DWM: What's Next for Savvy Investors

December 21, 2010

Issue 43

Journey with DWM to
What's Next

Some economists say "up" and some say "down". The truth is, no one knows the future. But affluent, enlightened investors recognize that DWM strategies perform in up markets and protect in down markets. Regardless of what the future holds, with DWM, savvy investors are ready for what's next.

Consumer Spending: New Toy Crazes and Shopping Spree Fuel Surge

Consumers went on their biggest shopping spree since before the recession. The Commerce Department reported last week that three months sales ended November 30^th were up 7.8% compared to last year.

At the same time, the National Federation of Independent Business said its small-business optimism index rose 1.5 points in November to 93.2, its highest level since December 2007. The Business Roundtable said four of five of its CEOs said they expect their company's sales to grow in the next six months and 45% expect to increase their payrolls.

Spending has been especially strong on clothing, sporting goods, books and toys. Sporting goods, hobby book and music sales have risen 12.3% as compared to 2009. Analysts who follow sporting goods chains are not surprised. They point out that American families have traditionally shown a tendency to spend on sports apparel for their children and on hunting and camping gear, even in times of economic stress.

And then there are this year's hottest holiday toys. In the tradition of Hot Wheels cars, Beanie Babies and Pokemon trading cards, they have been carefully engineered to make children crave them in great numbers. Zoobles (pictured above) and Squinkies are two of this year's stars.

There are 180 different Zoobles, tiny plastic animals that come from "Petagonia". They sell for $6 each. Each Zooble rolls up into a ball that will pop open to form the tiny creature. Their appeal comes from the way the figures transform from spheres into their unique characteristics. Squinkies are even smaller. There are 300 different Squinkies so far.

The relatively inexpensive Zoobles and Squinkies come with expensive accessories, including the Zoobles treehouse for $40 and the Squinkies dispenser for $20. Once a child has caught the fever, they won't let their parents buy just one. Zoobles and Squinkies have both sparked a craze. Patricia Hogan, curator of the toy and doll collection at The Strong's National Museum of Play in Rochester says that "at about the age of six, children will start hoarding categories of things." Spin Master, Ltd. which makes Zoobles and Blip Toys, LLC, the maker of Squinkies, have recognized and profited by understanding this portion of a child's natural development.

What's next for these toys? Zoobles will have a line of mama Zoobles with baby Zooblings in their bellies. Squinkies is creating a line for boys with ninja agents, skater dudes, soldiers and a dice game, so boys can compete and win their friend's Squinkies.

Overall, these toys bring back memories of marbles, Hot Wheels, Barbie Dolls, Cabbage Patch Kids, Star Wars figures and more. Good to see kids having fun at the same time the economic recovery is hopefully starting to gather some steam into 2011.

For more information, click here.

In This Issue

Consumer Spending: New Toy Crazes and Shopping Spree Fuel Surge

The Tax Bill: Santa Comes Early

Technology: Googles' Cloud May Change Operating System Paradigm

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The Tax Bill: Santa Comes Early

barakasanta

With a stroke of a pen, President Obama on Friday enacted the Tax Relief Act, the largest tax cut in nearly a decade. The legislation will basically keep in place current tax law and provide additional tax benefits for next year for individuals and business. There's something for everyone in the tax deal, except those who worry about the deficit.

The bipartisan support for the bill underscored the urgency felt by the administration and both parties in Congress to prop up the still-struggling economy and prevent an across-the-board tax increase that was set to occur on December 31, 2010.

Here are some of the major provisions of the Tax Relief Act:

1. Income Tax. Keep in place all Bush Tax cuts for two years. Cost $208 billion, of which approximately $60 billion will go to individuals making more than $250,000 a year.

2. Estate and Gift Tax. Establish a $5 million lifetime credit ($10 million per couple) and 35% tax rates. In addition, estate and gift tax exemptions will be unified at $5 million. 2010 estates can use either the law at the time of death or the new law. Portability of exemption-meaning the unused portion of the $5 million exempt amount can be transferred and used by the surviving spouse. The new law will be in effect until 12/31/12. Cost $68 billion.

3. Capital Gains and Dividends. Kept in place at 15% for two years. Cost $53 billion.

4. AMT Patch. Applies to 2010 and 2011 to keep AMT from hitting the middle class. Cost $137 billion.

5. Payroll holiday. Employee share of social security tax is reduced from 6.2% of payroll to 4.2%. Cost $120 billion.

6. Unemployment insurance. Temporary extension for an additional 13 months. Cost $57 billion.

Total cost of the bill is just over $850 billion in tax cuts and spending. That buys lots of Christmas presents and hopefully will give a strong push for the economy.

For more information. click here.

Technology: Google's Cloud May Change Operating System Paradigm

google cloud

For years, there have been two major mainstream operating systems for personal computers: Microsoft Windows and Apple's Mac OS X. Next summer, Google hopes to change the paradigm with Chrome OS, their Web browser.

Instead of storing most programs and files on your computer, the Chrome OS will require you to keep your data in the cloud-remote servers located on the internet. Google is working out the bugs right now. It's installed Chrome OS on a few thousand small laptops, called Cr-48, and has distributed them to outsiders to try.

When Google's cloud initiative is completely rolled out, Google docs will accept uploads of any kind of file, not just text and spreadsheets. This business is becoming viable with the ubiquity of broadband connectivity and the popularity of netbooks, which are usually light on internal storage. Cloud computing makes it possible never to lose data when you drop your laptop or when you don't have it with you. Microsoft's cloud-based platform, Azure is already available. Apple's Mobile Me is already in the clouds as well.

The idea of cloud computing certainly isn't new. Oracle's Larry Ellison launched the New Internet Computer ("NIC") company in 2000 to that goal. The concept is simple: On a desk, you would have a very low-cost computer with just a processor, a keyboard and a monitor. There would be no hard drive. It would be hooked to the internet and would be linked to a central supercomputer. The idea, however, was ahead of its time. The NIC sold very poorly, probably due to a dearth of broadband availability, and the company folded in 2003.

The Wall Street Journal's Walter Mossberg recently received one of the new Cr-48s to try. He found it "fast, with decent battery life, handled most websites fine, and worked almost exactly like the very nice Chrome browser on Windows and Mac." In addition, Mr. Mossberg reported that the laptop has a radically redesigned keyboard. Instead of function keys or legacy keys like Caps Lock, Chrome OS keyboards feature dedicated browser-oriented keys to facilitate moving back and forth between Web pages and windows. The disadvantage is that you can't install local programs on a Chrome OS computer. And, at this time, Chrome OS can't do anything with USB flash drives or synchronize phones. Printing was a "chore." In short, Chrome OS computers will be more like "iPads than laptops." However, when connecting to the cloud, users will need to be using current sophisticated systems or performance will be very slow.

Google's website provides their top ten reasons for customers to use its cloud:

1. Cloud computing is in Google's DNA

2. Faster access to innovation drives higher productivity

3. Users adopt new functionality with less disruption

4. Employees can be more productive from anywhere

5. Google's cloud enables faster collaboration

6. Google's immense security investments help protect customers

7. Less data is stored on vulnerable devices

8. Customers get higher reliability and uptime

9. Google Apps offers extensive flexibility and control

10. Customers spend less through Google's economies of scale

So, we'll watch what happens. The time might be right for a cloud computer which would mark a change in the operating system paradigm. Google certainly hopes so.

For more information, click here.

Planning: Time for New Year's Resolutions

Happy Holidays and Merry Christmas. Santa will arrive Friday night and the sand in the 2010 hour glass is almost spent. The champagne is ready to be uncorked and the band and noisemakers are waiting. Perfect. There is no better time than over the holidays to consider some New Year's Resolutions for your finances. We suggest you consider the following for 2011 and set some important resolutions:

ú Review the current state of your finances. First, list your assets, liabilities and net worth. Then, calculate your 2010 income and expenses and the change in your net worth for 2010. What will your net worth be at the end of 2011?

ú Review your life goals, or visions. You might do this by yourself, with your significant other and/or with your family. These visions could include your dreams and wishes for your family, your career, your money, education, charity, health and legacy.

ú Review your investments. Do this with your financial advisor. You should review not only performance for 2010 but for the last one, three and five years. You should review your asset allocation and your risk level. Are your investments working to help you meet your visions?

ú Review your estate planning. Consider doing this with your attorney, CPA and financial advisor. How does the new Tax Relief Act affect you? Have you minimized estate taxes? Have you eliminated ambiguities? Are the inheritances and bequests in the manner in which you want them to be? Have you provided for the transition of your estate in an efficient and seamless manner?

ú Review your beneficiaries. Review all insurance policies, IRAs, and company retirement plans. Are all primary and secondary beneficiary designations appropriate?

ú Review your advisers. You need a strong, collaborative, efficient team of attorneys, CPAs and financial advisors working together for you and your family. Just last month, the Wall Street Journal reported that 44% of affluent investors gave their advisers a "C" grade. Only 15% gave them an "A", meaning the adviser really made a "huge positive difference". That's what you need and that's what we strive to deliver.

All of us at Detterbeck Wealth Management wish you and your family the very Happiest of Holidays!!

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