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Take Some Profits, Before the Tax Man Takes ‘Em

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Stocks are up strong across-the-boardwith renewed hopes of global growth fueling a roughly 1 percent gain in all three indices.

Of course, today’s move to the upside follows last week’s strong equity performance.

So here’s what I think, folks: This is as good a time as any for investors to think long and hard about taking some profits off the table.

Why, you ask?

As my old friend Art Laffercontinually reminds us, the Tax Man is coming to town on January 1, 2011. Taxes are going up across-the-board. So investors should seriously consider selling into any stock market strength ahead of the tax deadline. Doing this will enable investors to lock in a lower capital-gains tax this year and beat next year’s higher rates.

It’s a lesson investors literally cannot afford to forget: If after-tax investment returns decline, because the key capital-gains tax rate and other investment taxes go up, the future value of stocks is damaged.

In other worrisome news, despite some improvement in consumer sentiment, U.S retail sales fell on Friday for the first time in eight months. That was something of a shocker.

Incidentally, the Economic Cycle Research Institute’simportant weekly leading index continues to fall. A lot of smart money guys pay a good deal of attention to this thing.

The question must be asked: Are we setting up right now for a second-half slowdown? Not a double-dip recession necessarily, but some sluggishness and inertia in the V-shaped recovery?

Oh, by the way, in addition to slowing economic growth and rising tax rates here at home, I’m also concerned about the lingering unsolved problems in Greeceand the rest of Euroland. The European debt-crisis story is simply refusing to die. Like it or not, headline risks like Europe and the BP oil spill are still on the radar screen.

Bottom line:Investors should at least consider taking some profits off the table on days like today.

Questions? Comments, send your emails to: lkudlow@kudlow.com

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