Sorensen Wealth Management Blog: February 2011

Monday, February 28, 2011

Weekly Market Commentary

The Markets

Guns and oil are never a good combination.

As unrest in the Middle East continued last week, oil prices headed north and stock prices headed south. The decline in stocks last week was rather modest, but it still shows how oil is an important component of our economy. Specifically, if oil prices rise too much too soon (and nobody knows exactly what “too much too soon” is), then that could tank economic growth and stock prices.

Let’s look at some facts related to oil so we can put the Middle East turmoil in perspective -- at least as it relates to the turmoil’s impact on the economy.

In 2009…

· The U.S. was the world’s third largest crude oil producer.

· The U.S. produced 11% of the world's petroleum yet consumed 22% of the world’s petroleum.

· The U.S. imported 51% of the petroleum we used.

· Of the 51% that we imported, 51% of that came from Western Hemisphere countries.

· Our five biggest suppliers of crude oil and petroleum product imports were:

Canada

(23.3%)

Venezuela

(10.7%)

Saudi Arabia

(10.4%)

Mexico

(9.2%)

Nigeria

(8.3%)

· Approximately 14% of our crude oil and petroleum product imports came from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates.

· Dependence on OPEC is declining as 41% of U.S. petroleum imports came from OPEC countries in 2009, which is down from 70% in 1977.

The data above comes from the U.S. Energy Information Administration and indicates we are still heavily dependent on imported oil. The good news is a significant chunk of the imports are from friendly and “stable” countries. So, while problems in the Middle East are a serious concern for the U.S. economy, so far, it appears that we we’ll have a steady supply of oil. The big question is, at what price?

Data as of 2/25/11	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	-1.7%	5.0%	19.5%	-1.3%	0.4%	0.4%
DJ Global ex US (Foreign Stocks)	-1.6	1.9	19.9	-3.7	1.7	4.6
10-year Treasury Note (Yield Only)	3.4	N/A	3.6	3.9	4.6	5.0
Gold (per ounce)	1.4	-0.6	28.1	14.4	20.4	18.2
DJ-UBS Commodity Index	1.5	1.8	25.6	-7.5	0.6	4.1
DJ Equity All REIT TR Index	-0.5	6.0	35.6	2.9	2.5	11.7

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

IT LOOKS LIKE IT’S GETTING HARDER to keep up with the Joneses. Last week, we published some data from the IRS on how income and income taxes are distributed in the U.S. This week, we’d like to share a chart, which shows the minimum level of adjusted gross income (AGI) you need in order to reach certain percentiles. For example, in 2008, you needed an AGI of $113,799 to be in the top 10% of all taxpayers.

Tax Payers	Adjusted Gross Income Floor on Percentiles 2008	Adjusted Gross Income Floor on Percentiles 1986	Percentage Change 1986-2008
Top 1%	$380,354	$118,818	220%
Top 5%	159,619	62,377	156
Top 10%	113,799	48,656	134
Top 25%	67,280	32,242	109
Top 50%	33,048	17,302	91

Source: IRS Statistics of Income Division, July 2010

It’s interesting to note that over the 1986-2008 time period, the minimum AGI needed to be in the top 1% in order to grow more than twice as fast as the minimum AGI needed to be in the top 50%. Looking at it another way, in 1986, you needed to earn 6.9 times the 50^th percentile AGI in order to reach the top 1% of all tax payers. By contrast, in 2008, you needed to earn 11.5 times the 50^th percentile AGI in order to reach the top 1%.

Another interesting point in the data is that the top 25% of tax payers have increased their income at a faster rate over the past 22 years than the bottom 75% of taxpayers.

So why share this data with you?

As our country embarks on a deep dive to figure out how to cut our budget deficit, politicians from both parties will use numbers like we’ve published over the past couple weeks to support their case or refute their opponent’s case. We think it’s important that you have the raw data so you can have an informed opinion on what’s really happening as it relates to the growth and the distribution of income and income taxes in the U.S. Ultimately, changes in these areas could affect your financial situation.

Weekly Focus – Think About It

“Liberty, when it begins to take root, is a plant of rapid growth.” --George Washington

Best regards,

Jeff Sorensen

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Triad Advisors, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

Tuesday, February 22, 2011

Weekly Market Commentary

The Markets

The Middle East isn’t the only place experiencing a protest by the people.

In Madison, Wisconsin, thousands of protesters flooded the state capital for several days last week to protest the newly-elected Republican governor’s attempt to roll back state employee benefits and overhaul union rules, according to CNN. The battle is being closely watched on the national scene because if the governor succeeds, it may embolden other states to attempt similar moves.

What’s playing out in Wisconsin may be a precursor to sweeping changes in our country over the next few years. Specifically, most people agree that our country is facing massive budget issues that cannot be “kicked down the road” indefinitely. With the Republicans scoring major victories in last year’s election, they are now—right or wrong—trying to follow through on campaign promises to address these issues.

While most people agree that something has to be done with our country’s budget issues, Wisconsin’s governor is discovering that getting changes made won’t be easy.

Interestingly, the stock market keeps moving up despite the political protests here and abroad. Last week, the S&P 500 rose to its highest level since June 2008 as the Federal Reserve raised its forecast for economic growth and most companies reporting earnings topped estimates, according to Bloomberg.

What could possibly derail the market’s upward momentum? In a word—oil. As the unrest in the Middle East spreads, particularly in oil-rich

Libya

, a spike in oil prices could deflate the market if it causes the economy to slow down.

Back in Wisconsin, the protests show we have no consensus on how to solve the deficit problem. The least painful way would be to grow our way out of the hole. More likely, though, the old Fram oil filter ad presciently spells out the path, “You can pay me now, or pay me later.”

Data as of 2/18/11	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 (Domestic Stocks)	1.0%	6.8%	21.1%	-0.1%	0.9%	0.5%
DJ Global ex US (Foreign Stocks)	2.2	3.6	19.4	-2.6	2.5	4.6
10-year Treasury Note (Yield Only)	3.6	N/A	3.8	3.9	4.6	5.1
Gold (per ounce)	1.4	-1.9	23.7	15.3	20.1	18.2
DJ-UBS Commodity Index	0.3	0.4	21.4	-7.4	-0.3	3.9
DJ Equity All REIT TR Index	0.4	6.5	37.6	4.7	2.7	11.7

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

HOW ARE INCOME AND INCOME TAXES DISTRIBUTED IN THE UNITED STATES? The Internal Revenue Service recently released some data on the distribution of income and income taxes for tax years 1986 – 2007 and here’s what the data shows.

Tax Payers	% of Total Adjusted Gross Income in 2007	% of Total Taxes Paid in 2007	% of Total Adjusted Gross Income in 1986	% of Total Taxes Paid in 1986
Top 1%	22.8%	40.4%	11.3%	25.8%
Top 5%	37.4	60.6	24.1	42.6
Top 10%	48.1	71.2	35.1	54.7
Top 25%	68.7	86.6	59.0	76.0
Top 50%	87.8	97.0	83.3	93.5

Source: IRS Statistics of Income Bulletin, Winter 2010

Comparing 1986 to 2007, here are some observations.

First, the rich are increasing their share of the country’s total income. For example, from 1986 to 2007, the top 5 % of taxpayers increased their share of the total income of all taxpayers from 24.1 % to 37.4 %.

Second, the rich are paying a growing share of the country’s total income taxes. For example, from 1986 to 2007, the top 5 % of taxpayers increased their share of the country’s total income taxes paid from 42.6 % to 60.6 %.

Third, the rich pay a proportionately higher percentage of their income in taxes. For example, in 2007, the top 5 % of taxpayers accounted for 37.4 % of the total income and they paid 60.6 % of the country’s total income taxes. By contrast, the bottom 50 % of all taxpayers accounted for 12.2 % of the total income and they paid 3.0 % of the country’s total income taxes.

With the budget problems we’re currently facing, Republicans and Democrats will finesse these types of numbers and use them to their advantage to bolster their position on how to solve our problems.