89% there?
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Stimulus bill (what’s inside)
| Here’s a quick note about the new economic relief package that Congress passed just yesterday. The Consolidated Appropriations Act, 2021 comes in at over 5,000 pages and the NorthStar Team has been totally nerding out on it!
What’s in the box?
Who is eligible for the stimulus payments? While dependent children under 17 will also receive $600 each, it doesn’t appear that adult dependents like college students or elders qualify for the payments. If your family added dependents in 2020 or you earned too much in 2019 to qualify (but would qualify in 2020), you may not receive full payments immediately but can request additional money once you file your 2020 taxes. If you qualified based on your 2019 income but your 2020 income would have reduced your payment, you won’t have to pay it back; nor will it count as taxable income. How do I claim a stimulus payment? While the IRS hasn’t released a timeline for sending out payments, it’s possible electronic payments could start before the end of the year. When the last round of stimulus passed, the IRS began distributing payments two weeks later; however, plenty of eligible folks still haven’t received them many months later.3 What else do I need to know? Small business relief: Congress included another round of relief for small business owners by extending the Paycheck Protection Program with another $284 billion in forgivable loans. Some of the funds will be set aside for very small businesses, and the PPP is now available to nonprofits and local media outlets.4 An extra $20 billion has also been appropriated for Economic Injury Disaster Loans for businesses in low-income communities, and $15 billion more is earmarked for live venues, movie theaters, and cultural institutions that have been financially damaged by the pandemic. The deal also clarifies that PPP borrowers will be able to deduct expenses paid for with forgiven loans, clearing up a potentially nasty tax issue. Unemployment benefits: The package also extends unemployment benefits of $300/week for another 11 weeks, beginning as early as December 27 and lasting at least until March 14, 2021. A benefits program specifically for contract and gig workers that was slated to expire at the end of the year is also extended through March. What should I do with my payment? If you’re among the very fortunate who don’t need to shore up your finances, we’d recommend putting it toward your retirement savings, other financial goals, or investing it in yourself through a course or hobby. Or even better, donate it to your favorite charity. That’s it for now. We hope you and your loved ones are safe, warm, and well. Questions? We’re here. Reach out at (704) 350-5028. Happy Holidays and Warmest Wishes!
P.S. Wherever there’s money, there are scammers after it. Please be on alert for “official-looking” emails asking you to open an attachment or click a link—they may contain malware. If you get a suspicious email, check the sender’s name and email address to make sure they’re not fake. When in doubt, delete the email. The IRS or Treasury department will not require you to follow emailed instructions to receive a stimulus check. P.P.S. Some great news to share: 556,208 folks were vaccinated against COVID-19 in the first week! That’s the power of human ingenuity and collective effort. We’re so grateful to be seeing some light at the end of this dark tunnel!5 1https://www.washingtonpost.com/business/2020/12/20/stimulus-package-details/ https://www.wsj.com/articles/what-is-in-the-900-billion-covid-19-aid-bill-11608557531 3https://www.wcvb.com/article/when-will-you-get-a-second-stimulus-check/35025504 4https://www.cbsnews.com/news/stimulus-check-600-dollars-eligibility-2020-12-21/ This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional. |
Good stuff in 2020?
It’s been a long journey to reach this election day and, if you’re like me, you’re plenty tired of the relentless politicking.
Case counts are rising around the country and winter is coming (34F overnight here in the Queen City of Charlotte).
A stimulus deal to help the folks who are scraping by seems stalled.
Markets are down (and up and down).
It’s hard to feel positive some days.
I’ve been noodling with a question I’d like to ask you.
When we take a look at 2020, it’s easy to see it as a long string of disasters, one after another.
And the last year has exacted a terrible cost. In lives cut short and dreams shattered.
But what if we look for the good stuff that happened as well?
Sometimes, it’s hard to remember the good things because they slip in quietly and often go unnoticed.
While the bad news announces itself loudly, instantly, and overwhelmingly.
What if we paused to ask: what good has come to my life because of this year?
I’ll start.
I’m grateful for the additional time spent with my wife Rita and our children. It’s so easy to get caught up in the shuffle of work, school, activities, travel, and everything else. I’m glad we had the opportunity to slow down and make each other our refuge.
I developed a new appreciation for my neighbors in SouthPark. We were all thrown together during lockdown and I’m grateful for the opportunity to have gotten to know them better (especially John in the house across the street who generously introduced me to the joys of mechanized leaf removal).
I reconnected with old astronomy and physics major friends from the University of Virginia over Zoom. We’d drifted apart over the years and I’m glad we could catch up.
I think our grand experiment in remote work is going to yield big benefits to our society.
What good things came about in your life?
Will you share them with me (chrismullis@nstarcapital.com)? I’d love to know. Hearing good news helps us all stay positive and moving forward.
Warmly,
Chris
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Chris Mullis, Ph.D., CDFA® Founding Partner  Financial Planning.Wealth Management. Since 2006AskNorthStar.com (704) 350-5028 |
Climate risk (+ baby jaguar)
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Frothy? Bubbles?
We’re not writing about cappuccinos, champagne, or bubble bath.
We’re talking stocks.
You may have noticed that the shortest bear market in history is over, and markets recently hit new record highs.
Will stocks keep going higher? Will they stay volatile?
Is another bear market around the corner?
Maybe. Maybe not.
As is pretty common in these situations, market strategists are split.
Some see a new bull market that reflects a recovering economy.1
Others see troubling signs of a bubble that could burst.2
What could push stocks higher?
- A market-ready COVID-19 vaccine or major treatment breakthrough that reignites optimism.
- More government stimulus that supports consumers and businesses.
- Good economic numbers that suggest we’re on the other side of the recession and the recovery continues.
What warning signs are flashing?
- A rally mostly powered by tech mega stocks that isn’t reflected in the broader market.
- Uncertainty around a November election that’s already contentious.
- A possible “Minsky moment” market collapse fueled by the Fed’s easy money policy and unsustainable stock prices.3
- Predictions of a second wave of infection that could provoke more shutdowns.
Bottom line, we can’t predict what comes next in the market and that’s okay. Why? Because it’s all short-term “noise.” History shows that all stock market declines are temporary interruptions in a perennial uptrend.
Since we no one can predict the future and no one can time the market, we’re focused on helping our clients stay fully invested which is the only sure way to capture the entirety of the market’s permanent advance. Those powerful portfolio returns over the long term are the reward for staying calm.
2020 has been the strangest year of our lives (probably yours, too), and it’s foolish to try to time markets right now — or any time for that matter. If you’re thinking about big moves or feeling anxious about what comes next, please reach out. We’ll talk through your ideas or concerns.
1https://www.cnbc.com/2020/09/08/goldman-sachs-10-reasons-the-bull-market-has-further-to-run.html
7 Reasons Life Is Actually the Best It’s Ever Been
If you could be alive at any time in history, when would it be? Would you choose to live right now? Objectively, things aren’t easy for most of us right now. We’re facing social, economic, health, and environmental crises. With all the chaos of today, it can be tempting to lean on nostalgia and believe previous generations had it better or easier. And it can make us long for what seem like simpler times.
We may be too focused on the details to see the big picture. With a look at how far we’ve come, we can more clearly see how good we have it and how things, in many ways, really are getting better.
Consider these seven reasons life is actually the best it’s ever been.
#1 Life Expectancy
We’re living long than people have ever lived before. Worldwide, more than 3 in every 4 people live to be at least 65 years old. In the US, life expectancies for men and women have increased by more than 10 years since 1950. That’s 10 more years the generations before us didn’t have to enjoy retirement, spend time with family, and take in more of the life’s wonders.
#2 Health Care & Medicine
Progress in medicine and health care is one of the reasons we’re living longer than ever. In fact, since 1980, MRIs have been invented, smallpox was eradicated, artificial hearts were developed, and the human genome was sequenced. These and other advancements have done more than just extend the length of people’s lives. They’ve also compressed end-of-life decline, meaning people live better lives longer.
#3 Poverty & Income
Globally, poverty rates have dropped by more than 50% since 2000. In the U.S., 8.4 million people have risen out of poverty since 2014. Also promising, average earnings in the U.S. have increased nearly 20-fold since the 1950s. Adjusting for inflation, some experts say wages have grown by at least 35%, increasing Americans’ purchasing power today when compared to 70 years ago.
#4 Technology
Technological advancements have changed so much of how we live and navigate the world. Since 1950 alone, new technology has brought us credit cards, artificial intelligence, the internet, electric cars, cellphones, and GPS technology. These and other innovations have made our lives easier, safer, and better. In fact, while new tech can save time and reduce effort, it can also help save lives.
#5 Crime
Despite the headlines, over the last 25 years, crime has dropped dramatically in the U.S. Violent crime, like assault, robbery, and homicide, has fallen by more than 51% since 1993. Over the same period, property crime, like theft and fraud, has followed the same trend, dropping by more than 54%.
#6 Working Conditions
Labor conditions and laws have come a long way since the early 1900s, creating safer environments with better protections for workers. From safety regulations and wage laws to discrimination and child labor laws, U.S. workers are better protected than ever. Beyond safety, workplaces are also more diverse than ever before. In fact, the U.S. workforce has seen a surge of older workers, minorities, and women over the past 25 years.
#8 Quality of Life
Quality of life has improved sharply over the last 100 years, with astounding improvements in living standards across all socio-economic divides. In fact, the average standard of living in the U.S. today would have been envied by even the greatest rulers two centuries ago.
By most standards, we’re living longer, happier, better lives than our great-great-grandparents did.
Is the sky really falling?
I’m sure you saw the headlines:
“Record Economic Plunge”1
“Second-Quarter GDP Plunged by Worst-Ever 32.9%”2
“U.S. Economy Contracted at Record Rate Last Quarter”3
It sure sounds like the sky is falling.
Is it really? Let’s take a step back and put the news in perspective.
The coronavirus shutdown thumped the economy, businesses, and workers badly over the last two quarters, and it’s uncertain how quickly we’ll recover.
We knew that Q2 GDP numbers (Gross Domestic Product) were going to be horrible. In fact, in May, the Federal Reserve thought they were going to be even worse.4
So, ~33% down is actually better than expected.
But, despite the headline, we didn’t actually “lose” 33% of economic production last quarter. The Commerce Department reports data on an “annualized” basis to make it easier to compare; so, if you looked at it quarter-over-quarter, the economy lost 9.5% since Q1.5
That’s still an eye-watering blow to the economy, but it’s not an apocalypse.
The largest contributing factor to the economic losses was a steep drop in personal spending, particularly on services, which makes complete sense in a shutdown.6
Three points before we move on:
- This is an advance estimate for Q2, and we will see revisions as more data are finalized.
- Though this is the sharpest drop in the shortest time in history, it was caused by the shutdown, and we’re already climbing out of it.
- 63.8% of economists think Q3 is when we’ll see the recovery really pick up steam, and the current forecast is for 15.2% annualized growth this quarter.7
So, what’s up with markets?
I think markets are being driven by a few big trends.
In a previous note, I mentioned what a Nobel-laureate economist calls “FOMO mania” by investors who fear missing out on the bounce. I think that’s still in effect as investors continue to pile into stocks, especially in the tech sector.8
I also think the market is being supported by massive government spending and Federal Reserve intervention.
And thirdly, I think a lot of traders are betting heavily on the recovery. If states have to shut down again, the collective delusion may collapse and trigger a correction. We’re watching for that.
How long will the rally last? That’s anyone’s guess. I’ve seen many cheerful forecasts predicting new all-time-highs. I’ve also seen plenty dolefully predicting the next crash.
With so much unknown, they’re all guesses. Even in less-murky circumstances, the market gurus are only accurate about 47% of the time.9
So, since we can’t predict what’s going to happen in Q3 and Q4, we’re staying agile and focusing on the fundamentals of good planning.
I know, it’s a really boring answer. But that’s how we give ourselves the best opportunity for success in chaotic times.
Let’s talk about you.
How are you doing?
What kind of decisions are you making right now?
Can I help? Shoot me an email at chrismullis@nstarcapital.com and let me know.
Warmly,
Chris
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Chris Mullis, Ph.D., CDFA® Founding Partner Financial Planning.Wealth Management. Since 2006 AskNorthStar.com |
2https://www.cnbc.com/2020/07/30/us-gdp-q2-2020-first-reading.html
3https://www.wsj.com/articles/us-economy-gdp-report-second-quarter-coronavirus-11596061406
4https://www.newyorkfed.org/research/policy/nowcast
6https://www.cnbc.com/2020/07/30/us-gdp-q2-2020-first-reading.html
7https://www.wsj.com/graphics/econsurvey/
8https://www.cnbc.com/2020/07/28/paul-krugman-sees-mania-by-stocks-investors-driven-by-fomo.html
Are We Still in a Recession + Some Good News
So, what’s going on with the economy?
Well, hopes for the “V-Shaped” recovery economists wanted seem to be fading.1 Though businesses reopened and millions of people got their jobs back, millions more are still unemployed.2 And more layoffs are likely coming.3
Does that mean we’re still in a recession?
Technically, we won’t know until Q2 and Q3 economic data are released.
Best guess? We’re probably still in a recession.
The more optimistic recovery scenarios depended on containing COVID-19 infections so Americans could safely get back to business.
That…didn’t happen.
The question now is whether rising infection rates will put us in a “W-Shaped” double-dip recession, or a slower “L-Shaped” or “Swoosh-Shaped” climb back.
That’s all very interesting, but how does it affect us in Charlotte?
In many ways, our local economy is a microcosm of the larger state of affairs.
As COVID-19 cases have drifted back higher in the Queen City and North Carolina, we’ve still got a ways to go before we’re on solid ground.
Our ability to bounce back depends on a few things: 1) keeping infection rates down; 2) workers keeping the jobs they have and returning to the ones they lost; 3) folks shopping, eating out, and spending money locally.
In terms of markets, the recent gains make it clear that investors are looking past the current gloom to a hopefully rosy future.
Are they clairvoyant? Foolishly optimistic? Not optimistic enough?
I agree with Yale economist Dr. Robert Shiller’s take: he thinks this is a FOMO market driven by the Fear Of Missing Out.
Many investors regret not participating in the 2009 rally and are determined not to miss out again. That psychological narrative is pushing up the market even in the face of bad news.4
Will it continue?
We’re in earnings season and investors are waiting to see how badly U.S. companies were damaged last quarter.
Since many companies have refused to release earnings forecasts, we’re prepared for surprises. Positive and negative.
Bottom line: Buckle up, I think we’re in for a choppy ride.
Ok, so where’s the good news you promised?
When times are tough and headlines are overwhelmingly negative, it becomes harder to find the good news. But it’s there:
- A New Jersey hospital once described as a “war zone” now has zero COVID-19 patients.5
- 17 COVID-19 vaccines are in human trials. At least one may be ready for approval by the end of 2020.6
- 2 million folks gathered to plant trees in Northern India (while maintaining social distance).7
- A young man who lost hope of attending college is headed to Harvard Law after the good people he met as a sanitation worker took him under their wings.8
Uplifting stories are out there if we look for them.
7https://apnews.com/f1d41fd4772742279da89e972dd8493d
8https://www.cnn.com/2020/07/07/us/sanitation-worker-harvard-law-trnd/index.html
Midyear Outlook (important read)
Dear Clients & Friends,
The first six months of 2020 saw the advent of the worst global public health crisis in a century — since the 1918 influenza pandemic. In response, the world locked down, putting its economy into a kind of medically induced coma.
In this country, the immediate effects were (1) a savage and nearly instantaneous economic recession, accompanied by record unemployment, and (2) the fastest, deepest collapse in stock prices in living memory, if not ever.
Though I usually write you an extended personal summary annually concerning the year past — and will again — the stark drama of the last half year has been such that I wanted also to report to you now.
This letter follows the format of my annual reports to you. It’s divided into two parts, the first a statement of general principles, especially those most relevant in the current crisis, with a restatement of how I practice my stewardship of our clients’ invested wealth. The second is a review of what little can be known at this point, and of how I propose we continue to deal with the pervasive uncertainties of the moment.
General Principles
• I believe that all lastingly successful investing is essentially goal-focused and planning-driven. All failed investing is market-focused and event-driven.
• Stated another way: every truly successful investor I’ve ever known was acting continuously on a long-term plan. Every failed investor I’ve known continually reacted to sudden and terrifying market shocks.
• Thus I’ve found that long-term investing success is only incidentally a function of the economy and the markets. It is a direct function of how the investor reacts—or, more properly, how he/she refuses to react.
• You and I are long-term, goal-focused equity investors, acting on our plan with patience and discipline. The smaller part of what I do for clients is the crafting of that plan. The much larger part is helping them not to react in stressful times like this.
• I continue to believe that the equity market can’t be consistently forecast, much less timed, and that the only certain way of capturing equities’ superior long-term returns is to sit through their occasionally steep but historically temporary declines.
Review and Outlook
• At midyear, the best that can be said is that the first great wave of the pandemic appears to be abating, and the economy is slowly reopening. As it continues to reopen, there will inevitably be some flareup in new infections. The interaction between the pandemic and the economy in the short to intermediate term is therefore perfectly impossible to forecast, as is the timing of the development of a vaccine.
• The equity market crashed from a new all-time high on February 19 to a bear market low (so far) on March 23, down 34% in 33 days. There is no historical precedent for this steep a decline in so little time. Confoundingly, it then posted its best 50 days in history. The S&P 500 closed out the first half at 3,100.3, 8.4% off its all-time high.
• It is not possible to forecast the near-term course of corporate earnings or dividends, as they — like the economy they reflect — are still largely hostage to the pandemic. That said, I invite your attention to the fact that at June 30 the yield on the 10-year U.S. Treasury note was less than 7 tenths of one percent.
• I infer from the current state of interest rates that though it is impossible to forecast equity earnings, dividends and prices, it can be stated as fact that few if any of my clients can continue to advance toward the achievement of their long-term financial goals in bonds, at anything close to today’s yields. This is just another reason why I’ve advised them to stay the course in equities.
• It should also be noted that even if the pandemic continues to subside and the economy to recover, investors will still have to deal with what may be the most widespread civil unrest in our country in decades, and what promises to be a bitterly partisan presidential election cycle. Emotions seem likely to continue to run high, with unpredictable short-term market consequences.
• I’ve very deliberately labored in this summary to convince you of the sheer unknowability of the short (say, the third quarter of 2020) to intermediate (say, through the first quarter of 2021) term economic and market outlook. In the next breath, I remind you that not one of you is investing for the next one to four calendar quarters. I say again: you and I are long-term, goal-focused, planning-driven, patient, disciplined investors. Our focus is on history rather than headlines, and our mantra is from Churchill: “The farther back you can look, the farther forward you are likely to see.”
• Finally, I would urge you to think back to January 1 of this year. Have your most cherished lifetime financial goals changed since then? If not, I see no compelling reason to change your plan — and no reason at all to change your portfolio.
• Be of good cheer. This too shall pass. Optimism remains, to me, the only long-term realism.
By all means, please be in touch with me with any and all questions and concerns. In the meantime, thank you — as always — for your interest.
Warmly,
Chris
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Chris Mullis, Ph.D., CDFA® Founding Partner Financial Planning.Wealth Management. Since 2006AskNorthStar.com (704) 350-5028 |
Paradigm shifts (and how to keep up)
Life has changed; how do we adapt without losing sight of what we want to achieve?
As you’ve heard me say before, no one knows how the future will play out, but we should still look ahead and think through the consequences of what’s happening. (More about this kind of second-order thinking ahead.)
I believe that our society and our economy are experiencing a massive paradigm shift.
We will never go back to the world we had before COVID-19, and the lens that we used to evaluate ideas, markets, economies, and personal choices over the last decade may not be sufficient for the next decade.
Here are just a few things that I see changing as a result of what’s going on now:
Social Support: 36.5 million Americans have become unemployed in two months, and the effects are rippling through families, communities, and the economy.1 The government has responded with trillions of stimulus dollars to individuals and businesses. More relief is likely to come. What does this mean for our society? Who should get a helping hand in tough times? Will we permanently expand the social safety net?
Work: Thrown into the largest work-from-home experiment in history, more workers and employers will transition to remote work post-pandemic. This shift in work has major implications. Which places will be a draw if workers can live anywhere and employers can have their pick of a nationwide (or global) workforce? Will those who must physically show up demand different compensation?
Education: Students, parents, schools, and universities are being forced to re-evaluate the definition of education now that the on-campus experience has gone online. What’s missing if you attend from home? What alternatives to a traditional four-year degree will arise?
Shopping & Entertainment: Brick-and-mortar retailers may never recover from the body blow dealt by pandemic lockdowns. Online shopping, grocery delivery, and digital services may finally overtake offline channels. What will the retail landscape look like when it’s easier (and maybe safer) to eat, shop, and watch at home?
What do you think? What do you see changing in the world? Please email me at chrismullis@nstarcapital.com and share your thoughts.
No one has all the answers about the new world and things are not always what they seem.
Though it appears that the stock market has moved past the pandemic, we shouldn’t celebrate just yet.
Why?
Much has changed in the world and we’re still playing out first-order effects. More consequences are coming.
“What are the second- and third-order consequences of this?” is a question big thinkers like Ray Dalio (manager of the largest hedge fund in the world) ask about complex scenarios.
Here’s what they mean:
First-order thinking is fast and simple: B is the logical outcome of event A.
But then what? What happens as a consequence of B?
And what happens as a result of that? And what is the follow-on effect of that?
Second-order thinking is about interactions and complex systems. It’s slow and hard (but mastering it can put us steps ahead of the crowd).
Understanding the new world that’s growing out of the pandemic requires thinking through these higher-order consequences and developing a new lens to navigate the uncertain waters ahead.
How can we adapt? How can we still pursue our goals in a totally different world?
We think it through with humility and an open mind.
We hone our second-order thinking skills by asking: what could happen? And then what? How likely is it that I’m right? What could happen if I’m wrong? How do I position myself?
We’ll do it together.
COVID-19 is going to be with us for the rest of 2020 and possibly into 2021. So we’re adapting.
At NorthStar Capital Advisors, it means we will remain entirely online for the time being.
It also means big changes in our personal lives. Our children are learning online through the end of the school year and perhaps back again this fall. My wife continues to be Super Woman managing our home and our department of education.
We’re taking it day by day and thinking through those higher-order effects.
How about you? What changes are you making to your plans this summer and fall?
Be well,
Chris
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Chris Mullis, Ph.D. Founding Partner Financial Planning.Wealth Management. Since 2006 AskNorthStar.com |
P.S. A number of clients and friends have reached out to talk through options around a potential lay-off, buy-out offer, or early retirement. If this is on your mind, please let me know. We can work through it together.
P.P.S If you’ve got a kid in college this fall, I have a question for you: is virtual university still a compelling offer? Are you and your student considering a gap year or some alternative? Please email me at chrismullis@nstarcapital.com and let me know. I’m interested in learning from your experience.
1https://www.washingtonpost.com/business/2020/05/14/unemployment-jobless-claims-coronavirus/
Chart source: https://www.artsci.com/studentpoll-covid-19-edition-2
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