Almost Tax Day

Good morning and Happy Tuesday. We’re less than a week out from Tax Day so here’s a grab bag of things to remember if you’re like me and your completed return has been ready and waiting for signature and mailing longer than I care to admit.

Funding an IRA for last year –

You can fund an IRA up until close of business this coming Monday, the 15th.

The practical deadline for electronic funding from an outside bank is this Thursday but midday Friday, the 12th would be the last day since an overnight transfer is required.

If you have to wait until the 15th to fund your IRA, a good option is to walk a paper check into a Schwab branch (assuming that’s where your account is) and have them deposit it for you. Get a receipt showing the deposit date just in case there’s a question later.

However, Schwab will let you do a mobile deposit up until 4pm local time on the 15th, so that’s a great option if you can leverage technology.

Technically you can put a check in the mail and have it postmarked by the 15th and be fine but let that be your last resort. Make the check payable to the custodian and write “2023 IRA Contribution” on the memo line. You could also add in “FBO (your name)” just to make it crystal clear.

Clients often ask about Form 5498. This form shows deposits into an IRA and shows up after tax season. 5498’s are typically sent late-April through mid-May and, consequently, aren’t required to file your tax return. Just keep it for your records or, more likely, let the custodian keep it for you until needed. Also, 5498’s aren’t generated for employer sponsored plans since custodians don’t keep track of deposit timing like they do for IRAs. The assumption is that you and/or your tax person are doing so related to your business tax return.

Paying your taxes –

I think most people mail in paper checks to pay their taxes. This is how I do it and it’s more out of habit than anything, especially since I pay electronically for almost everything else. Your tax person or your tax software should provide a slip with the relevant information to include with your check to the Feds and the State.

That said, you can pay your federal taxes via the IRS’s Electronic Federal Tax Payment Service or DirectPay for free and processing time is about one day.

You can also pay federal taxes via credit or debit card, but fees apply. Here’s an IRS link to see the different vendors and their fees.

And you can pay via wire transfer. Schwab has an electronic tool for setting up domestic wires and it’s free. Otherwise, banks typically charge around $25 for a wire transfer. Timing on this could be same-day if the wire request is received in good order by maybe 1-2pm EST. Still, I would plan to send a wire by this Friday just to be safe. The IRS has a worksheet with the wire details that you can find on 

Wires are straightforward so long as you slow down a bit and check everything multiple times. I say this because wire instructions are easy to get wrong and the exchange of this information, often via email, makes wires susceptible to fraud. Someone could gain access to your email and insert their own wire instructions without you knowing. It’s primarily for this reason that a bank’s wire department asks if you personally verbally verified the wire instructions prior to submitting the wire. Please don’t ignore or be overly casual about this step. Wires are great for sending money but are almost impossible to get back if something goes haywire.

Along these lines, tax-time is a golden opportunity for fraudsters or even just shady companies looking to take advantage of people. One of the ways they get you is by creating fake, or “spoofed”, websites and emails that look legitimate. However, there are some ways to spot fake or otherwise shady sites.

Look at the URL at the top of your web browser screen. Are there misspellings in the company name or anything else that seems out of place. Does the website look okay but you notice spelling or grammatical errors? If so, don’t click on anything, close your web browser, and start over.

It’s also a good practice not to search for websites via Google. Instead, bookmark your bank’s website, for example, to limit your exposure to potential fakes that bubble up in a web search.

The same basic gist applies to emails. Look at the sender’s address. You may have to hover your curser over it or tap the name if you’re on your phone. Is it spelled correctly? Does it look accurate? If anything looks strange, stop, don’t click anything, and reach out to the sender to ask if the email is legitimate.

Also beware of any website or email pushing you to act quickly. Granted, tax filing comes with deadlines but your personal fraud radar should ping anytime you’re feeling pressured to click a link or provide your personal and account information to a third party.

Remember: When in doubt about this sort of stuff it’s best to slow down or stop entirely. Call your bank to verify using information derived from another source, such as a bank’s customer service number obtained from Google. If it’s from Schwab or from me, call me and ask. By the way, I’m not suggesting that you fear everything, just be more aware, especially during tax-time. These days a little paranoia goes along way.

Have questions? Ask us. We can help.

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Happy is as Happy Does

You may have heard recently that the US is less happy than it used to be. I saw this news about an annual update from Gallup and others last week to their World Happiness Report. I won’t repeat it all here. Instead, I’ll provide some links and notes to scan through and you can read more when you have the time.

First, here’s a link to a brief article on the update. I like this format because Axios presents us with the news item, gives a quick summary and a suggestion of why it matters, followed by some additional detail. It’s a news appetizer and we can consume the rest later if we want to.

The takeaway from this article? We’ve joined Germany in a happiness nosedive from last year’s findings. We’re told this is because younger people reporting feeling unhappy due to distrusting our political system and fearing political violence.

Really? Wow. I’m 47, I pay attention, and my life certainly isn’t perfect but I do consider myself happy. I think those around me are happy. But after some reflection I can see cracks in my assumption that, at least generally, correspond with the report. Inquiring minds want to know so I dove into the details.

Here’s a link to the report page where you can review a more detailed summary. Then you can download the full report as I did. It’s 158 pages but contains lots of charts and graphs so it’s not too bad.

Here are some of my notes about the report –

Happy people live longer, healthier lives. This seems straightforward, but are we as happy as we think we are? Personal implications notwithstanding, what does it mean for our culture that a growing number of people, mostly younger, report being unhappy?

Researchers used a three-year average of “life evaluations” that show our country falling from 15th place to 23rd among all countries in terms of overall happiness. The change was due primarily to those under 30 reporting a large drop-off in happiness.

Apparently there’s a U-shaped curve that often tracks happiness throughout one’s life. You’re happier when you’re very young and that declines through adulthood and into middle-age, and then happiness ramps back up as one gets older. Maybe, but whatever shape it takes there’s a growing divide between levels of happiness reported by the young and old, and that gap is very pronounced here at home.

We’re now in 62nd place in terms of happiness for those under 30, behind a laundry list of countries I would assume we’d easily beat. I was surprised to learn that Eastern European and even some Middle Eastern countries have happier younger people than we do, even though those economies are much smaller per person and the standard of living (maybe we should redefine that?) is comparatively low.

Flip that age group around and we’re in 10th place for happiness reported by folks age 60 and older, behind the Nordic countries, Canada, and Australia. Those countries all score higher than we do within their younger population, but the top-ten list for younger people is different.

The notion that younger people generally are happier than older people is now only true in some countries but not here in the US and much of the developed world. This shifted over the last decade or so. Now younger people report being happier in smaller countries like Greece and Portugal. Developed countries like ours are losing ground in the overall happiness ranking because of this. We now rank near the bottom of a list comparing current happiness to results from 10+ years ago. Our rate of change comes close to that of Columbia, Tunisia, and Congo. Canada is down the list with us, but yikes…

And happiness within older populations isn’t necessarily about money. India has the second highest proportion of older people after China but reports high levels of happiness among its older populations. Interestingly, older Indian women report being happier than their male counterparts. Both groups report that their living situation is the largest component of their happiness, but this is also higher for women. The report suggests this could be due to more older Indians “aging in place” with strong family connections that women (typically) have worked hard to maintain. Also interestingly, education and income levels impact happiness but the findings relate generally to the various socioeconomic groups within the country’s caste system.

Researchers also reviewed how enhanced well-being helps ward-off brain diseases that cause dementia by maintaining cognitive abilities over time. They suggested that having a positive environment, personal connections, physical activity, and a sense of purpose naturally support one’s cognitive abilities and can help with early interventions.

Couple these findings about aging in place with strong family connections and the importance of supportive environments in helping to fight dementia and we have a rough model for aging well in the developed world. Researchers made these connections and discussed some ways that certain countries, such as in the Nordic region, are heading in this regard.

Ultimately, reviewing this report was kind of a bummer. There were bright spots, such as I just referenced about the importance of personal connections, but it was tough reading a big-picture analysis of how somber the mood is among our young people, at least on average. I don’t pretend to know why this is the case. It will be interesting to see if this is just a blip that will correct itself in time, or if we’re looking at a new trend.

Either way I think there’s value in this type of information as a check, or perhaps a recommitment, to our own happiness level and doing whatever it takes to maintain it.

Have questions? Ask us. We can help.

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The Power and Pain of "Yes"

A few years ago during Covid I decided to say “Yes” more. “No” is negative and exclusionary while “maybe” can be so unfulfilling. But yes is exciting and freeing while also sometimes being a little terrifying. Life is short, as they say, and I wanted to put myself out there and reset my definition of possible. So both in my personal and business life I was determined to move forward instead of getting stuck in analysis paralysis mode, as was my habit. Call it an occupational hazard.

This led to some exciting ramifications but I won’t bore you with all that here. Instead, let me briefly share some details about a recent yes adventure that was a powerful experience containing more than its share of pain.

As many of you know, after years of running ultramarathons I started dabbling in paddle sports some time back. Last year I was asked to join a crew trying to set a new world record for distance travelled by a dragon boat in 24 hours. I said yes at the time without really knowing what a dragon boat was. I had to Google it. But our team accomplished our goal and got to see a chunk of the historic Missouri River along the way. I can laugh about that experience now because it was something I never, ever thought I’d be doing. Would I still have said yes if I knew how hard it would be? Maybe not but I’m glad I did.

As often happens, one thing follows another and I was asked several months ago if I wanted to be part of a two-person crew paddling a handmade mahogany kayak called “The Condor” from Tampa Bay in Florida down to Key Largo in a race called The Everglades Challenge. Sounds pretty good, right? Am I a kayaker, no. So yes, of course I’ll do it!

Maybe my answer should have been definitely maybe. To say I had limited kayak experience would be stretching the point and my years of running gave me an aversion to sitting for long periods. My race partner would be a veteran of this race and races in Alaska, the Yukon Territory, even the Amazon. He’s written books on the topic but I barely knew him. Sounds even better, right?

However, I committed myself to the task, trained, and toed the starting line with many others on a Saturday earlier this month. The EC, as it’s called, allows sail and paddle craft of various types to enter but no motors allowed. And the challenge is unsupported. Family and crew can only provide moral support along the way. Bystanders can help but this can’t be prearranged. You’re on your own, in other words.

Our goal was straightforward: Paddle roughly 280 miles south to the finish by any available coastal route as fast as possible. Our plan was to head down the Intercoastal Waterway past cities, luxury homes, hotels, and trailer parks. We’d also head “outside” into the Gulf of Mexico for long stretches and eventually leave civilization behind as we passed through Ten Thousand Islands, Ponce De Leon Bay, Everglades National Park, and Florida Bay toward the finish. The race had three mandatory checkpoints and we stopped a few times for rest but I only notched a mystifying 2.5 hours of sleep over nearly four days.

The first day was an anxious one for me. The weather was good but my paddling experience had to this point mostly been in protected waters, often lakes and rivers. Now I was setting off into the unknown. I consider myself a strong paddler but would the seated position be doable for so long? Did I have enough food and water to make it to the first checkpoint? And why did I say yes to this again? These questions and more plagued me throughout much of the first day and night. We often paddled into wind and chop that worsened and, following the loss of our rudder earlier that day, had to work extra hard to keep the boat straight. It was a grind. Numerous justifications for quitting coursed through my mind. Hey, there are city lights over there… maybe let’s quit and I’ll buy the beer… I don’t know but if someone had given me an out that first night I may have taken it.

The second day was better as daylight resets our internal clock and outlook, or at least it does mine. Our plan was to paddle through the first night with a brief stop at the first checkpoint to refill water and not stop for rest until the second evening. As we did so I got more accustomed to the extremely long distances between landmarks. For example, a bridge taking shape on the horizon was an incremental goal – just make it to the bridge. But after what seemed like hours of paddling the bridge was still looming. Eventually we’d make it, of course, and then it’s on to the next bridge or cityscape. There’s something of a life lesson found in achieving one goal only to be presented with the next. Persistence and patience are critical.

We pulled over to a beach just south of the city of Naples for a rest that second night at about 1am. Maybe it was the amazing weather and the southern route calling me but, even tired as I was, I couldn’t sleep for more than an hour. But it was enough. Light pollution faded and the stars shone brightly as we left the beach. Maybe this experience isn’t so bad after all.

Small rewards loomed large. We were fortunate to hit the second checkpoint during daytime which meant the little restaurant on Chokoloskee Island was open. So it was Cuban sandwiches and café con leche before heading out again to paddle all night. This would be a long offshore stretch and I was excited to leave civilization behind.

The weather shifted around a bit but was otherwise beautiful the whole night. We were far enough south that I got to experience bioluminescence firsthand. My partner, in his sleep deprived state, kept asking if a light was on somewhere in the kayak, but it was living organisms generating a greenish-blue light through a chemical reaction. Fish large and small darted by and left trails like shooting stars. Our boat rippled colors and each paddle stroke scooped it up. I probably spent too much time paddling on one side while enjoying the light show. Maybe it was a small gift but, like surprise Cuban coffee, these experiences are part of what I say yes for, so might as well enjoy them!

My partner was exhausted but I was oddly exhilarated as the night progressed. We found a spit of sand to camp on for a few hours but, again, I was only able to grab a little sleep. My mental state didn’t help, but it was the roar of the mosquitoes inches away on my bivy sack that kept me up most. I’ve spent time in the woods and mountains and know a thing or two about the little nasties, but this was otherworldly. Oh well, I can sleep better later I guess.

With the rising sun we saw yet another goal looming far off, the landmass of Cape Sable and a decision. Should we round the Cape and keep navigation simple while adding mileage or take a shortcut through the Everglades. The choice was left to me. We had a good GPS track to follow so I felt it important to travel via the race’s namesake. So it was through Ponce de Leon Bay, up Shark River, and into the Land of Lions, Tigers, and Bears, Oh My!

Truthfully, our Everglades route left a little to be desired. Being a California boy I was more than half expecting to see gators, crocs, and massive pythons waiting to eat me. It ended up being the wind in our face and long distances that proved most frightening. But by this time I was so used to the grind that some prehistoric reptiles would have been a welcome distraction.

We eventually made it through the Everglades unscathed on our third afternoon to reach the final checkpoint at the tiny tourist outpost of Flamingo. There were great volunteers to receive us, a store, even showers, but all I wanted to do was leave. In the ultrarunning world there’s a saying admonishing you to “beware the chair” when you enter an aid station. The idea being you’re exhausted, you sit, you eat and drink, and then choose the chair over completing the race. I had thought about getting some sleep but Flamingo was the chair in this context, so we got out of there as quickly as we could.

After that I smelled the barn and got impatient to cover the final 35 miles to Key Largo. My impatience (and maybe a little hubris) was met with the often-shallow waters of Florida Bay that demand careful navigation, a headwind, and what felt like an outgoing tide – it was going to be a long night.

In hindsight, this is when several things conspired against us. My partner was tired but grinding as only a veteran of many grueling races can. I, on the other hand, was running on maybe a quarter tank of fuel with many miles left to go. The wind came on as the sun went down. I took waves to my face more than once as I marked our slog against a constellation to my left. Progress was incredibly slow but we kept at it, paddling hard and clawing our way forward.

We eventually made it far enough to get some protection from the backside of an island. I felt the rush of accomplishment and pride at getting through the rough patch. The lights of Key Largo were finally visible in the distance. Yes, we’ve got this! Let’s go! There’s nothing quite like the exhilaration one feels at accomplishing a goal.

That is until you start hallucinating and get all turned around, mired in shallows in the middle of a windy night with a thunderstorm coming in. At least it wasn’t cold! We had inadvertently gotten off our GPS track and found ourselves stuck in mere inches of water going on for what seemed like forever. At multiple points we were literally dragging our canoe through knee-deep mud in an easterly direction knowing (hoping?) that we’d eventually hit deeper water.

After battling like this for hours and my fuel gauge on just about empty, we finally got into some decent water and paddled into Key Largo. The end of the race is a small beach hotel that looks just like all of it’s neighbors. It was barely 6am and all was dark, so it took a bit of work to find but we were greeted quietly by a couple of friends and then off to bed for some much-needed rest.

Ultimately, my EC experience was grueling and sublime. The physical test was easily outweighed by the psychological. I wanted to quit so often and had come up with elaborate ways to justify this but I’ll never know how serious I was. Frankly, how could I quit anyway when it would probably take me longer to get “rescued” than to just keep paddling. So do what you set out to do. I eventually trained myself to counter negative thoughts by finding something beautiful to look at, which was easy because there were so many. Cloud formations, light on the water, spoonbills in flight, an open horizon.

Saying yes launched me into the unknown. Would I still have said yes if I knew what I was getting into? I like to think so. Saying yes is all about getting out of my comfort zone and finding adventure in ways large and small. Testing myself and expanding what I think is possible. My patience, persistence, and intestinal fortitude were stretched and I more or less overcame some of my foibles to get the job done. I’m proud of that.

I’m not trying to tell you how to live your life and I hope you don’t mind me sharing my story. And I’m not advocating doing crazy stuff under the banner of “I just say Yes all the time”. Instead, maybe make it a goal to say yes to something that peaks your interest but your rational mind initially scoffs at. The size and scope of your yes doesn’t matter. Whatever it is, and even if there’s some pain involved, there’s power in saying yes that’s hard to find elsewhere in life. Good luck wherever your yes leads you!

Have questions? Ask us. We can help.

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Quarterly Update

The first quarter (Q1) of 2024 seemed to go by fast while yielding good performance from the stock market. Positive returns were broader based compared with recent quarters, and that was good to see. The Fed, interest rates, and economic projections played a role again during the quarter but, as with stock performance, the surprises were generally positive.

Here’s a roundup of how major markets have performed so far this year:

  • US Large Cap Stocks: up 10.6%
  • US Small Cap Stocks: up 5%
  • US Core Bonds: down 0.7%
  • Developed Foreign Markets: up 6%
  • Emerging Markets: up 2.2%

As I just mentioned, solid performance was more prevalent during the quarter than has been typical lately. Popular stocks like Nvidia, Meta (Facebook), and Netflix had another banner quarter, up 82%, 37%, and 25%, respectively, but almost all other sectors performed well. Only Real Estate was negative, down by less than 1%. Energy, Communication Services, and Financial Services led the way, returning 13.5%, 12.7%, and 12.4%, respectively. Looking at stock styles, “Growth” again beat “Value” by returning nearly 13% during Q1 to the latter’s 8%. Overseas, European indices were up around 5% or so while Japan doubled that.

Core bonds were flat or down less than 1% depending on the index, while longer-term bonds were down more, perhaps 5% again depending on the index. Riskier types of fixed income like preferred stocks were up around 5% and high yield (or “junk”) bonds were up 1-2%. Cash performed well compared to bonds, up 1% or so. As has been the case for a while now, this lagging performance from bonds was caused largely by the shifting sands of market expectations about the economy and when and how much the Federal Reserve may lower interest rates.

We began 2024 with most investors anticipating the Fed would lower rates three times this year, perhaps beginning this Spring but definitely by Summer. The thinking was that inflation would continue to fall and slowing economic growth would force the Fed’s hand. Lower rates help stock and bond prices, so these expectations provided a tailwind for both as we entered Q1. However, inflation remained elevated during the quarter and the economy continued to surprise to the upside. By March even the Fed had raised its growth projections and this added fuel to stock prices while putting a damper on bond prices. The 10yr Treasury rate, a key benchmark, ended the quarter at 4.2% (and is nearly 4.4% as of this writing), up from about 3.9% as the quarter began. Taken together, higher bond yields responding to a strong economy is a good problem to have since it helps stock prices, at least for a while, but it’s not what the bond market wants to see.

Continuing the run of upside surprises during the quarter was when the list of Leading Economic Indicators from the Conference Board turned positive after 23 straight months of negative readings. The LEI is a composite of ten indicators and that many months negative had always coincided with a formally declared recession. That the LEI finally showed a positive reading as Q1 ended and without us falling into a technical recession was noteworthy. Only time will tell if we continue the positive trend, but news like this certainly helped stocks during the quarter.

However, some news reported as positive can also have a negative side. For example, the University of Michigan’s Consumer Sentiment Index section related to expectations for stock prices shows that typical investors are more bullish then they’ve been in nearly three years. It’s great to see consumers expressing more optimism than a year ago because that bodes well for the economy. The problem for stocks is that prices can rise in the short-term as investing gets popular again, especially given the interest in AI, but the rush of new money into the system sets up more volatility. This also perpetuates a cycle that often leaves late arrivals feeling left out of the party. That won’t be us because we’re more disciplined and deliberate, and we respect the long-term nature of investing, but it will be others.

Along these lines, all major stock indices ended Q1 in “overbought” territory, indicating that prices are at least one standard deviation higher than their 50-day and 200-day moving averages. The S&P 500, the index most commonly used to represent the US stock market, ended the quarter on a run of over 50 days overbought. Stock prices can and often do remain higher like this for a while, but the longer they do the larger any pullback could be. Remember that corrections can happen in the context of a longer-term bull market – they reset expectations and clean house a bit, so it’s best to be prepared for that in the weeks and months ahead. I’m not trying to be a downer after a quarter of otherwise good news, just realistic.

Planning for volatility is mental but also practical. You can rebalance your portfolio by selling portions of what’s been doing well and buying others that are still good quality and appropriate to own but have been lagging. I’m doing this for you if I’m managing your portfolio, of course, but rebalancing is important and often counterintuitive because doing so usually means selling amid otherwise good market conditions. Rebalancing can also help generate cash for near-term spending needs, so let me know of anything that might require dipping into your investment portfolio.

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Is Inflation Actually Getting Better?

So which is it, is inflation getting better or worse? You get different answers depending on who you ask. The impact of inflation can be intensely personal and people have stories to share, but investors and the markets care more about inflation at the “headline” level then about individual anecdotes. Metrics like the Consumer Price Index and variations on this theme that come from the government may seem less relevant when compared to your personal finances, but they do move markets.

As we’re all aware, official CPI numbers spiked a couple of summers ago following the pandemic before falling consistently. That helped drive stock prices higher and helped bonds as well. But CPI has flattened out for months now at a higher rate than officials at the Fed would like. That lack of direction has created a sort of information vacuum where theories and opinions abound. Maybe inflation is going to spike again like it has in the past. Or maybe inflation has reached a natural low point for this cycle and isn’t going all the way back down to the Fed’s 2% target anytime soon. Only time will tell but it could be awhile before we get a definitive answer.

In the meantime it’s important to remind ourselves that while past bouts of inflation have common traits, each has been unique and isn’t necessarily predictive. Along these lines let’s look at some work from my research partners at Bespoke Investment Group. They discuss the current inflation backdrop and provide some historical context. The bottom line seems to be that another big spike in inflation isn’t as likely as some would have us believe while consumer prices could remain higher than normal for a while. Markets can grind higher in that type of environment, but investors are still expecting less inflation and interest rate decreases from the Fed this year, so negative surprises there could bite a bit.

Now from Bespoke…

After headline CPI peaked above 9% in June 2022, the subsequent year of inflation data was a bull’s dream as reading after reading showed steady improvement. By June 2023, headline CPI was back down to 3%, and as is often the case, the most optimistic investors simply took the trend of the prior 12 months and extrapolated it forward, predicting 2% within a matter of months. For those investors, the last eight months have been frustrating as headline CPI has been bouncing around a range of 3.0% to 3.7%. With the progress on inflation stalled, the tide of sentiment at the extreme has turned from “inflation is going back to 2%” to “inflation is going to have a second wave higher just like it did in the 1940s and 1970s”.

Looking at the chart below, it’s easy to look at the post-Covid spike in inflation and not be concerned about the potential for a second wave like the ones that followed the prior two spikes during WWII and in the early 1970s. It’s a small sample size, though, and both periods had their own unique set of circumstances that are distinctly different from the current period.

In the 1940s, the US economy was contending with the shortages brought on by WWII in the first wave, whereas the second wave resulted from the pent-up demand and savings that accumulated during WWII. From that perspective, the current period has some similarities to the conditions surrounding the second wave of inflation in the 1940s but not the first. What’s worth pointing out about that period as well is that it didn’t take higher rates to get inflation back under control. In fact, throughout the 1940s, the Federal Reserve kept interest rates artificially low to finance the war, and the highest that the discount rate ever got during the decade was 1.5% in 1949.

The cause of inflation in the 1970s waves was an entirely separate set of circumstances, but it can be summed up mostly by one word – oil. In the early 1970s, before the 1973 Arab oil embargo, a barrel of oil was less than $5. Once the embargo commenced, prices immediately spiked and more than tripled to over $12.50 in less than a year. As prices stabilized in 1974, inflation subsided back below 5% over the next two years, but they started to surge again in 1979 with the Iranian Revolution and the overthrow of the Shah. Over about a year, prices nearly tripled again, causing the second wave higher in prices. The geopolitical situation in the Middle East is hardly sanguine right now, and a wider conflict would likely cause upward pressure on oil prices, but the US is not as reliant on Middle Eastern oil as it was in the 1970s, nor is the US economy as energy intensive.

Whereas shortages of oil drove inflation higher in the 1970s, the post-Covid wave was a function of pent-up demand and labor shortages. Shutdowns caused millions of workers to lose their jobs, and the government stimulus programs enacted to stave off an economic calamity had the deleterious effect of disincentivizing labor to return to the workforce once the economy reopened. The result was spiking wages. Most people still remember the stories of McDonald’s not only offering high starting wages but also signing bonuses of $500 or more.

Today, the labor market remains on a good footing, but it’s not as tight as it was three years ago, diminishing the chances for a wage-price spiral that would fuel a second wave higher. The employment component of the ISM Services report has been gradually (but steadily) trending lower from its post-Covid high in 2021 and has even come in below 50 (boundary between growth and contraction) in two of the last three months. [Last week’s] release of the NFIB report on small business optimism for February also indicated labor market softening. The charts below compare weekly initial jobless claims to the percentage of small businesses citing the quality of labor as their single most important problem (top chart) and the percentage of businesses citing jobs as being hard to fill (bottom chart).

Coming out of the pandemic, a record 29% of businesses in late 2021 cited quality of labor as their single most important problem, but that reading has declined steadily since then and plunged in February, falling from 21% down to 16%. That’s the lowest level since the Covid lockdowns and before that the summer of 2017. For the percentage of businesses citing jobs as being hard to fill, it’s been a similar trend with February’s reading of 37% falling to the lowest level since early 2021. As you’ll note in the charts of each NFIB series shown below, when they start to trend lower, initial jobless claims tend to move in the opposite direction. We could make a list of potential factors that could spur a second wave higher in inflation that stretches down to the floor, but it doesn’t mean that any of them are likely to happen.

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If it Wasn't Already Hard Enough...

Before we delve into today’s post, just a heads up that I won’t be posting next Monday as I’ll be out of the office.

On to this week’s post…

We’re getting deeper into tax season and that’s stressful for just about everybody. Yet another, perhaps larger stressor for some families right now is that we’re also entering college acceptance season. Some high school seniors have already received acceptance letters but most traditionally learn their fate from about mid-March to mid-April. Also traditionally students and their families are expected to choose a school by May 1st. It’s an exciting time that’s been upended this year by our government that, ironically, was only trying to help.

I’m sure Congress passed the FAFSA Simplification Act a few years ago with all the best intentions. The Department of Education was directed to make the Free Application for Federal Student Aid process faster and friendlier, and aid eligibility calculations would be overhauled. This would help more students go to college without as much debt, and so forth. But as was perhaps inevitable, the new website and application process went through delays caused by development oversights and technical glitches. These issues have been referred to in the press as a “smorgasbord of errors” and, my personal favorite, as a “nexus of chaos”. The bottom line is that families began the process later than normal and, due to further delays, relevant financial information will be late going to schools by at least a month.

This creates the unfortunate and anticlimactic scenario where students open their acceptance letters to find little meaningful information about what attending Brand X University will cost them. Yes, there’s probably information in the envelope or email about the sticker price of the institution but nothing about specific aid awards. Net price calculators on school websites and elsewhere offer a school’s typical total cost of attendance, but those can be inaccurate. This can be due to old data, such as for the 2021-22 academic year in one case or, in another case, the “old algorithm” according to a school’s admissions rep. So the student is overjoyed at being accepted to their out-of-state dream school while their parents are left with the conundrum, “How can we afford this if we don’t know what it will cost”?

We’re dealing with these same issues in my household with our son. We completed the FAFSA process early and he’s been accepted to multiple schools, which is great, but now we’re playing the waiting game with everyone else. Maybe the “reach” school would be affordable if we knew how much aid was available, if any. Or maybe the hypothetically “cheaper” state school is a better and more affordable option anyway. It’s an odd thing to consider these weighty financial commitments with such limited information.

Parents and students are scrambling but so are schools. Ordinarily kids have until May 1st to decide but some schools like the UC and CSU system in California have bumped this back to May 15th. Other schools extended to June or later, while others haven’t but offer flexibility if the student asks for it. And some schools are using alternate means to send out aid estimates, so it’s all over the place. Either way I think it's best to call the school and ask instead of waiting. 

Unfortunately this FAFSA delay is compressing a set of difficult decisions into a very short timeframe. Along these lines and while we wait, here’s a fascinating update on college planning from JPMorgan. This is a slide presentation with all sorts of details pertaining to why college matters (it still does, I think – I know that’s up for debate these days…), cost, aid, the new Student Aid Index that replaces the old Expected Family Contribution and saving/investing for college.

Beyond that, I wish you and your family luck if you’re going through this process with your student. It’s a huge decision that’s very stressful for everyone involved, and not just financially!

Here’s the link to the slides…

Have questions? Ask us. We can help.

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