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Weekly Financial News Update - Week of May 12

May 12th, 2008 by John Thomas

For the week the Dow lost -2.39%, the S&P 500 -1.81%, Nasdaq -1.27%, and the Russell 2000 -0.78%. Markets around the world also offered poor weekly returns with the one key exception in Russia which soared +9%.GROWTH:  The US economy grew by +0.6% (in size) during the 1st quarter 2008 (i.e., quarter-over-quarter change expressed as an annualized result).  The change in the size of our economy from the 1st quarter 2007 to the 1st quarter 2008 was +2.5%.  By comparison, China’s economy grew by +10.6% for the 1st quarter 2008 when compared to the first quarter of 2007 (Commerce Department, Financial Times). 

MORE INSIGHT ON ECONOMIC PREDICTIONS:  According to a recent report by USA Today, of those economists who believe the US is either already in a recession or will enter into one later this calendar year, 89% of this group anticipate that the economic downturn will be “short and shallow” in duration and intensity as opposed to “long and deep”.  The Wall Street Journal ran a report in the end of 2007 in which a variety of seasoned financial experts were asked where the markets were headed in 2008. The predictions were mostly bullish - Dow 14,000 - Dow 15,000 - Dow 16,000.  A couple more accurately predicted flat markets in the face of staggering oil prices and a weak housing market. But none of the experts expected a 10% decline in the first quarter alongside a massive credit crisis. 

QUICK FEDERAL ESTATE TAX PRIMER:  Your gross estate consists of everything you own or have an interest in at the date of your death; the fair market value of these items - at the time of death - is used to calculate their worth. This includes life insurance proceeds on policies insuring your life and which you owned.  Let’s assume all of the details have been worked out and you know the value of your estate.  Before you calculate your projected estate tax, you first subtract the “exemption equivalent”.  The amount left over after you subtract the exemption equivalent is subject to estate tax.  What is the estate tax ‘exemption equivalent’?  The ‘exemption equivalent’ is the amount you can pass through to your heirs without having to pay estate tax to Uncle Sam:

  • For 2008 - you can pass the first $2,000,000 of your assets w/o owing estate taxes. The top estate tax rate is 45%.
  • For 2009 - you can pass the first $3,500,000 of your assets w/o owing estate taxes. The top estate tax rate is 45%.
  • For 2010 - there is no estate tax, as per the Act signed into law in 2001. For this one year ONLY, there is what is called a “sunset” provision on the estate laws, where no estate tax is owed. On the bright side, if you are vulnerable to estate tax this would be the year you’d want to go.
  • For 2011 - currently the laws are set to revert back to the federal estate thresholds used before the 2001 Economic Growth and Tax Relief Reconciliation Act. Most think this won’t happen, as new legislation will be introduced sometime in the next few years to avoid this reversion.  If they revert back, the exemption equivalent will be $1,000,000 and the top estate tax rate will be 55%.
TARGET RETIREMENT DATE FUNDS:  These funds are becoming more prevalent in general, and in 401(k) plans in particular.  The concept behind these funds is sound….automatic rebalancing and a more conservative balance of investments as an investor draws closer to retirement age.  One emerging problem with these funds is lack of standardization.  For example, when comparing the funds targeted toward a 2010 retirement date, I found that the equity allocations varied dramatically.  The Oppenheimer fund (OTTAX) has 75% in equities.  The Fidelity fund has 52% (FFFCX).  The Wells Fargo fund has 21% (STNRX).  There are various other offerings but this represents the range (75% to 21%). 
Information provided by my good friend and business associate Doug MacGray.  Doug is a certified financial planner.
If you need help with a home loan or need some financial advice, please feel free to call me (John R, Thomas) at 302-368-7132 or send me an e-mail at DelawareMortgages@yahoo.com

One Response to “Weekly Financial News Update - Week of May 12”

  1. on 12 May 2008 at 10:55 am1 Weekly Financial News Update - Week of May 12

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