This Week With J. Mark Nickell & Co. 

Despite volatility of recent days the Dow Jones Industrial Average and the S&P 500 Index® recently marched to even higher all-time highs.  A large part of the fuel is Federal Reserve policy.

We begin with an article about Chairman Bernanke’s testimony before Congress and release of minutes from the last Fed meeting, where Fed policy becomes a little clearer.  Next, we summarize a piece on recent economic data that shows signs of an improving economy, despite headwinds. Then, we review the main points of an article addressing whether the level of the major indexes represents a boom or a bubble waiting to pop.  Finally, we discuss positive developments for seniors in the form of higher thresholds for being subject to the Tennessee Hall Income Tax.

Ben Bernanke says bond buying could slow.  Markets gyrated as it absorbed the meaning of Chairman Bernanke’s testimony to Congress on May 22 and the release of minutes the same day from the April 30-May 1 Fed meeting.  “If we see continued improvement and we have confidence that is going to be sustained, then in the next few meetings, we could take a step down in our pace of purchases.”  According to the Financial Times, “the remarks provide the clearest picture yet of how the Fed is likely to taper off QE3

[the program of buying bonds at the rate of $85 billion per month]; starting fairly soon, and then adjusting the rate of purchases—most likely downwards but upwards if the economy takes a dip—over a period of time….According to the minutes: ‘A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting’…that suggests a more likely date for the first slowing of QE3 is the Fed’s September meeting.”

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Jobs, housing data show economy has some muscle.  The number of new claims for unemployment fell during the week of May 13, despite the drag from higher taxes and deep government spending cuts.  “The improving employment picture is helping to prop up housing, with rising home prices keeping domestic consumption supported, limiting the drag from tighter fiscal policy that is dampening factory activity…the median sales price for a new home jumped 14.9 percent from a year ago.”

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Boom or bubble?  Despite the volatility of the last few days, the stock market has set new highs even as the real economy presents less-than-stellar growth.  One might wonder if this is a bubble or a market level justified by the facts.  The writer points out that corporate profits are at an all time high, but this is explained by the low level of taxes at the corporate level, globalization—where multinationals derive a substantial portion of their earnings from abroad—and the sluggish labor market that enables deep cuts in payrolls.  “The underlying issue is that in recent decades there’s been a shift in the U.S. economy:  it’s become far more congenial to businesses and investors…the fundamental trends that have driven the profit boom are unlikely to be reversed…keeping profits where they are doesn’t look all that difficult, which makes stocks today quite reasonably priced.”

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Haslam to sign changes to Hall Income Tax.  Tennessee is frequently listed as one of the few states that have no state income tax. While this may be technically true, Tennessee does levy a 6% tax on certain dividend and interest income– called the Hall Income Tax—which hits seniors particularly hard.  New legislation raises the thresholds for 2013 for application of this tax, exempting any person sixty-five or older having a total annual income derived from all sources of $33,000 for single filers and $59,000 for joint filers.  Governor Haslam has chosen the Tennessee county with the highest concentration of seniors as the place he will sign the new law.

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J. Mark Nickell & Co.


Disclosure – The articles mentioned in This Week with J. Mark Nickell & Co. are for information and educational purposes only. They represent a sample of the numerous articles that the firm reads each week to stay current on financial and economic topics. The articles are linked to websites separate from the J. Mark Nickell & Co. website. The opinions expressed in these articles are the opinions of the author and not J. Mark Nickell & Co. This is not an offer to buy or sell any security.  J. Mark Nickell & Co. is under no obligation to update any of the information in these articles. We cannot attest to the accuracy of the data in the articles.