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That 70s economy
  • May 16, 2022/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy , Uncategorised

Markets gifted us with another burst of volatility and headlines are looking apocalyptic again.

Some folks might think it’s time to bail on markets for the summer, but I’ll tell you why that thinking is a mistake.

First, let’s peel back some layers to explore what’s driving markets.

The latest selloff was largely driven by concerns about how the pace of Federal Reserve interest rate hikes could affect economic growth.1

The Fed’s “hawkish” policy of rapidly raising interest rates to bring down inflation seems likely to take a chunk out of economic growth.

Is a recession or bear market on the way?

Those are risks we are prepared for.

While the Fed could manage to execute a “soft landing” and successfully lower inflation without triggering a downturn, its track record isn’t so good.

According to Schwab, 10 out of the last 13 rate-hike cycles resulted in a recession.2

Those aren’t odds I’d want to take to Vegas.

However, we are holding a couple of strong cards: a red-hot jobs market and steady consumer spending.3,4

Could those bright spots fend off a recession or downturn?

Very possibly. We’ll have to wait and see.

Are the 70s back?

No, I’m not talking about bell bottoms and platform shoes.

I’m talking about “stagflation.”

What does that even mean?

Stagflation is a buzzword combining “stagnation” and “inflation” and signifies an economy plagued by low economic growth, high inflation, and high unemployment.5

We saw it in this country in the 1970s during an oil crisis.

It’s hard to say if it’s going to happen again. It’s definitely a risk we (and the world’s economists) are watching.

However, there are two points that count against a vintage 70s stagflation scenario: 1) that strong jobs market and 2) inflation that might already be peaking.6

So, let’s not panic.

Here’s the bottom line (and you’ve probably heard me say it a hundred times): Market downturns, recessions, and volatility happen regularly.

We expect them.

We plan for them.

We remember that they don’t last forever.

We stay nimble and look for opportunities.

Though it looks like we’re in for a rocky summer, that doesn’t mean it’s time to hit the eject button.

Instead, we make careful shifts, especially in a rising interest rate environment.

The weeks ahead are very likely to be volatile. I’m here, I’m watching, and I’ll be in touch as needed.

Reassuringly,

Dr. Chris Mullis, CFP®, CDFA®

 

P.S. Need a jolt of good energy? Check out the Monterey Bay Aquarium’s Sea Otter Cam. If you’re lucky, you might catch a live feeding.

1 – https://www.cnbc.com/2022/05/05/stock-market-futures-open-to-close-news.html

2 – https://www.schwab.com/resource-center/insights/content/when-levee-breaks-panic-is-not-strategy

3 – https://www.cnbc.com/2022/05/01/inflation-forces-consumers-to-rethink-spending-habits.html

4 – https://www.npr.org/2022/05/06/1096863449/the-us-jobs-market-continues-its-strong-comeback-from-the-pandemic

5 – https://corporatefinanceinstitute.com/resources/knowledge/economics/stagflation/

6 – https://www.cnn.com/2022/05/01/investing/stocks-week-ahead/index.html


When whales fight
  • February 15, 2022/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy

As we consider the tensions driving recent market movements, a Korean folk saying seems apt:

“When whales fight, the shrimp’s back is broken.”

The idea is that bystanders get hurt when big folks duke it out.

What are the tensions? Who are the bystanders?

Let’s discuss.

An invasion of Ukraine may occur in the coming days or weeks.

Or it might not. It’s really impossible to say.

The U.S. has closed the embassy in Kyiv and warned of a dramatic buildup of Russian forces on the border with Ukraine.1

It’s unclear whether Russia is willing to diplomatically resolve security concerns about Ukraine joining NATO.2

However, a ground war between NATO and Russia would be extremely damaging, so it seems (hopefully) unlikely that Russian troops would actually invade.

Then again, they might.

That seesaw between high tension and relief is likely to add a lot of volatility to markets as investors digest the latest news.

The Federal Reserve may aggressively raise interest rates to fight inflation.3

With inflation at historic highs, some Fed officials worry that the central bank’s credibility — AKA, their ability to manage inflation and employment — is on the line.

Rate hikes are coming in 2022, but how many and how quickly? That’s up for debate by the Federal Open Market Committee next month.

Fed “hawks” want to raise rates quickly to try to bring inflation under control and increase consumer confidence and trust.

Fed “doves” want to carefully raise rates and watch the data to avoid damaging growth or spooking markets.

These are big decisions with big consequences for us, the economy, and markets.

While FOMC meetings are often dry affairs, the next one looks to have as much drama as an episode of Succession.

We’ll stay tuned.

Bottom line: there are a lot of factors driving market movements, so we can expect to see plenty of volatility in the weeks to come.

Given the Fed and geopolitical tensions at play, a pullback or correction would not be surprising, either.

What can we do when we’re facing major events we can’t control?

Take a deep breath, be grateful for all the good in our lives, and focus on our strategy.

(And email us with questions or concerns.)

Let’s hope for peace and clarity in the weeks to come.

We’re keeping a close watch and will reach out as needed.

Be well,
Your NorthStar Team

P.S. Looking for a mental break? Here’s an interesting TEDx talk on “The Science and Power of Hope.” It’s given by Dr. Chan Hellman, whose research focuses on the psychological power of hope to overcome adversity and create change.

Let us know what you think!

1https://www.cnbc.com/2022/02/13/stock-market-futures-open-to-close-news.html

2https://www.bbc.com/news/world-europe-60379833

3https://www.cnbc.com/2022/02/14/bullard-say-the-fed-needs-to-front-load-tightening-because-inflation-is-possibly-accelerating.html


Gut check (on your job)
  • October 27, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
How are you feeling about work these days?

Are you taking stock of your life and thinking about moving on? (You’re not alone.)

Are you a boss struggling to fill roles and retain your people? (You’re in good company.)

America is going through a pretty major reconfiguration of the labor market.

Headlines are calling it the “Great Resignation” but I think it’s deeper than that.

The pandemic threw many assumptions out of the window. It caused us to think long and hard about a lot of things.

Where we work. How we work. What work means. What we want out of life.

That existential crisis is visible on the supply side of the labor market:

Folks retiring ahead of schedule (not all by choice).1

Folks quitting their jobs.2

Folks (primarily women) caring for kids and family instead of going back to work.3

Folks striking over pay and working conditions.4

Folks starting new businesses.5

And it’s visible on the demand side as well:

Restaurants struggling to staff up.6

Shipping ports clogging up because there aren’t enough truckers to haul goods away.7

Employers offering higher wages and perks to attract job seekers.8

At its most basic level, employment is a transaction: a certain amount of work for a certain amount of pay.

But it’s really much more than that.

For many of us, who we are as a worker…

A business owner…

A boss…

Is central to our identity.

And the ground is shifting under our feet. That makes folks anxious.

High-anxiety times like these bring plenty of judgment, blame, and dramatic headlines.

Are workers who don’t want to take low-paying, high burnout jobs lazy?

Of course not.

Are business owners worried about keeping their doors open evil capitalists?

Nope.

Are employees organizing strikes or leaving for better opportunities disloyal?

No way.

We’re all doing the best we can every day.

When we see talking heads griping about “entitled” workers or “greedy” businesses, let’s remember that behind the numbers are real people with real struggles.

A parent with a medically fragile kid who is afraid to go back to work.

A business owner who worries the staffing shortage will put her out of business.

A laid-off worker who doesn’t have the skills needed to get a different job.

A manager who is doing two jobs because he can’t fill a key role.

Let’s be compassionate toward one another.

What does the labor market upheaval mean for the economy?

That’s hard to say.

It could cause a slowdown in some sectors if businesses struggle to fulfill demand.

It could lead to increased inflation if higher wages get passed on as higher prices.

It could be a factor in a market correction.

It could also accelerate trends toward automation, remote work, and offshoring.

Bottom line: Like most major events in history, the overall consequences won’t be fully visible for a long time.

1https://www.economist.com/the-economist-explains/2021/09/28/why-are-americans-retiring-earlier
2https://news.yahoo.com/why-american-workers-are-quitting-in-record-numbers-151116968.html
3https://www.pbs.org/newshour/economy/the-pandemic-was-a-breaking-point-for-caretakers-will-it-be-a-turning-point
4https://www.reuters.com/world/us/enoughs-enough-tight-us-job-market-triggers-strikes-more-pay-2021-10-18/
5https://www.gspublishing.com/content/research/en/reports/2021/10/04/be005ed1-1b6b-42f7-af9b-fb209077ca35.html
6https://www.wboy.com/news/health/coronavirus/restaurants-continue-to-face-staffing-shortages/
7https://edition.cnn.com/2021/10/14/business/supply-chain-ports-biden-inflation/index.html
8https://www.retaildive.com/news/retailers-are-betting-on-wage-hikes-perks-to-woo-workers-ahead-of-the-holi/607815/


Taper tantrum part deux?
  • August 31, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
One big thing you may have heard about in the headlines is the Federal Reserve’s hint that it might start “tapering” soon.1

Could the Fed’s actions cause a market correction or economic slowdown?

Let’s discuss.

First of all, what does ”tapering” mean?

In econ-speak, tapering means winding down the pace of the assets Fed has been buying since last summer.

Why is it a big deal?

Well, the last time the Fed tapered in 2013, during the recovery from the 2008 financial crisis, markets panicked and pitched a “taper tantrum.”2

That’s because traders worried that less Fed support would hurt fundamentals and potentially cause a market downturn.

Now, that old taper tantrum narrative is making folks worry that another market downturn could be ahead of us, especially with concerns about the Delta variant.

Before we dive into what could happen, let’s talk about where we are and how we got here.

When the pandemic started, the Fed slashed interest rates and began buying $120 billion a month in bonds and mortgage-backed securities to reduce interest rates, lower borrowing costs, and give businesses and the economy a boost.1

However, now that the economy is much stronger, the employment situation has improved, and inflation is a concern, the Fed wants to start paring back those asset purchases to return interest rates to a more “natural” level.

What could that look like?

Obviously, we don’t know exactly when or how the Fed will decide to act, but analysts have some pretty good guesses.

The latest prediction by Bank of America suggests tapering could start this November as the Fed gradually pares back asset purchases through next year.1

The takeaway is that the Fed isn’t going to stop buying assets and raise interest rates immediately.

It’s going to gradually remove the support and see how the economy reacts.

So, will we see another taper pullback?

The main reason folks worry about the Fed reducing support is because of the effect higher interest rates could have on stocks, particularly companies that rely on borrowed money.

However, interest rates are just one piece of the puzzle. Economic fundamentals, earnings, and other factors also weigh on stock prices.

With the benefit of hindsight, we can see that the 2013 taper tantrum wasn’t even that bad. The S&P 500 tumbled 5.8% over the course of a month, but quickly recovered (the caveat here is always this: the past does not predict the future).2

(Sidebar — keep in mind the 2013 taper tantrum decline of 5.8% was less than half of the the average intra-year decline of 13.8% annually that we typically see in the stock market.  I.e., yet another piece of “noise”…a semi-random, temporary decline overlaid on the market’s permanent, long-term advance.)

We think the main reason markets declined in 2013 was that investors hadn’t experienced tapering before; they didn’t have context for what the Fed would do.

Since we’ve seen this happen before fairly recently, we think that uncertainty is lessened.

However, we also have other worries to consider: a deteriorating crisis in Afghanistan, continued pandemic worries, and political wrangling over infrastructure.

Any of these factors could derail the bull market.

But it’s not going to be the end of the world.

Pullbacks, corrections, and bear markets are always something we should expect. They happen regularly and are a natural part of markets.

Bear markets are common — they occur about 1 in 5 years and there have been 16 since World War II. With the average retirement lasting 30 years, you should expect to encounter 6 bears during this encore of your life.

So, the Fed is one more thing we’re keeping an eye on, and we’ll reach out if there’s more you should know.

1 https://markets.businessinsider.com/news/bonds/fed-taper-asset-purchases-november-bonds-mbs-federal-reserve-economy-2021-8
2 https://www.barrons.com/articles/stock-market-taper-scare-what-comes-next-51629505091

 


We’ve come so far
  • August 18, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
Headlines are looking grim again, so let’s pause and take stock.

Why are the headlines terrible?

Because the media loves drama. This is not news to you or us or anyone who pays attention. The 24-hour news cycle is there to whip up emotions and keep us glued to the latest “BREAKING NEWS.”

So, what’s behind the noise and should we worry?

Before we jump into unpacking the news, let’s take a moment and remind ourselves of how far we’ve come since the pandemic began.

You can see it right here in this chart:

We’ve recovered the vast majority of jobs lost since the bottom of the pandemic’s disruption last April. The economy is still missing several million jobs to regain pre-pandemic levels, but we’ve made up a lot of ground, and jobs growth is still strong.1

In fact, there are more job openings right now than job seekers to fill them.2

But there’s an important caveat to the chart above.

The monthly jobs report is what economists call a “lagging” indicator, meaning that it’s telling us where the economy was, not where it’s going.

To figure out what might lie ahead, economists turn to “leading” economic indicators that help forecast future trends.

So, what are the leading indicators telling us about the economy?

A couple of the most popular indicators are manufacturing orders for long-lasting (durable) goods, since companies don’t like to order expensive equipment unless they expect to need soon.

Another one is groundbreaking (starts) on new houses, which indicate how much demand builders expect for housing.

Let’s take a look:

Both indicators suggest continued (if bumpy) growth. Now, those are just two sectors, and we want to be thorough, so let’s take a look at a composite.

The Conference Board Leading Economic Index (LEI) gives us a quick overview each month of several indicators.

It increased by 0.7% in June, following a 1.2% increase in May, and a 1.3% increase in April, showing broad, but slowing growth.3

What does that tell us? That the economy still has legs.

Will the Delta variant derail the recovery?

New numbers came out this morning showing that retail sales fell slightly (1.1%) in July from the month before, with spending down broadly across categories as concerns about the Delta variant grew.

But most economists, while acknowledging the threat posed by the current rise in Covid cases, aren’t expecting a significant slowdown in consumer spending.

Though a serious slowdown due to the Delta variant seems unlikely, we could potentially see a bumpy fall, especially in vulnerable industries and areas with surging case counts.

There’s also some potentially good news about the Delta variant that we can take from other countries.

India and Great Britain both experienced Delta-driven surges earlier this summer.4

And what happened?

A steep and scary rise in case counts and hospitalizations…followed by a rapid decline.

It seems that these fast-moving Delta waves might burn themselves out.

Unfortunately, these surges come with a painful human cost to patients, overburdened medical staff, communities, and families.

But, if this pattern holds true in the U.S., it doesn’t appear that the economic impact will be heavy enough to derail the recovery.

All this to say, it’s clear that the pandemic is still not over.

But we’ve come such a long way since the darkest days of 2020 and the road ahead still seems bright (if a little potholed).

Please remember to take panicky headlines with a shaker or two of salt.

We’re here and we’re keeping watch for you.

Have questions? Please reach out.

P.S. The bipartisan infrastructure deal is still making its way through Congress, and we don’t yet know what the final details will look like. The Democrat-led infrastructure deal is also in the works, but we’re not likely to see serious movement until the fall. We’ll keep updating you as we know more.

 

1 https://www.cnbc.com/2021/08/06/jobs-report-july-.html
2 https://www.cnbc.com/2021/08/07/there-are-about-1-million-more-job-openings-than-people-looking-for-work.html
3 https://conference-board.org/pdf_free/press/US%20LEI%20PRESS%20RELEASE%20-%20July%202021.pdf
4 https://nymag.com/intelligencer/2021/08/the-u-k-s-delta-surge-is-collapsing-will-ours.html

 

 

 

 

 


2021 Midyear Report
  • July 5, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
As America continued to recover from the COVID-19 pandemic in the first half of 2021, the economy and the equity markets made significant progress. My midyear report to you is, as always, divided into two parts. First is a brief recap of our enduring investment philosophy; second is my perspective on the current situation. As always, I welcome your questions and your comments.

General Principles

You and I are long-term, goal-focused, planning-driven equity investors. We’ve found that the best course for us is to formulate a financial plan — and to build portfolios — based not on a view of the economy or the markets, but on our most important lifetime financial goals.

Since 1960, the Standard & Poor’s 500 Stock Index has appreciated approximately 70 times; the cash dividend of the Index has gone up about 30 times. Over the same period, the Consumer Price Index has increased by a factor of nine. At least historically, then, mainstream equities have functioned as an extremely efficient hedge against long-term inflation and a generator of real wealth over time. We believe this is more likely than not to continue in the long run, hence our investment policy of owning successful companies rather than lending to them.

We believe that acting continuously on a rational plan — as distinctly opposed to reacting to current events — offers us the best chance for long-term investment success. Simply stated: unless our goals change, we see little reason to alter our financial plan. And if our portfolio is well-suited to that plan, we don’t often make significant changes to that, either.

We do not believe the economy can be consistently forecast, nor the markets consistently timed. We’re therefore convinced that the most reliable way to capture the long-term return of equities is to ride out their frequent but ultimately temporary declines.

The performance of our equity portfolios relative to their benchmark is irrelevant to investment success as we define it. (It is also a variable over which we ultimately have no control.) The only benchmark we care about is the one that indicates whether you are on track to achieve your financial goals.

Current Observations

The American economy continued its dramatic recovery in the first half of 2021, spurred by (a) the proliferation of effective vaccines against COVID-19 and the retreat of the pandemic, (b) massive monetary and fiscal accommodation, and (c) its own deep fundamental resilience, which ought never to be underestimated.

The S&P 500 ended the first half at 4,297, an increase of 14.4% from its close at the end of 2020. Coming into the year, the consensus earnings estimate for the Index in 2021 was around $165; as I write, the consensus for the next 12 months has reached $200, and is still being raised.

The economy continues to struggle with supply chain imbalances, as well as with a historic mismatch between the number of job openings available and continued high (though rapidly declining) unemployment. The chattering class of pundits and financial journalists continues to speculate on when these blockages will clear; to long-term investors like us, the key is our belief that they will, in the fullness of time.

We are still in the midst of an unprecedented experiment in both fiscal and monetary policy; the outcome remains impossible to forecast. The possibility that we’ve overstimulated the economy was highlighted this spring by a significant resurgence in inflation. But as the first half ended, statements by Fed Chair Powell and Governor Bullard indicated a keen awareness of this risk, and a readiness to act against it. The markets evidently took these gentlemen at their word, as inflation hedges like gold and oil sold off, the equity market pulled back modestly, and the yield on the bellwether 10-year U.S. Treasury note retreated to the area of 1.5%. One does not want to read too much into short-term phenomena like these; suffice to say that the Fed appears acutely cognizant that its credibility is almost existentially on the line here.

There is also the issue of the Biden administration’s fairly radical tax proposals with respect to capital gains and estates. The best that can be said on this subject is that, as the first half ended, the momentum behind these initiatives seemed to be ebbing. But the political climate remains as inimical to capital (and capitalists) as it’s been in quite a while.

Nonetheless, for investors like us, I think the most important economic report of this whole six-month period came just a few days ago. It was that household net worth in this country spiked 3.8% in the first quarter of 2021 — to $136.9 trillion — propelled by broad gains in the equity market and in home prices. Even more important, perhaps, is the fact that the ratio of household debt to assets continued to fall, and is now back down to about where it was 50 years ago.

The consumer powers this economy, and the consumer has rarely carried more manageable debt levels relative to disposable income — and has simply never been holding more cash — than he/she does today. In June, the National Retail Foundation raised its outlook yet again; it now expects retail sales to grow 10.5% to 13.5% (that is, $4.44 trillion to $4.56 trillion) year over year. Just this past month, the retail giant Target raised its dividend by a whopping 32%.

On February 19, 2020 — the market’s peak just before the pandemic took hold — the S&P 500 closed at 3,386. It then proceeded to decline 34% in 33 days, amid the worst global health crisis in a century. But if you bought the Index at that epic top, and were still holding it on June 30 of this year, your total return with reinvested dividends has been close to 28%. I’ve never seen — and don’t expect to ever see again — a more vivid demonstration of Peter Lynch’s dictum that “The real key to making money in stocks is not to get scared out of them.”

I believe I was put here for just that reason: to help you not get scared out of them.

Sincerely,
Chris

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Chris Mullis, Ph.D., CDFA®
NorthStar Capital Advisors
704-350-5028
chrismullis@nstarcapital.com
521 East Blvd, Charlotte, NC 28203
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Celebrating 15 Years • 2006-2021

 


A tale of two infrastructure deals
  • June 30, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
It appears we have a deal on infrastructure.

Maybe.

After weeks of grandstanding, posturing, and wrangling, it looks like a bipartisan infrastructure deal that both parties can live with is in the works.

Good news: no tax hikes. But you’ll want to read on because we’re not out of the woods yet.

The bipartisan deal (can’t call it a bill yet) finds $579 billion of common ground from President Biden’s original $2.25 trillion American Jobs Plan.1

It focuses on “hard” infrastructure — such as roads, bridges, rail, and public transit projects, as well as electric vehicle infrastructure and broadband internet — that both sides can agree on.

So, is it a done deal?

Not even close.

The current framework represents a compromise that makes no one happy, and there’s still a fair bit to hammer out (including how to pay for the plan).

The deal still needs to gather broad support in both parties, especially among those who think it’s too little or too much and might seek to scuttle the whole thing.

Fortunately, it doesn’t look like higher taxes are part of the deal. Though the math looks a little fuzzy from where I’m standing, it looks like funding sources could include repurposed pandemic funding, better IRS enforcement, and possibly digging through couch cushions for spare change (joking).1

So, that means my taxes won’t go up, right?

Not so fast.

There’s another bill on the table. And it’s a $1.8 trillion doozy.2

The second bill, called the American Families Plan, focuses on so-called “human” infrastructure and contains many Democrat-backed priorities like childcare, climate change, health care, and education.3

Basically, the initiatives that couldn’t get Republican support are packaged up in a separate bill.

It looks like the Democrats are planning to pass that bill through a reconciliation process that doesn’t require Republican support to get through Congress.

Inside that bill are the tax increases we’ve been on the watch for. Higher taxes on wealthy individuals and corporations, as well as eliminating the step-up basis on inherited assets, among other tax hits.4

Since the bills are independent, it’s really not certain yet which (if either) will pass. Or when.

Will one pass and not the other? Will both grind to a halt this summer?

Hard to say.

What does all this mean?

That depends on where you’re standing. For industries expecting to benefit, it means an influx of tasty government cash.

For those worried about America’s crumbling infrastructure, it represents some critical moves in the right direction.

For those concerned about the spending spree the government’s been on (and how we’re going to pay for it all), it’s another brick in a looming wall of debt that will eventually come due.

Bottom line, it’s not nearly over yet. I strongly suspect the coming weeks will be full of more politicking, more grandstanding, and more arm twisting.

I’ll reach out when I know more.

Now, go enjoy your summer. You deserve it.

Infrastructurally yours,
Chris

Chris Mullis, Ph.D., CDFA®
Founding Partner & Financial Planner

Reduce Taxes. Invest Smarter. Optimize Income

AskNorthStar.com       (704) 350-5028

1https://news.bloomberglaw.com/environment-and-energy/a-win-for-roads-and-no-tax-hikes-infrastructure-deal-takeaways
2 https://www.cnbc.com/2021/04/28/biden-american-families-plan-whats-in-it.html
3https://www.cnbc.com/2021/06/27/infrastructure-gop-senators-say-deal-can-go-forward-after-biden-walkback-.html
4https://taxfoundation.org/american-families-plan/
Chart source: https://news.bloomberglaw.com/environment-and-energy/a-win-for-roads-and-no-tax-hikes-infrastructure-deal-takeaways

 


Getting it wrong?
  • June 22, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
What happens when the predictions are wrong?

Is it time to panic?

Is it time to ditch our strategy?

It’s a fascinating question because it cuts right down to the question of what it means to live in an uncertain world.

Humans are wired to dislike uncertainty.1

And we’re used to a fair amount of (often unwarranted) certainty in the models and paradigms we use to make sense of the world around us.

We’re so attracted to certainty that when economic forecasts and reports come back with “surprises” (also known as being wrong) we tend to freak out.

Especially when the news trumpets every weird bit of data like it’s a huge deal.

Over the last few weeks and months, we’ve had a lot of “surprise” reports.

Inflation surprises.

Job market surprises.

Housing market surprises.

Economic growth surprises.

Why are we so surprised?

In a year like 2021, the margin for error is greater than ever.

Predictions, forecasts, and expectations that are based on averages, trends, and other backward-looking methods are ill-equipped to handle the outliers and oddities of a year that’s unlike anything that has come before.

When in history has an entire global economy simply come to a halt?

And then arthritically restarted with many creaks and groans.

To my knowledge, it’s never happened before.

Of course the data is going to have surprises.

We’re probably going to get a lot of things wrong.

I can’t wait for the best-sellers written about all the ways we could have done things better.

So. What does that mean for you and me?

Crystal balls are out of commission.

Surprise is the order of the day, the week, and the year.

The models haven’t caught up yet (though that’s not stopping anyone from issuing very confident predictions).

So we’re being careful and looking out for the opportunities (as well as the hidden pitfalls) in these uncharted waters.

We’re cultivating patience, gratitude, and our ability to make good decisions with incomplete information.

To staying frosty,
Chris

 

Chris Mullis, Ph.D., CDFA®
Founding Partner & Financial Planner

Reduce Taxes. Invest Smarter. Optimize Income

AskNorthStar.com       (704) 350-5028

1https://www.psychologytoday.com/us/blog/the-right-mindset/202002/why-uncertainty-freaks-you-out


89% there?
  • May 11, 2021/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy
Two things to discuss today: the economy (getting better) and taxes (going up?).

Let’s dive in.

The light at the end of the tunnel is getting closer and brighter.

  • The economy is booming and we’re getting much closer to pre-pandemic levels of economic growth.1
  • COVID-19 cases are declining, as the math starts to work for us (instead of against us as it did at the beginning of the pandemic).2 As more folks gain immunity, there are fewer ways for the virus to spread.
  • All U.S. adults are now eligible for a vaccine.3
  • Yesterday the first shot was approved in the U.S. for children paving the way for inoculations before summer camps and the start of the next school year.4
  • Restrictions are easing and areas are opening up for travel, meaning we can start planning those missed vacations and seeing loved ones again.

After over a year of uncertainty and dread, the future is looking up.

How are you feeling?

Do you share my optimism? Email me at chrismullis@nstarcapital.com and let me know your thoughts.

Things aren’t completely rosy, of course.

Major COVID-19 surges in India and Brazil mean millions are still suffering.5

Viral variants mean the pandemic may not be “over” for a long time and we still need to be careful not to undo all our gains.

Many folks are not experiencing the economic recovery and may need years to recover what they have lost.

However, let’s not let the work ahead take away from the progress we’ve made.

Let’s take a deep breath and appreciate how far we’ve come since March 2020.

… Deep Breath …

Now, let’s talk about taxes.

President Biden just unveiled a plan to increase taxes on high earners to pay for economic reforms as part of the American Families Plan.6

What’s on the table is likely to change as political wrangling continues, but here are a few things we’ve got to consider so far:

A higher top income tax rate of 39.6% (though it’s not clear yet who falls into that top tax bracket).

Raising the top tax rate on long-term capital gains to 39.6%. With the 3.8% Medicare surtax, that means the highest earners could pay a 43.4% rate on gains.

The elimination of the step-up basis for estates, meaning heirs could get stuck paying taxes on capital gains over $1 million (even if nothing has been sold) when they inherit.

This change could impact folks who, for example, inherit family homes that have appreciated in value. They might want to keep the home, but may not be able to afford the tax bill.

So, should I be worried?

Alert and informed, definitely. Anxious and worried, no.

Here’s why:

This is a proposal. It’s got a long way to go before becoming law and the details may change.

It’s still unclear how much impact these proposed changes will actually have. There are many advanced strategies that can help mitigate the impact of higher taxes. That’s why tax and estate strategies matter so much.

A study done by Wharton Business School suggests that tax mitigation strategies could help avoid 90% of the proposed tax increases on capital gains.7

Bottom line, the proposed changes are concerning, especially with so many details left to be determined, but it’s not time to panic.

We’re paying close attention to the process and will be in touch if we feel changes to your strategies are needed.

Be well,
Chris

Chris Mullis, Ph.D., CDFA®
Founding Partner & Financial Planner
Reduce Taxes. Invest Smarter. Optimize Income

AskNorthStar.com       (704) 350-5028

P.S. Have questions? I’m always here. Email me at chrismullis@nstarcapital.com or call me at (704) 350-5028.

1https://www.bbc.com/news/business-56932023
2https://www.cnbc.com/2021/05/02/covid-gottlieb-says-cases-will-decline-vaccinations-monumental-achievement.html
3https://www.nytimes.com/interactive/2021/us/covid-19-vaccine-eligibility.html
4https://www.wsj.com/articles/fda-authorizes-pfizer-biontech-covid-19-vaccine-for-12-to-15-year-olds-11620681785
5https://www.cnn.com/world/live-news/coronavirus-pandemic-vaccine-updates-05-03-21/h_a0cbff31cf1168c6b850625a05a195b7
6https://www.cnbc.com/2021/04/29/how-biden-tax-plan-would-hit-the-wealthy.html
7https://www.cbsnews.com/news/biden-capital-gains-tax-wealthy/

Chart source: https://www.cnn.com/business/us-economic-recovery-coronavirus (As of May 7, 2021)

Stimulus bill (what’s inside)
  • December 22, 2020/
  • Posted By : admin/
  • 0 comments /
  • Under : Economy , Personal Finance

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?
The rescue package includes:1

  • $600 direct payments to adults and dependent children
  • An extra $300/week in unemployment benefits through at least mid-March 2021
  • $325 billion in small business aid
  • Vaccine distribution funding
  • Food assistance for low-income households
  • Emergency rental relief

Who is eligible for the stimulus payments?
It appears that lawmakers are following slightly different income limits than they used for the CARES Act. Individuals who earned less than $75,000 in 2019, heads of household earning less than $112,500, and couples earning less than $150,000 are eligible for the full $600/person payment. The payment starts phasing out after $75,000 and disappears entirely for individuals earning more than $87,000 (or couples earning over $174,000).2

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?
Like the CARES Act payments earlier this year, the stimulus payment should end up in your bank account or arrive in the mail. If you’ve moved or changed bank accounts since you filed your taxes, you can update your address with the IRS here. It appears that you can’t update direct deposit information due to fraud risks.

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 one of the millions of Americans struggling to stay afloat right now, please use the stimulus payment to pay for your three basics: food, shelter, and medicine. If you’re in a better place, we’d recommend paying down any high-interest debt you’ve accumulated or beefing up your emergency savings.

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!
The NorthStar Team

 

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

2https://www.wsj.com/articles/stimulus-checks-round-2-when-will-they-arrive-how-much-will-they-be-11608561726

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/

5https://www.bloomberg.com/news/articles/2020-12-20/u-s-has-administered-556-208-vaccine-shots-in-first-week

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.


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