We are reading a great deal now about the upcoming “fiscal cliff”, or the confluence of fiscal events that could happen at the end of 2012. These include a combination of tax increases and austerity requirements. This week we begin with an article about the potential increase in taxes if Congress and the President don’t find a workable solution before the end of this year. We follow this with some good news about the continued growth of the U.S. economy.  Next we take a look at the energy renaissance that is occurring right now in the United States. Our final article will be of special interest to those intested in the relationship between price earnings ratios (P/E) and inflation. What causes P/E ratios to decrease? It’s in the article.

“Fiscal Cliff” Would Raise Taxes On Most Americans – If Congress and the President allow the U.S. to fall off a “fiscal cliff” of tax increases at the end of the year, it will cost the average American $3,500, according to a report from the non-partisan Tax Policy Center.  Nearly 90% of Americans taxes will go up after existing cuts and exemptions expire. http://www.latimes.com/news/politics/la-pn-fiscal-cliff-tax-spike-20121001,0,1937398.story

Continued Good News For The U.S. Economy – After contracting for three months, the U.S. manufacturing sector surprised economists by expanding in September, fueled by an unexpectedly large volume of orders.  The Institute for Supply Management’s Factory Index rose from 49.6 in August to 51.5 in September on a scale in which everything above 50 indicates growth. http://www.bloomberg.com/news/2012-10-01/ism-index-of-u-s-manufacturing-increased-to-51-5-in-september.html

The Energy Renaissance In The U.S. – We are very encouraged by the energy renaissance in the U.S. and its positive impact on our economy as well as on the environment.  Here is an interesting article about the oil hub located in Cushing, OK. http://www.businessweek.com/articles/2012-09-27/the-oil-hub-where-traders-are-making-millions#r=read

Crestmont Market Valuation Update – Crestmont Research shows that the price/earnings ratio on the S&P Composite Index is 20.8, which is 51% above its average of 13.7.  The charts on this site illustrate the relationship between P/E ratios and inflation.  If we have inflation higher than 3% to 4% or we have deflation, P/E ratios usually decrease, resulting in declining stock prices. http://advisorperspectives.com/dshort/updates/Crestmont-PE-Ratio.php

We hope you enjoy reading these articles along with us and that you find them informative.  Please forward this to your friends and family.

John R. Day and Bill W. Ennis