Month: December 2013

By The Sizemore Letter

This time of year, it’s easy to get wrapped up in the holidays and push unpleasant things like tax planning into January, but believe me — a few tax tips will actually come in handy sooner than later.

For some tax decisions — such as how much to contribute to an IRA or Roth IRA — waiting is perfectly fine. You until have April 15 of next year to make your 2013 contributions. However, you should start your planning now, and we have plenty of tax tips for you to use before year’s end.

Changes to the tax code are scheduled to be minor in 2014, so you don’t need to do anything too drastic. But it still makes sense to pull as many tax breaks into your 2013 tax return as possible.

Uncle Sam doesn’t pay you interest on any refund due, after all, and effective tax rates are slightly higher in tax year 2013 than 2014 due to inflation adjustments that will raise the income levels in each tax bracket. For example, in 2013, the 28% tax bracket starts at incomes of $87,851 for an individual. In 2014, it starts at incomes of $89,351. So if you can lower your tax bill this year, it certainly makes sense to do so.

Today, we’re going to look at seven tax tips that will help you do exactly that:

Tax Tip #1: Max out your 401k contribution

In both 2013 and 2014, the maximum personal contribution you can make to a 401k, 403b or 457 plan is $17,500. And if you’re 50 or older, you can toss in an additional $5,500 for a total of $23,000.

Remember, this is only the portion of your salary that you contribute yourself; your employer also may match up to a certain percentage of your salary.

If you’ve fallen behind in your 401k contributions, there is one quick way to catch up. If your plan will allow it, you can put up to 100% of your December paychecks into your 401k plan. This assumes that you have enough money socked away to effectively forgo a month’s worth of pay — and a month that happens to include the busiest shopping season of the year.

But if you can afford to do it, you should. You’ll pay less in taxes this year and give yourself a head start in your 2014 financial goals.

Tax Tip #2: Contribute to an IRA or to a Roth IRA

In 2014, you can contribute $5,500 to an IRA or Roth IRA and $6,500 to either if you are age 50 or older. These contribution limits are unchanged from 2013, but there are a few changes you should know about concerning income limits. This is one area where the IRS really punishes success, and that is a shame.

In 2013, if you earn $59,000 and have a 401k or similar workplace retirement plan, your IRA contribution tax deduction starts to get phased out, and at $69,000 it gets eliminated altogether. In 2014, these amounts get raised to $60,000 to $70,000, respectively, but this means that plenty of Americans are still denied a fantastic tax break due to their earnings “too much money.”

If you don’t have a workplace retirement plan but your spouse does, you still can contribute to an IRA and get a tax break. But it starts to get phased out $178,000 in combined income for the couple and is eliminated altogether at $188,000. In 2014 these limits get raised to $181,000 and $191,000, respectively.

Roth IRAs are also getting higher income cutoffs in 2014. The AGI phase-out range for Roth IRA contributions will be $114,000 to $129,000 for individuals and $181,000 to $191,000 for married couples — that’s up from $112,000 to $127,000 and $178,000 to $188,000, respectively, in 2013.

If you qualify for a Roth contribution, do it. The Roth IRA is the best retirement vehicle ever created in this country. But if you don’t qualify for a Roth, a traditional IRA still is worth considering, even if you have a 401k at work and you’re disqualified from the current-year tax deduction. You still benefit from tax-free compounding of capital gains, dividends and interest, and you also enjoy the lawsuit protection and estate planning benefits of an IRA.

Tax Tip #3: Adjust the timing on your investment sales to push gains into next year and losses into this year.

You should never — and I repeat, never — make an investment decision based purely on tax minimization. Taxes should be a consideration, but fearing the tax man alone is not a legitimate reason to hold on to an appreciated investment you feel might be at risk, nor is it a legitimate reason to sell an investment that has fallen in value but that you still feel is a bargain.

That said, if you’re going to do a little portfolio pruning, this is a good time to do it. We all make that occasional bad investment, and it’s prudent to cut your losers.

And if you’ve been looking to take profits or rebalance, it makes sense to wait until after the first of the year, so long as you’re observing your usual trading rules (following stop losses, etc.)

If you sell an investment to harvest a tax loss, you’re subject to the wash sale rule. This means that you can’t buy it again within 30 days if you want to claim the loss for tax purposes. But there is absolutely nothing in the rulebook that says you can’t buy substantially similar securities. For example, you could take a loss in the SPDR S&P 500 ETF (SPY) and buy the iShares Core S&P 500 ETF (IVV) the very same day and not be subject to the wash sale rule.

Given that the market is near all-time highs, portfolio losses might be few and far between. But it’s good advice to keep in mind during the next correction.

Tax Tip #4: Make a large contribution to a Health Savings Account (HSA).

This is only applicable if you have a high-deductible health insurance policy that is compatible with HSAs, but millions of Americans — and particularly the self-employed — fall into this category.

The uncertainty surrounding Obamacare complicates matters in 2014. Assuming no changes to the Affordable Care Act, HSAs still will be available, even if the connected insurance policies are more expensive. But the entire healthcare industry is in a state of flux right now, and HSAs might no longer make sense once the dust settles.

I’m a big fan of the HSA structure because it encourages patients to be more careful with their medical dollars and gives them a degree of power they don’t have with traditional insurance, but you really have to run the numbers for yourself. If a bare-bones insurance policy is all you need, then you might as well take advantage of the tax breaks.

HSA contributions give you a similar tax breaks as traditional IRAs. In 2013, an individual policyholder can contribute a maximum of $3,250, and a family can contribute $6,450. Next year, the limits rise modestly to $3,300 and $6,550, respectively. If you’re age 55 or older, you can chip in an additional $1,000.

Unlike IRAs and Roth IRAs, HSAs are not subject to any income limitations.

Tax Tip #5: Get any elective medical or dental work done in 2013

Medical expenses not covered by your health insurance are deductible in 2013 if they exceed 10% of your adjusted gross income. And if you’re 65 or older, you benefit from a lower threshold of 7.5% of adjusted gross income.

If you have a high-deductible health insurance policy or somehow managed to find yourself uninsured in 2013, it can be remarkably easy to hit those levels. Ten percent of an AGI of $75,000 would mean that you need only $7,500 in medical expenses to take this deduction, and plenty of Americans spend more than that in a given year. Keep good records of all of your medical expenses — everything from doctor visit copays to prescription drug refills — and popular tax programs like Turbo Tax and TaxAct can calculate

It absolutely never makes sense to get unnecessary medical work done to get a tax break. But if you’ve been putting off an elective surgery or even needed dental work, you might as well do it now if doing so will get you over the deduction threshold.

Want an extreme example? I write this tongue-in-cheek, but I’ve seen people do more drastic things for a tax break:

If you are an expecting mother and have a scheduled caesarian delivery planned for the first two weeks of January, ask your doctor if moving the delivery into 2013 is a possibility. You have 18 years of living expenses to pay before you send junior to college. You might as well get the medical deduction this year, as well as an extra year of the child tax credit and the $3,900 dependent exemption for 2013.

Tax Tip #6: Pull charitable contributions forward

If you give regular sums of money to a church or charity, consider making any contributions you originally planned for the first quarter of next year to December. Or, if you don’t regularly give to charity, this might be a good time to start.

Cash contributions are the easiest and most likely to survive an audit. But the IRS is actually pretty generous when it comes to donating things like old cars or old clothes. For low-hanging fruit, spend a Saturday cleaning out your closet. Chances are good you can generate a couple hundred dollars in tax breaks by donating clothes that you’re no longer wearing. Just make sure you keep good records about the items donated, the condition they were in, and the date you donated them. If you want to be meticulous about it, take photos of the items with your camera phone and file them away with your tax materials for the year.

Reaching an estimated value can be tricky if you’re trying to do it on your own, but popular tax programs like TurboTax and TaxAct will walk you through the process and help you assign proper values.

Tax Tip #7: Get creative with your monthly bills

No one ever complains about getting paid too early, and your creditors are no exception. If you mortgage payment falls near the first of the month, make your January payment a week early this year.

You have to be careful that your mortgage lender understands that you are making the January payment and not simply making an unscheduled principal reduction. There is nothing wrong with reducing your principal early, of course, and I recommend that you do exactly that if your cash flow allows. But for the purposes of minimizing tax, you’re specifically looking to get another month’s worth of interest on the books.

The same goes for health insurance premiums if you pay your own. If your regular payment date falls in early January, pay it early.

If you own your own business or utilize a home office, you have a lot more leeway here. You can pay your electric, phone and Internet bills a couple weeks early. And you can buy basic office supplies or equipment a little earlier than planned.

Will any of these prepayments make a huge dent in your tax bill? No, probably not. But every dollar not spent paying taxes is a dollar available to be spent on something else in 2014.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.

This article first appeared on Sizemore Insights as 7 Tax Tips to Use Before the End of 2013

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By George Leong, B.Comm.

Today is Cyber Monday, when consumers will flock online and spend over a billion dollars. In 2012, $1.47 billion in sales occurred on this day and the expectations are that the number could swell to $1.68 billion today. (Dengler, P., “Cyber Monday Predictions For 2013,” Business2Community.com, October 28, 2013.) We will also find out today how Black Friday and the key weekend shopping period were for the retail sector. A big surprise and the stock market will reach higher.

The stock market has shown little signs of wanting to slow and is continuing to show bullish investor sentiment and the ability to move higher this month and into 2014.

The S&P 500 is at 1,800 and the DOW Industrial at 16,000. The positive momentum is in place for additional gains. The S&P 500 moving to 2,000 next year, up 11.11%, is realistic depending on what the Federal Reserve does and how the economy behaves. The Dow 20,000 may have to wait a few years. Of course, this is contingent on the five-year bull market holding.

On the charts, technology and small-caps continue to lead the broader stock market higher. The NASDAQ closed above 4,000 for the first time since September 2000, when the index was on the decline after trading at a record 5,132 in March. The buying in technology and growth is not a surprise, as buyers have chased risk and potential this year. The top sectors offering the most sizzle at this time are Internet services, mobile, and social media.

Chart courtesy of www.StockCharts.com

Small-cap stocks continue to lead the pack this year as the economy recovers, albeit at a slower pace than we would like to see.

As I said, a strong Black Friday and Cyber Monday could be enough to drive the stock market higher and lead to buying in January. Of course, don’t forget that the government and Congress will still need to resolve the budget and set a new debt ceiling limit by the extended deadlines.

Many of you are probably thinking about what to do.

While the creation of stock market wealth is fantastic for market participants, I’m growing more wary with each record and feel the stock market is vulnerable to selling. The fact that we have yet to see a stock market correction of 10% or more during this bull market is worrisome.

Or maybe it’s an ideal situation for the stock market, with steady but muted growth, low interest rates, benign inflation, and cheap accommodative monetary policy.

At this point, I feel the buying in the stock market is somewhat euphoric and based more on the Federal Reserve’s easy money policy than solid underlying fundamentals. The Federal Reserve will stay status quo. The next chair of the Federal Reserve, Janet Yellen, is dovish towards the use of monetary policy to stimulate the economy. Yellen has suggested how the low interest rate environment allows the central bank to employ its loose monetary policy to drive the economy and not fear inflation. Given this, I expect the bond tapering might be slow whether it begins in December or the New Year.

And while I still feel the stock market is vulnerable to selling, which would present a buying opportunity unless the underlying fundamentals change, my feeling is that the next moves will continue to be higher on the charts, so enjoy the ride. Again, with tax year coming to an end, you should also make sure you take some profits off the table and match the gainers with some losing positions prior to the year-end. And, as I’ve said on many occasions, you should hedge against potential weakness with put options on either stocks or the indices to help protect your gains. (Read “Five Profitable Plays for the Coming Stock Market Correction.”)

This article Why Stocks Likely to Head Higher into the New Year is originally publish at Profitconfidential

By Mitchell Clark, B.Comm.

There are still a lot of companies that are reporting quarterly earnings and, in many cases, the numbers are pretty decent. Let’s look at some of the winners.

The iconic jewelry brand Tiffany & Co. (NYSE/TIF) reported outstanding quarterly earnings growth of 50% due to significant sales strength and margin expansion from the Asia-Pacific region. The company’s American stores saw total sales grow four percent to $417 million, with European sales growing a surprising seven percent to $104 million.

Tiffany & Co. boosted its full-year earnings outlook for its fiscal year ending January 31, 2014, and the stock jumped seven points on the news, closing at a new all-time record high.

Much smaller Movado Group, Inc. (NYSE/MOV), which is based in Paramus, New Jersey, reported an 18.4% increase in third-quarter sales to $189.7 million.

The company’s quarter earnings fell comparatively due to a tax provision, but income before taxes grew to $34.0 million from $25.0 million in the same quarter last year.

Movado beat Wall Street consensus and tightened its guidance to the high end of its previous outlook.

Higher-end retailers like Tiffany & Co. aren’t representative of a general trend, but La-Z-Boy Incorporated (NYSE/LZB) recently shot way up on the stock market after reporting that consolidated sales grew 14% to $366 million in its most recent quarter.

Earnings for the quarter more than doubled. The company boosted its quarterly dividend by a whopping 50% and the stock soared on the news.

Even The TJX Companies, Inc. (NYSE/TJX), which consists of “T.J. Maxx,” “Marshalls,” “HomeGoods,” “Sierra Trading Post,” “HomeSense,” and “Winners,” beat its own expectations with a very solid quarter.

The company’s sales grew nine percent to $7.0 billion on a five-percent gain in global comparable store sales.

Earnings were $623.0 million compared to $462.0 million. Diluted earnings per share grew to $0.86 from $0.62, representing an impressive 39% gain. The company’s cash position and total shareholders equity soared and management boosted its full-year outlook, especially for fully diluted earnings per share.

Things are going to be choppy this holiday season, but I have a feeling retailers are going to surprise to the upside. And even if total sales growth is minimal, we’re getting meaningful margin expansion, which is boosting earnings at a very decent pace.

It is difficult to discern a trend in retail numbers. But from the investor’s perspective, the numbers are the numbers. For these companies, the earnings speak for themselves.

This article Four Companies with Earnings Growth That Shines is originally publish at Profitconfidential

By CentralBankNews.info
    Uganda’s central bank cut its central bank rate (CBR) by 50 basis points to 11.5 percent, saying an an accommodative stance was warranted due to an expected stabilization of core inflation around the bank’s target and the need to further support private sector investment.
    The surprise rate cut comes a month after the Bank of Uganda (BoU) described its stance as neutral and a warning in October that it could raise rates if core inflation were to accelerate. The BoU raised its rate by 100 basis points in September.
    The central bank said it would continue to assess global economic and financial developments and “take appropriate actions to maintain future average annual core inflation around the Bank’s medium-term target of 5 percent.”
    Uganda’s headline inflation rate fell to 6.8 percent in November from 8.1 percent in October with core inflation easing to 7.0 percent from 7.2 percent. Food crops inflation was a minus 4.3 percent in November, higher than a minus 1.1 percent in October.
    The BoU forecast inflation edging further down in the next two to three months due to the impact of the crop harvests to about 5.5-6.5 percent but then rising to 6-7 percent in the second half of 2014.

    Although the bank said there were potential risks to inflation from domestic demand pressures and the global economic recovery, it expects core inflation to stabilize around 5 percent in the medium term.     
    “Real economic activity continues to show signs of recovery, in part boosted by the accommodative policy stance and public investment,” the bank said, adding that growth should benefit from private consumption and investment activity.
    “Nonetheless, economic growth remains below potential and downside risks pertaining to the uncertain global economic environment persists,” the BoU added.
 
    www.CentralBankNews.info

By John Whitefoot for Daily Gains Letter

Despite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.

In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)

Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.

Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.

But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) said sales were among the highest it had seen in a single day online.

And maybe that’s the future of Black Friday weekend shopping?

Black Friday used to be the day when consumers hit U.S. retail sector stocks in full force. Today’s younger, savvier shoppers are more willing to not just compare prices in-store, but also on their smartphones and tablets—and this has translated into more online sales.

In fact, online spending on Black Friday was up 15% year-over-year at a record $1.2 billion. During November, total online sales reached $20.6 billion, a 3.1% increase over last year. (Source: Kucera, D., “Black Friday Online Spending Reached Record $1.2 Billion,” Bloomberg.com, December 1, 2013.)

What does that mean for investors this holiday season? For some, it might be time to reevaluate and readjust their retirement portfolio if it contains a fair number of retail sector stocks. After all, weak consumer confidence, high debt levels, and high unemployment are not the best ingredients for an economy that generates 70% of its gross domestic product (GDP) from consumer spending.

More seasoned investors might see this retail environment as one flush with opportunities to short retail sector stocks. There are a lot of options out there; even some higher-end retailers are dealing with shoppers more motivated by price than logo.

While American shoppers are reigning in their retail sector spending this holiday season, they still rely on consumer staple companies. We might be able to go without a new TV, but we won’t forgo deodorant, shampoo, toothpaste, razors, makeup, or aspirin.

With more and more cost-conscious people using the Internet to shop, it might also be a good time to revisit online retail sector stock eBay Inc. (NASDAQ/EBAY). After all, shoppers may be staying away from busy shopping malls, but it’s hard to resist going online from the comfort of home to hunt for deals.

See original article: http://www.dailygainsletter.com/investment-strategy/not-much-for-retailers-to-be-thankful-for-this-past-thanksgiving/2165/

By Saxo Bank

The 2013 Autumn Statement presents the government’s plans for the economy into the New Year. In anticipation, Saxo Capital Markets has published a new infographic which gives a snapshot of the UK’s public finances, the real economy and currency. Is the UK now better off since the formation of the coalition government in 2010? Check the Autumn Statement infographic and share your forecasts on Twitter.

(Click to enlarge or visit Saxo’s full infographic)

By Moe Zulfiqar for Daily Gains Letter

Consumer confidence in the U.S. economy is bleak, and if it doesn’t pick up, the economic growth in the U.S. economy will be in jeopardy, and those who are highly affected by it—companies in the consumer discretionary sector—will face troubles.

What many forget is that consumer confidence and consumer spending have a direct relationship; if consumer confidence declines, we generally see consumer spending decline as well. As consumers become worried about their jobs, financial conditions, and/or general economic conditions, they tend to pull back on their spending. Would you go buy a luxury car or big household items if you knew that your job was in jeopardy, or you had no or very little savings?

The Conference Board Consumer Confidence Index, an index that tracks the sentiment of consumers in the U.S. economy, continued its slide in November after sharply declining in October. In November, it sat at 70.4, 2.8% lower from the previous month, when it was 72.4. (Source: “Consumer Confidence Declines Again in November,” The Conference Board web site, November 26, 2013.)

This isn’t all for consumer confidence. One of the clearest examples of bleak consumer confidence was just last week, at the Black Friday sales. We saw consumers become very cost-savvy, which resulted in retailers opening stores early and providing very deep discounts. Early indicators from the National Retail Federation state that consumers spent an average of $407.02 from Thursday through Sunday, down about four percent from what they spent last year. (Source: National Retail Federation press release, December 1, 2013.)

What does it mean for investors?

Investors have to keep a few important factors in mind when looking at consumer confidence in the U.S. economy.

At the very core, if consumer confidence continues to fall further, consumer spending will start to follow the same direction. This can cause the growth rate of the gross domestic product (GDP) to slow, and if consumers aren’t buying, factories will produce less. As a result, businesses will have to make changes to their operations: reducing their labor force, cutting costs, etc.

In addition, investors have to bear in mind that when consumer confidence is declining—and from Black Friday sales, we see they are—their profit margins begin to go down.

My take is that I wouldn’t be surprised to see retailers, especially those in the consumer discretionary sector, face headwinds going forward; this will eventually reflect in their stock prices. Those who already own companies involved in the consumer discretionary sector may want to consider taking some profits off the table. Remember: when investors take profits off the table, their worst-case scenario is still profit.

Those investors who want to profit from this opportunity may do so by shorting exchange-traded funds (ETFs) like the First Trust Consumer Discretionary AlphaDEX (NYSEArca/FXD). This ETF invests in companies involved in the consumer discretionary sector. Remember that shorting can result in unlimited losses; if investors choose to go ahead with this strategy, they have to be very careful and use proper risk management techniques, in case the trade works against them.

See original article: http://www.dailygainsletter.com/investment-strategy/are-these-retailers-worth-the-investment/2163/

Guest Post by Michael Lord

On October 9, 2013, Janet Louise Yellen was nominated by President Barrack Obama to succeed Ben Bernanke as the next chairman of the Federal Reserve Board. Although no longer the chairman after February 1st, Bernanke will continue to remain on the board until 2020, stating that he no longer wants the burden of the position and would like to return to private life.

In a speech regarding the nomination, President Obama called Yellen “one of the foremost policy makers and economists in the nation.” He continued by heralding Yellen as being “renowned for her judgment.” Her term as chairman of the Fed will officially begin on February 1, 2014, and it will last for four years, after which, it can be extended by the next president in office.

As Bernanke’s successor, Yellen shares many of his views regarding the U.S. economy, and the majority of economists expect a rather seamless transition from a Bernanke-led Fed to a Fed headed by Yellen, who shares the same Keynesian economic beliefs. As such, Yellen’s first major decisions while as chairman will deal with the nation’s unemployment rate and the Fed’s current stimulus policies.

Background and History

Janet Yellen was born in Brooklyn, New York on August 13, 1946. The daughter of middle-class Jewish parents, she enjoyed a comfortable upbringing and excelled scholastically. Yellen was the editor of the Fort Hamilton High School newspaper before graduating as valedictorian of her class. She then went on to study at Brown University, graduating summa cum laude with a degree in economics in 1967. Afterwards, Yellen continued her education at Yale University, where she received her Ph.D. in 1971.

With an impressive scholastic resume, Yellen went on to become a professor at a number of prestigious universities, including The London School of Economics, Harvard, and the University of California at Berkeley. In preparation for her future role as Fed chairman, she transitioned her professional efforts to the Federal Reserve Bank of San Francisco, where she became the president and CEO in 2004.

Yellen has also been a member of a myriad of economic councils and committees, such as the U.S. Council of Economic Advisors, the Organization for Economic Cooperation and Development, and the American Economic Association. Prior to heading the Federal Reserve Bank of San Francisco, she served as governor of the Federal Reserve Board for four years from 1994 to 1997. Her resume also includes a position as an advisor to the U.S. Congressional Budget Office, a member of the Pacific Council on International Policy board of directors, and a research associate at the National Institute of Economic Research. In the process, Yellen also held fellowships for the Guggenheim, MIT, and the National Association of Business Economics.

In recent years, Yellen has been preparing for her new position as chairman of the Fed by becoming the vice chairman on October 4, 2010. To date, Yellen has used her position to convince Bernanke to use a two-percent inflationary growth target. Due to her “impeccable resume, solid record with the Federal Reserve Bank of San Francisco, and focus on unemployment,” Obama was urged by the Democrats to appoint Yellen as the next chairman over Larry Summers, the former U.S. Treasury secretary.

Economic and Monetary Philosophy

As the next chairman of the Federal Reserve, Yellen will have a direct impact on influencing the U.S. economy over the next four years. Therefore, it is important to become familiar with her philosophy and monetary views.

Obama supporters and proponents of “big government” could not be more pleased with Yellen’s nomination as the next Fed chairman. In many ways, Yellen is a much more active supporter of government intervention than Bernanke, and she believes that government policies can help smooth over poorly performing market economies.

According to Allen Sinai, president of Decision Economics Inc., ”Janet Yellen’s philosophy is using active government policy to achieve economic objectives.”

During a White House ceremony announcing her new appointment, Yellen emphasized the Fed’s obligation to help deal with the human impact of the recession. She stated, “The Federal Reserve’s mandate is to serve every American. Too many Americans are still unable to find a job and do not know how they will be able to provide for their families and pay their bills. If the Federal Reserve does its job effectively, it can help ensure that every American has the opportunity to work and build a better life for themselves and their loved ones.”

This belief stems from her studies at Yale under Professor James Tobin, an active proponent of Keynesian economics. “The perspective of the students who studied with Tobin was that the government has a responsibility to counterbalance the volatilities of the private economy,” stated James Galbraith, a Yale Ph.D. student who also helped work on the Humphrey Hawkins Act of 1978, which asserted the obligation of the Fed to stabilize prices and create maximum employment.

This belief is evident in the many research papers Yellen wrote with her husband, George Akerloff, while the two taught at the University of California Berkeley. According to the Research Papers in Economics website, the pair’s most cited work demonstrated that whether or not workers believe they are being fairly paid influences their job performance and may also help explain the nation’s unemployment rate.

Years later, Yellen remains a left-leaning economist reflecting the economic ideologies of the 1960s and 70s, an era when interventionist Keynesian economic policies were widely revered.

Similar to her predecessor, Yellen has always been an avid dove, although a number of her supporters maintain this position has only been due to recent unstable economic conditions, and that appropriate circumstances could result in her becoming a hawk.

Yellen has supported Bernanke’s bond buyback program, and many expect her to even expand the Fed’s economic stimulus policy in a continued effort to boost the economy. In many ways, she has strived to emulate the teachings of James Tobin, her Yale professor, who believed that government intervention can rescue an economy from recession.

In fact, Yellen and her husband are both Keynsian economists who openly believe that economic markets need government regulation to function properly. Both she and her husband created economic models showing that in order to maximize profits, firms should pay above minimum wages. It is these economic models that served as the basis for the New Keynesian economic philosophy.

Yellen’s numerous speeches and writings display her confidence in the ability of the government to play an active role in offsetting calamities, especially when it comes to the labor markets. As president of the San Francisco Fed in 2004, she wrote a paper with her husband that argued that central bankers could not ignore long-term joblessness. They wrote, “Given the damaging costs of long-term unemployment, policy makers should feel compelled to take action.”

It is clear that Yellen is also not opposed to using inflation to reduce unemployment and spur economic growth, which is a clear sign that she may leave interest rates where they are or even reduce them to zero in the foreseeable future. In more than one speech, Yellen has indicated that she believes interest rates should actually be held at zero at the present time, even though inflation is rising at a rate greater than two percent. She also plans to impose tighter banking and financial regulations to prevent a future bubble.

While teaching at Berkeley’s Haas School of Business, Yellen published several articles that never questioned Keynesian doctrines, such as the belief that a free economy is predisposed to “imbalances” or “failures” when demand cannot keep up with supply as well as the belief that inflation is caused by excessive economic growth, not excessive money printing. Yellen also taught that money printing can help lower the unemployment rate and that the central bank should exercise its power to keep interest rates as low as possible in an attempt to foster a profligate, debt-accumulating, and deficit-spending government.

Ben Bernanke also shared in his belief of these myths, which ultimately led to a policy of wildly fluctuating interest rates that produced a boom or bust U.S. economic pattern akin to the turbulent economies of the 1960s and 70s, when Keynesian theory was widely accepted. This essentially terminated the stable and sober economic years of the mid-1980s to the mid-2000s, coined by economists as “the Great Moderation.” Fully endorsed by Yellen, Bernanke’s policies helped trigger the Great Recession and the debilitating 2008 financial crisis.

Since 1994, Yellen has played an active role in contributing to the shift away from supply-side economic policies to Keynesian, demand-side policies, first as a member of the Federal Reserve Board from 1994 to 1997, then as an economic advisor to President Clinton from 1997 to 1999 in which she called for an increase in sub-prime mortgages, and most recently as vice chairman of the Fed from 2010 to 2013.

Yellen has always maintained her position as a Keynesian economist who believes in the Phillips Curve, which was a popular economic theory in the U.S. until it was discredited during the stagflation period of the 1970s. During her nomination hearing for vice chairman of the Federal Reserve Board, she stated that the Phillips Curve “provides a useful framework for discourse about monetary policy’s influence on inflation.”

While serving on the Federal Reserve Board of Governors, Yellen commented in a Federal Open Market Committee meeting that higher inflation could be “wise and humane” if it were able to increase supply. During the same meeting, she claimed that a one percentage point decrease in inflation results in a GDP loss of 4.4 percent.

Every step of the way, Yellen has actively helped Bernanke carry out a policy of money-printing, purchase vast amounts of U.S. federal debt, and impose rock-bottom interest rates. In all likelihood, these policies will continue under her leadership. Consequently, we may experience an indefinite period of massive national debt purchases, artificially low rates, and lack of economic progress.

About the Author

Michael Lord is a content writer at Penny Stocks Lab, a website focused on educating investors about penny stocks as well as other investing topics.

By George Leong for Investment Contrarians

In my previous article, I discussed the new record highs achieved by the stock market and how it looks like there will be more gains to come.

Yet based on what we have seen over the past few decades, something appears to be out of whack. I’m sure many of you also realize this seeming discrepancy but are happy to ride the stock market advance anyway.

Let me explain.

The six-month period from June to October has historically been the worst period for the stock market, according to the Stock Trader’s Almanac.

But the S&P 500 advanced by about eight percent in this period of supposed weakness. The stock market actually saw the S&P 500 and DOW Industrial rally to multiple record-highs.

It’s clear that something is out of whack, and that “something” appears to be a mispricing in the stock market.

If you believe in the historical tendencies—that is, despite the contradictory action in the June–October period this year—there will be more gains to come and more opportunities to make money. This means that it’s not the time to exit the stock market yet; instead, it’s time to look for opportunities to buy, especially on weakness.

The facts show that investing in the six months from November to May has produced the best returns for the stock market versus the June to October period, according to the Stock Trader’s Almanac.

So, having seen an eight-percent advance in the S&P 500 from June to October, should we expect to see an even bigger advance over the next five months to May? Based on what I’m seeing, it does look like the bulls are in full control of the stock market, while the bears are set to hibernate for the winter months and then some if history pans out.

The reality is that the more I try to look at the negatives—such as the weak jobs market, surging debt levels, muted economic renewal, and the lack of corporate revenue growth—the more I shake my head while all signs point to higher gains ahead in 2014.

Of course, things can easily change, including my sentiment. If, for example, the Federal Reserve decides to begin tapering in a few weeks, then we could see stocks stall.

And if the two parties cannot come up with a resolution to the government’s budget and debt ceiling increase by the new deadlines set in January and February, we could see another government impasse surface, with America’s image on the global stage taking another negative hit.

But for now, stocks are definitely looking higher in spite of the fragile economy. The only thing for investors to do now is to follow the Stock Trader’s Almanac and ride the stock market higher.

See original article: http://www.investmentcontrarians.com/stock-market/time-to-take-a-page-out-of-the-almanac-this-winter/3378/

By Sasha Cekerevac for Investment Contrarians

There are many ways to try to get a handle on where the market is currently trading and what’s likely to come. For me, investor sentiment is extremely important, but not for the reasons many would think.

All markets have various factors pushing them. As a contrarian investor, you want to look at taking profits during periods when investor sentiment has become extremely bullish, and accumulate positions as investor sentiment gets too pessimistic.

Why are these turning points?

If everyone is bullish, then there is little new money left to pile into an investment. Conversely, when everyone is bearish and has sold their holdings, there’s very little selling pressure left, which creates a floor—at least over the short term.

Ultimately, the fundamentals of the market will come through, but the gyrations and oscillations are driven by investor sentiment.

Take gold bullion, for example. I recently read a very interesting article stating that currently, 18 out of 31 Wall Street analysts expect gold bullion to fall this week, continuing their negative investor sentiment outlook on the precious metal. As of the end of October, hedge funds held the lowest level of long positions in gold bullion since July 9. (Source: “Gold Bears Persist as Prices Near Year’s Low on Fed,” Bloomberg, November 29, 2013.)

Both the short-term prediction by analysts and the long-term forecast by hedge funds are expecting gold bullion to remain weak. It’s interesting to note that we are now getting a convergence in investor sentiment over a variety of timeframes. It’s also interesting that July was the last time investor sentiment was this low.

So what happened to gold bullion prices before July and the months immediately after?

Chart courtesy of www.StockCharts.com

As you can see in the chart above, in July, extreme negativity in investor sentiment on gold bullion created a bottom—at least over the short term. This shouldn’t come as a surprise to my readers, as I often focus on extreme levels of investor sentiment.

From a fundamental viewpoint, while the price has declined once again, Chinese demand for physical gold bullion continues to rise. Gold bullion imports from Hong Kong to China hit 129.9 tons for the month of October, the second-highest level ever recorded.

The Chinese are employing the very same contrarian investor sentiment strategy that I prefer: buying when others are selling. This continues a long process in which physical gold bullion continues to flow from the West to the East.

Obviously, this is not a short-term trade. No one can predict when the market will turn, even if investor sentiment is negative. However, for the long-term investor, this type of negative investor sentiment in gold bullion is actually positive, as it will allow for a more attractive price point at which to accumulate the precious metal, just as the Chinese are doing.

Another factor to consider when it comes to gold bullion prices, beyond simply looking at investor sentiment, is the massive change in production by mining companies.

Mining companies are significantly cutting back production, focusing on the lowest-cost operations. This essentially creates an artificial supply floor, since no logical mining company would produce gold bullion if the sell price is much lower than the production cost.

While physical demand for gold remains strong and supply is stagnant, at some point, this dynamic will result in higher gold bullion prices.

With investor sentiment this low, mining companies pulling back on expansion plans, and physical demand still strong, this is creating a situation I believe we will look back on several years from now and wonder why we didn’t accumulate more gold bullion when we had the chance. To avoid regret, investors may want to consider accumulating gold investments now.

See Original Article: http://www.investmentcontrarians.com/gold-investments/avoid-regret-accumulate-gold-bullion-now/3375/