January 2012 - Forecasts & Trends

Today we visit several interesting topics. We begin with a look at the Fed’s latest Beige Book report that came out last week, which showed that the economy improved at least modestly in all 12 Fed Districts late last year. We also ponder the question of whether the Fed is ramping up to do another round of quantitative easing (QE3).

Next, with everyone wondering if we’re facing another roller coaster ride in the stock market this year, I will bring you some interesting facts about what stocks have historically done in presidential election years.

Finally, we received a great deal of response to last week’s E-Letter that focused on members of Congress and how they fare so much better than the rest of us financially speaking. Given the level of interest in this topic, I dug a little deeper over the last week to find some fascinating information on the so-called “Top 1%” of wealthiest Americans. You’re going to love this!

We touch several bases today. We begin by looking at some recent economic reports which are encouraging. We also preview this Friday's very important first report on 4Q GDP. The pre-report consensus is for a number in the 3-4% range (annual rate), following only 1.8% in the 3Q. Following that discussion, I will bring you the latest estimates from the Blue Chip Economic Indicators, a monthly survey of 50 leading economists and forecasters.

From economics, we shift gears and take a look at income tax policies. I will attempt to explain how some wealthy Americans (think Warren Buffet, Mitt Romney, etc.) can legally pay a lower tax rate than rank-and-file Americans who earn "ordinary" (W-2) income. I will also explain the difference between the "marginal" tax rate and the "effective" tax rate. The two rates are significantly different, yet the media often refer both in the same breath without making the distinction.

Next we look at a recent poll of over 500 millionaires. Believe it or not, 71% said they believe the "rich" should pay higher taxes. But in the same survey, 49% said that the higher tax rate should NOT apply to them but only to super-rich types like Warren Buffett. There are several other interesting insights from this poll of millionaires which I will point out.

Recent statistics from the US Census Bureau indicate that more adult children are either moving back with mom and dad, or never leaving in the first place. Studies show that this is not just a US phenomenon, but is also occurring across the globe. While it's easy to see that the economy is a major factor in this demographic shift, my focus this week will be on a possible silver lining.

If adult children are moving back home due to lack of a job or not making enough money to make ends meet, this can be an excellent "teachable moment" for parents. The current economic environment is a way for parents to impart valuable wisdom about saving and investing to their adult children. While it's not always easy to get the attention of adult children, at least you won't have to convince them that rainy days happen since we're coming out of one of the worst economic storms we've ever seen.

Obviously, it's better to start teaching children about saving when they are young. To help parents or grandparents of younger children, I have also included a discussion about the best ways to approach teaching kids about money, along with some valuable Internet resources to help you along.