InSight

Market InSights:

Second COVID-19 Stimulus Niceties and Notes

We have an agreement, which means we can begin to criticize it and plan for the investment and economic effects. The bill is a litany of half measures, no long term solutions, and likely sets up a couple of battles in the next congress. 

Congress punted on evictions, postponing medical payments until early next year, and there is still an ongoing debate regarding the amount it is issuing in direct payments. The looming liability concern for businesses is still being discussed.

Here is what got done: 

Individual payments for many

Easily the most asked about part of the legislation is the direct payment to individuals that begin going out today. The passed version included $600 going to individual adults with an adjusted gross income of up to $75,000 a year based on 2019 earnings.

An increased amount will be going to those that file as heads of households who earn up to $112,500 and couples (or someone whose spouse died in 2020) who make up to $150,000 a year would get twice that amount.

This continuing political battle to raise this number from $600 to $2000 is still going on today, passing with all democrat and some republican support in the house. The senate is questionable as a few Republicans have endorsed the idea, including the two high profile candidates in Georgia – Loeffler, and Purdue.

McConnell has blocked the bill as of 10:20 am as I am writing this article. 

Unemployment benefits

With almost 7% of Americans still unemployed and millions more under-employed, Congress acted to extend multiple programs to help those out of work, albeit at less generous levels than in the spring. Too much of the surprise of those tracking the issue, the final bill doesn’t include the expanded coffers many anticipated and is considered a skinny agreement. 

The agreement would include:

  • 11 weeks, providing a lifeline for hard-hit workers until March 14. 
  • Up to $300 per week (half the amount provided by the original stimulus bill in the spring)
  • Pandemic Unemployment Assistance — a program aimed at a broad set of freelancers and independent contractors — for the same period, providing an additional $100 per week

Better late than never, the expanded agreement is a second band-aid for those Americans that continue to seek employment as employers have halted hiring. The near term negative effect of unemployment cannot be understated. But as we look out to the intermediate (6 months) range seems to hold a fantastic capacity for consumers to unwind pent up spending in short order. The unemployment insurance isn’t expected to be much but will support many Americans who put more and more spending on credit cards in the second half of the year. 

Funds for Child Care, Schools, and Colleges

School budgets have been uniquely impacted by the pandemic and have left their outlook for the year to some impaired:

  • $82 billion for education and education service providers, 
  • That figure includes $54 billion for stabilizing K-12 schools
  • It also includes $23 billion for colleges and universities
  • $10 billion for the child care industry

K-12 schools saw more support than the initial package in dollar terms, and even more than the proposed package in November; however, the funds still fall short of what both sectors say they need to blunt the effect of the pandemic and to support operations in 2021. 

The majority of school districts transitioned to remote learning and as a result, we were asked to make expensive adjustments to accommodate while seeing enrollment drops upend budgets. Colleges and universities are also facing financial constraints amid rising expenses and falling revenue.

Child care centers that are struggling with reduced enrollment or closures will get help to stay open and continue paying their staff. The funds are also supposed to help families struggling with tuition payments for early childhood education. 

Funding for broadband infrastructure

The stress on national broadband has been higher than ever, remote work and education on top of the expanded requirements of technologies like Zoom, have put a major strain on national networks. The legislation includes $7 billion for expanding access to high-speed internet connections. Much of this spending was anticipated in an infrastructure bill, that has been brought forward as a result of the pandemic. Two major points in this part:

  • Half this stimulus is earmarked to cover the cost of monthly internet bills by providing up to $50 per month to low-income families.
  • $300 million for building out infrastructure in underserved rural areas and $1 billion in grants for tribal broadband programs. (Part of another infrastructure bills spending prior to the pandemic) 

Extension of aid for small businesses (PPP)

The bill puts forward $285 billion for additional loans to small businesses under the Paycheck Protection Program. This renews the program created under the initial stimulus legislation and is largely an extension of dollars that were repurposed.

Funding for vaccines and eldercare facilities

The source of concern early in the pandemic and the ongoing requirements to overhaul the elderly care facilities are addressed by this legislation as it sets aside nearly $70 billion for a range of public health measures targeted at elderly care facilities and the distribution of the vaccine. This breakdown includes: 

  • $20 billion for the purchase of vaccines 
  • $8 billion for vaccine distribution 
  • $20 billion to help states continue their test-and-trace program
  • Earmarked funds to cover emergency loans aimed at helping hard-hit eldercare centers.

A ban on surprise medical bills

The Bill supports efforts to help Americans avoid unexpected medical bills that can result from visits to hospitals. The legislation also makes it illegal for hospitals to charge patients for services like emergency treatment by out-of-network doctors or transport in air ambulances, which patients often have no say about. This measure has had some long time support from Democrats and was criticized for not including some provision in the Affordable Care Act. 

Rental protections

One more month of halting evictions is pushed out to the end of January. The Department of Housing and Urban Development separately issued a similar moratorium on Monday that protects homeowners against foreclosures on mortgages backed by the Federal Home Administration. It runs until Feb. 28. This has had several enforcement issues and while the legislation is a fantastic lipservice, the issues of evictions for individuals with a history of rental disqualification from before the pandemic are a continued source of evictions.

The bill DOES NOT include liability protection for business

A criticism by many that Democrats largely held out a provision for liability protection for companies trying to reopen. This element, opposed by labor unions and supported by the national Chamber of Commerce was a sticking point that went without inclusion. The discussion was important because it would allow businesses to follow their local recommendations to reopen to have legal insolation from lawsuits later on. This will continue to be a discussion in congress as a “reopen” is structured and the liabilities for business owners regarding COVID exposures are defined. 

Conclusion:

This gets us through the winter and hopefully the hump of COVID as the vaccine gets rolled out. It still leaves too much for the 2021 congress to cover and cover quickly. What the continued political, monetary, and fiscal landscape reactions look like is still up for debate. The curvature of risk in equities peaks in February (as I write this) so markets are pricing in a 2 month include equities and a political battle come early spring.

More related articles:

Articles
Kevin Taylor

The Future Semiconductor Requirements for AI Chips: Unlocking the Next Chapter of Innovation

Artificial Intelligence (AI) has become an indispensable part of our lives, driving advancements in various fields such as healthcare, finance, and transportation. At the heart of this technological revolution lie AI chips, which are the engines powering AI systems. As AI continues to evolve, the demand for more powerful and efficient AI chips is rapidly increasing. In this blog post, we will explore the current leaders in the AI chip space, examine the limitations of existing semiconductor technologies, and discuss where innovation needs to come from for the next chapter of AI chip development. Current Leaders in the AI Chip Space: Several companies have emerged as leaders in the AI chip space, each offering unique solutions to meet the growing demands of AI applications. Here are some notable examples: NVIDIA: NVIDIA has been at the forefront of AI chip development with their Graphics Processing Units (GPUs). GPUs excel at parallel processing, making them well-suited for AI workloads. NVIDIA’s GPUs, such as the Tesla V100 and A100, have become the industry standard for training deep neural networks. Intel: Intel has made significant strides in AI chip development with its Intel Xeon processors and Field Programmable Gate Arrays (FPGAs). Their processors combine high-performance computing capabilities with AI acceleration features, while FPGAs offer flexible and customizable solutions for AI tasks. Google DeepMind: Google has developed its own AI-specific chip called the Tensor Processing Unit (TPU). TPUs are designed to accelerate both training and inference tasks and have been deployed in Google data centers to power various AI applications, including natural language processing and image recognition. Limitations of Current Semiconductor Technologies: While the current leaders have made remarkable advancements, there are several limitations associated with existing semiconductor technologies that hinder further progress in AI chip development: Power Consumption: AI workloads demand substantial computational power, which often leads to increased power consumption. The energy requirements of AI chips can limit their deployment in resource-constrained environments or mobile devices, where power efficiency is crucial. Memory Bandwidth: AI algorithms heavily rely on large amounts of data, necessitating high memory bandwidth. Current memory technologies face challenges in providing sufficient bandwidth to keep up with the processing requirements of advanced AI models. Latency and Real-Time Processing: Certain AI applications, such as autonomous vehicles and robotics, require real-time processing capabilities. The latency introduced by data movement between memory and processing units can impede the performance and responsiveness of such systems. The Next Chapter of Innovation: To overcome the limitations of current semiconductor technologies and unlock the next chapter of AI chip development, innovation needs to come from multiple fronts: Material Science and Chip Design: Advancements in material science can lead to the development of new materials that offer improved performance, power efficiency, and thermal management. Additionally, innovative chip designs that are optimized for AI workloads, such as neuromorphic architectures or specialized accelerators, can further enhance AI chip capabilities. Memory Technologies: Innovations in memory technologies, such as high-bandwidth memory (HBM) and non-volatile memory, can address the memory bandwidth challenge. These technologies have the potential to offer faster access to data and enable more efficient AI computations. Quantum Computing: Quantum computing holds promise for solving complex AI problems by leveraging quantum algorithms and principles. While still in its early stages, advancements in quantum computing could potentially revolutionize AI chip architectures and significantly enhance their processing capabilities. Neuromorphic Computing: Inspired by the human brain, neuromorphic computing aims to create chips that can process information in a manner similar to how the brain works. This approach can lead to energy-efficient and highly parallel AI chips that mimic the brain’s neural networks. The future of AI chip development lies in overcoming the limitations of current semiconductor technologies. By focusing on material science, chip design, memory technologies, quantum computing, and neuromorphic computing, researchers and engineers can usher in the next chapter of AI chip innovation. The convergence of these advancements will pave the way for more powerful, efficient, and versatile AI chips, enabling new possibilities and applications across various industries.

Read More »
Taxmageddon
Articles
Kevin Taylor

Tax-smart moves that don’t involve tax deferral

Tax-smart moves that don’t involve tax deferral There are several methods that tax planners can use that are not part of the tax deferral strategy category and that might find new and improved legs as this change happens.   Contribute to your Roth IRA Qualified withdrawals from Roth IRAs are federal-income-tax-free, so Roth accounts offer the opportunity for outright tax avoidance. This strategy looks even more impressive as you can pay income tax at today’s lower tax regime, and mitigate any future taxes that will preserve the gains. Additionally, because the account avoids all capital gains tax this vehicle becomes the most promising to see capital gains on, but avoid the tax consequences of selling those assets. Making annual contributions to a Roth IRA is an attractive option for those who expect to pay higher tax rates during retirement.  Convert to a Roth IRA Converting a traditional IRA into a Roth account effectively allows you to prepay the federal income tax bill on your current IRA account. This account also allows you to see the assets grow tax-free. This method is capable of avoiding ramifications from capital gains and provides the necessary insurance from the rising tax rates. This is the only method that straddles both of the coming complications. Determining the amount to convert (all or partial) should be worked into your financial plan.  Contribute to Roth 401(k) The Roth 401(k) is a traditional 401(k) plan with a Roth account feature added. If your employer offers a 401(k) plan with the Roth option, you can contribute after-tax dollars. If your employer doesn’t currently offer the option, run, don’t walk, to campaign for one immediately. There is likely little cost to add such a program and this might be an oversight on the needs employees should convey to the plan sponsor.  The DRA (Designated Roth Account) is a separate account from which you can eventually take federal-income-tax-free qualified withdrawals. So, making DRA contributions is another attractive alternative for those who expect to pay higher tax rates during retirement. Note that, unlike annual Roth IRA contributions, your right to make annual ‘Designated Roth Account (DRA) contributions is not phased out at higher income levels. Key point: If your employer offers the Roth 401(k) option, it’s too late to take advantage of the 2019 tax year, but 2020 is fair game. For 2020, the maximum allowable DRA contribution is $19,500. Contribute to Health Savings Account (HSA) Because withdrawals from HSAs are federal-income-tax-free when used to cover qualified medical expenses, HSAs offer the opportunity for outright tax avoidance, as opposed to tax deferral. You must have qualifying high-deductible health insurance coverage and no other general health coverage to be eligible for HSA contributions. You can claim deductions for HSA contributions even if you don’t itemize. More good news: the HSA contribution privilege is not lost just because you happen to be a high earner. Even billionaires can make deductible contributions if they have qualifying high-deductible health coverage. Additional Resources for ‘Taxmageddon’ Tax Mitigation Playbook Download Opportunity ZoneOverview

Read More »
Inflation
Articles
Kevin Taylor

Four Things That Actually Matter With Inflation

Inflation is simply the rising costs of goods and services over time. It’s an important part of the planning process to make assumptions about buying power over time. It allows you to know how to budget your money using a placeholder that should represent to some academic degree the effectiveness of your dollar as you get closer to the time you need it. However, I have had several discussions with clients who assume the incline of inflation is something like 2% annually. And while that is a reasonable, and likely adequate initial placeholder, if your financial advisor is simply using that number because the talking heads on TV or the software they use have that number already baked in, then you need to have a serious discussion about the gaps that arise from such short cutting. A miss on the inflation discussion has two permanent repercussions on your financial plan: Inflation assesses its toll further and further into plans. It’s insidious and you won’t know the impact until the end of retirement, when you have fewer resources to make course corrections. It will affect what your expectation should be for your internal rate of return, particularly in your fixed income investments. If you are assuming a 2% inflation rate a 2% treasury may be appropriate, but if your personal inflation rate is actually 4% (likely from the reasons below) you will have an unaccounted for gap between the rising costs of goods and services and the yield from your chosen investments. This article is a good checklist to make sure that your financial advisor can discuss and will make adjustments for this gaps in inflation math: Your lifestyle No two retirees live the same lifestyle in retirement. If heard other advisors say that, and be able to adjust the product suite they use for risk, or which goals they bake into a plan, or even change the expected costs they use from goal to goal. But then each of them will extrapolate the costs of that lifestyle inflating at 2%. This is a mistake. This shows a lack of understanding as to what causes inflation and the effect it will have on your plan.  Inflation does not affect all products equally, in fact the most impacted items are usually isolated to the items that are purchased by everyone. Groceries, gasoline, and basic services are more impacted by steadily rising costs than that of large ticket consumer goods and electronics.  You may think that this isn’t a big deal right? We all buy groceries and that is a part of my financial plan. This type of thinking is ill-advised and offers a major gap in the calculations and the expectations you should have for your income.  Example: A client of mine said:  “I have a simple life, I don’t buy that many new things, and I’m not all that interested owning new cars, clothes and gadgets in retirement, my calculation for inflation should be pretty low.”  So he wanted me to lower his expected rate of inflation. I said wait a minute, you’re not thinking about that correctly, while yes, he is right that the things he buys may be simple and he’s not going to buy much, he’s wrong about the effect of inflation. Because he’s using the “2% average” he’s heard about he’s missed where the number comes from. The CPI is the change in a basket of goods and services, so it takes into account everything a regular american can reasonably buy (and it doesn’t include gasoline). So in aggregate the number may be 2%, but by not buying those items he’s taking on more, not less, inflation risk for the normal person. See in the chart below where we have eliminated the baskets he didn’t see himself buying (recall that the higher ticket consumer goods generally are disinflationary – the cost of a flat screen TV comes down with time and not up).  Item Annual change in inflation as a Percentage(%) Example clients inflation estimate Groceries +4% +4% Utilities +5% +5% Gasoline +5% +5% Movie Passes +4% +4% Healthcare +6% +6% Automobiles -3% NA Consumer Electronics -3% NA Clothing -2% NA Average 2% 4.8%   So while he is thinking that his appetite for spending is low, his exposure to inflation is more than twice the normal of people in retirement. So when we plan we are trying to extrapolate the costs of a certain lifestyle in retirement, in this scenario the inflation expectation should rise for this client, not fall. More severely, using a standard 2% inflation rate, will cause him to have a shortfall that becomes more complicated as he gets deeper and deeper into retirement.  Declining quality is inflation Several of the items that comprise your quality of life today, deteriorate in quality over time. This is not a hard and fast rule, and in some cases the opposite is true. But if you think about the nature of appliances, automobiles, and other big ticket consumer goods they can become suspect. The refresh cycle for large appliances in the 1990’s was 20% longer than it is for today. This is the result of a few elements, the “smart” revolution and added technology creating more demand for new items, and the decline in their quality. Both of these are measured as disinflationary, the costs of these items have come down year over year, and the “features-scape” is expanding. This all seems disinflationary and in the CPI it’s measured as costs coming down on these items. And while that might be a true statement for someone, the Bureau of Labor Statistics “buys” these items year over year to test the market changes, and for most people this is actually hidden inflation. Here is the math. If the price of an item comes down year over year by say 4%, but the refresh cycle is impacted by anything greater than 4% in a year, the result for regular people is actually inflation, not deflation. Because the

Read More »

Pin It on Pinterest