EisnerAmper Blog

By:  Tim Speiss 

Considering the Friday April 6 report citing 120,000 jobs added in March, U.S. equities declined 1.1% on April 9.  With Alcoa’s stock value decreasing 1.4% on the anticipated announcement today of 2012 Q1 earnings, U.S. equities opened slightly lower this morning and the S&P was down over 1.5%  this afternoon.

Primarily, a U.S. economic recovery is all about jobs creation. 440,000 U.S. jobs were added in Q4 2011, with 483,000 additional jobs added in January and February 2012; considering the March jobs growth, in the 2011 Q4 and 2012 Q1 over 1 million jobs were added to the U.S. economy, and the U.S. unemployment rate has decreased from 9% in October 2011 to 8.2% at April 1, 2012. Based on available data, in February 2012 there were 12.8 million persons unemployed, of which 5.5 million have been out of work more than six months; considering an estimated 154 million person workforce, the February 2012 unemployment rate was 8.3% (although the real rate is higher considering persons who are underemployed, and other factors). A continued month-over month-net jobs growth clearly increases employment, in addition to assisting to forestall mortgage defaults and increase consumer spending. As evidence, consider that U.S. consumer spending and manufacturing has increased every month from October 2011 to March 2012, correlated to the increase in net U.S. jobs creation over the same period.

There continues to be additional evidence of U.S. economic improvement, when compared to January 2009 as a benchmark. Monthly housing starts have averaged over 680,000 for 2011 Q4 and 2012 Q1 (554,000 in January 2009). Annualized auto sales have recovered to 14.1 million units, with a 2012 reforecast to 15 million units as announced April 5 (10.4 million units in January 2009). The Manufacturing Index has averaged (and has been increasing) 54.6 from October 2011 to March 2012 (34.9 in January 2009). Annualized U.S. GDP growth is estimated at 2.3% for 2012 Q1, and was 3.0% for 2011 Q4; historically, from 1948 to 2011 U.S. average annual GDP growth was 3.25%.

The long view for investors is that the U.S. economy continues to improve. According to Deutsche Bank as cited today, U.S. equity valuations are relatively inexpensive, with the S&P priced at about 13 times projected earnings for 2012.  Considering then economic improvements, while mindful of continued EU difficulties, long term investors should revisit their investment policy statements and asset allocation models, benchmarked against their current investment objectives, total return expectations, and risk tolerance; EisnerAmper Wealth Advisors LLC continues to work with and advise our clients attendant to these considerations.   
               

By: Matthew Lender 

In a move to help mitigate revenue gaps through increased taxpayer transparency, the Internal Revenue Service requires direct and indirect holders of “specified foreign financial assets” generally aggregating more than $50,000 during the tax year to file Form 8938, Statement of Specified Foreign Financial Assets. Commencing in 2012 for the 2011 income tax year, this filing is an expansion of the Report of Foreign Bank and Financial Accounts (FBAR), which must be filed for any U.S. person who has a financial interest or signature authority over any financial account in a foreign country if the aggregate value of said accounts exceeds $10,000 at any time during the calendar year. The FBAR must be filed by June 30, 2012.

More specifically, you may have an FBAR and Form 8938 filing requirement if you are a holder of depository or custodial accounts held at foreign financial institutions, stocks or securities issued by foreign persons, an interest in a foreign entity, a foreign pension plan or cash value life insurance contract, or any other financial instrument or contract held for investment and not issued by or has a counterparty that is not a U.S. person.

Observation: With substantial penalties for non-filing, compliance with these annual reporting requirements is critical. In fact, penalties for non-compliance can be exorbitant, sometimes reaching the value of the account itself. The key here is not just to file these forms, but to do so timely.

So, here’s the upshot. Form 8938 must be filed with the taxpayer’s income tax return for the year in which “specified foreign financial assets” generally aggregate more than $50,000. If you think you may be subject to these filing requirements, please feel free to contact your EisnerAmper Professional for more information.
 

By:  Tim Speiss 

JP Morgan Chase reported 2011 Q4 earnings at 7am EST this morning, a preview of next week's heavy reporting by the U.S. financial services sector; the 7am release is an interesting read.

The largest U.S. bank by assets, JPM reported a fourth-quarter profit decline of 23 percent; generally the report followed analysts’ estimates; JPM's provisions for credit losses declined. Net income for the last three months of the year fell to $3.73 billion, or 90 cents a share, from $4.83 billion, or $1.12, in the same period of 2010.

Industrywide, lending at U.S. banks increased 2.1 percent from the third to the fourth quarter, according to Federal Reserve data (and as cited separately by Bloomberg News today).

Investors seeking exposure to the financial services sector, and when analyzing data today and next week, would consider the financial results of each separate lines of business that a financial institution offers, including core banking deposits and lending; credit card and revolver debt, mortgage lending; systems and asset management; alternative assets and private capital. Each of these lines of business will perform differently and should be analyzed as each contributes differently to the aggregate performance of an institution.

Again, a diversified portfolio designed for the long term, considering volatile valuations in all sectors, should be considered by investors.

By:  Tim Speiss

Two themes to be considered is the credibility of continuing U.S. economic growth and the movement of long-term interest rates, and EU policies and actions to reduce sovereign and bank debt. Considering a long-term asset allocation model, investors may want to consider no significant near-term movements in the factors driving these two themes while carefully exploring economic growth prospects in Asia and pre-emerging markets.

Over the past month in the U.S., economic reports on employment, manufacturing and retail sales have bolstered confidence that there will not be a recession; today the Department of Labor announced the Jobless claims dropped by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February. Also, ECB President Mario Draghi today stated there are no plans to purchase EU sovereign or bank debt; however the ECB continues to promote action to remedy on a longer term the current debt crisis. The performance of global equity indices over the past ten days has reinforced the sentiments of continuing U.S. and EU progress.

A debate presently in progress within the U.S. Federal Reserve and FOMC is the forecast of -- and conditions that would result in -- an increase in the benchmark (currently at zero percent) after 2012. In contrast, the ECB reduced its benchmark interest rate to 1 percent on December 6 in reaction to continued signs of economic weakness in the region.

As the U.S. economy strives to increase employment with modest success, the ECB continues to place pressure on European banks to raise funds and write down sovereign debt, so to comply with rules requiring higher capital ratios. The threat of Standard & Poor EU countries downgrades is a real possibility. EU banks may be forced to raise $142 billion USD by the middle of 2012 to meet guidelines from the European Banking Authority and a revised figure is scheduled to be released today, as according to Bloomberg News.

A view forward then, considering the above, is that U.S. interest rates could remain low and stable, while EU interest rates continue to fall. EU asset valuations may continue to face downward pressure as sales proceeds are utilized to reduce EU sovereign and bank debt.

 

By:  Tim Speis

"We need to tell markets very clearly -- and this must be done soon -- that there is no other way forward than the one we’re pursuing.”

Question: Who was the U.S. Congress Super Committee member who stated the above on November 21? Actually, it was Michael Meister, a senior lawmaker in German Chancellor Angela Merkel’s coalition. However, similar sentiments could have been expressed by the U.S. Congress as the nation also struggles with long term deficit and debt reduction; the process should continue.

This week, U.S. financial markets and global markets have focused on the U.S. Congress Super Committee, with no Committee recommendations to reduce long term U.S. government deficits. Dissenting discussions included $1.2 trillion in spending cuts and a counter proposal of $1.2 trillion in tax increases.

The outcome now results in automatic government spending cuts with Department of Defense (now with a possible additional $500 billion in cuts on top of $450 billion announced August 5), and possibly government health care spending, at the top of the list; the CBO estimates 71 percent of the cuts would come from programs such as education, the environment, transportation, housing assistance and veterans’ health care. Under existing legislation cuts to Medicare, the federal insurance program for the elderly and disabled, are limited to a maximum of 2 percent for payments to hospitals, doctors and other health providers and to private health plans participating in certain related programs. Members of Congress are already preparing legislation to modify the automatic spending cuts provisions, which are now scheduled to be effective in early 2013.

Standard & Poor’s, however, stated it would keep the U.S. credit rating at AA+ and Moody’s Investors Service reaffirmed its AAA rating; Fitch has not yet commented. Despite the Super Committee failure, the U.S. dollar and investments in Treasuries remain strong among global investors. The yield on the 10-year note declined 6 basis points, or 0.06 percentage points, to 1.96 percent in New York yesterday, according to Bloomberg Bond Trader prices, while the Standard & Poor’s 500 Index dropped 1.9 percent to 1,192.98.

The long view is a blend of domestic cuts and tax increases.

Separately, as announced this morning by the U.S. Commerce Department the U.S. economy expanded less than previously estimated in the third quarter. GDP increased at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate. At 930am today global equity markets are flat and U.S. futures are down slightly.

By:  Tim Speiss 

U.S. industrial output increased in October, as cited in a Federal Reserve report this morning. Factory output - including mines and utilities - increased 0.7%, while capacity utilization increased to nearly 78%. U.S. exports are growing (assisted by a cheaper U.S. dollar), cost of living fell (the CPI decreased .1%), Corporate spending on equipment and software increased at a rate of more than 17.4% - a good indication that equipment and technology acquisitions is underway.

In Italy, 10 year bond yields fell as did the cost of credit default swaps; PM-designate Mario Monti is focusing on a new Cabinet (expected to be announced today).

Global equity markets reflect valuation losses, attributable to the continued EU sovereign debt uncertainty. U.S. markets today are ignoring today's positive U.S. economic news as well.

By:  Tim Speiss

EU sovereign debt sales continue, as Spain sold 3.16 billion euros ($4.3 billion) of 12-month and 18-month bills, compared to a target of 3.5 billion euros. Mario Monti, Italy’s next presumed PM, is striving to form a new government while struggling to implement reforms with the current Cabinet. While contributing 20% to EU GDP and a forecasted 1.5% growth rate in 2011, the EU's growth economic growth remains sluggish (European Union’s statistics office, IMF, and OECD, and other sources). The cost of insuring French sovereign debt has increased and bond yields now exceed 5.2%; Italy’s 10 year bond yield remains hovering at approximately 6.8% and was in excess of 7% briefly; France’s yield exceeds 3.5% while Spain is above 6.2%

In the U.S., the strength of the consumer retail sales remains closely monitored (October retail sales will be released today), with growth as a counterweight to the negative effect of U.S. unemployment levels. U.S. retail sales increased 1.1% in September, as did manufacturing and exports; long-term, these continued strengths will help promote U.S. GDP growth, with anticipation that the EU, while slowly, will continue to promote orderly adoption of eurozone fiscal austerity while providing liquidity where, and as, needed.