InSight

Market InSights:

Rudolph with Your Nose So Bright

Investing 2021

If you don’t recall the most famous reindeer of all, Rudolph, the Montgomery Ward creation possesses the special characteristic to guide Santa’s sleigh among a fog that would have otherwise canceled Christmas. Like Rudolph’s nose, I’m going to highlight a couple of macroeconomics bright spots that we like right now, that will surely support markets and guide us through the fog of 2021. Enjoy the holiday season and may you have a prosperous new year. 

Unemployment – I think it’s fair to say that the spike in unemployment (fastest spike ever) and the subsequent drop in unemployment (fastest drop ever) have given politicians the hyperbole they need, but the rate getting back to 6.7% means a couple of good things going forward. Firstly, the “easy to lose” and “easy to return” jobs were flushed out in the spike, and the jobs that could easily return have. This means that while each percentage point from here on out is going to be harder and harder, the headline risk of massive jobless swings has likely settled for now. Unemployment in the +6’s has been the recent peaks for prior negative economic swings. In 2003, we peaked at 6.3%, 1992 7.7% even the economic crisis in 2009 only saw a peak of 9.9%. So at least the unemployment figures have gotten back to “normal bad” and not “historically bad”. But here is the good news for 2021, from this point forward we will get positive headlines for employment. I think we have crested, the liquidity in the markets has helped, and near term the unemployment outlook is stable. This pandemic is different than a cyclical recession, this can be resolved as quickly as the damage was done, and for between 4-8 quarters we can see a routine and constructive print for joblessness. This will be a supportive series of headlines for markets. 

Inflation – Inflation will be a headwind for bonds and cash but will be constructive for some assets. Those invested in equities will see an increase in capital chasing the same number of assets. This inflation will be constructive for stocks and other hard assets from 2021 but will cut into the expectations for the buying power of dollars going forward. Expect long term dollar weakness. Additionally, we’re not alone, this pandemic is global and I anticipate every central bank to prefer adding liquidity to their economies over the risk of inflation. Expect countries that emerge from the pandemic quickly to see a major tailwind from global inflation, those whose course is slower and shutdowns longer to be hampered by it.  

Debt – Record low borrowing costs should tee up leveraged companies for success. This is absolutely a situation where “zombie” companies will be created, so investors should be aware of the health of companies they are buying, but long term, allowing companies that have been historically highly leveraged to restructure at amazing rates, or even granting companies that have healthy balance sheets more cheap capital to take on more cap-ex projects for the at least a decade or more will be supportive for the market on the whole. As I write this, the 2-10 spread is .8%, in my opinion giving corporate CFO’s carte blanche to begin issuing new debt and extending all maturities on existing debt. Seeing these companies become so tenacious in the debt market normally would spook investors, but it’s hard to imagine a more supportive environment for borrowers than sub-2% borrowing costs for AAA companies and sub-4% for high yield borrowers. Debt was low for the recovery after 2009 and is now bargain-basement prices. These are rates that are likely to persist through 2021 and with Janet Yellen (Dovish) at the treasury, and no change in the attitude of the Fed I’m not seeing a change in sight. This will likely mean yields will be below inflation for some time as central banks try to juice the recovery at the expense of inflation. 

Earnings – Companies have broadly been able to understate their earnings projections through the pandemic. The science of slow-rolling their debts, and lowering the expectations of analysts has been fantastic. Companies across sectors have been able to step over the lowered bar without major disruption this year. Now while, for the most part, the pandemic has given them top cover to have earnings below their historic figures, the companies in the S&P 500 have done a fantastic job this year of collectively using this window to reset the expectations of investors without sounding alarms. Managing expectations lower, then beating them has been a theme in 2020, that in 2021 will look like a great trajectory for earnings as we emerge from COVID-19. This is going to be a fantastic and virtuous atmosphere of rising earnings. The usual suspects for this earning improvement cycle will show up, banks, technology, and consumer discretionary investors will like this reset in the cycle and the aforementioned upswing in earnings these groups are poised for.

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Kevin Taylor

The Room where it Happens

The future of digital assets is more about the people in the room than the asset itself. The evolving landscape of cryptocurrency regulation in the United States is increasingly being shaped not by the viability of the asset class itself, but by the individuals occupying key positions within the Securities and Exchange Commission (SEC). Personnel changes within the SEC serve as a leading indicator for the fundamental story behind non-Bitcoin digital assets—those that have long struggled for institutional legitimacy despite their technological and financial innovations.  While Bitcoin has solidified its position as an institutional-grade asset, backed by spot ETFs and growing mainstream adoption, the same access has been denied to a vast ecosystem of blockchain projects that could drive the next wave of financial transformation. This regulatory suppression of non-Bitcoin assets has limited investment funds from engaging in these projects, preventing institutional capital from identifying and supporting the most promising innovations in decentralized finance, Web3, and blockchain-based infrastructure.  With new leadership emerging at the SEC, 2025 could mark the beginning of a shift—one where policies no longer act as an artificial barrier to institutional investment but instead create pathways for these assets to be integrated into traditional finance. Gary Gensler’s departure from the SEC marks the end of one of the most aggressive regulatory stances on cryptocurrency in the agency’s history. Since taking office in 2021, Gensler maintained that nearly all digital assets, aside from Bitcoin, were securities under U.S. law—subjecting them to strict regulatory oversight and enforcement actions. His tenure was characterized by a “regulation by enforcement” approach, where major crypto firms, including Coinbase and Binance, faced lawsuits rather than clear guidance on compliance. Gensler resisted approving spot Bitcoin ETFs until legal pressure from Grayscale forced the SEC’s hand, and he consistently pushed for broader jurisdiction over the digital asset space, often clashing with crypto-friendly policymakers. His departure signals a potential shift in SEC priorities, as the incoming leadership appears more open to defining clearer rules and allowing broader institutional access to crypto beyond just Bitcoin. For non-Bitcoin assets, this could mean the first real opportunity for investment firms to offer products that include Ethereum, XRP, Solana, and other blockchain-based projects without the constant fear of regulatory crackdowns. Mark T. Uyeda: Steering the SEC Toward Crypto-Friendly Policies Appointed as the SEC’s Acting Chairman in January 2025, Mark T. Uyeda has been instrumental in reshaping the agency’s approach to cryptocurrency regulation. His tenure marks a departure from the previous administration’s stringent enforcement actions, aiming instead to foster innovation within the crypto industry. Uyeda’s initiatives include the formation of a dedicated Crypto Task Force, led by Commissioner Hester Peirce, to develop a comprehensive and clear regulatory framework for crypto assets. sec.gov Uyeda’s leadership reflects a broader pro-crypto stance within the current administration, aligning with President Trump’s vision of the United States as a global hub for the crypto industry. This approach is anticipated to resolve ongoing legal challenges and provide clearer guidelines for crypto exchanges and investors. reuters.com Hester M. Peirce: Championing Innovation with Regulatory Clarity Known affectionately as “Crypto Mom,” Commissioner Hester M. Peirce has long advocated for a balanced regulatory approach that encourages innovation while protecting investors. As the head of the newly established Crypto Task Force, Peirce is tasked with creating a regulatory environment that offers clear guidelines and practical solutions for crypto companies seeking compliance. sec.gov Peirce’s leadership is expected to be pivotal in shaping policies that facilitate institutional adoption of crypto investment products. Her focus includes clarifying the status of crypto assets under securities laws, updating broker-dealer regulations, and providing frameworks for investment advisers to custody client assets. These initiatives aim to remove existing barriers, enabling large investment firms to offer crypto-related solutions, thereby expanding access for investors and integrating crypto assets into retirement strategies like 401(k)s and IRAs. sec.gov Caroline A. Crenshaw: A Potential Shift in the Commission’s Dynamics Commissioner Caroline A. Crenshaw, appointed during the previous Trump administration, has been known for her cautious approach toward crypto regulation. With her term having expired in December 2024 and no vote taken on her reappointment, there is speculation about her future role within the SEC. The current administration may seek to appoint a successor whose views align more closely with its pro-crypto agenda, further influencing the regulatory landscape. Driving Institutional Adoption Through Regulatory Evolution The collective efforts of these key figures are poised to significantly impact the institutional adoption of cryptocurrency investment products. By establishing clearer regulatory frameworks and reducing compliance uncertainties, the SEC aims to create an environment where large investment firms can confidently offer crypto-related services. This progression is expected to open avenues for financial advisors and institutions to include crypto assets in long-term investment strategies, thereby broadening access for a wider range of investors. In conclusion, the trajectory of cryptocurrency investment access in the United States is being shaped by the strategic actions and philosophies of pivotal SEC leaders. Their commitment to balancing innovation with investor protection is setting the stage for a more inclusive and well-regulated crypto investment landscape.  

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Boulder Financial Advisors
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Peter Locke

Paid Family and Medical Leave Tax Credit Expanded

The “Big Beautiful Bill” made a key change to the Paid Family and Medical Leave (PFML) Tax Credit, extending and expanding it in ways that affect both employers and employees. Permanent Extension Previously set to expire at the end of 2025, the PFML credit is now permanent. This provides long-term stability for businesses planning their benefits programs. Planning consideration: Permanency makes it easier for companies to confidently integrate this credit into their workforce strategy rather than treating it as a temporary incentive. Lower Work Requirement Employees now qualify after six months on the job, rather than having to complete a full year of service. This change widens access and encourages workplace flexibility. Planning consideration: Businesses that experience higher turnover or seasonal employment may find this especially impactful, as more workers can qualify sooner. Two Ways to Claim the Credit Employers can choose one method (but not both): Wages Paid: Claim a portion of wages paid to qualifying employees while on leave. Insurance Premiums: Claim a portion of premiums paid for PFML insurance policies, even if no leave is taken. Planning consideration: This flexibility lets companies align the credit with their benefits structure, whether they self-fund leave or use an insurance policy. The Bottom Line The expansion of the PFML credit is designed to help businesses support employees during critical life events while also offering financial relief. But offering paid leave still comes at a cost, especially for smaller employers who may struggle to redistribute workloads during absences. Employers should carefully evaluate which credit option (wages vs. premiums) fits their organization best and how to integrate this incentive into their long-term benefits strategy.  

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Kevin Taylor

529 College Planning: 102

Types of 529 plans This is one of the largest hang-ups for savers. A history of misinformation and contamination between different types of 529s has generated several misnomers. Simply put: 529 plans are usually categorized as “prepaid tuition” or “college savings plans.” Our favorite of the two is the college savings plan, and we find that several of the misconceptions that savers have come from the “prepaid” tuition plans.    For clarity, College Savings Plans work much like a Roth 401(k) or Roth IRA. They are investments made with post-tax dollars (that often carry tax benefits) and the accounts grow and earn income in a tax-free way. These accounts allow you to invest your after-tax contributions in mutual funds or similar investments. Most of the 529 college savings plans we work with offer several investment options from which to choose. The performance of the account will be tied to the investment options you chose, and you should consult a CFP® and your InSight-Full® to manage this risk, and coordinate it with your timing of needs. The other alternative, a Prepaid Tuition Plan,  lets you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. The Private College 529 Plan is a separate prepaid plan for private colleges, sponsored by more than 250 private colleges. These programs are limited in scope, while they can support savers concerned with the rising costs of tuition, they are generally less flexible and have fewer payment and conversion options. They may also carry unique liquidity issues should you plan to change. It is an educational institution that can offer a prepaid tuition plan but not a college savings plan. What can’t I use my 529 plan for? The funds and the investments in a 529 plan are yours. You should be able to maneuver and control the funds in the account as you see fit and within your fiduciary scope. Also, you can always withdraw them for any purpose but should be mindful of the consequences. Chief among these is the earnings portion of a non-qualified distribution will be subject to ordinary income taxes and a 10% tax penalty, though there are exceptions and methods for managing this tax loss. At the college or post-secondary level, we discussed in “529: 101” the obviously covered costs of education and what the 529s have been expanded to include. Though you should be made aware that there are some costs that you may believe are necessary, but the IRS disagrees. For example, student health insurance and transportation costs are not qualified expenses, unless the college has lines out these associated costs in fees or services from the college. So, parking fees at Denver University campuses might be covered, but a space in a parking lot near campus might not be. Are 529 plan contributions tax-deductible? Unfortunately, the 529 is funded with post-tax dollars, and there is no federal tax relief yet. However, here in Colorado and in over 30 other states, they offer state income tax deductions for contributions to 529 plans. But it’s likely that like Colorado, you would be restricted to investing in your home state’s 529 plan in order to claim the state income tax benefit. (Consult a tax professional for more information) The tax advantage regarding federal taxes comes when the funds in a 529 plan grow. The growth in these plans is federally tax-free and will not be taxed when the money is withdrawn for qualified education expenses. Can I use a 529 plan to pay for rent? Yes, with some restrictions. Room and board is now a qualified expense for at least “half-time” or greater students. Consult with the institution for what constitutes a half-time student.  So for on-campus residents, qualified room-and-board expenses should not exceed the amount charged by the college for room and board. So in this case savers pay the room and board directly to the student housing authority to avoid mismanagement.  For students living off-campus, qualified room and board expenses are limited to the cost of attendance figures that vary from school to school. Contact the financial aid office for their reports on this figure. In these cases, try to find a 529 fund that supports payment directly to landlords. What happens if my child doesn’t use the 529 plan? There are always options for these funds. Hopefully, you are in this situation for a positive reason like a full-ride scholarship or attendance at a service academy. There are a few reasons to seek a waiver however, your earnings will still be subject to federal and sometimes state income tax. If this is the case the 10% penalty is waived if: The beneficiary receives a tax-free scholarship The beneficiary attends a U.S. Military Academy The beneficiary dies or becomes disabled If you want to avoid paying taxes completely you can resort to the following: Change the beneficiary to another qualifying family member (a parent, child, sibling etc.) Hold the funds in the account in case the beneficiary wants to attend grad school later Make yourself the beneficiary and further your own education Use a 529 ABLE account, a savings account specifically for people living with disabilities Since January 1, 2019, qualified distributions from a 529 plan can repay up to $10,000 in student loans per borrower over their lifetime for both the beneficiary and the beneficiary’s siblings As we said at the top of this article. you can withdraw any of the money in a 529 plan at any time for any reason. However, the earnings portion of a non-qualified withdrawal will be subject to taxes and a penalty. So in the absence of one of the exceptions listed above, we will usually coach our clients to find one of the other alternatives above and make these necessary changes to their InSight-Full® plan. If you are still contemplating a non-qualified distribution, be aware of the rules and possible tactics for reducing taxes owed.

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