NESTEGG NEWS – June
Baby Tarver is Here!!
Marshall Alan Tarver was born on May 30th and we could not be more excited for Eric and Jamie!
Inflation has NOT been a persistent and serious threat to the economy since the 1970s and early 1980s. In the past 30 years there have been 8 periods where economists predicted high inflation. Including today.
At a minimum, we are starting to see upward pressure on prices. How long might this last? The Federal Bank knows how to manage inflation. Raise interest rates and moderate demand in the economy.
There are reputable economists on both sides of the inflation debate. No one wants to see a return to the double-digit inflation problems of the 1970s, and the Fed is highly motivated to prevent this. We are more optimistic than the economists and see only moderate inflation on the horizon.
Interest rates: The federal bank recently announced they will be raising interest rates later this year in response to increasing threats of inflation. Historically rising interest rates have moderated inflation.
Proposed Tax Increases: The Biden administration proposed moderate increases to our income tax rates (about 2% for households making more than $150,000 yearly). Additionally, they proposed a lowering of Estate tax exemptions from $11.7m to 3.5m per spouse. Although we are not in favor of tax increases, historically, tax increases like these have not restricted economic/market growth. This is an important reminder to not let our politics affect our investing behavior.
Unemployment: Although unemployment has improved dramatically in the past 12 months, there is a perplexing issue with higher-than-normal unemployment rates in spite of a plethora of help wanted signs. A combination of stimulus distributions and special stimulus unemployment compensation has decreased the motivation of some workers to return to the workforce. Many states, including Idaho, have terminated special unemployment compensation, we expect a number of workers to return to the workforce this fall, abating some of the wage increases we are seeing in the food service/hospitality sectors. This will also reduce some inflationary pressure.
Housing: The surge in home purchases appears to be softening a bit at the national level over the past couple weeks. This should also be helped by softening lumber prices over the same period. Additionally, this should also dampen some of the inflationary trends we see now.
Ransomware: The ransomware acts we have seen in the past several months (Colonial Pipeline and JBS, one of the largest meat distributors in the nation). We believe political pressure on Russia and other domestic cyber crimes agencies will reduce these threats over the next 12 – 18 months.
Bitcoin/Crypto currency: Again, we are not fans of bitcoin or other crypto currencies, both because they allow bad people to do bad things (for example the ransomware folks) and because the chart below looks much like past economic bubbles. As you can see, bitcoin is dramatically lower of the past 20 days.
We trust you found this review to be educational and informative.
Let us emphasize it is our job to assist you. If you have any questions or would like to discuss any matters, please feel free to call us.
As always, we are honored and humbled you have given us the opportunity to serve as your financial advisors.