Opinion: Politicians, media spin fuel market jitters

In past years I cheated, usually by placing under the tree several packages with tags that read “to Linda from Santa.” And because I have not always been the recipient of items I put on my wish list, I would wrap a couple of books and give them to myself – from Santa, of course.

But this year it will be different, tempted though I may be to revert to form and make certain I get a copy of Frank McCourt’s “Teacher Man.”

And the reason for this behavior modification? After years of planning and discussing and changing our collective mind umpteen times, we are going to remodel the kitchen. So, here we go, sort of like the deck situation I wrote about some time ago, the difference being that, unlike in the early days when money was tight, this time we can afford both the project and splurging at Christmas. We simply chose to not do both because we have all the “things” we need and have a need to replace flooring and cabinets.

Contrast our decision, and the decisions you must make, with what is going on in Washington, D.C., where so many of those elected as (at least so we thought) conservatives have gone on one of the biggest spending sprees in decades. Ever wonder what our economy would look like if we could all spend more – much more – than we earn?

Take a look at the nervousness in the markets, both bond and stock. Job creation has been strong, unemployment is low, interest rates remain at historically low levels, and the economy is growing at an outstanding rate in spite of energy price increases and the ravages of Katrina and Rita.

So why the jitters in the markets? I submit that it is because of the agendas of two groups: Politicians, who believe that staying in office can be bought with old fashioned pork barrel spending while avoiding tackling tough issues such as funding health care and Social Security; and the media, much of which prefers to emphasize unfavorable news and spin even positive facts in a negative way.

You and I can’t change the neo-journalism distortions, but we have the power to do something about the profligate spending in Washington. Let your senators and representatives know that you’re not happy with their partisan bickering and wanton spending. Remind them that they were sent to Washington not to bring their opponents down but to help guide the country up.

And one more thing: Tell them to think seriously about this as they make their decisions: What is subsidized we will always get more of – what is taxed we will always get less of.

Excuse me for a moment as I step down off the soapbox.

Last minute advice: If you haven’t taken losses to offset your realized gains this year, you are running out of time. If you don’t have any gains, maybe you should take a hard look at the investment discipline you are using.

Although it has been a so-so year for the overall equity markets, there have been both value and growth sectors, individual issues and nondomestic equities (especially country-specific exchange-traded funds and closed-end and open-ended funds) that have provided well above market returns, many of which should have been sold as they reached valuation levels exceeding the norm. That is especially true for those that qualified for long-term capital gains treatment. (If only the good old days of buy and hold forever were with us, but alas, the reality is that valuations move to extremes, both undervalued and overvalued, far too rapidly to be ignored. Profits not taken can become profits lost.)

And don’t forget your favorite charities. This year, as part of the Katrina Emergency Tax Relief Act of 2005, there is a waiver of the charitable contribution limitation. Cash donations to charities are exempt from the 50 percent maximum adjusted gross income limitation. (You can give 100 percent of your AGI if you wish!) But note that Dec. 31 is the deadline for making such contributions.

You can further limit your tax liability by giving appreciated securities to your favorite charities rather than selling the issues, paying taxes on the gains and then using the proceeds for your contribution.

Work with your tax preparer and financial consultant, and use these and other techniques to save yourself dollars that otherwise would be going to Uncle Sam.

Finally, here I go, risking the wrath of the thought police or the ACLU, but so what?

Have a very merry Christmas!

Clark Davis is a 37-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company.