Tired of Fiscal Cliff talk? Join the club.
From a pure behavioral perspective, the threat of $600 billion
in automatic tax hikes and spending cuts by the U.S. government
(AKA, Fiscal Cliff) has brought out both the best and worst in
Group one are the people completely unaware of the issue, living
their daily lives, unfettered by anything - except maybe the fact
that Starbucks (NasdaqGS:SBUX) now sells a $7 cup of coffee.
Group two denies the existence of "the Cliff." (See Paul
Krugman, Mr. Keynesian extraordinaire) As true financial atheists,
this group also denies the existence of budget deficits, bankrupt
entitlement programs - and depending on the day - grown up concepts
like financial accountability.
And what can be said of Wall Street's titans? (No, not the ones
being indicted for insider trading, but the other ones.)
No less in the very same week, we just witnessed Warren "Op-ed"
Buffett suggest a minimum 30% tax on anyone earning over $500,000
annually along with endorsing Jamie Dimon as the next U.S.
Treasury! (Read it here:
Buffett Backs Dimon for Treasury
) I know my memory is failing me, but isn't Dimon the same CEO who
characterized JPMorgan's $5 billion trading blunder as
a "tempest in a teapot?"
What do Berkshire Hathaway's "wealthy" shareholders
(NYSE:BRK-A) think about Buffett's antics? Do they approve?
And if Jamie Dimon is such a financial visionary, why doesn't
Buffett hire him to work at one of his portfolio companies
like Wells Fargo (
)? And since he knows so much about taxes, maybe Warren can become
the next IRS Commissioner.
Then there's group three - Wall Street. What do they think about
all of this?
"World Economy in Best Shape Since 2011" - Bloomberg
"Why the Fiscal Cliff is Bullish" - MarketWatch
"Wall Street Increasing Bullish about 2013" - NBC News
The latter bullhorn had this to say:
"Even the bears are bullish for 2013, a year in which
virtually every Wall Street expert believes the market will
overcome its many headwinds and post a positive year. While
retail investors have been preoccupied with worries over fiscal
Armageddon, an election that is now past and a global economy
nearing stall speed, strategists have been busy with projections
that see sizeable stock gains. Their reasons: A U.S. economy that
is on the mend due to the nascent housing recovery and an
expected surge in earnings, more cheap money from the Federal
Reserve, and a general feeling that none of the various-worst
scenarios out there will come to fruition."
"Even the bears are bullish for 2013?"
Interestingly, no confirmed "bears" were even interviewed in the
article. Presumably, they weren't available for comment because
they were too busy preparing their parachutes for "the Cliff."
Meanwhile, the bullish "Cult of Equities" is acting - well, very
Fiscal Cliff or not - we're surrounded by market dislocations. A
$7 cup of coffee costing more than a $5 draft beer should be proof
enough, but it case it isn't, consider this:
• Income investors are getting slaughtered by low rates,
which the Fed has pledged to keep through 2015;
• 15% of the U.S. or 22.4 million households are on food
• Nationwide unemployment rate is still too high, 14.6% (U-6
• Artificial interest rates are triggering a new round of
reckless borrowing; (See BATS raising $300b to pay a special
dividend along with profit challenged Amazon.com raising $3 billion
in the bond market for the first time in 15 years.)
America's aging population is another onerous problem, which the
October edition of the
ETF Profit Strategy Newsletter
thoroughly analyzed. Our aging demographic of 50+ years old people
has a lower tolerance for risk, a higher need for income, and
a shorter distance to reach their financial goals.
Higher taxes will hit this group hard.
For dividend dependent investors (NYSEARCA:DVY) - a tax
increase on dividend income from 15% to a top rate of 39.6% is the
one-two punch below the belt. (BernanQE's low rates is the other)
Don't be fooled: The acceleration of dividend payments by corporate
America ahead of 12/31 is just a short-term fix. Beyond that,
income investors will be on their own. They'll have to come up with
something better than chasing penny stocks and illiquid bonds
The anti-income investor world we live in requires an aggressive
but unconventional touch.
To that end, our $100,000 all
ETF IncomeMix Portfolio
has generated just over $9,400 in monthly income
year-to-date by combining both dividend income and money from
covered calls. Our strategies even generate cash flow on non-income
producing assets like gold (NYSEARCA:GLD).
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