Category Archives: Economy

Inflation: Decline of Purchasing Power

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Inflation is the decline of purchasing power of a given currency over time and it is a result of central banks printing money (increasing the money supply M2).

In 2022, inflation surged during COVID in large part due to loose money policy by the Federal Reserve, writes Brian Wesbury, Chief Economist, First Trust Advisors. It is the increase in the money supply initiated by the Fed that’s responsible for inflation.

Inflation is based on decisions made by the Federal Reserve and other sovereign central banks. It doesn’t matter whether government spending or the budget deficit is high or low, whether the labor supply is growing or shrinking, whether free trade is waxing or waning.

If the money supply grows too fast, you get more inflation; if the money supply grows too slowly or shrinks, you get deflation. If the central bank does its job right, you get stable prices, opines Wesbury.

Photo by Pixabay on Pexels.com

The Federal Reserve kept short-term rates artificially low and the M2 measure of the money supply soared.  Add supply chain bottlenecks and disruptions, U.S. consumers are experiencing near double digit inflation rates. inflation problem that existed before Putin ordered the invasion of Ukraine and, we think, will continue even if the invasion (hopefully) ends.

Inflation is measured by the Consumer Price Index and the Producer Price Index. And, all eyes will be focused on inflation data as CPI is expected to be released Tuesday and PPI expected on Wednesday.

According to Bloomberg’s economists’ survey, expectations are 8.0% year over year growth in CPI and 8.8% year over year growth in PPI, these are important data points for future Fed rate hikes and are likely going to move equity markets as a result.

  • The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.
  • Core CPI, which strips out the volatile food and energy components of the report and is closely tracked by the Federal Reserve
  • The Producer Price Index (PPI) is a group of indexes that calculates and represents the average movement in selling prices from domestic production over time. Producer Price Index represents a reading on inflation from the production side of the economy, measures the change in the prices paid to U.S. producers of goods and services,

Despite some signs inflation is abating, Federal Reserve officials have acknowledged continued tightening is likely needed to restore price stability to the central bank’s target rate.

In June 2022, the Federal Reserve (the “Fed”) raised the Fed Funds Target Rate by 75 basis point (“bps”), the largest increase since 1994. Along with a stunning large hike, there was a reiteration that reigning in of inflation was the top priority no matter the economic costs.

Central bankers, such as the Fed, have the mission and ability to adjust monetary policy so that higher inflation doesn’t result. It is ultimately the increase in the money supply that’s responsible for inflation.

Which is why inflation is going to keep exceeding the Federal Reserve’s supposed 2.0% long-term target for a long time to come until the money supply ceases growing rapidly and the Fed hikes the federal fund rates and tightens the money supply. Currently, the money supply is nowhere close to being tight and tight it will have to get in order to tame the inflation.

References:

  1. https://www.ftportfolios.com/Commentary/EconomicResearch/2022/3/14/its-the-money
  2. https://www.ftportfolios.com/Commentary/Insights/2022/7/25/alternatives-update-2nd-quarter-2022
  3. https://www.ftportfolios.com/retail/blogs/marketcommentary/index.aspx

How to Invest in a Recession

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When GDP declines for multiple quarters in a row, it raises concerns over a possible recession.

An unofficial way to measure recessions is two consecutive quarters of negative real gross domestic product (GDP) growth. Real gross domestic product (GDP) is an official inflation-adjusted version of GDP calculated by the Bureau of Economic Analysis.

Annual percent change in real GDP shows how much higher or lower it is relative to the previous year. The higher that real GDP is, the larger absolute increase required to achieve a certain growth rate, and vice versa.

However, according to the Bureau of Economic Analysis (BEA), this is not an official designation of recession. But determining when the economy is in a recession is more complicated than looking at a single data set such as GDP.

Determining when the economy is in a recession is up to a committee of experts at the National Bureau of Economic Research (NBER). The committee officially designates recessions by monitoring a variety of economic indicators, including GDP. It also uses payroll employment, personal income, industrial production, and retail sales in the effort.

The NBER (National Bureau of Economic Research) defines recession:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

The official designation from NBER of when a recession starts or ends doesn’t happen until months after the recession is over. In other words, NBER looks backward, not at the present moment.

  • Two consecutive negative real GDP quarters is commonly believed to be the definition of a recession. This is a misperception.
  • Despite a negative U.S. GDP growth reading in Q1 and Q2 of calendar year 2022, many of the indicators the NBER monitors when evaluating the state of the economy remain healthy.
  • Coming into 2022, inflation was expected to moderate. Partially due to unforeseen events (including a war), inflation is likely to stick around longer.
  • The Fed has fully achieved the maximum employment half of its mandate, resulting in a sole focus on achieving price stability (cooling inflation).
  • Financial conditions have gone from record easy territory to nearly neutral in a matter of months.
  • Although conditions are not yet restrictive, the Federal Reserve’s dramatic move risks tipping the economy into a recession in the coming quarters.

Historically, there are 12 variables that have foreshadowed a looming recession. A few of those variables include retail sales, wage growth, commodities, ISM new orders, credit spreads and money supply.

During a recession, it’s essential for investors to continue to invest.

What recessions have looked like in the past

The US has gone through 34 recessions since 1857. Thirteen of those recessions occurred after World War II.

From 1857 to 2020, recessions lasted an average of 17 months. In the 20th and 21st centuries, the average length of a recession decreased to 14 months.

Source: Bureau of Economic Analysis (BEA)

The longest recession lasted 65 months, from October 1873 to March 1879. The shortest recession was the most recent, lasting two months from February 2020 to April 2020.

Investing during a recession

You, as an investor, should have an investing process and, and once decided, stick with it to improve your returns.

References:

  1. https://cf-store.widencdn.net/franklintempletonprod/6/7/8/678d815d-fe9c-48b4-9dde-056a19f9653f.pdf
  2. https://usafacts.org/data/topics/economy/economic-indicators/gdp/annual-change-real-gdp/
  3. https://usafacts.org/articles/what-is-a-recession-what-have-recessions-looked-like-in-the-past/

Recession and the U.S. Economy

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There is always a recession in the future. The reality is that the U.S. economy could be in a recession now.

Inflation is too high and interest rate adjustments are required, says Esther George, Kansas City Federal Reserve President. She sees consumers taking actions to combat inflation and those actions, such as not buying appetizers while dining out, are apparent to the Federal Reserve. Thus, the economic data shows that there are already signs of a pullback in consumer spending…just look at Walmart, Target and Dollar Tree sales and earnings.

There is always a chance of a recession in the future, no matter what the current economic data look like or current consumer spending is doing. The question of whether the economy slips into a recession is basically a “not if, but when“ proposition.

It’s become obvious that a recession will come to the United States economy in the future, but the essential question is when. It is important to keep in mind that recessions are a normal and unavoidable part of the economic business cycle.

A recession is a significant decline in economic activity that lasts for months or even years, according to Forbes. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.

The National Bureau of Economic Research (NBER) generally defines the starting and ending dates of U.S. economic recessions. NBER’s definition of a recession is “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

The reality is that the U.S. economy could be in a recession now.

The definition of a recession is two consecutive quarters of negative gross domestic product growth. First-quarter GDP decreased at an annual rate of 1.4%. Should that happen in the second quarter, that would technically place the economy in recession.

Recessions usually come from demand weakness, but supply problems can also trigger a downturn.

Consumer demand for goods and services continues to be strong, according to the Federal Reserve. Consumers have plenty of money, thanks to past earnings, fiscal stimulus payments and extra unemployment insurance. They have paid down their credit card balances. Even though they also increased their car loans outstanding as they upgraded their rides, their general condition is good. Employment will increase thanks to the spending, reinforcing the income gains that enable expenditures. Supply restraints are fueling current accelerating inflation.

The economy reacts with a time lag of about one year, plus or minus.

The greatest recession risk in the near term is that the Federal Reserve realizes that much of the recent decades high inflation is long-lasting rather than transitory. They will then ‘hit the brakes’ to control inflation by raising interest rates. Because of the time lag, the Fed may decide to raise interest rates faster, triggering a recession.

“Inflation is worst than a recession, and inflation will take us into a recession,” states Liz Young, SoFi Head of Investment Strategy.

References:

  1. https://www.forbes.com/sites/billconerly/2021/11/02/no-recession-in-2022-but-watch-out-in-2023/https://www.forbes.com/sites/billconerly/2021/11/02/no-recession-in-2022-but-watch-out-in-2023/
  2. https://247wallst.com/investing/2022/05/19/goldman-sachs-has-6-strong-buy-dividend-stocks-that-can-weather-a-certain-coming-recession/
  3. https://www.forbes.com/advisor/investing/what-is-a-recession/

Recession Causes

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Recessions occur typically when the demand for goods and services starts declining rapidly and steadily.

A recession is a significant decline in economic activity that lasts for months or even years. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period of time.

The National Bureau of Economic Research (NBER) is generally defines the starting and ending dates of U.S. recessions. NBER’s definition of a recession is when “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

Unemployment rate. NBER-dated recessions in gray. (Cart below)

Source: Bureau of Labor Statistics via the Federal Reserve Bank of St. Louis.

There is more than one cause for a recession to get started, from a sudden economic shock to fallout from uncontrolled inflation. According to Forbes Advisors, some of the main drivers of a recession are:

  • A sudden economic shock: An economic shock is a surprise problem that creates serious financial damage. In the 1970s, OPEC cut off the supply of oil to the U.S. without warning, causing a recession. The coronavirus outbreak, which shut down economies worldwide, is a more recent example of a sudden economic shock.
  • Excessive debt: When individuals or businesses take on too much debt, the cost of servicing the debt can grow to the point where they can’t pay their bills. Growing debt defaults and bankruptcies then capsize the economy. The housing bubble in 2007-8 that led to the Great Recession is a prime example of excessive debt causing a recession.
  • Asset bubbles: When investing decisions are driven by emotion, bad economic outcomes aren’t far behind. Investors can become too optimistic during a strong economy. Former Fed Chair Alan Greenspan famously referred to this tendency as “irrational exuberance”. Irrational exuberance inflates stock market or real estate bubbles—and when the bubbles pop, panic selling can crash the market, causing a recession.
  • Too much inflation: Inflation is the steady, upward trend in prices over time. Inflation isn’t a bad thing per se, but excessive inflation is a dangerous phenomenon. Central banks, such as the Federal Reserve, control inflation by raising interest rates, and higher interest rates depress economic activity. Out-of-control inflation was an ongoing problem in the U.S. in the 1970s. To break the cycle, the Federal Reserve rapidly raised interest rates, which caused a recession.
  • Too much deflation: While runaway inflation can create a recession, deflation can be even worse. Deflation is when prices decline over time, which causes wages to contract, which further depresses prices. When a deflationary feedback loop gets out of hand, people and business stop spending, which undermines the economy. Central banks and economists have few tools to fix the underlying problems that cause deflation.
  • Technological change: New inventions increase productivity and help the economy over the long term, but there can be short-term periods of adjustment to technological breakthroughs. In the 19th century, there were waves of labor-saving technological improvements. The Industrial Revolution made entire professions obsolete, sparking recessions and hard times.

According to NBER data, from 1945 to 2009, the average recession lasted 11 months. Over the past 22 years, the U.S. has gone through three recessions:

  • The Covid-19 Recession. The most recent recession began in February 2020 and lasted only two months, making it the shortest U.S. recession in history.
  • The Great Recession (December 2007 to June 2009). The Great Recession was caused in part by a bubble in the real estate market. It lasted 18 months, almost double the length of recent U.S. recessions.
  • The Dot Com Recession (March 2001 to November 2001). At the turn of the millennium, the U.S. was facing several major economic problems, including fallout from the tech bubble crash and accounting scandals at companies like Enron, capped off by the 9/11 terrorist attacks. Together these troubles drove a brief recession, from which the economy quickly bounced back.

If there’s a silver lining, it’s that recessions do not last forever.

References:

  1. https://www.forbes.com/advisor/investing/what-is-a-recession/
  2. https://corporatefinanceinstitute.com/resources/knowledge/economics/business-cycle/
  3. https://www.nber.org/research/business-cycle-dating

The 2% Solution: Driving Action for Real Change l

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“The problems of racial injustice and economic injustice cannot be solved without a radical redistribution of political and economic power.” ~ Dr. Martin Luther King, Jr.

The 2% Solution grew from the idea that lasting, generational change is possible only through a major investment by U.S. companies in economic justice and development for Black communities.

Inequitable access to capital has impeded the ability of Black entrepreneurs to maintain positive cash flow and cover operating costs in their businesses, explains Robert F. Smith, Founder, Chairman and CEO of Vista Equity Partners.

A key factor in this disparity is the lack of major financial institutions in Black communities.

“Only 53% of Black households are properly banked, compared to 80% of white households.”

As a result, Black business owners often rely on Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) for support. However, these institutions are also often underfunded and lack modernized and digital systems.

Supporting CDFIs and MDIs is one of the key pillars of the 2 Percent Solution. By investing capital in these institutions, we’re also investing in Black entrepreneurs and businesses.

The 2 Percent Solution asks U.S. companies to invest 2% of their annual profits over the next 10 years into communities where systematic inequities have hindered progress, says Smith. These investments aren’t acts of charity. They are reparative, enabling lasting generational change and bringing economic justice for Black communities.

“I think that [The 2% Solution] will show Americans there is hope, there is an opportunity for the American dream to now be revitalized. And frankly, to give us all confidence that we can actually make this a better country and a better place to live.” ~ Robert F. Smith, Forbes 400 Summit on Philanthropy

The 2% Solution has the ability to make lasting change in Black communities with a focus on four main pillars of action where an investment’s impact would be long-lasting and broadly felt within the Black community. These main pillars are:

  • Supporting CDFIs & MDIs
  • Healthcare
  • Education
  • Technology and the Digital Divide

The 2% Solution will benefit all Americans. A 2019 McKinsey Global Institute analysis found that eliminating the racial wealth gap would generate $1.5 trillion in GDP, and we can use The 2% Solution to help close the gap between Black and white households.  

References:

  1. https://robertsmith.com/2-percent-solution/
  2. https://robertsmith.com/about-robert-f-smith/

Inflation Swindles Almost Everybody

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“If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner.” Warren Buffett

During 2022 Berkshire-Hathaway’s annual shareholders meeting, chairman and CEO Warren Buffett stated, ‘Inflation swindles almost everybody’. Inflation is the decline of purchasing power of the U.S. dollar, the U.S. unit of currency. The rising prices of goods and services, often expressed as the inflation rate, means that a unit of currency effectively buys less than it did in prior years.

Buffett commented that inflation “swindles” equity investors. He elaborated that: “Inflation swindles the bond investor, too. It swindles the person who keeps their cash under their mattress. It swindles almost everybody.” Since inflation is largely a result of loose fiscal and monetary policy. This policy artificially inflated demand and effectively caused a supply/demand imbalance — the cure for which was rising prices to try and lower demand.

He stated that inflation also raises the amount of capital that companies need and that raising prices to maintain inflation-adjusted profits is not as simple as it may seem.

In Buffett’s opinion, “only gains in purchasing power represent real earnings on investment. If you (a) forego 10 hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy eight hamburgers, then (d) you have had no real income from your investment, no matter how much it appreciated in dollars. You may feel richer, but you won’t eat richer.”

Additionally, “High rates of inflation create a tax on capital that makes much corporate investment unwise – at least if measured by the criterion of a positive real investment return to owners”, states Buffett.

In a 1977 Fortune magazine article, Buffett conveyed his views on inflation: “The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital.”

He opined that the best protection against inflation is investing in your own skills.

During the shareholder’s meeting, Buffett observed that massive fiscal and monetary economic stimuli during the COVID-19 pandemic are the major reason for high inflation today: “You print loads of money, and money is going to be worth less.”

Buffett views inflation as a necessary consequence of the massive fiscal and monetary stimuli, which “artificially inflated demand and effectively caused a supply/demand imbalance”, to get the U.S. out of what could have been a COVID-19 induced depression.

“In my book, Jay Powell is a hero,” Buffett stated. “It’s very simple, he did what he had to do.”

References:

  1. https://www.investopedia.com/berkshire-hathaway-2022-annual-meeting-and-q1-earnings-5270362
  2. https://www.nasdaq.com/articles/3-lessons-from-what-buffett-didnt-say-at-berkshire-hathaways-shareholder-meeting
  3. https://www.investopedia.com/terms/i/inflation.asp
  4. https://www.fool.com/investing/2022/04/04/warren-buffett-secret-to-getting-rich-is-simpler/
  5. https://www.fool.com/investing/2022/03/27/3-timeless-warren-buffett-lessons-to-apply-right-n/
  6. https://www.cnbc.com/2018/02/12/warren-buffett-explains-how-to-invest-in-stocks-when-inflation-rises.html
  7. https://www.msn.com/en-us/money/topstocks/worried-about-inflation-heres-what-warren-buffett-says-berkshire-hathaway-is-doing/ar-AAWNjq6?ocid=uxbndlbing

U.S. GDP Contracted for the First Time since 2020Q2

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A recession is typically considered two consecutive quarters of negative GDP growth.

U.S. economic activity contracted for the first time since mid-2020, with lingering supply chain constraints, inflation at its hottest rate since the early 1980s, expected interest rate increases announced by the Fed, and disruptions amid Russia’s war in Ukraine weighing on economic growth.

The Bureau of Economic Analysis (BEA) released its initial estimate of first-quarter U.S. gross domestic product (GDP).

The main metrics from the report, compared to consensus data compiled by Bloomberg, are:

  • GDP annualized, quarter-over-quarter: -1.4% vs. 1.0% expected, 6.9% in Q4
  • Personal Consumption: 2.7% vs. 3.5% expected, 2.5% in Q4
  • Core Personal Consumption Expenditures, quarter-over-quarter: 5.2% vs. 5.5% expected, 5.0% in Q4

What does the metrics all mean?

The economic metrics are important indicators of the state of the U.S. economy at the start of this calendar year — especially now as the U.S. braces for interest rate hikes to cool inflation and for the possibility of a recession in the near to medium term. A recession is typically considered two consecutive quarters of negative GDP growth.

“It is unfortunate that this GDP rate did not meet expectations, but unsurprising as the U.S. economy remains very volatile with geopolitical turbulence from the war in Ukraine, a global supply chain crisis, increasing inflation and the ongoing COVID-19 pandemic,” Steve Rick, chief economist at CUNA Mutual Group, said in an email. “All of these factors have shrunk GDP growth rates around the globe.”

References:

  1. https://finance.yahoo.com/news/q1-us-gdp-gross-domestic-product-economic-activity-190926750.html

Inflation Overtakes Labor Quality as Top Business Problem For Small Businesses

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“Inflation has now replaced “labor quality” as the number one problem.” National Federation of Independent Business

The National Federation of Independent Business (NFIB) Small Business Optimism Index decreased in March by 2.4 points to 93.2, the third consecutive month below the 48-year average of 98.

Thirty-one percent (31%) of small business owners reported that “inflation was the single most important problem in their business, up five points from February and the highest reading since the first quarter of 1981”. Inflation has now replaced “labor quality” as the number one problem.

“Inflation has impacted small businesses throughout the country and is now their most important business problem,” said NFIB Chief Economist Bill Dunkelberg. “With inflation, an ongoing staffing shortage, and supply chain disruptions, small business owners remain pessimistic about their future business conditions.”

Key NFIB findings include:

  • Owners expecting better business conditions over the next six months decreased 14 points to a net negative 49%, the lowest level recorded in the 48-year-old survey.
  • Forty-seven percent of owners reported job openings that could not be filled, a decrease of one point from February.
  • The net percent of owners raising average selling prices increased four points to a net 72% (seasonally adjusted), the highest reading in the survey’s history.
  • The net percent of owners raising average selling prices increased four points to a net 72% (seasonally adjusted), the highest reading recorded in the series.

The difficulty in filling open positions is particularly acute in the transportation, construction, and manufacturing sectors where many positions require skilled workers. Openings are lowest in the finance and agriculture sectors.

Eight percent of owners cited labor costs as their top business problem and 22% said that labor quality was their top business problem, now in second place following “inflation.”

Forty percent of owners report that supply chain disruptions have had a significant impact on their business, up three points. Another 28% report a moderate impact and 23% report a mild impact. Only 8% report no impact from recent supply chain disruptions.

References:

  1. https://www.nfib.com/content/press-release/economy/inflation-overtakes-labor-quality-as-top-business-problem-for-small-businesses/ (Inflation Overtakes Labor Quality as Top Business Problem For Small Businesses)
  2. https://www.nfib.com/small-business-survival/

The National Federation of Independent Business (NFIB) is the voice of small business and advocates on behalf of America’s small and independent business owners. NFIB is nonprofit, nonpartisan, and member-driven.

Don’t Fight the Fed

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“We continue to believe that the S&P will see a correction of at least 20% over the next one to two years as the Fed is more aggressive than expected to deal with inflation running higher than expected and easy money begins to decrease.” Dan Niles

“The markets are in a volatile and dangerous place as of now,” writes Dan Niles, founder and portfolio manager for the Satori Fund.

In his article entitled “Market Thoughts Following Q1”, Niles contends that investors heed the warning: “Don’t Fight the Fed”.

He states that “Investors are forgetting that it [Don’t Fight the Fed] works on the way down as well as the way up. The Federal Reserve (The Fed) expanded their balance sheet by $4.8 trillion since the start of the pandemic while the US government added ~$5.5 trillion in stimulus. Combined stimulus of roughly half of US GDP of $20.5 trillion is the major driver of why the prices of stocks (along with homes, cars, boats, crypto, art, NFTs, etc) all went up over the past two years during a global pandemic. Now, the Fed dot plot shows 10 rate hikes in less than two years and they will be cutting trillions off the balance sheet probably starting on May 4th along with a 50 bps rate hike.”

“The #1 concern for investors in 2022 should continue to be that the Fed is so far behind the curve on dealing with inflation that they will have to be much more aggressive than in prior tightening cycles despite high inflation & geopolitical risk.” Dan Niles

“We [Satori Fund] continue to believe that the S&P will see a correction of at least 20% over the next one to two years as the Fed is more aggressive than expected to deal with inflation running higher than expected and easy money begins to decrease. Since World War II,

  1. Every time Inflation (CPI) is over 5% a recession has occurred
  2. Every time oil prices have doubled relative to the prior 2-year average ($54 in this case) a recession has occurred
  3. 10 of the 13 prior recessions have been preceded by a tightening cycle by the Fed
  4. 10 of the last 13 recessions have been preceded by the 10-year yield going below the 2-year yield”

For retail investors, Niles recommends “cash until inflation, Fed tightening and economic slowing run their course over the next one to two years. He writes that “most of the time, cash is a terrible investment especially in a high inflationary environment, but it is better to lose 6-7% to inflation this year than 20%+ in a stock market drop. With the Fed being this far behind the curve on inflation, we will find out how much froth is in valuations as the Fed starts tightening as growth continues to slow.”

Satori Fund likes companies that

  1. Benefit from economic reopening (not pandemic beneficiaries);
  2. Are profitable with good cash flow;
  3. Have growth but at a reasonable price;
  4. Benefit from higher-than-average inflation;
  5. Benefit from multi-year secular tailwinds. 

They foresee investing tailwinds in:

  • Datacenter, office enterprise, and 5G infrastructure.
  • Reopening plays such as airlines, cruise lines, travel, rideshare, and dating services as people adjust to covid becoming endemic.
  • Banks which should benefit from higher interest rates.
  • Alternative energy as geopolitics and fallout from the Russia-Ukraine War drives investment in the space.

References:

  1. https://www.danniles.com/articles

Taxes: Income and Property

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“In this world, nothing is certain except death and taxes.” Ben Franklin

After-tax income inequality has grown over the long term. Between 1979 and 2018, the share of aggregate after-tax income of the top 1% of households grew significantly from 7.4% to 13.6%. In contrast, the shares for the bottom 90 percent of households declined. Tax Policy CenterWealth inequality has also widened. The average white household had $402,000 in unrealized capital gains in 2019, compared with $94,000 for Black households and $130,000 for Hispanic or Latino households. These disparities have generally widened over time. Tax Policy Center

Virtually all families hold some amount of financial assets, broadly defined as brokerage, checking, savings and retirement accounts to name a few. While 98% of families held checking or savings accounts in 2019, only 50% of families held retirement accounts and 15% owned stocks. Tax Policy Center

Salaries and wages are the largest sources of income for most households. In 2018, they comprised 68% of total adjusted gross income across all individual income tax returns, but only 17% for those with incomes over $10 million. Tax Policy Center

Income from capital gains made up about 8% of aggregate adjusted gross income (AGI) in 2018, but this varied by income level. For those with AGI over $10 million, capital gains accounted for nearly half of their income. Tax Policy Center

In 2019, the median net worth for those with college degrees was four times higher than for those with high school diplomas and nearly 15 times higher than for those without high school diplomas. Tax Policy Center

Overall, the share of US families with education loan debt went from 9% in 1989 to 21% in 2019. About 30% of Black families had education loan debt in 2019, compared with 20% of White families and 14% of Latino families. Tax Policy Center

Federal taxes are moderately progressive overall. In 2018, the top 1% had 16.6% of total income before taxes and 13.6% after taxes. Contrastingly, the lowest quintile had 3.8% before taxes and 7.1% after taxes. Tax Policy Center

In fiscal year 2019, state and local governments raised $577 billion in property taxes. As a share of general revenue, New Hampshire relied the most on property tax revenue (36%) whereas Alabama and New Mexico relied the least (7%). Tax Policy Center

State and local taxes as a share of income ranged from 7% in Tennessee to 15% in North Dakota in 2019. This does not measure comparative tax burdens on states’ residents because it includes taxes on business activities borne by residents of other states. Tax Policy Center

Total tax revenue (including federal, state, and local taxes) as a share of GDP was 24.5% for the US in 2019. Tax Policy Center

Wealthier Americans may be more stressed regarding inflation, economic uncertainty and market volatility, but lower-income Americans have much more to fear from rising prices and are experiencing greater daily impact to their wallets. They tend to have less financial cushion to handle higher prices for food, gas, and other necessities, according to the Tax Policy Center.

The above financial inequality and tax snippets are interesting facts/information garnered from the nonprofit Tax Policy Center.

References:

  1. https://www.taxpolicycenter.org/fiscal-fact/top-1-income
  2. https://www.axios.com/wealth-inflation-fears-money-financial-assets-52779e2d-8940-4b87-85cd-29c65744fb29.html