The document discusses the "Uncertainty Tax" as described by Professor William Sahlman - the large negative impact on markets from pervasive fear and uncertainty. It notes that markets hate uncertainty, as seen in the wild gyrating of markets. This uncertainty stems from issues like the debt ceiling negotiations, European debt crises, and mixed economic data. The advisor discusses how their investment strategy focuses on reducing exposure to this uncertainty tax by building diverse, income-producing portfolios.

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
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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 as
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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