July 21st 2010, 10:59 PM #1
Why the smart money will collapse the S&P this year
If you are a buy and hold, long time investor, you have something you need to think about. Next year the tax on long term capital gains goes up from today's 15% to 20%. Here are the implications.
Let's say that you started saving $100/month in 1980, putting it into the Dow each and every month. congratulations, you now have about $135,000 having investd only $37,000 or so.(all of these are approximate numbers).
Now, you are going to retire in a few years and every penny is important to you. Your profit now, is $98,000. If you sell out today, you clear about $83,000 of profit, after taxes, paying about $15,000 to the Feds.
But if you wait until next year to sell out, you pay 20% to the Feds for taxes, meaning that you will pay about $20,000 to the feds, leaving you about $78,000 of profit. The difference between these two courses of action is the difference between a 2.1 and a 2.3 x return on your 30 years of investing. The Feds are about to take a huge bite out of your retirement.
Therefore, the smart money will sell out their stocks this year so that they can pay lower taxes. The smart money will only pay the 20% tax on future capital gains, not on past capital gains. Only the dummies will hold through the change in tax rates. When will this happen? It will happen with everyone wakes up to the coming rise in taxes. If everyone wakes up this fall, then everyone will be selling at the same time and guess what that means for the stock prices? It means a precipitous drop in price may happen.
I am out of this market right now. The risks are far too great. Maybe I will be proven wrong on this prediction. I hope I am. Too many baby-boomers already can't retire on their after the2009 crash savings. Another hit and things will get worse.http://themigrantmind.blogspot.com
Banned forever by the Amer. Scientific Affiliation, a Christian Scientific Group, for the crime of discussing the ethics of ignoring scientific data.
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