Now that summer is shifting into gear it’s great to see so many people out and about again. Signs of improving activity abound. The TSA recently reported crossing the 2 million mark for daily airport travelers. By this measure, air travel is back to around 82% of pre-pandemic levels, way up from about 4% of normal amid the broad shutdowns of April last year.

Also, as my son reminds me, our beloved Giants seem to be filling their stadium once again, and they currently have the best record in baseball. What a difference a year makes!

All this is happy news for the economy (even for a sports stadium – I’m sure they sell more concessions when the home team is winning), but what does it tell us about the direction of markets?

As with just about everyone and everything, the pandemic also interrupted how economists and market watchers do their jobs. Things changed so much so quickly, and the newness of shuttering the brick-and-mortar economy coupled with opening in fits and starts wreaked havoc on the collection of meaningful economic data. Consumers changed a lifetime of patterns overnight, so how can you predict what they’ll do next? People on “Wall Street” are paid lots of money to answer questions like that, and they live and die by the quality of their data. I imagine it as something like trying to read the tea leaves in a hurricane.

It’s been interesting to see the new kinds of data these folks are using to generate their analyses. Anonymized cell phone location data is popular in some circles. We saw this used last year when journalists (and others) were monitoring whether people in an area were abiding by stay-at-home orders. A little creepy perhaps, but useful if you want to monitor where people are actually going. Now some in finance use similar data to gauge traffic passing through truck stops across the country to get an idea of how the economy is picking up.

Another of these nontraditional data sources has been Google Search Trends. Anyone can leverage the company’s massive database to see what people are searching for and how these searches ebb and flow over time. Are people searching for boats more than RVs, or used cars more than new, or maybe restaurants but takeout is still popular? This is valuable information to analysts charged with figuring out how different industries are doing, even as consumer buying habits evolve.

My research partners at Bespoke Investment Group periodically turn to these search trends and I’m including some of their recent notes and charts below. It’s a good look at what folks were searching for mid-pandemic and what they’re looking for now.

And I’m including a link to the Google Search Trends page so you can play around with the tool if you like.

Also, a little ahead of time, but Happy Independence Day! I hope you enjoy it with family and friends.

Continue reading…

"Inflation hasn't ruined everything. A dime can still be used as a screwdriver." - H. Jackson Brown, Jr.

"It's tough to make predictions, especially about the future." - Yogi Berra

The Federal Reserve is meeting today and tomorrow for it’s regular review of the economy and what, if anything, to do about it. This is also one of the meetings when the Fed announces its member’s economic projections. Nobody expects the Fed to raise interest rates at this meeting, but everybody will be watching and listening for clues on when they plan to start doing so, and if they’ll begin earlier than anticipated.

As we’ve discussed before, the Fed is viewing the recent spike of inflation as something they’ve planned on, a goal realized, and something that’s also likely to be short lived. In other words, the Fed added a bunch of fuel to stoke the economy’s fire during the worst of the pandemic and a flareup was to be expected. Eventually the flames will settle, and we’ll be back to the slower burn we’ve grown accustomed to. Or at least that’s the plan. The Fed has a tough job, no doubt about it.

It took a while to kick in, of course, but we now see the fiery part of this playing out around us every day. Grocery and gas prices seem higher. New and used cars and trucks are more expensive. Housing costs are soaring. There are tons of anecdotes of increased demand just as a wide variety of supply chains across the globe struggle to keep up. Name the industry and it’s being impacted. There are even reports of long lines awaiting visitors at national parks. Lots of activity after a prolonged lack of it equals inflationary pressures, but will it last?

Across the country people (generally speaking) have less debt, more cash, and are feeling the so-called wealth affect that comes from soaring home and stock market values. Much of this is psychological, but how we feel about the economy is important because it impacts how we spend. And if consumers feel like prices will be more expensive in the future, they’ll buy now, stoking more inflation.

Workers are also feeling their oats a bit as our economy picks up. Nationally, the unemployment rate has continued to decline in part because more people are dropping out of the labor force. They’re retiring early, exploring opportunities, taking a crack at the Great American Novel from a beach in Fiji, and so forth. And a growing number of those who plan to remain employed are switching jobs.

While all this is important for the economy and impacts inflation, the latter point, the job switching, is something the Fed watches closely. The so-called quit rate is measured in the Job Opening & Labor Turnover Survey (JOLTS) and is a key indicator for how healthy the labor market is. It’s seen as positive when workers feel confident enough to jump ship and head to another employer. And since they typically do this for more money, this activity helps drive wage growth within the economy and has a direct impact on inflation. A high quit rate isn’t a problem if it’s a blip, but if it persists those extra costs for employers have to go somewhere, like increased prices for consumers.

This week I wanted to share some snippets of analysis and a few charts about JOLTS and the employment situation from my research partners at Bespoke Investment Group. Yes, looking at JOLTS data is a bit wonky, but the Fed will undoubtedly be looking at the same information, so it’s helpful to have a general understanding of the numbers.

Continue reading...

Happy first day of June! The year is ripping right along and so are developments in the financial services industry. This isn’t anything new. One of things I love about my work is the constant change and the need to continually educate myself. It’s daily reading, industry conferences, and a never-ending stream of webinars. But it’s wonderful to learn new things and to challenge my understanding.

This brings me to the subject of bitcoin, the most well-known (and yet vastly misunderstood) member of the emerging investment category called “digital assets”. Bitcoin is a thing in and of itself, but also the “Kleenex” term describing the wide variety of so-called cryptocurrencies. I’ve written about bitcoin in the past and have generally dismissed the category as being too volatile and otherwise inappropriate for anything other than pure speculation.

Price action in recent months has only served to prove this point. The value of one bitcoin, again one of many digital coins out there, hit almost $65,000 in April, up from less than $7,000 a year prior. But only a few weeks later the price had dropped to the mid-$30,000’s. That’s huge volatility driven primarily by headlines and active traders who were mostly late to the party. I imagine buying at recent highs, as many did, felt something like finding yourself at the apex of a rollercoaster just before your stomach rises to your throat.

But amid all the news and noise the powers that be, across government and a variety of industries, are taking digital assets and the blockchain technology that underpins them seriously. Part of this is a reaction to what’s happening in the markets, of course. Another part is a slow but steady institutional recognition that this technology could lead to a lot more than just digital currencies. Some even talk of it changing the world. Eventually.

My relationship to all this is evolving. Some months ago I made the decision to start going down the digital assets rabbit hole in a more meaningful way. I quickly realized just how superficial my knowledge was. I was looking for deep understanding, but my research began to feel scattered. I found myself studying the nature of money, world history, and navigating all sorts of diverse territory in trying to understand bitcoin. I longed for a structured course, something that would help tie the seemingly disparate information together.

Then boom, I got an unexpected invite via my professional organization, NAPFA, for a new course on you guessed it, all things digital assets. There was serendipity in the air and another sign of “crypto” going mainstream. (That’s the driving force behind the name change to digital assets, by the way.) It would be a 13-hour course taught by experts including one of the two guys who actually invented blockchain technology back in the 90’s, and cover everything a financial planner needs to know, from the super-technical stuff to incorporating digital assets into a portfolio.

I’m mid-way through the course and honestly can’t say where it will lead. Each module is full of brand-new information and often creates additional research. Bitcoin and the thousands of competing coins, blockchain technology itself, “trading” coins and tokens, concerns about global central bank policies and inflation, the potential rise of so-called decentralized finance, and use cases for non-financial companies and individuals alike; all this and more is exciting but still unresolved in my mind. Frankly, it also seems unresolved in the minds of people who are actively trying to figure it all out. It’s the modern Wild West in many ways. Nevertheless it seems clear that blockchain technology will prove revolutionary, we just don’t know exactly how yet.

But a huge open question is what, if anything, should individuals, bystanders if you will, do about it. Figuring this out at the portfolio level is difficult to say the least. I still haven’t decided how much bitcoin is the right amount and even where or how best to hold it. It may turn out to be investible for some of you and not others.

Many questions remain and I’m working diligently to find answers as I also confront my preconceived notions about digital assets. I want to be a good resource for you, even if it’s just providing information so I’ll plan to write a few more of these posts as I continue down the rabbit hole.

For now, here’s a link to some articles and other information from the organization that’s putting on the course. There’s a good list of articles to scan through if you’re interested. Keep in mind the content is geared toward financial folks, so there’s some jargon mixed in.

https://riadac.com/digital-assets-are-now-mainstream/

Have questions? Ask me. I can help.

As I mentioned recently, I’ve been spending time trying to better understand all things bitcoin. Let me assure you it’s no small task. Rabbit holes abound and you can hear that sucking sound coming from all of them. I highly recommend trying to understand the fundamentals before investing, just don’t let too much of your time get sucked away in the process.

One area of importance is just as misunderstood and argued over lately as the field of digital assets itself: Bitcoin’s energy use and whether it’s a cost of doing business or a fundamental flaw.

Lots of comparisons get thrown around about how mining bitcoin uses as much electricity as a small country does, or even several small countries. Understandably, some consider this whole blockchain/bitcoin thing a colossal waste of energy, while others see it as a sort of global financial revolution, worthy of the energy cost. Who’s right and how much does it matter?

This week I wanted to spend some time offering different perspectives on this question. There are a variety them, of course, and they tend to take on a he said, she said vibe. Here are links to three I’ll categorize as general (from Forbes), friendly (the second link, from Galaxy Digital), and critical (from Digiconomist). As you’d probably expect, the Forbes piece is the easiest read and it reviews some potential energy solutions. The others get into the weeds but aren’t too long and are worth your time if you’re interested in how bitcoin’s blockchain works and what it takes to run it.

The bottom line is that this technology and digital assets like bitcoin are here to stay but are still in their infancy. Nobody knows what this budding industry will look like in the years to come. That’s a big part of why this category is so volatile. And remember, this isn’t simply about bitcoin. There are all sorts of industries and people that stand to benefit from advancements in blockchain technology. But how to power it all and what impact this will have on the digital assets (and the world’s) ecosystem will continue to play out over time.

Continue reading...

This week I wanted to address a question that’s come up a few times lately: Is it better to buy an existing home or build your own? It seems the lack of available homes to buy in Sonoma County is forcing folks to get creative.

Times are challenging for home buyers. It’s old news at this point that a lack of supply is causing buyers to contend with all sorts of competition that often seems to have a limitless supply of cash. This can be demoralizing and incredibly stressful. The basic economics of this has been driving the average price of existing single-family homes to almost $830K locally, up about 10% from the same time last year, according to Zillow.

This is unsustainable and leads to lots of buyer frustration (but great news for sellers, of course) in the short-term. It’s also leading some to consider building the home they can’t find on the market. Or moving out of the area and building it there.

The idea of having your home custom built, or even semi-customizing in a new development, is appealing. You can create exactly what you want, everything is shiny and new and up to code and, at least some say, doing so maybe a little cheaper than buying an existing home.

But these would-be home builders are up against an array of challenges perhaps more daunting than low inventory. And the biggest issue right now seems to be inflation. On everything. Land is expensive, and so is lumber, concrete, and drywall. Even copper wiring and truss prices are through the roof (sorry, couldn’t resist the pun). And those are problems on average across the country. Locally, toss in our fire-related backlogs and just getting a contractor to finish your project is challenging, not to mention expensive.

But which is better, to buy or build? From my research and conversations with folks over the years there doesn’t seem to be a clear financial answer to this question. Lots of anecdotes and some data suggest that buying is more expensive than building after you factor in all the upgrades to make the home the way you want it. Newly constructed homes can also be cheaper to run than an older home, at least according to the National Association of Home Builders (their opinion is a little biased, I think, but seems intuitive). Still more anecdotes bemoan the cost overruns and unexpected delays encountered when building a home. In other words, talk with ten different people and you’re likely to get ten different opinions.

Ultimately, buyers and builders both tend to overpay because their transaction usually ends up being more expensive than intended. And the recent inflation uptick is only increasing uncertainty.

The bottom line is you should look hard for an existing home to buy, potentially even a fixer-upper, before embarking on the builder’s journey. The reason is that the existing home is obviously already there, is more or less a known quantity (following good inspections during the escrow period), and you can take possession sooner. And, at least in theory, you can control costs more than a contractor can potentially over a multi-year timeframe. (See one of the links below for more information on this.)

Beyond that, buying or building is a huge financial and life decision, so try not to let market forces create a false sense of urgency. Easier said than done; believe me, I know.

To help with decision-making I’m including a good basic pros and cons list from bankrate.com. You can use it as a jumping off point to start your own research.

I’m also including a short article from Bloomberg detailing how inflation is driving up the price of just about everything that goes into a new home, with good graphics showing price increases at different construction stages.

https://www.bankrate.com/mortgages/build-or-buy-a-house/

https://www.bloomberg.com/graphics/2021-us-housing-construction-costs/?srnd=premium&sref=vuYGislZ

Have questions? Ask me. I can help.

This is an exciting time for software in my little corner of the world. There’s so much available, from apps aiding retirement planning and investment management, to software that helps me run my business. These are just fancy tools, of course, and can only be helpful if you know how to use them. But for planners like me who enjoy delving into the details, the level of innovation creates tons of possibilities, especially for the important subject of tax planning.

Our tax code is easily one of the most complicated parts of our financial lives. It has tons of moving parts, changes frequently, and just about everything is interconnected; one simple change can have expensive ramifications.

While I’ve long done tax planning and strategy work for clients it’s mostly been pen and paper, Google searches, and studying client returns and the IRS’s website. This is useful but often incomplete without help from the client’s tax advisor.

The issue is that most tax advisors don’t really do tax planning, or at least they don’t make the process easy. Instead they focus on preparing tax returns. We’re all aware that this is a difficult seasonal grind, so it’s understandable if some of the profession goes MIA between seasons. This creates problems, however, because tax advisors have client data in their own software and crunching numbers amid all the complexity pretty much requires replicating it.

I don’t normally use these posts to talk specifically about my business, but this week I wanted to introduce a new service: tax return review. I spent the better part of a year evaluating a new software program called Holistiplan and was waiting for after tax season to open it up to you.

My ongoing clients will get this at no additional cost and my hourly folks can access it as a separate project.

Let me be clear in that I’m not angling to replace your tax advisor. That’s a full-time job and I already have one. Instead, I want to provide better financial planning that helps you through life’s important decisions. Since just about all financial decisions involve tax considerations, efficiently analyzing your tax return will help me help you more.

Here’s how it will work –

The process begins with you getting a digital copy of your tax return. Upload it to my website www.ridgeviewfp.com by clicking on “Secure File Upload” in the Clients dropdown at the top of the homepage, or at the bottom of each page. There are no space limitations, so you can upload the whole document, ideally as a PDF. A clear scanned copy saved as a PDF works also.

We’ll upload your return to Holistiplan for analysis. It typically takes a few minutes.

Then the software deletes your return. It only holds the return data, not your personal information. This is an extra level of security I implemented with the company.

Then we’ll look for planning opportunities. Some are obvious while others might be deeper in the weeds. Or maybe you’re in good shape already. Either way we’ll be able to tweak your prior year numbers to gauge the impact of extra income, capital gains, funding an IRA, and the potential for Roth conversions, to name a few.

We can hop on a Zoom call and look at the information together, send you a report with our notes, or both. Also, Holistiplan keeps everything current, so we’ll be able to understand how any changes to the tax landscape might affect you.

Then we can look for help and confirmation from your tax advisor. You’ll be able to ask specific questions and, hopefully, get good answers.

Ideally, we’ll keep doing this every year. We’ll build up history for you and, hopefully, leverage tax planning to help make your financial life better.

Have questions? Ask me. I can help.