Does the Stock Market Suffer From Seasonal Affective Disorder?

Have you heard of season affective disorder (SAD)? It’s a real thing that many people suffer from. In fact, it’s estimated that 6 percent of the U.S. population suffers from SAD.

Typically described as depression associated with the late fall and winter seasons, seasonal affective disorder is thought to be caused by a lack of light. In other words, when the sky turns gray and dark, so does your mood.

So what does this have to do with the stock market? Is it possible that the weather, or at least the seasons could play a role in how investors act? No one knows how many investors actually suffer from this condition. But according to research, most people – which include investors – tend to suffer from SAD during September and October.

Of course, the effects of SAD will fluctuate throughout the year, but according to Dr. Norman Rosenthal, a clinical professor of psychiatry at Georgetown University School of Medicine and author of Winter Blues, for investors who have SAD, it can influence projections that they make depending on the time of year.

When September and October roll around pessimism can set in and that can lead to lower returns. In fact, these months are historically linked to low average returns.

Meantime, optimism in March, which coincides with more daylight, can influence some investors to buy too high. If investors have more risk tolerance they tend to push the envelope, which could lead to more buying than selling.

Lastly, according to report titled, “The Impact of Seasonal Affective Disorder on Financial Analysts,” financial analysts are not as likely to reevaluate their investment positions based on the changing emotions related to SAD.

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Trump’s Tariff War: An Economic Summary 

On Friday, July 6th, 2018 new tariffs enacted by President Donald Trump went in to effect on $34 billion Chinese goods. These tariffs cover a range of goods but most importantly, include steel and aluminum. While this seems like an aggressive step by the Commander in Chief, it is anticipated there is much more to come. President Trump has threatened that if China retaliates, there will be tariffs placed on an additional $450 billion of Chinese goods.  

These tariffs were enacted after allegations made against China and the Chinese government by U.S. businesses. Some have accused the Chinese of multiple unfair business practices. Many United States businesses have reported that when operating in China, Chinese firms are forcing them into partnerships, stealing their technology and ideas, and then dissolving the relationship. Additionally, the United States government claims to have proof that Chinese companies are stealing American tech secrets. Furthermore, it is also believed the Chinese have been hacking into US commercial networks to spy on US commerce. The Trump administration believes these actions have been persisting for too long, and the Chinese must pay for their crimes against America. He hopes to punish the Chinese government by imposing these tariffs.  

A spokesman for the Chinese Commerce Ministry has said the Chinese government will retaliate with full force, enacting tariffs on top American exports. While Trump may anticipate a short trade war, it appears China is poised to go the distance. China’s head banking and insurance regulator claims, “The progress of [our] economy cannot be reversed by any force,” (1) providing possible evidence that China will not back down to President Trump.   

So why is this trade war important? Well these tariffs will have important economic effects on United States’ consumers, businesses, and stock market.  

As tariffs rise, so too will the cost of producing most goods. Those who operate in the steel and aluminum businesses will especially face difficulties. Furthermore, all businesses will be directly or indirectly faced with the issue of an increased cost of inputs—the necessary materials and supplies to produce final goods. This input dilemma creates two options for all American businesses: they must increase the sales price of their products, or they must adjust their business process or structure to maintain profit margins.  

If businesses elect the former, then the average American consumer will most greatly feel the effects of the tariff. In this situation, if a company is not working to reinvent their business process to reduce prices, then they are simply passing the tariff to the consumer by raising prices. For most companies, re-optimizing a product can be a long and expensive task. The average company will be forced to raise prices. This raise in price will be felt heavily by consumers in many industries.  

If businesses elect the latter and adjust business process or structure, a likely result will be downsizing. As tariffs increase the cost of inputs, business in many industries will become far more expensive. With business becoming more expensive, some companies will not be able to afford to maintain their workforce. History supports this hypothesis. President Trump’s tariffs are very similar to a series of tariffs approved by the Bush administration during 2002.  A report on the Bush administration tariffs produced by Dr. Joseph Francois, showed that in the year 2002 approximately 200,000 Americans lost their jobs to higher steel prices. Although this report is not an exact indication of what will come of Trump’s tariffs, it perhaps provides foreshadowing for what lies ahead. As these tariffs stand, our economy is more than likely to see a decrease in jobs, especially in the steel and aluminum industries.  

As the average cost of goods rise and companies are forced to reduce their workforce, concern is growing that our economy could slip into secular stagnation—a time of stunted business growth. There is no evidence any diplomatic parties involved will back down, and the rise in tariffs promotes an economic climate that does not facilitate business growth. So, what does this mean for the stock market? History indicates that tariffs and the stock market generally do not get along. In 2002 when President Bush enacted similar steel tariffs on Canada and Mexico, the Dow Jones fell by more than 25%. Additionally, the U.S. dollar index also saw a significant drop in the ensuing months of the 2002 tariff being enacted. If history repeats itself, these tariffs could potentially have a significant impact on the stock market today. As companies adjust business structure and process, the direction of the market is unknown.  

In summary, these tariffs could have a very significant impact on the U.S. economy and American individuals. It is important to be aware of these changes as eventually they will directly or indirectly affect each of us.   

 

Works Cited 

  1. https://www.thenews.com.pk/print/337913-china-warns-us-opening-fire-on-the-world-with-tariff-threats 
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IRS Stands Pat on Key Interest Rates

Interest rates are staying pat. That’s the IRS’s interest rates, not the federal interest rates. The tax agency announced rates for both tax refunds and late payments recently. And both rates will remain the same as they were in the previous quarter. 

That means rates in third quarter calendar year, which begins July 1, 2018 will be 5 percent for both overpayments and underpayments. These rates are determined using the federal short-term rate, plus 3 percent. 

So, how does this ruling affect you? If you owe money to the IRS, or the IRS owes you money, then these rates are important to know.  

For starters, if you have not paid your taxes in full by the due date then you could be hit with a penalty. It is usually 0.5 percent of the amount you still owe for every month your taxes are overdue. 

If you do not file on time you could also face a penalty, which is typically 5 percent of the amount you still owe. The penalty will not exceed 25 percent of the total amount you owe. 

If you face both failure to pay and failure to file penalties on the same overdue tax the minimum amount you will be charged for both penalties is 5 percent each month. As in almost all cases, if you owe money to the IRS, it’s best to pay it off as quickly as possible to avoid further penalties. 

There’s one other note you need to be aware of. If the IRS pays you interest, you do have to count that as taxable income. 

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Are the President’s Contradictions Swaying the Stock Market?

Does it seem like the stock market has been all over the board this year? That’s because it has. So what’s behind the recent trend of big swings? There are many factors that play a role in the stock market’s ebbs and flows, but this year it seems like the president is having a huge impact. 

In fact, analyst Ed Yardeni had this to say regarding President Trump’s market impact: “”We don’t recall a President who has been simultaneously so bullish and bearish for stocks.” 

So, while it seems like a contradiction, the fact is, the president has been both a blessing and a curse for investors this year. The first quarter was full of ups and downs as major averages moved into correction territory. 

But since then, stocks have bounced back well. The S&P 500 has jumped up 4 percent for the year on the strength of an almost 8 percent jump since the beginning of April. Elsewhere for the year, the Dow industrials have increased by 1.8 percent. 

The Tax Cut and Jobs Act has helped boost the stock market, while many of the president’s other opinions and policies have sent socks the other way. But overall, the stock market is doing well under Trump. At his point in his presidency, Trump has the sixth-best Dow performance of all presidents since the turn of the 20th century. 

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Would an Internet Sales Tax Kill Small Businesses?

 

How much different would life be if states could charge an Internet sales tax? This is a question that has long been argued at different levels of government and business. The argument could finally be coming to a head, as the U.S. Supreme Court is set to rule in South Dakota v. Wayfair in the coming days. 

South Dakota, together with several other states, wants to force Wayfair, and other online retailers, to charge consumers sales tax, just like any other retailer in the state. The problem is Wayfair does not have any stores in South Dakota. So the argument is why should consumers be forced to pay a sales tax to their state when making a purchase from an out-of-state retailer? 

Of course, businesses and consumers alike oppose the idea and according to billionaire Steve Forbes, if the Court were to enforce an Internet sales tax for states it would have far reaching consequences, especially for small businesses. 

For starters, small businesses with only a few employees would be forced to comply with more than 10,000 state and local tax jurisdictions. In most cases, small business would not have the manpower or resources it would take to collect and pay these taxes. 

According to Forbes, that would be lost time to build and grow their businesses. Such a decision could also lead to a much broader Internet sales tax. Many small businesses could be forced to choose whether or not staying in business would even be worth it. 

Lastly, Forbes says: “This burden would damage interstate commerce and the national economy as a result. For the same reason, the Supreme Court and our elected officials should reject this tax grab and instead uphold the principle of protecting small business owners from burdensome taxes in distant states.” 

Tell us what you think of an Internet sales tax. Share your opinions by commenting below. 

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How to Make Alimony Tax-Friendly

With the Tax Cut and Jobs Act (TCJA) in place, it’s out with old and in with new when it comes to alimony. For years, the spouse paying alimony could deduct those payments from his or her income. On the other hand, the spouse receiving the alimony payments had to pay a 15 percent tax. With the TCJA now in place that policy has been turned upside down.

Under the new law, starting in January of 2019, the spouse who pays alimony can’t deduct it from his or her income. And the spouse receiving the payment does not have to pay taxes on it. The new law will not affect existing divorce and separation agreements. But for future divorce agreements, that’s a significant difference. It could also mean other sources of income could play a more prominent role in divorce discussions.

For example, IRAs could give couples an alimony planning opportunity under the right conditions. Starting in 2019, the paying spouse could give the receiver a lump-sum alimony payment in the form of an IRA. Transferring the account is tax-free.

This would allow the paying spouse to rid his or herself of an account with income taxes if they withdrew money from it. Therefore, it works like a deduction because the giver no longer has to pay taxes on that money.

In addition, the receiver also has to pay taxes when he or she takes a distribution from the account. However, this will not work for couples that need alimony immediately. But it could be a great strategy for older couples that divorce that can wait for a payout.

 

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Are You Withholding Too Much From Your Paycheck?

By now you’ve had enough time to get a good read on how the new tax laws have affected your paycheck. For most people, the news should be good. However, in many cases, it could actually be better.

The problem is many U.S. workers are actually withholding too much money. In other words, their take home pay could be even higher. On the plus side, if you like a big tax return each spring then this is the way to do it. In fact, according to Morgan Stanley, tax refunds are expected to be 26 percent higher in 2019. That equals about $62 billion total.

And that is mostly because people are withholding too much money from their paychecks. According to research, about 75 percent of all employees withhold too much to begin with. Research also shows that most taxpayers don’t adjust their withholding amount sufficiently when tax laws change.

The good news is taxpayers will have a lot more to spend in the spring of 2019. The bad news is they will be missing out on a lot of extra income throughout the rest of the year when they may need it. Plus, if it’s just extra money, then they could be missing out on investment opportunities or even extras saving for retirement, etc.

So, if you don’t want to wait till next spring to see some of that extra tax-break cash, then now is the time to review your withholdings.

 

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Phone Scams Still High on the Tax Scam List

While the majority of taxpayers have already filed their 2017 tax return, there are still millions who haven’t quite got around to completing this task. Whether you’ve filed or not, you need to be aware of the possible scams that are still going on this tax season.

Every year the IRS warns taxpayers about these scams but every year thousands of people fall prey to scammers. Although scammers use all kinds of methods to con people out of their money, phone scams continue to be common each year. It’s no different for the 2018 tax-filing season.

In fact phone scams still top the IRS’s “Dirty Dozen” list of scams. If you’re not familiar with this scam here’s generally how it works. You receive a phone call from someone who identifies his or herself as an IRS representative.

The caller then claims that you owe the IRS money and they are trying to collect it.  The caller informs the taxpayer that they must pay this tax debt off immediately via

wire transfer or with a pre-loaded debit card. If they refuse to pay the caller threatens them with severe punishment, such as prison time, losing their license or in some cases, deportation.

This is just one variation, but they all have one thing in common. The person demands money for unpaid tax debt.

The IRS will never call and demand money. The agency will always send a letter in the mail to inform taxpayers of any issue. They will never ask for you to make payments over the phone or even ask for debit or credit card numbers.  And they won’t threaten to arrest you or with other punishment.

If you get one of these calls, don’t argue with them. Just hang up.  You can also report the scammer to the Treasury Inspector General for Tax Administration (TIGTA) by calling 1.800.366.4484. Or, you can use the “IRS Impersonation Scam Reporting” form on their website.

Is it Still a Good Idea to Switch Your Regular IRA to a Roth IRA?

Let’s talk about IRAs. There are two general kinds of IRAs: Traditional IRAs and Roth IRAs. First, what’s the difference? In a nutshell, you can deduct traditional IRA contributions from your federal and state income tax returns for the year you make the contribution. When you retire and start making withdrawals the money is taxed at ordinary income tax rates. Unlike traditional IRAs, Roth IRAs do not provide a tax break when you make contributions. However, earnings and withdrawals from Roth IRAs are typically tax-free. 

So with that in mind, why would someone want to switch from a traditional to a Roth? Roth IRAs offer another advantage. They are subject to the lifetime minimum distribution rules. Traditional IRAs are. These rules require IRA owners to start taking distributions as soon as they reach age 70. 

The new tax laws have also made things a little different for Roth owners. On the plus side, the income tax rates have gone down. That means you are likely to pay a smaller tax cost when you convert from a Traditional to a Roth. On the other hand, the tax did eliminate the re-characterization rule that used to be available for Roth IRA conversions. 

When all is said and done, converting from a Traditional IRA to a Roth IRA is still a very viable option under the right circumstances. Losing the re-characterization option is a negative. But the overall positive factors of a Roth, combined with the new lower income tax rates, makes conversion a good move for many taxpayers. 

 

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True Entrepreneurs Are Not Failures

How many great entrepreneurs do you know? How many failed entrepreneurs do you know? The Truth is, people on both lists have failures on their resumes. However, failing does not make you a failure. In fact, most successful entrepreneurs have failed many times before they achieve success. The reality is failure is a natural part of entrepreneurship.

Therefore, true entrepreneurs are not failures. They just haven’t found their success story yet. So what does it take to become a successful entrepreneur? First off, don’t try to be an entrepreneur for the sake of being an entrepreneur. Most entrepreneurs don’t set out to “be an entrepreneur.” Instead, they set out to do something great, solve a huge problem, disrupt an industry, or change the world.

Good entrepreneurs also know how important it is to surround themselves with the right kind of people. That means you have to hire people that will bring the passion, energy and talent it will take to become successful and achieve your goals.

It takes some guts. In fact, it doesn’t hurt if you’re a little crazy. That’s because being an entrepreneur and starting a company, or a movement, is risky. It takes some real bravado. You can’t be afraid to fail. So if you’re not into risk and the thrills that come with it then entrepreneurship might not be for you.

Lastly, you need to stay hungry and driven till the very end. You also need to stay humble. Never forget where you came from. In other words, hold onto your core values no matter where you are in the process to success.

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