Written by Dave Young, President of Paragon Wealth
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
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
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.