicians provided a lot of political theater due to the election year.  Markets rallied from June through October and then sold off into the election.  After a short post election sell off, the markets surprised a lot of nervous investors and rallied through December.

The final act of the year was the drama surrounding the "fiscal cliff".   According to the press the fiscal cliff was the "Big Scary" issue that was going to sink the stock market.  Instead, our politicians came through an hour before year end and voted on a 150 page bill they had three minutes to read.  As usual, it doesn't cut spending, doesn't significantly raise revenue and kicks the can down the road another few months.  The more things change the more they remain the same.

Overall the year was very volatile and very choppy.  The surprise this year was that in the face of all of the negative news most markets moved higher. 

The Outlook for 2013

In the short term, through 2014, there are a lot of reasons to be bullish on stocks.  The US housing market has hit bottom and should be a positive force in 2013.  Growth in the middle class in emerging markets will continue to provide opportunities for investors and for companies selling into those markets.  Huge new oil discoveries should put a cap on the price of oil, which is always a boost for the economy.  Stock valuations are still favorable.  Low interest rates that hurt bonds are very good for stocks.

Over the long term, I have some serious concerns.  The biggest obstacle is going to be the debt that our politicians continue to grow.  We are 16+ Trillion in debt and going further into debt every day.  Forty two cents of every dollar that the federal government spends is still borrowed from our kid's and grandkid's future. Based on current policy, that 16 Trillion dollar debt isn't going to magically disappear.  At sometime in the future it will have to be addressed.  If it isn't then we will experience a real cliff.  That is the one that we will be watching out for. 

Investing is difficult.  It rewards those who have the discipline to stick with their long-term strategy during challenging times. It punishes those who jump in and out and are always chasing what worked most recently.

Always focus on what you can control.  That includes managing your risk by making sure your risk tolerance is set properly.  Following a disciplined, systematic process that has a long term track record.  Stay focused on your strategy and let the long-term results take care of themselves.

We appreciate the opportunity to be your financial advisor.  Please contact us if you have any questions or concerns. 

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

GARP?

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

Growth at a reasonable price, or GARP as it’s known in the investment world, is practically the holy grail of investing.  Whether you’re a value or growth disciple (or any other type of investor for that matter) in the end everyone wants the same thing – their investment to go up.  Short sellers excluded of course.  GARP is theoretically the best of both the value and growth worlds.  Who wouldn’t want a stock that is cheap and has good growth? 

The risk with value investing is that the stock is cheap not because it is undervalued but because its fundamentals are deteriorating and offer little prospect of reversing.  It’s the classic value trap that many fall for.  The risk on the growth side is that stocks with higher growth rates tend to be expensive and priced for perfection.  Any disappointment can bring the stock down in a hurry.

In actuality, most GARP stocks fall somewhere on a continuum of relative growth to value and an investor or manager decides what their threshold is.  Because I view investments in a relative manner I have always like the idea comparing growth to value as a way of finding good investments.  For example, right now one of my favorite investment ideas is in the emerging markets.  The MSCI emerging markets index trades at a PE of 11 compared to 14 for the S&P.  That is about a 30% difference.   In the past emerging markets have traded at premiums to developed markets to compensate for their growth and risk.  While growth rates in emerging markets have come down from the lofty levels of the past, they are still much higher than in developed countries (e.g., 2.5% for U.S. vs. 8% for China, 5.3% for India).  I believe this is a great GARP opportunity as emerging markets have cheaper valuations and better growth than many developed markets.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Fiscal Cliff Continued...

Written by Dave Young, President of Paragon Wealth Management

The financial world was about to go over the fiscal cliff.  Our world was ending as we know it.  But then, our trusty politicians came back to save us.  At the very last minute, they came to an agreement.   President Obama even came back from his vacation in Hawaii to be there. 

Everyone cheered.  The stock market jumped 300 points the next day.  

We followed our models and our portfolios performed well through all of the stress and uncertainty.

So what really happened?

Not much.  Payroll taxes were put back to what they were before the payroll tax holiday - which will cost average wage earners somewhere between $500 and $2000 per year, depending on your income.

Of course, the rich, who are regularly told don't pay their fair share, were mandated to pay more.  Their top marginal rate was increased from 35% to 39.6%.  I guess they can feel grateful that their tax didn't go up to 40%, just 39.6%.  It's kind of like when they price gas at nine tenths of a cent so you feel better about it. 

The definition of rich was changed again.  For at least the next few months, single rich people earn $400,000 and married rich people earn $450,000.  I guess it's important to define who is "rich" so that we know who should pay everyone else's bills.  

The estate tax exemption was set at $5,000,000 per person.  That was relatively positive because for the first time in a decade there will be some certainty around estate planning.  Unfortunately, for planning purposes, it's nice to know how much more the government will take when you die...

At the end of the day, nothing has really changed.  We are still 16+ Trillion in debt and going further into debt every day.  There were virtually no cuts made to government spending in this agreement.  Forty two cents of every dollar that the federal government spends is still borrowed from your kid's and grandkid's future.

So, for now - until the next politically induced crisis - we should have some stability in the market.  That crisis will be the debt ceiling debate.  It should occur between now and March.

The fundamentals of the market actually look fairly positive for 2013.  Based on our models and the economic trends, I am positive on the economy and the market for the next couple of years.  The issue is whether or not our leaders will continue to create unnecessary uncertainty.

In summary, over the short term, market conditions look good.  Over the long term, I have some serious concerns.  Based on current policy, our 16 Trillion dollar debt isn't going to magically disappear.  At sometime in the future it will have to be addressed.  If it isn't then we will experience a real cliff.  That is the one that we will be watching out for. 

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

The Entitlement Trap

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

I read in the Wall street Journal today that the Tax Foundation notes that almost 70% of Americans take out more from the tax system than they put into it.  Seventy percent!  No wonder the debate about the fiscal cliff is primarily focused on taxes.  It’s a great strategy to distract people’s attention away from the real problem – spending.  Is it inevitable that as democracies age their citizens become accustomed to the resulting prosperity and take it ever more for granted by voting themselves ever more entitlements?   Entitlements are always so very well intentioned and therefore difficult to argue against in a moral sense.  After all, who wants to deny assistance to Sandy/Katrina victims, single parents, the homeless, those who can’t afford college (isn’t that everyone now?), retirees, “working families”, farmers, the unemployed – the list is unfortunately now endless. 

The problem is that eventually the entitlements and spending become unsustainable.  So how do we break this vicious cycle?  The problem is offering entitlements in the first place.  No one ever wants their entitlements cut or taxes raised per se (despite what Warren Buffett says).  We usually want someone else’s benefit to be cut or taxes raised.  The mega rich often support higher taxes on themselves because it won’t materially change their lifestyle but it does create barriers to entry to more people becoming like them.  It entrenches their place at the top.   But I digress, once begun entitlements are hard to end.  Think about it on a personal level, if you get a deduction for a mortgage or tax credit for children do you want those ended or reduced?  No, because it means your refund will go down or tax payment will go up – either way you’re out of more money.  In fact, if offered an entitlement it behooves you to take it because if not than you will be worse off economically on both a relative and absolute level.  You don’t have the option for either a mortgage deduction or a lower rate.

Now let’s say you’re idealistic and want to take a stand against the growth of the entitlement state that will eventually end in great pain.  You decide to take the high road and refuse any entitlement offered by the government.  Great, except for the fact that you will become progressively less well-off as time goes by.  On a relative basis this could become very painful as others who take the entitlements maintain or increase their standard of living – at least until it all comes crashing down.  The more entitlements grow and replace things that people purchased before on their own the more expensive or difficult those things become to obtain in the private market.  Thus if you chose to forgo entitlements it would progressively become harder to maintain your standard of living.

Entitlements are such a catch-22 in that one almost “has” to use them and that eventually they can bring the whole system down.  The only way to avoid their deleterious effect is to not enact them in the first place or to severely limit their use.  However, everyone likes “free” goodies and politicians use this to their own advantage.  It creates the entitlement trap that can eventually bring an economy to its knees.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

Fiscal Cliff...

Written by Dave Young, President of Paragon Wealth Management

So here we are again.   Another saga of politicians making promises, trading accusations and accomplishing nothing of substance.  It's been said that the definition of insanity is doing the same thing over and over and expecting a different result.  So what does that say about our "leaders" in Washington?

It's obvious we have a 16 Trillion and growing problem.   One side believes that the solution is to keep increasing taxes...as long as we only do it to the "rich".  The other side believes that the only solution is to cut government spending.

This impasse brings us to what the media loves to call the "Fiscal Cliff".

What makes the Fiscal Cliff such a great title is that it sounds really scary.  Fear increases attention.  Increased attention translates into more viewership.  More viewership translates into more revenue for the media outlets.  As a result, the media loves scary things, real or imagined.

In reality, if our politicians cannot agree on a solution then that will create a problem.  That problem will be more of a fiscal slide over time rather than the fiscal cliff that has been portrayed.  If the slide occurs it will likely take months to play out before it has any direct effect on our economy.

If it did play out over six months or more then the revenue that would be sucked out of the economy could potentially push us into another recession.  If that recession played out then that would be bad for all investments.

Even though it would take months to play out from a practical standpoint, potential selling could be immediate and more severe if investors act emotionally and start selling just because they are scared. 

In the previous politically induced potential calamities, ie. the European Crisis, the Debt Ceiling Crisis, and the U.S. Treasury Debt Downgrade Crisis... politicians reacted by effectively doing nothing and kicking the can down the road.  In the end, they did what they always do and went back to spending more of other people's money.  

There is a decent chance that they will do nothing.  Not because it is the right thing to do...but because it is politically advantageous.  If they do "something" it will likely not help the core debt problem.  However, just going through the actions of doing something would likely have a positive effect on the markets.

In my opinion, I believe that if the market does sell off because of what the politicians do, I don't think that it would be long lived.  In other words I would expect the losses to be reversed over the following months just like the previous political meltdowns.  On the other hand, if they come to some agreement that is viewed positively by investors then there is a decent chance we could see some upward market movement.  In short, I think that there is more downside for investors by being out of the market right now than there is to stay invested.  Keep in mind, unfortunately, I can't see into the future, and markets are free to do whatever they want.

In the end, the most important thing to do is make sure that your risk tolerance is set at a level that you can live with.  Make sure you are comfortable with your mix of conservative versus growth oriented investments.   If your risk tolerance is set properly, then you should not be stressed regardless of how things play out.  As always, please contact us if you have any questions or concerns.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

How Tax Rates Affect Business Decisions

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

This is an absolutely great piece in the op-ed section of the Wall Street Journal last Friday about the hypocrisy of those who support higher taxes and claim that tax rates don’t affect business decisions!  I urge all to read! 

To view the entire article please visit: wsj.com

Here is an excerpt from the article:

When President Obama needed a business executive to come to his campaign defense, Jim Sinegal was there. The Costco co-founder, director and former CEO even made a prime-time speech at the Democratic Party convention in Charlotte. So what a surprise this week to see that Mr. Sinegal and the rest of the Costco board voted to give themselves a special dividend to avoid Mr. Obama's looming tax increase. Is this what the President means by "tax fairness"?

Specifically, the giant retailer announced Wednesday that the company will pay a special dividend of $7 a share this month. That's a $3 billion Christmas gift for shareholders that will let them be taxed at the current dividend rate of 15%, rather than next year's rate of up to 43.4%—an increase to 39.6% as the Bush-era rates expire plus another 3.8% from the new ObamaCare surcharge.

More striking is that Costco also announced that it will borrow $3.5 billion to finance the special payout. Dividends are typically paid out of earnings, either current or accumulated. But so eager are the Costco executives to get out ahead of the tax man that they're taking on debt to do so.

Shareholders were happy as they bid up shares by more than 5% in two days. But the rating agencies were less thrilled, as Fitch downgraded Costco's credit to A+ from AA-. Standard & Poor's had been watching the company for a potential upgrade but pulled the watch on the borrowing news.

We think companies can do what they want with their cash, but it's certainly rare to see a public corporation weaken its balance sheet not for investment in the future but to make a one-time equity payout. It's a good illustration of the way that Federal Reserve Chairman Ben Bernanke's near-zero interest rates are combining with federal tax policy to distort business decisions.

One of the biggest dividend winners will be none other than Mr. Sinegal, who owns about two million shares, while his wife owns another 84,669. At $7 a share, the former CEO will take home roughly $14 million. At a 15% tax rate he'll get to keep nearly $12 million of that windfall, while at next year's rate of 43.4% he'd take home only about $8 million. That's a lot of extra cannoli.

This isn't exactly the tone of, er, shared sacrifice that Mr. Sinegal struck on stage in Charlotte. He described Mr. Obama as "a President making an economy built to last," adding that "for companies like Costco to invest, grow, hire and flourish, the conditions have to be right. That requires something from all of us." But apparently $4 million less from Mr. Sinegal......

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