Paul Ferraresi

You know the old expression…be careful what you wish or ask for…Well, the Democrats have won. With this now in place, here are some things for you to examine for your family. (This is not personal, strictly business):

Taxes: With the new Congress expect Nancy Pelosi to be the new Speaker bringing her San Francisco agenda to the country. Charles Rangel will head up Ways and Means Committee (tax policy) and he has stated a desire to roll back all tax cuts instituted over the past few years. The “rich” will be taxed more (those with household incomes over the average of $38,000 per year). The new Congress would block Bush’s efforts to make all 2001 & 2003 tax cuts permanent, and, fully repeal the estate tax cuts back to the old system. This will push up your taxes, reduce your spending power, slow down the economy and produce job layoffs as companies try to maintain their present low profit margins. Look for higher taxes for companies…This will lead to less hiring, more layoffs and all of the above leads to higher inflation. This higher inflation comes as individuals push for higher wages and companies push up prices to cover the added tax costs. Set up your non-qualified retirement plans immediately to minimize future taxes.

Regulations: Will sky-rocket for businesses. This leads to higher costs which will force more layoffs and/or higher prices (inflation) to cover the costs (­­­­­­­look at the Sarbanes-Oxley costs)

Court Appointments: The leadership change will lead to more liberal appointments to the bench leading to insane court rulings that protect the criminal and hurt the victim.

Social Security: No progress for REAL reform. Taxes will go higher rather than allowing younger people to set aside some money in a “401k” type account. If the proposed new reforms do not take place and you are under 50, then, do not count on any social security for your retirement.

Health Care: They will push universal health care which will increase your premiums while reducing your benefits (just look for more of the “enjoyable” no-care, slow service at most HMO’s). This will beat down pharmaceutical and health related stocks in the short term. The only way to fund this universal health care system is via higher taxes.

Investments: Wall Street is not liked by the Democrat big machine. Again, more regulations for brokers, leads to higher costs which will pass on down to you. Stock prices will be weak in the short term.

Defense: The brutal cuts in defense spending during Carter’s years led to Reagan having to build it up. Clinton’s team wore it down again and George W. has built it back up. Watch for cuts now, a weaker system in the future and more terror activity. This will favor precious metals investments.

Minimum Wage: The new Congress will push for an increase in minimum wage. This will be an added cost to business, and, along with higher business taxes there are only two alternatives for business to survive: Raise prices (leads to inflation) or reduce costs (usually by layoffs and/or outsourcing, both of which leads to an economic slow down). Retail and Service companies will get hit the most, thus, higher prices for consumers, and, lower stock prices.

Energy: The new Congress will impose additional special taxes to energy companies to fund their social programs, especially health care. Outcome: this will stop any capital expenditure for new sources of oil. In addition, the new Congress will prevent drilling in rich areas of Alaska. For us, that will mean more dependence on foreign oil, being black mailed by the Middle East countries, and, high gas and heating oil prices (inflation).

Immigration: Nothing of substance will be done about illegal immigration. Outcome: cost for health care, local school and government services will continue to escalate. The only solution…more taxes and regulations.

Summary Thoughts and Action for you:

• Stocks will have it tough in the short term; over the long term, 5 years or more, they will do okay.
• Pharmaceuticals, Health Care, Retail, Energy companies will take the majority of the regulations, costs and taxes.
• Higher costs to you leading to inflation.
• Higher taxes for you leading to less purchasing power.
• With higher taxes in the horizon, there is no reason to make use of Qualified Plans (401k, IRA, etc.) Higher taxes in the short and long term makes these retirement plans “ticking time bombs.” Establish a non qualified plans IMMEDIATELY.
• Stash some “cash-cash” close to home. This change in House leadership will be a day of celebration for the terrorist. Expect a slow troop pull out of Iraq which means the terrorists need not fight there and can bring the war to our home land. See your advisor to set up a home “cash-cash” account.
• Sit with your financial advisor to layout an organized plan for asset allocation of your investments. Take advantage of present low tax rates (you have had a bonanza in low taxes for the past 5 years, and, time is now running out).
• Change your thinking on your estate. The new Congress will definitely increase taxes on the “rich” (you), so, it makes sense to begin a plan to develop an estate plan that emphasizes “living benefits” not “death benefits”.