Any low-cost basis stock or real estate?  If so, you have 6 weeks for Long Term Capital Gains tax at 15% before it goes up next year.  Check with your tax advisor, you may benefit by selling low cost basis stock or real estate, pay the capital gains at 15% and establish a higher basis.

  • Roth Conversion this year before year end 2020.  Make sure to stay on track for using this year to convert another chunk of your IRA to Roth.  Make sure we do not raise your tax bracket by doing so.
  • The SECURE Act eliminated the stretch IRA. The estate tax exemption and lifetime gift exclusion could be substantially reduced next year, and the step-up basis may be eliminated, which could hit heirs with substantial capital gains taxes. Annual gifting and split gifting could be more important than ever. To help maximize inheritance and minimize potential estate tax concerns, review gifting strategies and beneficiary designations. High-net-worth clients may want to consider leveraging the lifetime gift exemption to reduce their taxable estate. If both parents and grandparents are wealthy, consider transfers to grandchildren in anticipation of changes to the generation-skipping tax.

 

US Economy

 

  • A spike in evictions and foreclosures is coming.

 

 

  • Many companies that received pandemic-related government loans have filed for bankruptcy.

 

 

  • Here is the global debt-to-GDP ratio.

 

 

  • And this chart shows the debt-to-GDP ratio spike in 2020, by country.

 

 

  • Consumer confidence softened this month.

 

 

  • COVID-related hospitalizations hit a new record.

 

 

  • Small business employment is deteriorating.

 

 

  • The market is highly dependent on record-low mortgage rates. Wages are just not keeping up with home price increases.

 

 

  • Eroding housing affordability will gradually tilt towards renting, which should support rent inflation.

 

 

  • US business activity has been outperforming Europe.

 

 

  • Consumer spending growth eased in October as incomes declined.
  • Bank of America credit/debit card spending:

 

 

  • Initial jobless claims rose again.
  • Many Americans are about to lose their emergency unemployment benefits, widening the “K-shaped” recovery gap.
  • Consumer sentiment remains soft.
  • New home inventories remain depressed.
  • Mortgage applications to purchase a house are still elevated.
  • Refi activity is also robust.
  • The October durable goods orders report surprised to the upside. Shipments of capital goods (machinery, equipment, etc.) were especially strong (third panel below), suggesting a further increase in business spending.
  • Inventory rebuilding accelerated last month, further boosting demand for imports.
  • The trade deficit in goods remains near record levels.

 

Market Valuation

 

Valuations look stretched.

 

 

The market is betting on a massive rebound in corporate earnings.

 

 

Nasdaq trading volume hit the highest level since 2004.

 

 

The Federal Reserve

 

The dynamics of addiction are all over this situation. The more drugs you take, the more you need to take to get high the next time – until one day, you overdose and kill yourself.

The Fed printed $1 trillion in 2008 in direct response to the financial crisis. This year, it has already printed three times that amount. Its balance sheet now exceeds $7 trillion.

Whatever you think the Fed needs to do to keep things running smoothly, double or triple it. Do you think the Fed needs to print another $3 trillion? I’d guess it had better be closer to $9 trillion or the market will yawn and decline, possibly quite a bit.

Even WITH Fed stimulus, economic growth struggled to maintain a 2.2% annualized growth rate, interest rates remained abnormally low, and inflation was nascent. Despite the Fed’s best efforts, productive investments or increases in the labor force participation rate failed to appear.

 

That would definitely be bad news for bulls.

Earlier this month, Jerome Powell told the world that the Fed can do more, and that Congress needs to do more. So, the expectation is already out there… It’s in the market, and if it isn’t delivered soon, the market won’t like it.

Official Fed policy centers around the dual mandate of “price stability and maximum sustainable employment.”

Make no mistake about it, … The Federal Reserve is in the business of supporting asset prices. It’s not just stocks and bonds. When you’re manipulating interest rates, you’re manipulating the price of anything that produces cash flow – that is, anything with a yield.

The Fed put is the central bank’s continuous attempts to put out every fire at the first signs of smoke. But in the end, we’re all going to watch the forest burn down around us.

 

Funny

 

 

 

 

 

All content is the opinion of Brian J. Decker