Weekly Update: Of fiscal cliffs, the election and technology
Dear readers: Here are some nuggets I’ve been collecting over the past few months that haven’t made it into my normal weeklies. Happy Thanksgiving!
Dividend watch: Investors can expect a spike in the number of special dividends before year’s end because of uncertainty about the fiscal cliff. Now capped at 15%, the lowest rate since 1941, the top rate on dividends would rise to 43.4% for the most affluent taxpayers (a 39.6% rate on ordinary income plus a 3.8% Medicare surtax on top of that) if the Bush tax cuts are allowed to expire. Those tax cuts have saved U.S. investors an estimated $358 billion on taxes on dividends, the Wall Street Journal reports, citing research by S&P index analyst Howard Silverblatt.
Dividend watch: Strategas says a change in the dividend tax rate is likely to have a greater impact on the number of companies paying dividends than on the relative performance of dividend-paying stocks. Arguably, the biggest change resulting from the 2003 tax cuts was that it halted the 25-year decline in the number of dividend-paying companies. A return to more discriminatory tax rates on dividends would likely stop cold any nascent move on the part of tech stocks, for instance, to initiate dividends. Today, 405 of the 500 S&P companies pay a dividend, compared to approximately 350 in 2002-2003. This was down from around 470 in 1980.
Capital gains watch: The nearly 9 percentage point increase in capital gains taxes scheduled to begin in January 2013 if there is no deal on the cliff is similar in magnitude to the 9 percentage point rise in 1970 and the 8 percentage point rise in 1987. In both cases, the S&P posted negative returns in December as investors locked-in the lower tax rate, falling 1.9% in December 1969 and 2.8% in December 1986. This ran counter to the trend given December has the second-highest average monthly return at 1.5%, and a 75% hit rate of positive return since 1928.
AMT looms large Perhaps the biggest catalyst for Congress to act on in the lame-duck session is the alternative minimum tax. This patch expired at the end of 2011 and can only be retroactively fixed in 2012. If not, 30 million Americans with annual incomes of $50,000 and up will see a tax increase of $90 billion spread across February, March and April. This would shave 2% off annualized GDP in those months. It’s very difficult to envision Congress allowing this to happen, which will mean legislation that can have an extension of the Bush tax cuts within it.
This is why the voter fraud issue isn’t going away According to the Columbus Dispatch, one out of every five registered voters in Ohio was ineligible to vote and in at least two counties in Ohio, the number of registered voters exceeded the number of eligible adults who are of voting age. In northwestern Ohio’s Wood County, for example, there were 109 registered voters for every 100 people eligible to vote. Thirty-one of Ohio's 88 counties have voter registration rates over 90%, which most voting experts regard as suspicious. Obama miraculously won 100% of the vote in 21 districts in Cleveland, and received over 99% of the vote where GOP inspectors were illegally removed. In Philadelphia, Obama received 99% of the vote or more in 13 wards. In 59 Philadelphia voting divisions, Romney got zero votes. While the precinct vote concentrations are incredulous, what is truly suspicious is the more than 90% turnout in Philly, Chicago and some other big-city precincts.
Red and blue state divisions have never been clearer Prompting speculation on the country's evolving partisan geography, Democrats or Republicans now have sole control of the governorship and both legislative chambers in 37 state capitals, and the number of states with divided government is down from 31 just 16 years ago to 12 today. In 46 states, the same party now controls both chambers of the legislature, creating distinct divisions between red and blue states. Only Iowa, New Hampshire and Kentucky have divided legislatures, the smallest number in almost 70 years. Also, while there are 30 GOP governors nationwide to 20 Democrats, Democrats gained in 40 chambers overall and obtained veto-proof "supermajorities" in both California and Illinois.
Will Romney-Obama be a repeat of Dewey-Truman? The market was disappointed in 1948 with the reelection of President Truman vs. the Wall Street favorite Thomas Dewey. There have only been three down fourth quarters in the 16 election years, starting with 1948: 1948, 2000 and 2008.
Demographics matter That’s the key takeaway from the election regardless of your political persuasion. The demographic profile of this country has changed ever since the beginning of this century and it continues to evolve. Those investors who recognize these demographic shifts and how they affect choices, markets, and economics over time will have a better understanding of the likely winners and losers in the years ahead.
Hal was just the beginning 13D Research says creative destruction will drive job loss in the next 20 years: the power industry through microgrids, transportation via autonomous self-driving vehicles, education through technology-based self-teaching, manufacturing via 3D printers, and robotics virtually everywhere. In education, the OpenCourseWare movement began to take hold when MIT started recording all its courses; since 2001, they’ve been downloaded 131 million times. Apple iTunes University courses have been downloaded 700 million times; now it’s moving into K-12. And most manufactured goods in time will be made with 3D printers—if people can print their own clothes and shoes with a perfect fit (my shoes are killing me as we speak), clothing and shoe manufacturers and retailers will disappear.
The next black swan may be a good one 3D printers may have their most profound impact on the medical industry and treatment, and are already revolutionizing dental fabrication of crowns, bridges and implants, as well as prosthetics manufacturing. Now, 3D printers have been used to make ibuprofen, and the technology could completely reshape the global pharmaceutical industry over time, enabling low-cost manufacture of virtually all drugs in patient homes, fine tuned to precise dosages based on an individual’s unique genetic design. I believe technology will bend the cost curve for health care, allowing us to divert away from the Medicare disaster.
Hey boss, my body tells me I should stay at home today The ultimate use of big data analytics may be the human body. Quantified life health-care, also referred to as “self-tracking” or “self-quantifying,” is an emerging segment of medicine that attempts to replace the guesswork and supposition that presently guides most individual health decisions. The approach uses highly-precise measurements of numerous sensor points in the body to develop specific preventative regimens and treatments tailored to the unique details of each individual. Medicine has barely begun to capitalize on the million-fold increase in the amount of data available for diagnosis and treatment.
Tech’s perverse effect on job-hunting Once a resume is created, job-seekers can submit hundreds of applications online with zero extra cost. Accenture Institute for High Performance notes that technology allows companies to filter the resumes by looking for keywords, which leave many resumes unread.
The final word(s)
- “Socialism only works in two places: Heaven where they don’t need it and hell where they already have it.” — Ronald Reagan
- “In a democracy, people get the leaders they deserve.” — Joseph de Maistre, French philosopher and defender of hierarchical societies and monarchies.
- “The budget should be balanced. The Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance of foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” — Cicero (55 B.C.)
- “All right everyone, line up alphabetically according to your height.” — Casey Stengel