Where’s the Incentive?

05Mar09

With so many different variables effecting this current economic climate, it has to be obvious by now that recovery will take time. We are facing unprecedented difficulty in so many areas, from the financial systems to the real estate markets, unemployment rates to consumer confidence, and the list goes on. It is very difficult today to say if the actions being taken by the Obama administration are right, wrong, effective or not. Time will tell and it is quite apparent the new President is making every move with cautious and steady, long-term focus.

One thing we do know is that the US stock market has not taken well to what President Obama and his administration have done in their first 45 days. However, you have to look at this from all angles, with both short and long term perspectives. If we find ourselves with a much more concrete and high quality market 5 years from now, but have to trudge through pain for now to get there, then that’s a good result. Again, anyway you look at the troubles we’re facing today, it is going to take time.

What we would really like to see right now, while President Obama and his administration sift through these problems, is an incentive that will battle our country’s battered consumer confidence and bring investors back into the market. The obvious answer as I see it is to eliminate the capital gains tax for an interim of 24 to 36 months, for investors that that buy in and do not sell during that period of time. This is one area where I feel Obama missed the boat. Instead of pulling the trigger on this incentive, it appears for now that the capital gains tax will be raised from 15% to 20%. The Obama budget team projects this could help decrease the deficit by more than $1 billion in 2010 and as much as $20 billion in 2020, and they may be right. However, while maintaining both long and short term perspectives why can’t we implement this tax hike three years from now and use a no capital gains tax incentive in the interim to boost investment volume?

On a separate note, our clients understand the philosophy we have always operated under. We are in the market for the long haul and design risk-assessed models based on objectives, risk tolerance and time horizons. This has been a tough period for everyone. Even more conservative investors with lower exposure to the equities markets have taken a beating to some degree through these tough times. The one thing we must stress right now, as bad as it feels, is that this is not the time to sell. If you want to be in to market timing that’s your choice. You won’t be a good fit to work with our firm, but not everyone is, and you should have sold with the DOW at 14,000, not 6,600. Selling now would be the absolute wrong thing to do.

I maintain confidence in our country as the most resilient and innovative in the world, but these unprecedented times are testing those qualities more than ever. We need to keep focus on both the short and long term, and continue to work our way towards brighter days.

Sincerely yours,

Ron Sloy

Learn more about Ron Sloy.

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