Ladies and gentlemen, the weekend! In this space each week, Greg and I share some of our favorite articles, notes, and graphics from the past week along with our commentary. Please feel free to provide feedback and forward along to others if you enjoy. We appreciate you taking the time to read. 

If you are a client, we truly appreciate your business. If you are not a client, please click below to learn more about our firm and contact us.

What Moves Markets (Inflation)?

“Inflation numbers for July were released [Wednesday]. We learned that consumer prices rose 8.5% from a year earlier, the fourth highest reading since I’ve been alive. And the stock market loved it, with the S&P 500 gaining 2.1% and closing at the highest levels since early May.

The year-over-year numbers are still high, but the month-over-month numbers are cooling rapidly. And if inflation peaked, and earnings were better than expected, and the labor market is still strong, then maybe the fed doesn’t have to be as aggressive going forward. Maybe, just maybe, they can pull off a soft landing.

Year-over-year numbers are still bad, but the market doesn’t care about good or bad news; it cares about things getting better or worse.”

The latest Consumer Price Index (CPI) numbers showed no increase in July, although the increase over the last 12 months was still +8.5%. The highlight as noted above is the trend of slowing inflation. It’s still premature to make a definitive “peak inflation” call. Gasoline prices can be volatile to the upside and their monthly decline of 7.7% was enough to offset increases in food prices and housing/rents.

However, investors should (and did) take the data point as a win. Don’t look now, but stock markets have recovered approximately half of their year-to-date losses over the last 2 months.

Should You Die with Zero?

“One of the most common personal finance questions I get asked is, ‘Am I saving enough?’ Whether we are discussing saving for retirement, a child’s education, or something else entirely, many people are worried about the size of their nest egg. In fact, 48% of U.S. adults experienced ‘high’ or ‘moderate’ levels of anxiety around their level of savings…

Surprisingly, retiree wealth tends to go up, not down, with age. This suggests that more people should be asking the question, ‘Am I saving too much?’ rather than ‘Am I saving enough?’

This is the primary idea behind Die with Zero by Bill Perkins. In it, Perkins presents a radical new way to think about saving and spending money, namely, that you should try to die with $0 to your name. His reasoning is simple—every dollar you didn’t spend while alive is wasted life energy. It’s money that you never needed to work for in the first place or money that could’ve been given to heirs earlier in time.”

This is an interesting thought exercise. What if you’re being too conservative in your approach to savings and financial planning? Of course, we need to err on the side of caution for unexpected events, but is there room in financial plans even after stress testing? The article also broaches the concept of the utility or velocity of inheritances. People are living longer and leaving behind nest eggs to heirs in their 60s that may not really need the funds.

It's impossible to implement in practice because we don’t know when we’re going to die, how markets will perform, and if there will be costly emergency events. However, it’s an interesting approach and scenario to run. What is maximum sustainable spending and giving? 

What’s in (and out of) the Inflation Reduction Act on Climate, Health, and Especially Tax?

“The legislation creates a 15% minimum tax for corporations making $1 billion or more in income, bringing in more than $300 billion in revenue. A portion that got cut, though, is one that narrowed the carried interest tax loophole... Instead, a 1% excise tax on stock buybacks was introduced, and it could bring in roughly five times as much revenue as the carried interest measure. However, it wouldn't take effect until next year, raising predictions of a rush of buybacks by some companies before 2023 rolls around.

A major portion of the bill that isn't included, due to opposition from West Virginia Sen. Joe Manchin, is extending the Child Tax Credit. Manchin expressed last year that the cost to extend the credit was too high, but progressives, including Vermont Sen. Bernie Sanders, have continued to push for its inclusion in the bill. Sanders planned to add it as an amendment to the legislation during the all-night voting process, even without the support he needs to pass it.”

While the Inflation Reduction Act is light on individual financial planning-related items, it still contains some provisions that could make an impact.

The provision with maybe the most indirect impact on taxpayers is an additional $80 billion in funding for the IRS over the next 10 years which will be directed towards hiring more agents and investing in technology to increase audit rates on higher-income taxpayers (which have sharply decreased in recent years).

Otherwise, it’s odds and ends like placing a $2,000 per year out-of-pocket cap on prescription drug costs for Medicare enrollees starting in 2025, allowing the government to negotiate with pharmaceutical companies on some drugs for Medicare enrollees, and tax credits for electric vehicles and energy-efficient home improvements.

While food prices and housing are still having an oversized impact on inflation and consumer sentiment, thankfully, the pressure from gas prices continues to subside. The University of Michigan’s Survey of Consumers recently showed inflation expectations decreasing again to 5%, which is the lowest level in 6 months. Declining gas prices have played a big part in that moderation in sentiment.

Thanks for reading. Have a great weekend!