Moneta Continues Longstanding Partnership with Missouri Baptist Medical Center

Moneta Partner Jim Blair spearheaded a fundraising drive for Missouri Baptist Medical Center in St. Louis, culminating in a $55,950 collective gift from the Moneta Charitable Foundation for the hospital’s cardiovascular conference room renovations.

Blair had the honor of cutting the ribbon to celebrate the re-opening of the Moneta Conference Room at the hospital on April 26, 2023. The space has been upgraded with state-of-the-art technologies that enable doctors to confer on best practices for patient care.

Moneta has a longstanding relationship with the Missouri Baptist hospital system: Blair is currently a Missouri Baptist Medical Center Board member, Moneta Partner Mark Conrad is a Missouri Baptist Healthcare Foundation Board member (Moneta Partner Hunter Brown formerly served the Foundation in that capacity), and Moneta Partner Kara Harmon serves on the Missouri Baptist Healthcare Foundation Legacy Advisory Council.

The conference room was originally created in 2004 through a donation by longtime Moneta Partner Peter Schick.

The renovations create new opportunities for physicians to research and consult on life-saving care. At the ribbon-cutting, the Missouri Baptist Hospital Foundation team expressed their appreciation to the Moneta Charitable Foundation for this gift and extended special thanks to Jim Blair for his leadership.

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. 

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post Moneta Continues Longstanding Partnership with Missouri Baptist Medical Center appeared first on Moneta Group.

source https://monetagroup.com/blog/moneta-continues-longstanding-partnership-with-missouri-baptist-medical-center/

From the Ceiling to the Floor

Aoifinn Devitt – Chief Investment Officer

Yesterday was May 1, also known as International Worker’s Day, which was a timely reminder to note the workers that have been shoring up the still-resilient economy and are continuing to enjoy low unemployment rates relative to their history. We have been talking a lot about workers in recent months, as the robustness in labor has been a sticking point for the Fed as it looks to the health of the economy, and announcements of mass tech layoffs have punctuated news flow.  Just recently, it has seemed that this robust picture is starting to fray at the edges, as US job openings dropped to their lowest level in nearly two years in March and layoffs rose.

As we look to the Fed decision this Wednesday, we are, as is now typical in 2023, wading through a mass of sometimes contradictory datapoints.  The softening labor data has accompanied evidence of slowing inflation, while slackening GDP growth, falling oil prices, and cautious company outlooks are dovetailing to the narrative of a slowing economy.  The problem is that inflation retains the element of surprise, and just when it appears to be getting more muted, a stubborn number will appear to muddy the narrative.

That wasn’t it for recent news flow, however.  Last week, we spent some time discussing the debt ceiling and how the deadline for resolution of issues was being pulled forward due to lower tax receipts and greater strains on finances. This chatter has not abated, and in fact Secretary of the Treasury, Janet Yellen, suggested a new urgency around the talks and that June 1st was a more appropriate deadline for raising the ceiling.

This week, we have moved from the ceiling to the floor – and the floor that US regulators seem content to place under bank failures.  The weekend saw a frenetic set of negotiations that ran past the Sunday midnight deadline to seal a solution for the beleaguered First Republic bank, and on Monday morning, investors awoke to the news that the bank had been taken over by JP Morgan.

This “strong” solution for the bank differed from the Silicon Valley Bank (SVB) saga in that the FDIC did not intervene first and finding a buyer – urgently – was seen as a preemptive move.  However, there were other important similarities in the outcome for both banks – both banks had practiced the art of focusing on gathering deposits at a time when rates offered on deposits were comparatively low.  First Republic prided itself on its “white glove”, concierge-style service for its clientele, believing that building this customer loyalty would trump the slightly less favorable economics that low-rate deposit accounts began to represent.  As the interest rate cycle entered what has become the steepest set of rate-rises in recent history, the return on bank accounts started to pale in comparison to rates that could be obtained in short term government bonds and money market funds, prompting investors to vote with their feet.  Ultimately, the online ease of all modern banking – not just that with a white-glove service – made the decision to defect a low friction one, and customers defected en masse.

Both banks were ill-prepared for a cycle of rising rates – particularly in the case of SVB, which had hoarded low-risk government securities and was then forced to mark them to market – which is even more surprising given how well telegraphed the direction of rates had been.  Was it that these institutions were slow to adapt?  Or was it that it could not have been possible to adapt – to turn the supertanker that bank business models and capital structures can be – in the course of a year? And if it could not have been possible to adapt, should the Fed have anticipated the effect that their tightening agenda would have had on financial institutions?

There is a fascinating podcast by Tim Harford (otherwise known as the Undercover Economist) which describes the doomed inventions of the inventor Thomas Midgley which involved adding lead to gasoline, inventing CFCs and another wayward invention that ultimately caused his own death. [1]

Like all of these podcasts, this is a riveting tale.  The moral of this story was that these dire consequences may have been unintended but were not necessarily unanticipated.  At the time, the fact that the consequences were unintended was used to grant him – and the institutions that profited from these inventions – a “pass” to avoid responsibility later.  He takes issue with this “pass” and argues that even if consequences are not “intended” but if they could be “anticipated”, the perpetrators should be held accountable.

This echoes something that I have been recently mulling about: the effect of the steep rate rising cycle on banks – clearly, four bank failures were not the intended consequences of the rate hiking cycle.  But could they have been anticipated?

Arguably, they could have been.  For months, markets and the Fed itself focused on the transmission effect of raising rates – whether consumption was being affected, and whether economic activity was being suitably subdued.  This scrutiny seemed to expect real-time results, while in actuality, all monetary tightening has a lagging effect, something that was known. The adage goes that the Fed tightens interest rates until something breaks – and now, the open question is whether these bank failures are the things that have broken? If the rate rising cycle continues – as it is expected to – then clearly, the bank crisis is not (yet) considered sufficient to halt the trajectory.

But let’s look a bit more closely at the fallout from this weekend’s news.  With the JP Morgan purchase of First Republic, JP Morgan now controls over 10% of US deposits, but this was permitted by a waiver of the guideline around excessive concentration. It would seem unusual if the same circumstances facing First Republic were not being faced by scores of regional banks around the country.  They had built business models around falling rates, and then the music had stopped.  All of a sudden, the economy was marching to a different beat and the banks were forced to keep dancing.  But the lights were on and it wasn’t as much fun anymore.

All of these banks offer the same ease at moving money in and out and as both the SVB and First Republic showed; the mere hint of trouble can spark an irretrievable loss of trust and confidence by depositors and capital flight.  Therefore, for some banks, the fears will be existential, while for others, renewed regulatory scrutiny is likely to result in a more conservative approach to credit extension at the very least.

In the past, banks retreating from providing credit have had a systemically tightening effect on the economy, but in today’s markets, private credit is approaching 20% of credit markets – offering an alternative to bank financing, albeit a pricey one.

So, we do not yet know the impact on markets of the latest banking crisis.  One thing is certain though, and that is that we should be very wary of the comforting voices suggesting that the worst is over.   These were in many cases the same voices that failed to pivot and adapt to a shifting economic backdrop. And let’s not forget that shareholders in both banks were wiped out despite the fact that both banks ultimately found a safety net. This is already serious collateral damage, and perhaps there is more to come.

As we write, markets remain surprisingly resilient given the magnitude of this week’s headlines.  Sometimes, it is true that investors cannot understand large numbers [2] or maybe it is a distraction of other more tangible things like tech and AI.

Source: Morningstar as of 05/01/23

All we do know is that it will likely be an exciting month of May.

Sources:

1: https://timharford.com/2022/11/cautionary-tales-the-inventor-who-almost-ended-the-world/
2: https://www.ft.com/content/1a19fcb9-fe64-4371-8922-02e1a8d768e8 – Subscription to Financial Times needed.

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

 

The post From the Ceiling to the Floor appeared first on Moneta Group.

source https://monetagroup.com/blog/from-the-ceiling-to-the-floor/

If You Receive Restricted Stock or Stock Options, Consider This Tax-Saving Move

By Michael Torney, CFP, J.D., LL.M. 

Paying taxes when receiving stock grants instead of waiting for shares to vest could help you save thousands of dollars. 

Corporate executives often receive restricted stock or stock options as part of their total pay. But it’s possible to save a significant amount of money by taking advantage of section 83(b), a somewhat obscure, but important section of the Internal Revenue Service Code. 

Federal law allows individuals to pay taxes in the same year the stock awards are granted, even though the stock hasn’t yet vested. This is done through what’s called an 83(b) election.  Why would an investor do this?  The stock price at the grant date may be much lower than when the stock vests and is sold; this means the taxes owed can be tens, even hundreds of thousands of dollars less if paid when the stock award is granted.  

This special 83(b) election can be used for stock awards that have not fully vested, such as restricted stock and stock options. 

How Restricted Stock and Stock Options Work 

Restricted stock are shares of your company’s stock that will vest at a future date. For example, if you are granted 10,000 shares of stock in January 2023, but the shares don’t vest for three years, you won’t own these shares without restrictions until January 2026.  

If you anticipate the stock price will be higher in January 2026, you can minimize the tax bill by filing an 83(b) election and paying taxes on the value of the stock in January 2023. That means you’ll pay less in tax if these shares appreciate in value. 

Stock options are usually either incentive stock options (ISO) or non-qualified stock options (NSO).  Stock options give employees the right to buy or exercise shares of company stock at a pre-set price. ISO and NSO options are taxed differently.  Both of these options present some tax-saving opportunities with an 83(b) election, though the planning varies for each; 83(b) tax strategies for NSO and ISO options are covered in a different blog.  Let’s look at how you can save taxes on your restricted stock using an 83(b) election. 

Restricted Stock and an 83(b) Election 

If you receive restricted stock, here’s an example of how an 83(b) election can save money.  

On January 1, 2018, a senior-level executive at Apple, Inc., is awarded 10,000 shares of company stock that will vest in three years. The price at that time was $39.80, so the 10,000 shares are valued at $398,000. If the executive does not make the 83(b) election, there is no tax due.  Three years later, on Jan. 1, 2021, Apple’s stock price rose to $130.39. The executive’s shares – which they now own outright –  are now worth $1,303,900.  There is now ordinary income tax due on $1,303,900. 

If instead, the executive made the 83(b) election, they would have included the $398,000 as part of their income when filing 2018 taxes.  Here’s why that’s important. No taxes are due upon vesting since they have already been paid.  Because the stock is now valued at over $900,000 more than when it was granted, the additional $900,000 of gain is deferred.   

Selling Your Stock 

It’s January 2, 2022. The executive decides to sell their shares one year and one day after the shares vest. The executive waits this long because a person must keep their shares for more than one year prior to selling for any profit to be taxed at more preferential capital gains rates. However, if the 83(b) election was made, then the holding period began at the grant date when the restricted stock compensation was included in income. In this example, the executive would not have needed to wait the extra year to be taxed at long-term capital gain tax rates. 

At this point, the shares are valued at $1,737,700 – nearly $1.3 million more than when the stock was granted. But once the stock is sold, the executive is only responsible for capital gains taxes – a maximum of 20 percent of profits – rather than the rate for ordinary income taxes, which can be as high as 37 percent. 

The tax will be applied on any gains above the taxpayer’s cost basis.  If the 83(b) election was made, the cost basis is $398,000.  If the election was not made, the cost basis is $1,303,900.   

How the Tax Math Stacks Up 

We need to make some assumptions about our hypothetical taxpayer to play out taxes.  Let’s say he lives in Florida, a state with no state income tax.  And he’s in the 37% federal tax bracket (for simplicity, we will ignore the Social Security and Medicare taxes on the ordinary income, which are additional savings in favor of the 83(b) election in this example). This means he will pay 23.8% in capital gains taxes for 2023 (20% capital gain plus 3.8% net investment income tax).  

No 83(b) Election: If the executive did not make the 83(b) election, he pays 37% of $1,303,900 (taxes due at stock vesting) and an additional 23.8% of $433,800 ($1,737,700 minus $1,303,900 cost basis).  The total tax due is $585,687.40.   

83(b) Election: If the executive did make the 83(b) election, he pays 37% of $398,000 (taxes due at stock grant) and an additional 23.8% of $1,339,700 ($1,737,700 minus $398,000 cost basis).  Total tax due is $466,108.60. 

When It Makes Sense to File an 83(b)

Filing a section 83(b) election makes sense for some people, but not for everyone. Consider making an 83(b) election if: 

• You receive restricted stock with a low market value per share at the time of grant or options with a strike price that is close or equal to the market value per share 
• You can afford to pay any costs associated with the election;  
• You believe the value of the company’s stock will increase significantly over time; 
• The risk that you will forfeit the stock is small. For example, you expect to be with the company until the stock vests. 
• You believe you will be able to sell your stock later at a higher price 

For restricted stock, the election must be made within 30 days of receiving the award. For options, the election must be made within 30 days of exercise. You should confirm that your company’s plan allows you to exercise options before they vest. 

Making a decision on whether to file an 83(b) election can be a difficult choice. If you have questions about this topic or other issues involving stock compensation, contact our team at Duffteam@monetagroup.com. We offer a free consultation to discuss how a comprehensive financial plan could help serve you well now and during retirement. 

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. 

 

The post If You Receive Restricted Stock or Stock Options, Consider This Tax-Saving Move appeared first on Moneta Group.

source https://monetagroup.com/blog/restricted-stock-or-stock-options-consider-this-tax-saving-move/

Investment Quarterly Report – Q1 2023 – Cycles, Tremors, And An Impending Credit Crunch?

Aoifinn Devitt – Chief Investment Officer

Although only early April, violent Spring storms have already worked their way across much of the Midwest, disrupting flights and wreaking havoc in small communities. In a similar fashion, the first quarter of 2023 was
described as a “wild” quarter in markets as a cascade of economic data, some of it surprising, met with a leftfield surprise of trouble in the ranks of smaller, regional banks, sparked by the collapse of Silicon Valley Bank on March 10th.

Economic Overview

The background music to the first quarter of the year was the steady drumbeat of recession expectations. While the year kicked off with a recession broadly expected by most commentators, the economic data persistently defied expectations. Employment remained robust in the U.S., with jobs reports in January and February exceeding expectations and rendering a buoyant employment picture. This started to falter somewhat in early April, when there was evidence of job openings moderating to a more normal level and a slight uptick in the participation rate, but the overall strong picture bolstered spending economic activity.

U.S. Gross Domestic Product (GDP) growth remained modest but positive nonetheless, again defying expectations of a recession but not so frothy as to lift consumer sentiment, which still languished despite these positive points of hard data. Consumer sentiment has remained below the long-term average since the pandemic, which may be attributable in part to mounting inflation worries.

Inflation was widely expected to moderate and start to tick downwards in 2023 as we worked off the dislocations and supply chain anomalies that drove some of it in 2022, while a mild winter in Europe muted the impact of higher energy prices caused by the war in Ukraine. As the charts below show, inflation did start to trend downwards around the world for the first part of the year, but progress was slow and this led to some volatility in sentiment and concerns around the future trajectory of interest rate hikes.

Central banks worldwide remained under the spotlight as inflation was understood to be a harbinger of their action – would there be a deceleration or a pivot in the sharply rising rate increases? Initially, this seemed to be in the cards – with the US Federal Reserve delivering their ninth consecutive rate rise, albeit with a more modest 25 bps rise in February, while other central banks around the world slowed their pace of rate hikes. Central bank language remained resolute and stern, and it was as if the institutions wanted to give no indication of a slackening of their resolve. Fed Chairman Jerome Powell went on what can only be described as an apology tour of sorts – seeking to disabuse markets of any notion that the institution had lost focus on their goal of tackling inflation. The yield curve remained inverted, though, suggesting that the markets had strong conviction that a pivot and actual reduction in rates was coming in the future. An inverted yield curve is traditionally an indicator of a recession, and indeed, the steepness of the inversion sowed the seeds for some of the travails that later beset banks.

The carefully orchestrated Fed interest rate narrative was put in disarray with the bank surprise of early March. When Silicon Valley Bank collapsed due to a mismatch in its assets (fixed income holdings) and liabilities (customer deposits, this sparked a crisis of confidence in banks and a fear for the safety of cash deposits (which we detailed in two separate research pieces on the collapse of Silicon Valley Bank and the forced sale of Credit Suisse). In the critical few weeks between the announcement of Silicon Valley Bank’s woes and the Fed’s decision in late March, there was an expectation that this would halt the Fed’s interest rate trajectory due to the specter of systemic market weakness. Ultimately, it did not, and the subsequent rate hike of 25 bps happened amid a similar discussion of inflation and economic activity as earlier hikes had, but something had changed nonetheless.

The bank crisis of the first quarter of 2023 is still perhaps in motion – there is still a laser focus on bank deposits and their movement. As we enter earnings season, investors will wish to see stability in the deposit base of banks to avert more fears of fragility in the banking complex. The fears of bank deposits being less than secure were manifest in notable changes to flows over the quarter, as assets flowed into money market funds, gold, and even Bitcoin over the course of the last few weeks, and total assets in money market funds now top $5 trillion.

Asset Performance

Despite the muted consumer sentiment discussed earlier, liquidity remains abundant in markets, and it is notable that equities have remained well-supported year-to-date, particularly within the growth segment. While value stocks have come under pressure due to losses in financials, core and growth-oriented portfolios have delivered a solid quarter, suggesting that the liquidity that remains in place is continuing to seek a return.

Bonds, too, were the beneficiaries of positive inflows as the interest rates on offer simply became too good to ignore, and fixed income enjoyed positive performance across the risk spectrum, as the table above shows.

Real assets and infrastructure – traditionally seen as inflation participating assets – also performed strongly over the course of the quarter, as the table above indicates.

Finally, the US dollar had a challenging quarter, losing 1.0% of its value as the interest rates trajectory in the US looked set to slow. We will continue to monitor this carefully, although it likely will, in the near-term, bolster non-US stock holdings in relative terms.

Outlook

As we look to the second quarter, despite the recent jump in the price of oil, other inflation indicators are still more subdued, and there is a sense that we may be rounding the corner of persistently high inflation. This should see the interest rate hike trajectory near its end, although whether and for how long the Fed sees fit to stay stable there will surely depend on market forces.

While we welcome the recovery across asset classes in the early part of 2023, we are cautious around the potential for the Silicon Valley Bank scenario to have consequences for the pace of corporate lending and the level of consumer trust, which could impact the “plumbing” in the financial system to a point of undermining confidence. While we have not yet seen any significant wave of corporate defaults, despite the massive upset of the COVID crisis, there are some warning indicators – as indicated by news of large-scale layoffs, building levels of inventory and shrinking margins that suggest that some companies were quite over-extended in recent years. As the dust settles from a “wild” first quarter in markets, we remain on guard for the next potential “weather” event.

 

DISCLOSURE

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

 

DEFINITIONS

The unemployment rate represents the number of unemployed as a percentage of the labor force. Labor force data are restricted to people 16 years of age and older, who currently reside in 1 of the 50 states or the District of Columbia, who do not reside in institutions (e.g., penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

The Atlanta Fed’s Wage Growth Tracker is a measure of the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart. Our measure is based on methodology developed by colleagues at the San Francisco Fed.

The Recession time series is an interpretation of US Business Cycle Expansions and Contractions data provided by The National Bureau of Economic Research (NBER). Our time series is composed of dummy variables that represent periods of expansion and recession. The NBER identifies months and quarters of turning points without designating a date within the period that turning points occurred. The dummy variable adopts an arbitrary convention that the turning point occurred at a specific date within the period. The arbitrary convention does not reflect any judgment on this issue by the NBER’s Business Cycle Dating Committee. A value of 1 is a recessionary period, while a value of 0 is an expansionary period. For this time series, the recession begins the first day of the period following a peak and ends on the last day of the period of the trough. For more options on recession shading, see the notes and links below. Federal Reserve Bank of St. Louis, NBER based Recession Indicators for the United States from the Period following the Peak through the Trough [USREC], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USREC, April 10, 2023.

The Surveys of Consumers are conducted by the Survey Research Center at the University of Michigan. The Index of Consumer Expectations focuses on three areas:  how consumers view prospects for their own financial situation, how they view prospects for the general economy over the near term, and their view of prospects for the economy over the long term.  The Expectations Index represents only a small part of the entire survey data that is collected on a regular basis. Each monthly survey contains approximately 50 core questions, each of which tracks a different aspect of consumer attitudes and expectations.  The samples for the Surveys of Consumers are statistically designed to be representative of all American households, excluding those in Alaska and Hawaii.  Each month, a minimum of 600 interviews are conducted by telephone from the Ann Arbor facility. University of Michigan, University of Michigan: Consumer Sentiment [UMCSENT], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UMCSENT, April 10, 2023.

Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly growth rates represent the inflation rate. The harmonized index of consumer prices (HICP), used primarily within the European Union, is a measure of prices paid by consumers for a market basket of goods and services. It is calculated using the same methodology across countries to allow for comparable measures of inflation. The yearly growth rates represent the inflation rate.

Inflation estimates are the Bloomberg Weighted Average of analysts’ and economists’ inflation forecasts; surveyed monthly.

The U.S. Treasury yield curve refers to a line chart that depicts the yields of short-term Treasury bills compared to the yields of long-term Treasury notes and bonds. The chart shows the relationship between the interest rates and the maturities of U.S. Treasury fixed-income securities. The Treasury yield curve (also referred to as the term structure of interest rates) shows yields at fixed maturities, such as one, two, three, and six months and one, two, three, five, seven, 10, 20, and 30 years. Because Treasury bills and bonds are resold daily on the secondary market, yields on the notes, bills, and bonds fluctuate.

The US Dollar Index measures the US dollar against six global currencies: the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.

The Alerian MLP Index is a capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities.

The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market.

The Bloomberg Barclays US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.

The FTSE Nareit All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. equity REITs. Constituents of the index include all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property.

The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.

The MSCI Emerging Markets Index captures large and mid-cap representation across 27 Emerging Markets (EM) countries.

The Russell 2000 Index is a small-cap stock market index of the smallest 2,000 stocks in the Russell 3000 Index.

The S&P 500 Index is a free-float capitalization-weighted index of the prices of approximately 500 large-cap common stocks actively traded in the United States.

The S&P Global Infrastructure Index provides liquid and tradable exposure to 75 companies from around the world that represent the listed infrastructure universe. The index has balanced weights across three distinct infrastructure clusters: Utilities, Transportation, and Energy.

The post Investment Quarterly Report – Q1 2023 – Cycles, Tremors, And An Impending Credit Crunch? appeared first on Moneta Group.

source https://monetagroup.com/blog/investment-quarterly-report-q1-2023-cycles-tremors-and-an-impending-credit-crunch/

Dancing on the Ceiling

Aoifinn Devitt – Chief Investment Officer

We are often told to listen to the bond market as the “truthsayer” when it comes to the actual state of the US economy and its outlook.  This refrain is heard when the yield curve inverts or when the demand for short-dated government bonds tops that of longer dated ones.  At times in the current cycle, the bond market has seemed blinkered to the actions and statements of the Fed; at times, it has fallen into line.  Well, the bond market is talking once more – this time shedding light on the potential crunch around the federal debt ceiling.  In recent days, demand for very short dated T-bills (one month) has surged, while that for three month bills has fallen.  This suggests that there is real concern around the problem of the debt ceiling a lot sooner than markets had previously anticipated  – i.e. one to three months from here.

As tax numbers trickle in, it is clear that what was a devastating year for financial assets (2022) wiped out many capital gains, while tax loss harvesting may have also contributed to shaving the tax haul.  With news of presidential runs starting to heat up (President Biden just announced that he will run again) and a competitive field already in place on the Republican side – political posturing will be a factor in seeing how the negotiations go. This comes against a backdrop of an earnings season that is laced with caution, so markets are likely to be fraught. The slightly flatter employment numbers and evidence of both housing starts and existing home sales coming in below expectations are evidence that some of the froth is out of the hard data – finally. So, it looks like the summer ahead will be tense.

As the dance around the debt ceiling continues, tech stocks have taken a breather from their storming start to the year, but markets overall remain relatively calm as earnings trickle out.

Source: Morningstar as of 04/24/23

We have seen evidence of real bifurcation in the fortunes of banks, with First Republic Bank shares tumbling after it announced losing over $100 bn in customer deposits during the first quarter of the year, while other, larger institutions have seen deposit inflows.  This herding in banks deemed “too big to fail” may create further problems, but for now the chips are continuing to fall among the rest of them. The final shuttering of a big box behemoth – Bed, Bath and Beyond, will leave hundreds of vacant sites across the country as yet another reminder of the changing shape and nature of retail.  As ever in 2023, there remains a lot to digest as the year nears its midpoint. It is no wonder few investors feel like dancing.

 

 

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment adviser does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

The post Dancing on the Ceiling appeared first on Moneta Group.

source https://monetagroup.com/blog/dancing-on-the-ceiling/

Working Through a Co-Owner’s Death

The death of a co-owner is a tragedy for many reasons. For many co-owned businesses, co-owners are also close friends. What makes the suffering worse is when the death of a co-owner hurts the business in the months and years after the death. It not only makes it nearly impossible to mourn and heal but also affects the surviving owner’s family, employees, and future. 

In the face of a co-owner’s sudden death, how can you quickly prepare the company for a sale? Here are a few steps you can take.

Keep Financial Security in Mind

Before you take any actions to sell after a co-owner’s death, determine whether a company sale is in the best interests of your financial security. 

It’s crucial to remember that the most important aspect of planning for a successful future is achieving financial security. If at all possible, it’s prudent to take steps that allow you to continue to pursue that goal, even in the face of a co-owner’s untimely death. In other words, don’t sell your business short. 

If you aren’t sure what it would take to achieve financial security upon a co-owner’s death, consider contacting your Advisor Team. It’s too easy to make snap, emotional decisions in the face of a major loss. An Advisor Team can bring both expertise and level-headedness to the situation.

Turn to Your Business Continuity Instructions

In a co-owned business, a strong strategy to address a co-owner’s sudden death is to turn to your written Business Continuity Instructions (BCIs). 

BCIs guide your Advisor Team, family, and surviving co-owners toward what they should do to protect the business and the decedent’s interests should a sudden death occur. These plans can also provide a path to sell the business for as much money as possible as soon as possible, which is a common strategy that surviving owners choose to consider. 

BCIs are different from a Buy-Sell Agreement. While a Buy-Sell Agreement may provide a strategy for transferring ownership upon a co-owner’s death, it may not provide guidance about how to keep the business functioning. This can have widespread effects on how, or even whether, the surviving owner can sell the business and achieve financial security.

Lean on Your Next-level Management

A benefit of installing next-level management is that next-level management strengthens your business in the likely event that you and your co-owner(s) live long and prosperous lives. 

When an unexpected death occurs, next-level management can be the catalyst that drives a quick, efficient sale. 

It may be the case that, following your co-owner’s untimely death, you may not want to continue running the business. Instead, you may want to sell it as quickly as possible. 

A next-level management team can open the door to a quicker sale. That’s because the next-level management team is capable of running the business in the absence of the current owner. 

Conclusion

Following the death of a co-owner, it’s much more realistic to prepare for a quick sale if you already have plans in place. More specifically, having (a) knowledge of what it would take for you to achieve financial security, (b) BCIs, and (c) a next-level management team already installed are key to making preparations for a quick sale after a co-owner’s death more likely. 

However, if you don’t have these plans in place—or haven’t begun to consider these plans—it can be difficult, if not impossible, to prepare the business for a quick sale that allows you to achieve financial security. And with the added emotional toll the death of a co-owner can have, it becomes even more challenging to make objective longer-term decisions. 

We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you are ready to talk about your goals for the future and get insights into how you might achieve those goals, we’d be happy to sit down and talk with you. Please feel free to contact us at your convenience. 

 

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need. 

This is content published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest. 

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity. 

©2023 Business Enterprise Institute, Inc. All rights reserved. 

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, 100 South Brentwood Blvd., St. Louis, MO 63105 (“MGIA”), an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax, or legal decision. Past performance is not indicative of future returns. You cannot invest directly in an index. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. Trademarks and copyrights of materials linked herein are the property of their respective owners. 

The post Working Through a Co-Owner’s Death appeared first on Moneta Group.

source https://monetagroup.com/blog/working-through-a-co-owners-death/

Does the “Buck” Stop Here? Current Concerns with U.S. Dollar Dominance

Chris Kamykowski, CFA, CFP®, Head of Investment Strategy and Research

“That will be 20 bucks.”

Ever wondered why people say “20 bucks” in reference to a transaction today? At one point, the “buck” served as a bona fide way of exchanging value or communicating a price for a good or service in the U.S.  “Buck” is an informal reference to $1 that may trace its origins to the American colonial period when deerskins (buckskins) were commonly traded for goods. Once the American dollar replaced animal skins as a way to pay for goods, the term “buck” remained as a slang term for one dollar.

Today the “buck,” or U.S. dollar, is running into concerns over its “looming” demise as the dominant global reserve currency due to recent weakness (the value of the dollar declining relative to other currencies), a spate of potential competitors, and evolving world order dynamics. As U.S.-based investors, a weaker dollar and losing reserve currency status certainly sound like fundamental threats to one’s portfolio, but how concerned should one really be? Answering that question requires a bit of understanding of what the reserve currency status means in the first place, so let’s first start with some basics to set the stage, and then we’ll delve a bit more into the concerns and potential mitigating factors.

Brief Background

First off, let’s start by defining a global reserve currency:

A global reserve currency is a foreign currency that is held in significant quantities by central banks or other monetary authorities as part of their foreign exchange reserves. Seen as a safe-haven currency, a reserve currency is considered very liquid, trusted, and cost-effective, to allow for international transactions. It is supported by the country’s domestic economy size, degree of impact on international trade, financial markets ease of access and breadth, attractiveness as a currency peg, and overall economic policies.¹

Throughout time, there have been various currencies which have risen to reserve currency status, including the Arabian dinar, Dutch gilders and the Spanish dollar, to name a few. These economies, and therefore their currencies, served at one time as major hubs for trade and/or exploration. More recently, the British pound sterling claimed dominant reserve currency status from the 1800s to the early 1900s, given Britain’s widespread footprint globally and economic influence as an industrial powerhouse and dominant player in global trade. After World War I and the devastation inflicted on the economies of the United Kingdom and broader Europe, the U.S. dollar was rapidly thrust forward as a currency of choice, due to the U.S.’s economic strength, rule of law, position as a global exporter, and importantly, ability to provide credit to Europe as it rebuilt.

Further dominance of the U.S. dollar followed World War II, as the U.S. became a global superpower with a strong military spread across the globe and economic supremacy. With the establishment of the Bretton Woods system in 1944 the U.S. dollar was linked to gold and 44 signatory countries pegged their currency to the US dollar. This agreement lasted until the early 1970s, when the Bretton Woods system was dismantled and currencies like the dollar were allowed to float unattached to gold. Since then, the US dollar has still maintained its privileged status and dominance as a global reserve currency. As the table below shows, while the level of global currency reserves has dwindled, the U.S. dollar still dominates, making up nearly 60% of official foreign exchange reserves².

Perceived Threats to US Dollar Dominance

Recent news and trends have brought forward threats to the dollar’s dominance as a global reserve currency. Some are well-tread concerns, while others are just now percolating into investors’ awareness. Here are a sample of major concerns:

• Weaponization of Dollar within Global Financial Markets
  • This is not exactly new as countries such as Iran have been sanctioned in the past from access and utilization of the dollar-based trading system. However, the scale and magnitude of the sanctions imposed on Russia, following the invasion of Ukraine, marked an escalation in the weaponization of currencies, as assets were frozen and access to payment and settlement systems denied. Access to financial systems such as SWIFT is critical for countries to allow for the flow of capital and trade; however, the West’s recent actions against Russia gives other countries distinct incentives to diversify their foreign currency reserves and limit consequences of running afoul of U.S. policy.

• China’s Influence on Evolving Global Economic Relationships
  • With China cementing itself as a global economic power second only to the U.S., it has used this position to alter bilateral trading relationships which eliminate the need for the use of U.S. dollars. A recent example is a deal with Brazil – a major import/export partner of China – whereby trade and financial transactions will allow exchanging Chinese yuan for Brazilian real, cutting out the need for the U.S. dollar. Furthermore, discussions are ongoing between China and Saudi Arabia to transact in oil with the yuan instead of the dollar.

• U.S. Fiscal Situation (Debt & Deficits)
  • Extraordinary amounts of fiscal spending and borrowing – especially in the wake of the recent pandemic – has put the U.S.’s fiscal situation in a more untenable position, with debt-to-GDP levels at 120% (Q4 2022)³. Higher interest rates are also impacting the amount required to service interest rate payments. On top of this, a debt ceiling debate looms as we enter the summer, one which threatens to potentially upend the credit rating of the U.S. as politicians tread a dangerous path to a resolution and compromise.
  • This all matters because most of the currency reserves held by foreign nations is via holdings of U.S. Treasury debt. Shifts away from holding U.S. debt on the basis of concerns over its fiscal situation could impact the level of reserves held in dollars by foreign countries.

• Digital Currencies
  • While investors have seen the distinct volatility of cryptocurrencies, one of the touted proposed uses of cryptocurrencies is to circumvent the need for central bank issued fiat currencies, such as the dollar. Though cryptocurrencies seem to be, at minimum, years away from broader adoption to such an extent they replace fiat currencies, they do remain a threat to the point that central banks are seeking to understand how they may issue their own digital currencies.

Factors Favoring the U.S. Dollar Reserve Status

The threats noted above are credible and have varying degrees of support, but the U.S. still operates from a position of strength that limits the pace of uptake in other global reserve currencies. Key items are:

• Primary Global Reserve Currency
  • As noted previously, the dollar maintains a privileged status as THE most favored global reserve currency. Its next competitor, the euro is a third of the U.S.’s portion of global reserves and a sizable trading partner for many countries; but in contrast to the U.S. Treasury market, it does not have a deep, uniform euro-denominated bond market.

• Rule of Law and Investor Protections
  • Often taken for granted, the US benefits from a strong legal tradition and multiple levels of investor protections which inform the perceived “safety” of investing in the U.S. This is especially true for foreign investors who may face much more difficult hurdles domestically due to authoritarian regimes, lack of a consistent legal tradition, and corruption.

• Use of Dollar in Global Transactions
  • While the dollar’s dominance in transactions may be weakening as countries look to conduct trade in their own currencies, foreign transactions remain overwhelmingly dominated by the U.S. dollar⁴, making it the most efficient, liquid and transparent market in the world. We may see the percent transacted in U.S. dollars decline over time, but there will be economic costs to not using the U.S. dollar.

• Yuan’s Peg to the Dollar
  • Despite its ongoing efforts to supplant the U.S. in a variety of ways as a superpower, China allows the yuan to float within a very strict band of +/- 1% to the U.S. dollar. This means markets do not determine the true value of the yuan like other currencies. To effect this, China must buy U.S. dollars (via US Treasuries) and sell yuan to keep it from appreciating and hurting the competitiveness of Chinese exports. There are economic consequences to China in allowing the yuan to float freely which are not trivial.

What does this mean for U.S. investors?

The dollar’s status as a global reserve currency is not governed by some pre-ordained order from above, nor is it something that is guaranteed; history is littered with currencies that were the favored instruments for transactions, only to become shadows of themselves.  However, our rule of law, open financial system, transparency, economic might and dynamic capital markets have served us well in establishing the U.S. dollar at the head of the currency order over the last 100 years. This, plus opportune moments in history and a strong military, have provided the U.S. dollar the ability to rapidly supplant former reserve currencies. Nevertheless, its status is not a foregone conclusion, and though it has many winds at its back, it still requires guarding the dollar’s position appropriately.

Purely from a patriotic point of view, it may strike a chord with US investors when one observes the dollar declining in its value, as it has recently. Yet, this does not mean that losing the reserve status or even simply a weakening in the U.S. dollar spells the demise of the U.S. One should be careful not to mistake dollar weakness for permanent dollar decline.  We need only look at the United Kingdom and their recent Brexit vote in 2016 where the pound fell sharply in the aftermath; while certainly painful, the United Kingdom remains a leader in the global world order.

We do not perceive the dollar’s recent decline from post-pandemic highs as a good or bad thing necessarily, given, at Moneta, we promote a globally diversified portfolio for clients. With the Fed appearing to be decelerating its rate hiking regiment, a weaker currency could provide a tailwind for foreign currencies to gain a foothold on the dollar and strengthen. This in turn could improve returns generated by non-U.S. dollar holdings, such as international and emerging market equities.

Will the dollar be replaced? It is very unlikely to happen in our lifetimes, but sometime in the distant future, it is certainly quite possible. When and how fast would the global financial markets diversify meaningfully away from it are other questions that go far beyond anyone’s ability to predict. For now, the “buck” hasn’t stopped.

Sources

¹ Reserve Currency Definition:  https://en.wikipedia.org/wiki/Reserve_currency

² International Monetary Fund: Currency Composition of Official Foreign Exchange Reserves (COFER), International Financial Statistics; http://data.imf.org/

³ U.S. Office of Management and Budget and Federal Reserve Bank of St. Louis, Federal Debt: Total Public Debt as Percent of Gross Domestic Product [GFDEGDQ188S], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GFDEGDQ188S

⁴ Bank of International Settlements:  https://stats.bis.org/statx/srs/table/d11.3

Definitions:

The US Dollar Index measures the US dollar against six global currencies: the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.

DISCLOSURES

© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.

Trademarks and copyrights of materials referenced herein are the property of their respective owners. Index returns reflect total return, assuming reinvestment of dividends and interest. The returns do not reflect the effect of taxes and/or fees that an investor would incur. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. An index is an unmanaged portfolio of specified securities and does not reflect any initial or ongoing expenses nor can it be invested in directly. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise.

 

 

The post Does the “Buck” Stop Here? Current Concerns with U.S. Dollar Dominance appeared first on Moneta Group.

source https://monetagroup.com/blog/does-the-buck-stop-here-current-concerns-with-u-s-dollar-dominance/