I KNOW! I KNOW! This is supposed to be a tax column, showing you how to keep it, once you’ve made it.
In the same spirit of “once-you’ve-made-it,” let’s explore another area of “how-to-keep-it.” The subject: the economy. The concept is clear — fatten up your tax savings when you make it or want to pass your wealth to the next generation.
Saving taxes because you lost money is a lousy strategy. Better to not sustain the losses in the first place.
Yes, I’m concerned about the economy. No, economics is not my area of expertise. But I read a lot. I spend a small fortune reading investment newsletters. Why, you might ask? Sure, I want to enhance my own portfolio. But the main reason is my clients — mostly readers of this column — who have an intense interest in their various investments increasing in value (and, of course, being protected from disaster).
Their investments vary all over the map: stocks, bonds, CDs, mutual funds, real estate, annuities, IRAs and many others. Often the investments are owned by a family limited partnership, which they manage. Trusts where the client is the trustee are common, for their family, for charity or for a qualified plan for their employees.
My input is usually limited to and based on the best tax strategies. Economics always comes into play and we discuss it.
Following is some critically important economic stuff — really the opinions of others more qualified than I am — that I feel is necessary to pass along to my readers. When it comes to calling it right, two of the (many I read) newsletters are the cream of the crop. Here are some quotes that should get your attention.
From Curtis J. Hessler’s, “Professional Timing Service,” dated March 24:
“In all probability, the stock market is beginning to anticipate a recession, which will be exacerbated by higher energy prices.”
“There is a major recession in the wings, and it is time for you to begin to prepare for it.”
“... (A)nd now is the time to look over your stock portfolios and toss out any weak sisters you may be holding. The NASDAQ looks particularly vulnerable to a drop to all-time lows.”
From Jim Shepherd’s “The Shepherd Investment Strategist,” dated March 11, with my comments in brackets:
“I believe the ... reason long-term rates remain low is because the bond market, far larger in size than the stock market, is anticipating economic weakness going forward and the lack of inflationary pressures.”
“You may wonder: Why would Alan Greenspan [chairman of the Federal Reserve Bank] be ignoring the possibility of the environment that looks most likely to me — namely deflation? ... (H)e does not want to go out on the low note of forecasting something so gloomy as a deflationary environment ... if he were to give an honest appraisal of the true state of the economy, I believe he would have to confess that the so-called recovery was very much lacking.”
[What about real estate?] “I assure you, that a ratio [‘price to buy real estate’ to ‘rent paid’ ratio] that is screaming to us that a housing bubble has not only formed but is about to burst.”
“... (I)t [Shepherd’s ‘model,’ which he uses to make his predictions] has us in the proper overall asset class at the right time, and alerts us in advance to imminent changes in the environment. It also provides prior warning of major moves that catch most by surprise. ... such an event is close at hand.”
“I know it is frustrating to await clarification in the model. Yet, ... remember that true crash scenarios are rare ... however: with volatility readings at record lows, with small cap indices at record highs, with oil at record highs, with the aforementioned real estate bubble about to burst, with bullish sentiment amazingly high ... the end of this wait is not far off. For some it will mean devastation; for us it will mean opportunities, both immediate and in the near future ...”
“Position: Those who have not yet purchased bonds may put one-third of their portfolio into 30-year U.S. Government T-bonds. The balance should be currently held in ‘cash’ namely in short-term government securities or money market funds that only hold short-term government securities.”
Scary, isn’t it?
Here are some excerpts from Shepherd’s audio update (telephone or on the Web) on March 24:
“... (D)o not [yet] have reading [from the model] of ‘critical mass’ [actually the day everything goes to hell in a hand basket]... [But] we are very close... maybe days or weeks or even months ... waiting for reading ... biggest risk is not inflation ... but deflation [almost all stocks, real estate and even commodities lose value ... and fast].”
Yes, I’m taking the above seriously. Today is March 29. I am rushing this to all publications that carry my columns. This afternoon my portfolio looks exactly like Shepherd recommends in the paragraph above starting with the word “Position.” There are two exceptions: some positions in energy-related issues and two special medical companies.
Based on my experience, a ton of my readers will want more information with more depth on the subjects discussed above and, more importantly, how to continue getting more information on your own. I’ve prepared an information package. Want it?
Fax your request to Irv Blackman, “Economy Info,” at 847/674-5299. You must include your name, home state and fax number. I would appreciate getting your work, home and cell phone numbers, plus estimates of the value of real estate owned; value of investments owned in cash or easy to turn into cash like stocks, bonds, CDs, etc.; and the total in qualified plans, such as an IRA, 401(k), SEP or profit-sharing plan.
Irving Blackman is a partner in Blackman Kallick Bartelstein, 10 S. Riverside Plaza, Suite 900, Chicago, Ill. 60606; tel. 312/207-1040, or via e-mail at [email protected].