1. "The Uncertainty Tax" To Our Friends of Silver Oak, We are pleased to share once again with you our current thinking, as a friend of Silver Oak Wealth Advisors. If there are those recipients who do not wish to receive our markets and economic thoughts and observations, please let us know and we will “unsubscribe” you immediately. By the same token, if you know someone you believe would enjoy being on our distribution list, let us know as well, and we will gladly add them. Now, to the topic…Joel Framson & Eric Bruck, Principals In an interview on Bloomberg TV last week, Harvard University Professor William Sahlman made a statement that struck us asClick here to learn more... profound. Answering Tom Keene’s question as to whether tax increases should have been part of the so-called “Grand Bargain” which capped the debt negotiations on Capitol Hill, Professor Sahlman noted that we have just been levied with the largest tax increase in U.S. history: he called it the “Uncertainty Tax.” Fear and uncertainty are pervasive undercurrent now, and markets (investors) hate uncertainty. No wonder markets are gyrating all over the world. Down 600 points + on Monday; up 430 points on Tuesday, down another 500+ on Wednesday and up 400+ on Thursday … this feels like the “Tornado” at Magic Mountain, without safety belts. The recent downgrade of our national credit rating by S&P served as a trigger for the recent global markets volatility that we experienced last week. However, it is already largely being ignored as the world continues to grapple with the European debt crises and mixed signals from our own economic data. It is clear that raising taxes during a weak economic recovery would cause a train wreck, potentially pushing our economy back into recession. Most of our politicians are trying to steer clear of that course. Yet the inability of our government to rise above ideological extremism has frozen our political system and rendered policy-making bankrupt. Meanwhile, the Eurozone is experimenting with economic policy to avoid potential national bankruptcies while inventing responses to overcome the economic slowdown which is plaguing the continent.
2. These issues represent only the more obvious examples of uncertainty and instability. And so, as with other imposed taxes, this de facto “uncertainty tax” continues to suck value and peace of mind from our global wellness. Although our politicians will be loathe to acknowledge this climate they have helped create as having fostered a new tax, when their actions negatively impact our wealth and leave us without recourse, we must recognize that our collective pockets are being picked once again. In 2008, we at Silver Oak recognized and wrote about the fact that the global financial marketplace had suffered serious structural damage. We then turned our macro-economic research and investment focus toward lessening the uncertainty impacting our portfolios by modifying our investment selection criteria. The success of our decision and methodology has been consistently reflected in our investment results. By choosing to build portfolios on a strong foundation of diverse income producing assets, we have created stability and steady growth in a period marked by extreme volatility. We expect the US market to continue its almost daily wild gyrations during this period. Our market’s blue chip companies are now awash in liquidity, with little intention to invest in growth; investor and business confidence is sinking. High unemployment will persist for the foreseeable future, causing consumers to further cut back the discretionary spending that is needed to resume a healthy level of corporate growth. By and large, we do not expect our portfolio gains to arise from U.S. stocks. Our skepticism and cautious, outside the box approach has served our clients well. We have striven hard to reduce the tax toll levied by uncertainty; our strategies have worked well and continue to do so. We are happy to share details of our successful approach. Please feel free to call us to learn more. As always, we welcome your questions and comments. Sincerely, Joel H. Framson, CPA/PFS, CFP® Eric Bruck, CFP® President Principal