The Cliff

The Fiscal Cliff

Well,  on Tuesday we elect the president for the next four years along with our other fearless leaders.  Post election, come what may, the first item on the agenda should be the fast-approaching fiscal cliff.

As of January 1st, unless our inept politicians do something, the following items will occur:

• The 2% payroll tax cut will expire.  That is two percent extra for everyone with a job.
• People in the top income bracket, will see their highest marginal rate go from 35% to 39.6%
• The next lowest will go from 33% to 36%
• Then 28% to 31%... etc
• I think we can see that pretty much for any making a decent income, this will amount to a 3% increase in overall income tax rate.
• Long term Capital Gain Taxes will go from 15 to 20%.

• Dividend Tax rates will go from 15% to normal income.
• Automated spending cuts will occur.

Fidelity estimates that if all these things happen, it would slow the economy by 4 to 5%.  My quick math shows that would equate a pretty severe recession.

Now there is plenty of room for compromise, including kicking the can down the road for the next congress/administration to handle or else some grand thoughtful plan (yeah, right).  My guess it is kicked down the road, but I continue to make my portfolio a bit more defensive as a higher tax rate on dividends or a higher tax rate on capital gains is likely to cause a short term stampede for the exits... and as the compromise may not happen until December 31st, people are going to have to take action in advance.

So I did sell another divvy stock, WBK.  This has been a very solid performer for me, up well over 30%.  Like SBS, TROX and FCX, I will look to reinstate positions as I like all these companies, but am just a bit worried about a correction between now and year end. That puts me at 32% cash in the dividend portfolio. 

Stock	Shares	Avg Cost	Current Price	Dividends Received	Pct Change	R3K Change	Diff
BHK	2,219	12.73	16.08	2,256	34.3%	4.6%	29.7%
CSCO	4,262	17.20	17.35	1,417	2.8%	5.9%	-3.1%
CSQ	5,404	8.26	10.14	4,487	32.9%	21.0%	11.9%
FSC	2,753	9.79	10.88	1,532	16.8%	3.8%	12.9%
HFC	1,100	33.98	37.72	1,814	15.8%	2.5%	13.3%
INTC	1,952	21.01	22.06	1,559	8.8%	14.6%	-5.8%
JPM	1,673	35.22	42.42	992	22.1%	5.8%	16.3%
JQC	4,135	9.10	9.87	4,108	19.3%	5.4%	13.9%
KMF	1,844	21.97	29.10	3,637	41.4%	17.3%	24.2%
KSS	632	48.18	54.55	400	14.5%	4.2%	10.3%
MPC	579	43.89	53.05	343	22.2%	3.5%	18.7%
MSFT	965	26.83	29.50	1,267	14.8%	15.0%	-0.2%
O	552	19.17	39.46	7,295	174.7%	67.2%	107.5%
OIBAX	3,861	4.91	6.54	6,504	67.6%	67.6%	0.0%
PGR	2,000	20.48	22.07	-	7.8%	4.3%	3.4%
PRE	532	67.33	79.27	956	20.4%	4.3%	16.1%
PVD	427	65.09	106.60	3,788	77.4%	17.1%	60.3%
SAI	4,680	12.83	11.12	1,377	-11.1%	0.0%	-11.1%
STO	1,040	23.82	24.38	1,121	6.9%	19.6%	-12.7%
VIVHY	2,296	16.70	20.24	3,749	31.0%	2.9%	28.1%
Total Open				48,602	22.2%	10.4%	11.9%
Closed					11.3%	9.1%	2.2%
Combined					14.1%	9.4%	4.7%
IRR Since 12/31/10					15.0%
2012 Gain					21.5%