Should We Be Concerned About the Federal Budget Deficit?

April 29, 2021 Tyler Goodrich

Raymond James Chief Economist Scott Brown explores the relationship between U.S. debt and the current economic recovery post-pandemic. Ideally, U.S. debt should grow no faster than nominal GDP – but pursuing that objective too soon could slow the current economic recovery, says Scott.

Watch video below now.

https://www.raymondjames.com/commentary-and-insights/economy-policy/2021/04/27/should-we-be-concerned-about-the-federal-budget-deficit

The Sugar High Economy

April 26, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

April 26, 2021

Mix extremely loose monetary policy, a federal government cutting checks like it’s going out of style, and extensive roll-out of the COVID-19 vaccines, and what do you get? Answer: Some really strong economic data.

The problem is that this rapid growth, like a “sugar high,” is not going to last. Look for the economy to slow in the future as unprecedented government spending and Federal Reserve money printing slow from the current torrid pace, while we continue to suffer the absence of small businesses that went under during the crisis. The good news is that entrepreneurship is not dead, businesses will re-open, and the US will benefit from productivity gains as a by-product of technology adoption forced by the COVID-19 disaster.

The other key is Washington, DC. Tax rates are going up, the only questions are when and by how much? Raising the top capital gains and dividends tax rates to 43.4% (with a personal rate of 39.6% and a Medicare tax of 3.8%) would be a steep hurdle for investors, but we think the most likely outcome is a compromise that doesn’t raise these tax rates nearly that high.

In the meantime, this Thursday should deliver a report of about 7.0% annualized real GDP growth in Q1, although we may refine our guess later this week based on reports on deliveries of capital goods as well as international trade and inventories. Here’s how we calculate 7.0% annualized growth in real GDP for Q1:

Consumption: Car and light truck sales rose at a 16.9% annual rate in Q1, while “real” (inflation-adjusted) retail sales outside the auto sector soared at a 29.1% annual rate. We only have reports on spending on services through February, but it looks like real services spending should be up slightly for the quarter. As a result, we estimate that real consumer spending on goods and services, combined, increased at a 10.9% annual rate, adding 7.4 points to the real GDP growth rate (10.9 times the consumption share of GDP, which is 68%, equals 7.4).

Business Investment: The first quarter should look a lot like the last quarter of 2020, as investment in equipment continued to rebound sharply, investment in intellectual property likely grew at a more moderate pace, and commercial construction continued to decline. Combined, business investment looks like it grew at a 7.5% annual rate, which would add 1.0 points to real GDP growth. (7.5 times the 13% business investment share of GDP equals 1.0).

Home Building: Residential construction continued to grow rapidly in Q1. We think home building has much further to grow given the shortage of homes in many places around the country, and the increased appetite for houses with more square footage in the suburbs. We estimate growth at a 16.5% annual rate in Q1, which would add 0.8 points to the real GDP growth. (16.5 times the 5% residential construction share of GDP equals 0.8).

Government: It’s hard to translate government spending into a GDP effect because only direct government purchases of goods and services (and not transfer payments like extra unemployment insurance benefits) count when calculating GDP. We estimate federal purchases grew at a 0.6% annual rate in Q1, which would add 0.1 points to real GDP growth. (0.6 times the 18% government purchase share of GDP equals 0.1).

Trade: Faster economic growth in Q1 brought a larger trade deficit (at least through February), a by-product of a faster recovery in the US than in Europe. At present, we’re projecting net exports will subtract 1.1 points from real GDP growth in Q1.

Inventories: Inventories look like they fell in Q1 as businesses that had supply-chain issues had to dip into inventories to meet strong consumer demand. Look for businesses to re-stock shelves and showrooms in the second quarter. We are estimating that inventories subtracted 1.2 points from real GDP growth rate for Q1.

Add it all up, and we get 7.0% annualized real GDP growth for the first quarter. That’s very high by historical standards, but the economy has much further to go to reach a full recovery.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

4-26 / 7:30 am Durable Goods – Mar +2.5% +1.9% +0.5% -1.2%

7:30 am Durable Goods (Ex-Trans) – Mar +1.6% +1.4% +1.6% -0.9%

4-29 / 7:30 am Initial Claims – April 25 550K 575K 547K

7:30 am Q1 GDP Advance Report 6.9% 7.0% 4.3%

7:30 am Q1 GDP Chain Price Index 2.7% 2.8% 2.0%

4-30 / 7:30 am Personal Income – Mar +20.0% +19.5% -7.1%

7:30 am Personal Spending – Feb +4.2% +3.6% -1.0%

8:45 am Chicago PMI – Apr 64.2 64.0 66.3

9:00 am U. Mich Consumer Sentiment- Apr 87.5 87.0 86.5

Yes, Stocks Are Still Cheap

April 19, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

April 19, 2021

The S&P 500 fell almost 50% between mid-February and mid-March 2020, during the initial stages of the pandemic. It bottomed at roughly 2,224 during the nationwide strategy of shutting down for “15 days to slow the spread.” Because this was not a normal recession, and the market went into the shutdown undervalued, we believed stock prices would recover as business returned to more normal levels.

By Thanksgiving 2020, even though the US economy was still producing less than it had pre-pandemic, the stock market had fully recovered and gone to new highs. On November 27, 2020, with the S&P 500 at 3,638, we set a yearend target for 2021 at 4,200, which was 15.4% higher. As of the close of trading on Friday, the S&P 500 was at 4,185, only 0.4% below our year-end target, with more than eight months to go before year end.

Looking back, there are a number of things that pushed the market to this point. Technology and communication helped the world adjust to shutdowns, big box stores stayed open, the government disbursed trillions of borrowed dollars, a vaccine was invented in less than a year, the money supply exploded, and the Fed cut short-term interest rates to roughly zero and committed to keeping them there. Because of all this, profits have soared.

With real GDP growth of 6%+ this year and S&P 500 earnings expected to grow by 27%, or more, we think stocks will easily bust through our original target by year end and so we are raising our year-end target to 4,500, which is 7.5% higher than the Friday close. The Dow Jones Industrial average, which we originally projected would hit 35,000 by year end, should hit 36,750, instead.

Some investors and analysts are skittish about further gains in equities. The price-to earnings (P/E) ratio on the S&P 500 is 32.6 (based on trailing earnings) – high by historical standards. And the total market capitalization of the S&P 500 has reached about 175% of GDP.

But technology companies have expanded more rapidly than they would have because of the pandemic. These stocks have had an outsized impact on stock indices and many have very high P/E ratios. We can divide the S&P 500 into the S&P 10 and the S&P 490. Valuations of each part have diverged. Also, persistently low interest rates make higher P/E ratios more sustainable as future profit growth is worth more with a lower discount rate.

Meanwhile, looking at market cap relative to GDP has its own problems, in addition to not adjusting for lower interest rates. First, it’s a stock versus a flow – a net worth versus an income. Second, GDP was artificially low last year due to COVID. Third, corporate profits are already high relative to GDP and set to move even higher in the year ahead.

As always, we rely on our Capitalized Profits Model. The model takes the government’s measure of economy-wide profits from the GDP reports, discounted by the 10-year US Treasury note yield, to calculate fair value. If we use a 10- year Treasury yield of 1.6% to discount profits, then our model suggests the S&P 500 is substantially undervalued. But this is because the Federal Reserve is holding the entire interest rate structure at artificially low levels. Using these rates distorts valuations.

Using fourth quarter profits, it would take a 10-year yield of about 2.4% for our model to show that the stock market is currently trading at fair value. And that assumes no further growth in profits.

With the Fed committed to holding rates down, it would take an upside surprise to already very strong growth forecasts to push the 10-year Treasury yield above 2.4% anytime soon. And if it does happen, it would likely be accompanied by even faster profit growth that lifts our model’s estimate of fair value. That’s why we are comfortable with a year-end target of 4,500 for the S&P 500.

While the market won’t move in a straight line, and a correction is always possible, as the economy opens up, those sectors of the market that fell behind in the past year (because of shutdowns and limited global trade) will be a source of strength. The Fed remains highly accommodative, there are trillions of dollars of cash on the sidelines, vaccines have reached over 50% of Americans, and the economy is expanding rapidly. Some valuations have been stretched, but the market as whole remains undervalued. As a result, we remain bullish and are lifting our targets.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

4-22 / 7:30 am Initial Claims – Apr 17 625K 670K 576K

9:00 am Existing Home Sales – Mar 6.150 Mil 6.040 Mil 6.220 Mil

4-23 / 9:00 am New Home Sales - Mar 0.886 Mil 0.884 Mil 0.775 Mil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James. All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

Housing Boom to Continue

April 12, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

April 12, 2021

Housing prices have soared in the past year. The national Case-Shiller index is up 11.2% in the past twelve months, the largest gain since 2005-06. The FHFA index is up 12.0% in the past twelve months, the largest on record (going back to 1991).

Given these gains, some are wondering whether housing is back in a 2000s-type bubble. But a deep dive into the data suggests we are not.

To assess home prices we use the market value of all owner occupied homes calculated by the Federal Reserve. We then compare that to the “imputed” rent calculated by the Commerce Department for the GDP report. (Imputed rent means what people would pay to rent their homes if they rented them from someone else.) In the past 40 years, home values have typically been 16.4 times annual rent. At the peak of the bubble in 2005, they were 21.4 times annual rent, or 33% above normal. Now, home prices are 17.8 times annual rent, about 11% above normal.

We also compare home prices to the Fed’s measure of replacement cost. In the past 40 years, home prices have typically been 1.59 times replacement cost. In 2005, they peaked at 1.94 times replacement cost, a premium of 22.5%. Now homes are selling for 1.63 times replacement cost, only 2.5% above normal, which is minimal.

Does this mean housing is at risk? We don’t think so. The recent price surge is based on fundamentals and the housing market should continue to boom.

The primary problem is a lack of homes. Based on population growth and scrappage (voluntary knockdowns, fires, floods, hurricanes, tornadoes…etc.), we would normally expect housing starts of 1.5 million per year. But in the past twenty years (March 2001 through February 2021), builders have only started 1.256 million per year. Builders haven’t started more than 1.5 million homes in a calendar year since 2006.

No wonder the inventory of homes for sale is so low! Single-family existing home inventories are at rock bottom levels, with only 870,000 for sale in February. To put this in perspective, the lowest inventory for any February on record from 1982 through 2016 was 1.55 million. Meanwhile, there are only 40,000 completed new homes for sale, versus 77,000 a year ago and an average of 87,000 in the past twenty years.

Two other factors are likely at work. One issue is that there’s a moratorium on evictions, so some tenants are paying less in rent than they normally would, which is temporarily holding down rental values versus home prices (therefore elevating the price-to-rent ratio). This is also holding down the housing component of the Consumer Price Index, which is calculated using rents, not home prices.

Another factor is that people have moved away from places where renting is popular to places where home ownership is popular. If you leave New York City or San Francisco for Nashville or Boise, there’s a good chance you went from renting to owning. This helps boost home prices as well.

Yes, home prices are up and, yes, they look somewhat expensive relative to normal, but this is more about the unprecedented events of the past decade, not some problem with the market. With the Fed so easy, and the stock of housing constrained, prices will continue to rise. The housing boom will continue.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

4-13 / 7:30 am CPI – Mar +0.5% +0.5% +0.4%

7:30 am “Core” CPI – Mar +0.2% +0.1% +0.1%

4-14 / 7:30 am Import Prices – Mar +0.9% +0.7% +1.3%

7:30 am Export Prices – Mar +0.5% +0.8% +1.6%

4-15 / 7:30 am Initial Claims Apr 10 700K 713K 744K

7:30 am Retail Sales – Mar +5.5% +5.6% -3.0%

7:30 am Retail Sales Ex-Auto – Mar +4.8% +5.1% -2.7%

7:30 am Empire State Mfg Survey - Apr 18.8 21.8 17.4

7:30 am Philly Fed Survey – Apr 40.0 47.6 51.8

8:15 am Industrial Production – Mar +2.5% +3.0% -2.2%

8:15 am Capacity Utilization – Mar 75.6% 76.0% 73.8%

9:00 am Business Inventories – Feb +0.5% +0.5% +0.3%

4-16 / 7:30 am Housing Starts – Mar 1.600 Mil 1.620 Mil 1.421 Mil

9:00 am U. Mich Consumer Sentiment- Apr 89.0 92.5 84.9

March Market Review

March 31, 2021 Tyler Goodrich

March 31, 2021

Friends and Clients,

Investors may have been hoping for March to go out like a lamb, but it seems the month simply marched on. The big news came with the passage of the latest stimulus bill, which injected trillions into the economy, and the release of the Ever Given, a giant container ship that had gotten stuck in the Suez Canal, which hampered shipping worldwide. The continued progress of the vaccine rollout and the passage of the stimulus bill created major tail-winds for the economy, reflected by rising gross domestic product estimates, a further move up in equity prices and a steady rise in interest rates, explained Larry Adam, Raymond James chief investment officer.

The yield on the 10-year Treasury hit its highest level in more than a year, yet domestic equity markets managed to gain ground for both the month and the quarter, seemingly on the hope of strong economic activity the rest of the year.

Federal Reserve policy remains accommodative and another round of fiscal stimulus has further boosted sentiment. Supply chain issues have added to cost pressures for manufacturers, and we may see some increase in inflation as the economy reopens, but inflation expectations remain firmly anchored at 2%, the Fed’s long-term goal. The Consumer Price Index is expected to rise to over 3% for the 12 months ending in April, but that merely reflects a rebound from the low figures of a year earlier, notes Chief Economist Scott Brown.

Within equities, the market has seen gains across sectors. This bodes well for intermediate-term performance. Outsized gains have come from areas most aligned to an economic reopening, while last year’s best performer, Technology, has largely consolidated its prior strength, acting as a source of capital for the reflation trade, explains Joey Madere, senior portfolio strategist, Equity Portfolio & Technical Strategy. He remains broadly positive on equities, but investors should not be surprised if the historically strong gains experienced over the past 12 months become more normal (with normal pullbacks) over the next 12 months. Given that positive view, weakness could represent buying opportunities.

Speaking of which, let’s review where we are:

Tax Hikes Are Coming

March 29, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

March 29, 2021

The federal budget deficit hit an all-time record high of $3.1 trillion last year. With the passage of the recent blowout “stimulus” bill, it’s set to be even higher in 2021. Now we watch and wait for a potential infrastructure bill, which could run as much as an extra $4 trillion over the next ten years. A trillion here, a trillion there… you know how the old saying goes.

As night follows day, higher spending – unless offset with future spending cuts – is going to lead to higher taxes. That’s certainly the course the Biden Administration looks set to follow. So far, consistent with his campaign pledge, President Biden says he’s not going to raise taxes on people making less than $400,000 per year. But that’s not where the money is.

Let’s say they raise the top personal tax rate of 37% back to 39.6%, which is where it was for eight years under President Clinton, the last four years under President Obama, and the first year of President Trump. That change would generate only an additional $20 billion in extra revenue per year, based on 2018 tax data. If they also raised the 35% income tax bracket to 39.6%, that would raise an extra $13 billion per year. And this year the 35% tax rate kicks in at $209,426 for singles and $418,851 for married couples, which means that path would violate the $400,000 promise. Either way, it’s like trying to fill a swimming pool using a teaspoon.

If they were to go for broke and raise both the 35% and the 37% brackets to a 100% tax rate, and people keep working and paying everything they made in taxes, that would have raised about $681 billion in 2018. Big money, but still not close to bridging the budget gap.

That’s why we think Transportation Secretary Pete Buttigieg’s trial balloon about taxing auto mileage has to be taken seriously. The big spenders in Washington, DC know that tapping into the incomes of people making less than $400,000 per year is necessary to pay for all their spending promises.

At this point, we think it’d be very tough to get to 50 Senate votes for a whole new federal tax system on mileage. The same goes for a Senator Elizabeth Warren-style wealth tax, which is also of dubious Constitutionality. And, unless they get rid of the filibuster, the same goes for applying the Social Security tax to wages and salaries above $400,000.

Instead, we think the tax hike, which will likely be implemented on January 1, 2022, includes the following parts. 1. A top rate back up to 39.6% 2. A corporate rate, now 21%, close to 28%. 3. A top rate on capital gains and dividends at about 24% versus the current 20% 4. A lower exemption for the estate tax.

The one thing we can say for sure about all this is that some of these projections will be wrong. But we think most of it’ll be right. The Biden team has suggested getting rid of the step-up basis at death for capital assets, but we think that would be an administrative nightmare. Moderate Senators would listen to horror stories about trying to adjust the basis for small farms and business owners and say, no.

The Biden team has also supported applying the 39.6% tax rate to the capital gains and dividends of the highest earners. That’s one proposal that, if enacted, could hurt the stock market and the wider economy. The long-term capital gains tax rate hasn’t been that high since the late 1970s; the dividends rate since 2001. Raising them both that high at the same time? If you haven’t already decided that all this spending is damaging to long-term growth and investments, this would certainly be worrisome. We see a rise to 24% as the compromise that gets the votes.

Bargaining on tax hikes has already started in Washington, at least behind the scenes. It’s going to be a long process, but we can say with high conviction that taxes are going up.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

3-31 / 8:45 am Chicago PMI – Mar 60.0 60.9 59.5

4-1 / 7:30 am Initial Claims – Mar 27 680K 725K 684K

9:00 am ISM Index – Mar 61.4 61.0 60.8

9:00 am Construction Spending – Feb -1.0% -0.3% +1.7%

afternoon Total Car/Truck Sales – Mar 16.4 Mil 16.4 Mil 15.7 Mil

afternoon Domestic Car/Truck Sales - Mar 12.6 Mil 12.6 Mil 11.9 Mil

4-2 / 7:30 am Non-Farm Payrolls - Mar 643K 625K 379K

7:30 am Private Payrolls – Mar 635K 605K 465K

7:30 am Manufacturing Payrolls – Mar 37K 37K 21K

7:30 am Unemployment Rate – Mar 6.0% 6.0% 6.2%

7:30 am Average Hourly Earnings – Mar +0.1% +0.2% +0.2%

7:30 am Average Weekly Hours – Mar 34.7 34.6 34.6

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James. All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Tax Deadline Changed to May 17

March 26, 2021 Tyler Goodrich

The IRS has extended the deadline for filing your 2020 income taxes. Learn more about this important change.

The Treasury Department and IRS have officially extended the deadline for filing your 2020 federal tax return to May 17, 2021.

If you’re expecting to receive a refund, you should still consider filing your taxes ahead of the new deadline. However, for those with a large tax liability, the new deadline may provide some extra time to develop a thoughtful strategy for paying the taxes due.

Common questions

Do I still need to file my federal tax return by April 15, 2021?

No, the new deadline for filing your federal taxes is May 17. However, if you’re expecting to receive a refund, you should consider filing sooner.

Does this extension apply to state tax return deadlines?

No, the extension applies to federal income returns, not state tax payments or deposits. However, some states have also adjusted their deadlines as a result of February storms or other ongoing challenges. Please consult your tax professional for more details about your state’s policies, which may change as updates unfold.

What if I pay estimated quarterly tax payments?

The extension does not apply to estimated tax payments that are due on April 15, 2021. Per the IRS, these payments are still due on April 15.

What do I need to do to elect the deferral?

No special election needs to be made if you decide to delay. Any interest or penalty from the IRS from April 15 to May 17 will be waived. Penalties and interest will begin to accrue on any remaining unpaid balances after May 17, 2021.

Does this mean I can make 2020 IRA contributions until May 17?

This hasn’t yet been clarified. The IRS is expected to provide this information in the coming days.

How can I learn more about this change?

The IRS has established a special section on their website to help taxpayers stay up to date with COVID-19-related changes. Visit irs.gov to explore related resources, and reach out to your tax professional and financial advisor with any questions you have about your specific tax situation and financial plan.

While we are familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Social Security Myths and Misconceptions

March 26, 2021 Tyler Goodrich

Learn how to get the most from your hard-earned benefits.

There’s no doubt about it. Filing for Social Security can be daunting. There’s a ton of information – and misinformation – to weed through, as well as the need for some calculations based on several variables. Your benefits depend on your age, how long you’ve worked, what you earned, your marital status and number of dependents. Seems like you have to factor in everything but your IQ. So to help, we offer some common misconceptions as well as some guidance on ways to get the most from your hard-earned retirement benefits.

Myth No. 1: Social Security won't be around when I need it.

While it’s true that your contributions go to current beneficiaries as opposed to an account reserved for you, Social Security continues to be replenished by younger, working Americans, as well as earned interest on its bond portfolio and income tax on benefits paid to higher-income retirees. However, the trustees have projected that any existing surplus could be depleted sometime between 2033 and 2037, if no further legislative action is taken. This could mean that future retirees may be paid some portion, between 75% and 80% for example, of the benefits promised, but not zero like many fear.

Myth No. 2: Social Security is all you need.

Somewhat paradoxically in light of Myth No. 1, more than half of Americans expect to fund their retirement entirely with Social Security. While benefits do get adjusted for cost of living increases, they were always intended to supplement, not replace, retirement savings. Retired workers received an estimated average of $1,548 in benefits for the month of February in 2021. Even if you live frugally, that amount is likely not enough to account for all the variables you might encounter over a decades-long retirement. That’s why it’s important to do what you can to maximize all your retirement savings for as long as possible (think taking full advantage of your employer’s 401(k) match).

Myth No. 3: File as early as possible.

No one quite knows how long you’ll live past full retirement age (FRA), so some think you should collect as soon as you’re eligible. But that means permanently reducing benefits when the odds favor a longer lifespan for most of us. Your advisor can help you calculate your breakeven point based on your statistical life expectancy and your family history. Higher earning spouses, in particular, may want to delay as long as possible, not just to maximize their own benefits, but to ensure a higher payout for their widow or widower when the time comes. Surviving spouses are eligible for 100% of their spouse’s benefit.

Myth No. 4: File as late as possible.

We’re not trying to confuse you. For the vast majority of applicants, waiting past full retirement age to file makes the most sense financially. But there are conditions that warrant filing early, particularly if you need the extra income or if your health isn’t the best. On the other hand, retirees who want to have the most income during their prime years may want to file early, too. Should you change your mind, you can claim a do-over within the first year, but you have to pay back what you received. If longer than a year, you can voluntarily suspend your benefits at FRA and then earn delayed credits until age 70.

Myth No. 5: You'll lose benefits if you continue to work after filing a claim.

If you file before your normal retirement age and continue to work, your benefits will be temporarily reduced depending on how much you earn. But those benefits are merely delayed until full retirement age (FRA), not lost forever. Once you reach FRA, you’ll receive increased monthly payments to make up the difference. Plus, you may end up increasing your annual benefit because Social Security is based on your 35 highest years of income.

Myth No. 6: You're out of luck if you've never worked outside the home.

It’s true that regular benefits are based on an employment record of at least 40 quarters. But those who haven’t worked for that long, or at all, can receive half of what a spouse or even an ex-spouse would receive (as long as you were married for at least 10 years and haven’t remarried). If you’re a surviving spouse, you may be eligible for full benefits on your spouse’s record. Even ex-spouses can claim full survivor benefits as long as you were married for more than 10 years and never remarried before he or she passed away. Of note: remarriage after age 60 does not prevent or stop entitlement to benefits for survivors – even ex-spouse survivors.

Myth No. 7: Follow advice from friends and family.

Filing for Social Security based entirely on advice from nonprofessionals may work just fine, but it may not help you maximize benefits, which could leave thousands of dollars at stake. Often a consultation with your financial advisor and an accountant can help determine the best strategy.

Sources: ssa.gov; investopedia.com; forbes.com; thefiscaltimes.com; marketwatch.com; cnnmoney.com

The Fed, Regulation, and MMT - Irresponsible

March 24, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

March 22, 2021

You’ve got to hand it to the Federal Reserve. With the cleverness of a seasoned head coach – think Jim Boeheim leading Syracuse in the NCAA basketball tournament – they figured out how to accomplish a great deal while making it look like they didn’t have many tools at their disposal.

The market keeps expecting the Fed to bow to pressures to lift rates, and the Fed knows that it can’t keep interest rates at zero forever. But it wants to keep them there for as long as it can. So, how do they do that? Well, one way is to forecast higher inflation and real GDP growth so that if (and when) it occurs, you can say “well, that doesn’t surprise us at all.”

Follow the bouncing ball. At its last meeting, the Fed raised its 2021 real GDP forecast to 6.5% growth, while it expects 2.4% inflation (and argues that it wants inflation to rise above 2%), and unemployment is forecast to fall below 4% in 2022. Despite that outlook, most Fed members are still projecting no increases in short-term interest rates until 2024 or beyond.

As a result, the economy can accelerate to its fastest growth rate since the early 1980s and inflation can move above the Fed’s 2% target, all while the Fed sits back and yawns.

Of course, the bond market has a say in things, too. Rapid growth and higher inflation could push up long-term interest rates even further, and at that point the “bond vigilantes” may force the Fed’s hand. But the Fed feels confident that it has the tools to deal with this…specifically, asset purchases.

Right now, the Fed is buying $80 billion of Treasury debt each month and $40 billion of mortgage-backed securities. The Fed could raise the total every month, it could shift purchases to longer-dated Treasury debt, or it could buy fewer mortgages and more Treasuries. After all, the housing market is booming, so the Fed can withdraw support.

We think, in the end, the Fed will change its mix of bond buying and be pressured to lift rates before it now expects. Either way, the change in its forecast has bought some time before it does either. And that’s good, because the Fed is now wrestling with an entirely different issue. In order for the Fed to operate within an economic policy that certainly looks like Modern Monetary Theory, it must purchase trillions of dollars of government debt.

While many think the Fed can do this all on its own, it actually needs the US banking system to help. Big banks, and their primary dealers, buy bonds from the Treasury and then the Fed buys these bonds from banks by creating new reserves. So, the banks end up holding either the Treasuries – if the Fed doesn’t buy them all – or the new reserves (deposits) that the Fed created to purchase them.

Historically, no one cared how many Treasury bonds or reserves that the banks held because they are the most creditworthy assets on the face of the earth. Regulators only worried about personal or business loans or risky bond debt that banks held because, as we saw in 2008, when these loans start to default the banking system can get in trouble.

After 2008, regulators and politicians made banks hold more capital so that shareholders, not taxpayers, would be on the hook for loan losses. But they didn’t stop there. The Fed invented something called the Supplementary Leverage Ratio (SLR), which is a rule requiring banks to hold 5% capital against ALL their assets – including Treasury bonds and reserves.

In normal times, this new rule had little effect. But last year, when politicians decided to run up a $3 trillion dollar deficit to offset economic damage from the COVID shutdowns, the Fed stepped in and bought over $2 trillion of assets. This money flowed into the banking system, threatening to overwhelm banks with new money. If loan losses increased because of forced business closures, at the same time banks had to hold more Treasury debt and reserves because of Congressional and Fed actions, they might have breached the SLR capital requirements.

So, what did government do? It relaxed the SLR, and exempted banks from holding capital against Treasury debt and reserves. We don’t think banks should need to hold this extra capital against risk-free assets, especially when it is the government forcing them to hold them.

Unfortunately, late last week, at the urging of progressive lawmakers, the Fed announced it would not extend the exemption beyond March 31. Senator Elizabeth Warren said “The banks’ requests for an extension of this relief appear to be an attempt to use the pandemic as an excuse to weaken one of the most important post crisis regulatory reforms…” But this really isn’t true. While we can understand holding extra reserves to offset exposure to risky assets (and regulators can raise this requirement whenever they want), it makes no sense when required of non-risky assets.

What we think is really going on is that banks are making money by holding risk-free Treasury assets and it is Modern Monetary Theory that is forcing these bonds into the banking system. When the Federal Government spends money, and the Fed pays for it by printing new money, it expands the private banking system in the United States.

Attempting to take away any profits from banks for holding these Treasury bonds reduces returns for shareholders. And if banks eventually hit these new liquidity rule levels, they must stop accepting deposits, stop making business loans, or stop buying Treasuries.

The fear that banks may stop buying Treasuries caused a jump in longer-term interest rates last week (the 10-year Treasury jumped to over 1.7%). At the same time, bank stock prices fell. It’s simple math. If these banks are forced to hold more capital, then returns to shareholders will fall as they stop buybacks, limit dividends, or even issue more shares.

We think all this was a short-term over-reaction. Right now, banks have enough excess capital to keep absorbing federal debt. According to a Bloomberg News article, banks have roughly $200 billion in capital above the 5% required.

If we apply a 5% requirement to $200 billion, technically the banks could absorb another $4 trillion in Treasuries, reserves, or loans. But, remember, the government just passed another $1.9 trillion “rescue” bill which must be financed by borrowing, and the Fed is scheduled to buy $1.4 trillion in assets this year. On top of this, team Biden is saying it wants to pass another $2 trillion to $4 trillion infrastructure bill. And while this is going on, we expect real GDP to expand by 6% this year, which will certainly increase the demand for business loans.

In other words, as the future unfolds, the cushion of capital will be absorbed. Banks have said they face no near term problems and we don’t disagree. Lending can continue as the economy picks up. But in the longer-term this regulation threatens to undermine the government’s desire to spend more and more. That’s what makes the progressive push to renew the SLR a bit of a mystery. Why interfere with borrowing?

Maybe, and we are not trying to be conspiracy theorists here, progressives want to revert to a national bank, or have regulators gain even more controls over the private banking system than they already have.

Evidently, all of this may become moot. The Federal Reserve has said that it is reviewing these rules and will likely make modifications in the near future. While we expect the Fed to escape the dangerous downside to these new rules, we are also cognizant of the fact that the US has entered an unprecedented period of government regulation and growth.

Former Clinton Treasury Secretary Larry Summers has called it “the least responsible fiscal macroeconomic policy we’ve had for the last 40 years.” We think he is right about the irresponsibility, but wrong about the time period. It’s not the past 40 years, it’s the entire history of the United States. In the near-term, investors are safe from the stagflation we saw 40 years ago. But, as 2023 rolls around we aren’t so sure. Stay positive for now, the worries are long-term.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

3-22 / 9:00 am Existing Home Sales – Feb 6.500 Mil 6.320 Mil 6.220 Mil 6.690 Mil

3-23 / 9:00 am New Home Sales – Feb 0.875 Mil 0.872 Mil 0.923 Mil

3-24 / 7:30 am Durable Goods – Feb +0.7% -0.1% +3.4%

7:30 am Durable Goods (Ex-Trans) – Feb +0.6% -0.4% +1.3%

3-25 / 7:30 am Initial Claims – Mar 21 730K 735K 770K

7:30 am Q4 GDP Final Report 4.1% 4.2% 4.1%

7:30 am Q4 GDP Chain Price Index +2.1% +2.1% +2.1%

3-26 / 7:30 am Personal Income – Feb -7.2% -5.7% +10.0%

7:30 am Personal Spending – Jan -0.8% -0.7% +2.4%

9:00 am U. Mich Consumer Sentiment- Mar 83.6 83.0 83.0

Plan Ahead for the Unexpected with Long-Term Care

March 19, 2021 Tyler Goodrich

Government programs, such as Medicare and Medicaid, and most private health insurance have limited coverage for long-term care services, and tapping into the money you have set aside or being dependent on a loved one for everyday tasks may not be viable options.

Planning for a long-term care event not only helps protect your financial future, but also your family’s emotional peace of mind. Hear from Rob Lowe, Maria Shriver, Maggie Gyllenhaal and other star-studded guests as they share their personal experiences with long-term care planning for their loved ones in this short video by Genworth. Watch Video

Be the architect of your own life and start the conversation by contacting me today. Together, we will develop a plan so you and your family feel prepared for whatever needs may arise.

Sincerely,

Matt Goodrich, Financial Advisor

President, Goodrich & Associates, LLC

Branch Manager, RJFS

12 Bellwether Way, Suite 215 // Bellingham, WA 98225 // 360.671.0226
Matt.Goodrich@raymondjames.com // https://goodrichassociates.net

These policies have exclusions and/or limitations. The cost and availability of long-term care insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of long-term care insurance. Guarantees are based on the claims paying ability of the insurance company.

Video approval #3309032 exp: 10/29/2022

Inflation and The Fed

March 18, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

March 15, 2021

We believe inflation is still, and always will be, a monetary phenomenon. It is defined as “too much money chasing too few goods and services” – but that doesn’t mean every period of higher inflation is going to look exactly the same.

Today’s case for higher inflation is easy to understand. The M2 measure of the money supply is up about 25% from a year ago, the fastest year-to-year growth in the post-World War II era. And while measures of overall economic activity such as real GDP and industrial production are still down from a year ago (pre-COVID), Americans’ disposable incomes are substantially higher, boosted by massive payments from the federal government with more “stimulus” on the way.

Right now, the consumer price index is up only 1.7% from a year ago. But, this year-ago comparison is set to soar to 2.5%, or higher, as we drop off the big declines in prices we saw during February - April 2020. The extent of this increase will likely be held back by the government’s measure of housing inflation (which only focuses on rental values, not home prices). Excluding rents, inflation will be more like 3.0% this year, and will likely move up by about another percentage point in 2022.

Producer prices are already up 2.8% from a year ago, with much faster growth in prices further up the production pipeline.

Does this mean we are heading back to double-digit inflation, bell-bottoms, disco balls, and the return of Jimmy Carter-style stagflation?

We think we are a long way from that. As Mark Twain once said, “History doesn’t repeat, but it often rhymes.” In the 1970s, if the Fed would have fought inflation harder early on, we would have never seen it hit double-digits. As a result, for now, we are thinking more of the late 1980s, not the 1970s.

Consumer prices rose only 1.1% in 1986 as oil prices collapsed, but then it revived in 1987, rising above 4.0% by late Summer. To fight this rise in inflation, the Fed raised short-term interest rates by about 140 basis points, to about 7.3% from 5.9% towards the end of 1986.

As the 10-year bond yield rose in 1987, the stock market took it on the chin and crashed in October. Alan Greenspan responded by providing as much liquidity as needed to restore confidence in the financial markets, and had the Fed cut shortterm rates through early 1988. The money supply didn’t soar, but short-term interest rates were lower than the trend in nominal GDP growth (real GDP growth plus inflation), signaling loose monetary policy.

Once the smoke cleared from the stock market crash, the Fed found itself behind in the inflation-fight. Inflation jumped to 5.4% in 1989, before Iraq invaded Kuwait, and then higher oil prices from the war pushed it to 6.3% after the invasion.

As a result, the Fed eventually lifted short-term rates to almost 10.0% to get inflation under control. The result was the tight-money-induced recession of 1990-91, which some still wrongly blame on the Iraqi invasion.

We don’t know if the late-1980s pattern is the one we’re about to follow. What we do know is that just like with the stock market crash of 1987, the Fed has demoted inflation as its top concern and pushed COVID recovery to the top of its list. Letting M2 growth rise to 25%, and holding rates at basically zero, in spite of an economic recovery, is the proof.

The biggest question is how quickly the Fed turns its attention to inflation as it builds and how far will they go to fight it. In the 1970s, it was double-digit inflation, in the 1980s, it was 5% to 6% inflation.

Either way, this Fed has made it clear that it will remain easy through 2022. As are result, we remain bullish on the economy and stocks, but cautious on bonds as inflation picks up. We all need to wait until 2023 to see what history we rhyme.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

3-15 / 7:30 am Empire State Mfg Survey - Mar 14.5 15.0 17.4 12.1

3-16 / 7:30 am Retail Sales – Feb -0.5% -0.5% +5.3%

7:30 am Retail Sales Ex-Auto – Feb +0.1% +0.7% +5.9%

7:30 am Import Prices – Feb +1.1% +1.2% +1.4%

7:30 am Export Prices – Feb +1.0% +0.8% +2.5%

8:15 am Industrial Production – Feb +0.4% +0.2% +0.9%

8:15 am Capacity Utilization – Feb 75.5% 75.7% 75.6%

9:00 am Business Inventories – Jan +0.3% +0.3% +0.9%

3-17 / 7:30 am Housing Starts – Feb 1.555 Mil 1.538 Mil 1.580 Mil

3-18 / 7:30 am Initial Claims – Mar 14 700K 720K 712K

7:30 am Philly Fed Survey – Mar 24.0 25.7 23.1

Powell Disses Uncle Milty

March 1, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

March 1, 2021

Those of us who are concerned about inflation increasing faster than the Federal Reserve anticipates are focusing on the rapid increase in the M2 measure of the money supply. This measure has soared since COVID-19 hit the US, up about 25% from a year ago, the fastest growth on record.

It is the key difference between the current situation and the situation in the aftermath of the Financial Crisis of 2008-09. During that first round of Quantitative Easing and big spending bills (like TARP), the M2 measure remained subdued because the Fed kept banks from lending, in part by raising capital standards. As a result, inflation remained subdued as well.

This is consistent with what the late great economist Milton Friedman (Uncle Milty) taught us. He said, watch M2: Nominal economic growth and inflation will tend to track M2 broadly over time, adjusted for any fluctuations in the velocity of money, the speed with which money circulates through the economy.

But Fed Chairman Jerome Powell disagrees. As he recently said, “When you and I studied economics a million years ago, M2 and monetary aggregates seemed to have a relationship to economic growth,” but, “right now ... M2 ... does not really have important implications. It is something we have to unlearn I guess.” In other words, Uncle Milty’s theories don’t work.

Wow! A Federal Reserve Chairman who casually dismisses the monetary lessons of Milton Friedman does so not only at his own peril but the country’s.

The yield on the 10-year Treasury note is already up about 50 basis points this year even though short-term interest rates haven’t budged and aren’t expected to do so anytime soon. Meanwhile, analysts are marking up their estimates of real GDP growth this year.

We’re not saying inflation is going to suddenly surge to 25% (the same pace as M2 growth) or anywhere close. COVID19 led to a crash in velocity and it will take time to recover, which also gives monetary policymakers time to reduce the pace of M2 growth before a serious inflation problem takes hold.

But that’s different from saying the money supply doesn’t matter at all, which was the message Powell sent.

The US economy is healing faster than expected, while the US Congress and President Biden are intent on pouring at least one more massive government spending stimulus into the system. They are doing this even though the pandemic is waning, and a double-dip recession seems highly unlikely.

The big risk for the next couple of years is an upward surge in inflation that’s larger than anything we’ve experienced in the past couple of decades. We still project 2.5% CPI inflation for 2021, as the government’s measure of housing rents holds the top-line inflation number down. But commodity prices are likely to continue rising and overall inflation will as well in 2022 and beyond. There is an old saying: When the Fed is not worried about inflation, the market should be worried.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

3-1 / 9:00 am ISM Index – Feb 58.6 59.0 60.8 58.7

9:00 am Construction Spending – Dec +0.7% +1.0% +1.7% +1.0%

3-2 / afternoon Total Car/Truck Sales – Feb 16.2 Mil 16.1 Mil 16.6 Mil

afternoon Domestic Car/Truck Sales – Feb 12.4 Mil 12.4 Mil 12.8 Mil

3-3 / 9:00 am ISM Non Mfg Index – Feb 58.6 58.9 58.7

3-4 / 7:30 am Initial Claims – Mar 2 755K 820K 730K

7:30 am Q4 Non-Farm Productivity -4.7% -4.6% -4.8%

7:30 am Q4 Unit Labor Costs +6.7% +6.4% +6.8%

9:00 am Factory Orders – Dec +1.8% +2.4% +1.1%

3-5 / 7:30 am Non-Farm Payrolls – Feb 180K 140K 49K

7:30 am Private Payrolls – Feb 190K 130K 6K

7:30 am Manufacturing Payrolls – Feb 10K 0 -10K

7:30 am Unemployment Rate – Feb 6.4% 6.3% 6.3%

7:30 am Average Hourly Earnings – Feb +0.2% +0.2% +0.2%

7:30 am Average Weekly Hours – Feb 34.9 34.9 35.0

7:30 am Int’l Trade Balance – Dec -$67.4 Bil -$67.9 Bil -$66.6 Bil

2:00 pm Consumer Credit– Jan $12.0 Bil $13.0 Bil $9.7 Bil

Required Minimum Distribution Reminder

February 22, 2021 Tyler Goodrich

February 22, 2021

Dear Friends and Clients,

As a reminder, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed last year, suspended required minimum distributions (RMDs) for 2020. The relief provided by this provision was broad and extended to traditional IRAs, SEP IRAs and SIMPLE IRAs, as well as 401(k), 403(b) and governmental 457(b) plans. Both retirement account owners and beneficiaries taking stretch distributions were allowed to bypass RMDs for the calendar year of 2020.

So, what does this mean for this year? Since last year’s exemption hasn’t been extended, anyone who is 72 or older in 2021 must make a withdrawal before year-end (December 31). If you turn 72 this year, you may delay your first withdrawal until April 1, 2022. As you know, it is important that we initiate your distribution by the appropriate deadline, as failure to withdraw your RMD can result in an IRS penalty of 50% of the amount that should have been withdrawn.

So, while you may have all year to withdraw the money, you can always calculate your 2021 RMD now and plan ahead using the life expectancy tables provided by the IRS. As a refresher, your required withdrawals are based on the balance in your retirement savings account(s) as of Dec. 31, 2020 and the applicable life-expectancy factor based on your current age.

Depending on your tax situation, you may want to direct the RMD amount toward a Qualified Charitable Distribution (QCD). Briefly, a QCD, which can be made only by IRA participants who are at least 70½, may be as high as $100,000. The funds must be sent directly to the qualified (IRS-approved) charitable organization. In most cases, you will report the QCD as a nontaxable distribution from your IRA on your tax return. If you wish to take advantage of this provision, please let me know and I will make note of it.

Please contact me at 360.671.0226 if you have any questions about your 2021 RMD as part of your overall retirement plan.

Sincerely,

Matt Goodrich, Financial Advisor

President, Goodrich & Associates, LLC

Branch Manager, RJFS

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Goodrich & Associates, LLC. is not a registered broker/dealer and is independent of Raymond James Financial Services Inc. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. and Goodrich & Associates, LLC.

It's Not a Bubble

February 19, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

February 16, 2021

Ever since the stock market bottomed in 2009 during the financial crisis, people have been coming up with reasons why the bull market was about to end. We heard every reason – Brexit, the end of Quantitative Easing, too much debt, COVID, etc. – and while we understood each may be a cause for consternation, we focused on valuations, which suggested the bull market would continue. Over time, math wins.

After the recovery in stocks from the 2020 lockdowns (and especially the latest surge in equity values) some analysts have been saying the US stock market is in a bubble, maybe even like the one it reached in March 2000. Some buttress this claim with the so-called “Warren Buffett Model,” which says the market could be overvalued when total stock market capitalization exceeds GDP, like it does now.

Meanwhile, others are convinced that the social media fueled jump in some very small stocks (like Gamestop) and commodities (like silver) signal a building bubble.

But a bubble this is not. At least not yet. The Buffett Indicator is not reliable, the Reddit-fueled burst in some stock prices is very narrow, and signals more of a change in the investing market than any serious sign of fundamental issues.

The bull market still has further to run, and we stand by our year-end projection for the S&P 500 of 4200.

The Federal Reserve has the US economy awash in liquidity, with the M2 measure of the money supply up 25% from a year ago. Another very large fiscal “stimulus” package is wending its way through Congress, and is likely to hit the President’s desk relatively soon.

Meanwhile, the vaccine for COVID-19 continues to rollout, while cases, hospitalizations, and deaths are all falling so rapidly that teachers unions in many states are being forced to move the goalposts and come up with new reasons why they can’t go back to teaching in-person classes.

All of this is reason to believe 2021 is a hard year to be out of the equity market. Yes, tax rates are likely to rise, but not in 2021. Have you noticed how few politicians are even mentioning this anymore? With businesses shut down and unemployment high, tax hikes will likely be put off until 2022.

So, in short, we are still bullish. Profits are headed up and have much further to go, while interest rates would have to move substantially higher to make our cap profits model turn bearish. Yes, the 10-year Treasury yield hit 1.25% last night, but it would have to go to at least 2.0% or higher before it’d be a headwind for equities.

Eventually the bull market will come to an end. Maybe it’ll be the much faster money growth translating into persistently high inflation and interest rates, perhaps tax hikes will go farther and be more damaging than we think. Perhaps, some exogenous factor like a mutant strain of COVID forces another shutdown. Perhaps, perhaps, perhaps.

But the market is still undervalued, the Fed is easy, stimulus will boost the economy by borrowing from the future, and COVID data are very positive. We would never say that anything is certain, or that a correction won’t happen, but the stock market is nowhere near bubble territory.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

2-16 / 7:30 am Empire State Mfg Survey – Feb 6.0 7.6 12.1 3.5

2-17 / 7:30 am Retail Sales – Dec +1.0% +1.6% -0.7%

7:30 am Retail Sales Ex-Auto – Dec +0.9% +1.1% -1.4%

7:30 am PPI – Jan +0.4% +0.4% +0.3%

7:30 am “Core” PPI – Jan +0.2% +0.3% +0.1%

8:15 am Industrial Production – Jan +0.4% +0.4% +1.6%

8:15 am Capacity Utilization – Jan 74.8% 74.7% 74.5%

9:00 am Business Inventories – Nov +0.5% +0.5% +0.5%

2-18 / 7:30 am Initial Claims – Feb 13 773K 788K 793K

7:30 am Housing Starts – Jan 1.658 Mil 1.690 Mil 1.669 Mil

7:30 am Import Prices – Jan +1.0% +1.1% +0.9%

7:30 am Export Prices – Jan +0.8% +0.7% +1.1%

7:30 am Philly Fed Survey – Feb 20.0 19.6 26.5

2-19 / 9:00 am Existing Home Sales – Jan 6.610 Mil 6.550 Mil 6.760 Mil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James. All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

Immunity is Closer Than You Think

February 12, 2021 Tyler Goodrich

First Trust Economic Research Report

Brian S. Wesbury - Chief Economist

February 10, 2021

While the US has been a focus for criticism throughout the COVID-19 pandemic, its vaccine rollout has so far been the envy of the world. Since Operation Warp Speed eliminated many of the bureaucratic hurdles to FDA approval and helped deliver a vaccine in record time, the US has been steadily growing its distribution system. Currently, about 1.5 million Americans are being vaccinated a day, putting us on pace to easily beat the Biden Administration's original goal of 100 million doses in 100 days. Cumulatively, 44 million vaccine doses have been administered, with 10 million people having gotten the recommended two doses that offer 90%+ effectiveness. That means roughly 34 million Americans, or 10% of the population, have some level of immunity to the virus.

While controversial early in the pandemic, many are now more familiar with the term herd immunity, which represents a hypothetical threshold of the population that needs pre-existing immunity to a virus through antibodies in order for transmission to break down. The scientific consensus for that threshold seems to be about 70%, so from a vaccine-based measure we are about 1/7th of the way there.

However, we think that looking at vaccine doses alone is leaving out a huge part of the picture. We know that prior infection from COVID-19 generates an immune response, and that immunity seems to be long lasting. Recent studies have proven that immunity lasts 3-6 months, but even that is probably understated. There are currently 100 million confirmed cases of COVID-19 worldwide, but only 47 confirmed cases of reinfection. Given that the pandemic has been raging for over 6 months and reinfections are still exceedingly rare, a reasonable conclusion is that antibodies from prior infection will be an important component to reaching herd immunity.

So, how many people have had COVID-19 in the US? The official count of positive tests is currently 26.9 million according to the COVID Tracking Project. But this leaves out a huge chunk of Americans who have had the virus and never got an official test that shows up in the national statistics. The CDC currently estimates that we only find about one out of every four infections, meaning north of 100 million Americans have likely been infected at some point in the past year and now have antibodies from the virus.

By our calculations which you can see in the chart above, including official positive tests, estimated additional infections, and vaccine doses, shows that roughly 40% of the US population currently has antibodies. That means we are currently over halfway to the 70% goal, and projecting vaccinations forward shows we are likely to get the rest of the way there in mid-late April as vaccines continue to do the heavy lifting.

While this is bound to include some double-counting, with people who have been previously infected getting a vaccine for example, it's a much better measure than just looking at vaccine doses alone when estimating where we are in the fight against this terrible virus. In fact, with recent COVID data showing daily cases and hospitalizations are down by 57% and 36% respectively since the peak, we may already be hitting a point where preexisting immunity is playing a role in driving down transmission.

This in turn is positive news for the US economy in 2021 because it means we will be able to roll back the pandemic restrictions that remain the biggest impediment to a further recovery faster than many expect. Stay positive and stay invested, immunity to COVID-19 is closer than you think.

This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security. The opinions of Brian S. Wesbury, Robert Stein and Strider Elass are independent from and not necessarily those of RJFS or Raymond James.

The Return of Inflation

February 9, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

February 8, 2021

Inflation is not dead. It is not gone. It has not been tamed. We know it seems like it, especially after the past few decades which generated in many an “inflation-complacency” that feels justified. After all, following the 2008 Financial Panic, many predicted Quantitative Easing would cause hyperinflation.

When the Fed boosted the Monetary Base by more than $3 trillion dollars during Quantitative Easing 1, 2 & 3, and the federal budget moved to a huge deficit, gold and silver commercials proliferated. So did predictions of a collapsing dollar.

But inflation never came. Since the end of the 2008-09 financial panic, the Consumer Price Index has increased by an average of just 1.7% per year, falling short of the Fed’s (conjectural) 2% target. So, what happened?

The answer: Boosting the monetary base is not the same as boosting the amount of money circulating in the economy. Milton Friedman taught us to watch the M2 measure of the money supply.

During the first period of QE, from 2008 to 2016, the Fed bought trillions of dollars of bonds, but also increased bank regulation and capital requirements. As a result, banks ended up holding excess reserves and the money supply remained calm, with M2 growing, on average, about 6% per year, similar to the growth rate in the 1990s.

During the 2020 COVID-induced round of Fed money printing, instead of using QE to put reserves in the banking system, the Fed financed government programs to fund loans to businesses and direct payments to individuals. As a result, M2 has grown 26.3% in the past year, the fastest annual growth we can find in US history, and roughly double the pace of M2 growth the US experienced during the 1970s.

According to those who believe in Modern Monetary Theory – which isn’t modern, and is just vaguely a theory - the US can increase real output enough to absorb it. In other words, they say that while inflation is “too much money chasing too few goods” – they expect the output of goods to increase enough to keep inflation low.

We find this impossible to believe. In fact, we think many are living in denial. Inflation is already on the rise. In the past six months, the Consumer Price Index is up 3.6% at an annual rate and if it rises a modest 0.2% per month between January and May, it will be up 3.4% over 12 months. Part of this is because COVID shutdowns led to weak inflation in early 2020, but we expect inflation to move higher in 2021.

But, in addition to M2 growth, incomes and savings have increased, while production has not. Demand is exceeding supply. All personal income combined – wages & salaries, employee benefits, small business income, rents, interest, dividends, and transfer payments – was up 6.3% in 2020 versus 2019. Total after-tax income was up 7.2% in 2020, the most for any year since 2000.

Combined, Americans saved about $2.9 trillion in 2020, more than doubling the previous record high of $1.2 trillion in 2018. As of the third quarter of 2020, the amount Americans held in checking accounts, savings accounts, time deposits, and money market funds was up $2.8 trillion from the year prior. Add another $1.9 trillion in federal government stimulus spending (borrowing from the future, to spend today) and the US is awash in cash, much of which is funded by Washington’s money printing.

Unfortunately, in spite of a strong recovery in output, industrial production is 3.3% below pre-COVID levels, while real GDP is 2.5% below. In other words, demand is OK, it’s supply that’s still hurting – a perfect recipe for inflation.

We can see the impact of this affecting markets. The 10- year Treasury yield has risen from roughly 0.6% in May 2020 to 1.2% today. The gap between the yield on the normal 10- year Treasury Note and the inflation-adjusted 10-year Treasury Note suggests investors expect an annual average increase of 2.2% in the consumer price index (CPI) in the next ten years, and those expectations are rising.

Bitcoin, while we doubt it will ever be real money, hit a record high today reflecting fears of lost dollar purchasing power. Commodity prices continue to surge.

All this money printing threatens to eventually create a sugar high in equities. We aren’t there yet, but markets are floating on a sea of new money. In fact, its more like a tsunami! Inflation hedges (real estate, commodities, materials companies) will do well. Traditional fixed income (long-term bonds) is at risk. The return of inflation because of misguided policy choices is a very real threat to the long-term health of the US economy.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

2-10 / 7:30 am CPI – Jan +0.3% +0.3% +0.4%

7:30 am “Core” CPI – Jan +0.2% +0.2% +0.1%

2-11 / 7:30 am Initial Claims – Feb 8 760K 803K 779K

2-12 / 9:00 am U. Mich Consumer Sentiment- Feb 80.9 79.5 79.0

Important Information For Tax Season 2020

February 4, 2021 Tyler Goodrich

Dear Friends and Clients:

As you prepare for tax season, here is some information that you may find beneficial.

2020 Form 1099 mailing schedule

January 31 – Mailing of Form 1099-Q and Retirement Tax Packages
February 15 – Mailing of original Form 1099s
February 28 – Begin mailing delayed and amended Form 1099s
March 15 – Final mailing of any remaining delayed original Form 1099s

Additional important information

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows us to extend the mailing date until March 15, 2021, for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts, as well as holding company depositary receipts
Processing of original issue discount and mortgage-backed bonds
Expected cost basis adjustments including, but not limited to, accounts holding certain types of fixed income securities and options

If you do have a delayed Form 1099, a preliminary statement will be generated and can be viewed in Client Access for informational purposes only, as the form is subject to change.

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s:

Income reallocation
Adjustments to cost basis (due to the Economic Stabilization Act of 2008)
Changes made by mutual fund companies related to foreign withholding
Tax-exempt payments subject to alternative minimum tax
Any portion of distributions derived from U.S. Treasury obligations

What can you do?

You should consider talking to your tax professional about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2020.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax professional about the requirements to re-file based on your individual tax circumstances.

You can find additional information at raymondjames.com/wealth-management/why-a-raymond-james-advisor/client-resources/tax-reporting.

I hope you find this additional information helpful. Please call me if you have any questions or concerns about the upcoming tax season.

Sincerely,

Matt Goodrich, Financial Advisor

President, Goodrich & Associates, LLC

Branch Manager, RJFS

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Material prepared by Raymond James for use by its advisors.

January Market Review

February 1, 2021 Tyler Goodrich

January Market Review

Dear Friends and Clients,

February begins with a stack of important economic scorecards. Among them are the last of the fourth-quarter corporate earnings reports, last week’s assessment of the 2020 gross domestic product (GDP), unemployment figures, consumer spending, as well as all the other regular reports that give us a snapshot of our recent economic history.

We’ve also seen our first glimpses – and first tangible evidence – of the new administration’s priorities. And adding to the list is a new scorecard – a tally of the first full month of COVID-19 vaccinations.

It’s a new year, but the same drivers of volatility remain: COVID-19, vaccine progress and politics. The S&P 500 had been up approximately 2.5% before a pullback on the last day of the month sent it lower for January – the first negative month since October. The broad equity markets declined in January despite the S&P 500 setting five new record highs during the month, and volatility “woke up,” to some degree on short-sell activity, ending the month at 32.4, up approximately 37% since the end of December. Four out of the 11 S&P 500 sectors were positive for the month, including some (real estate, energy) that had been lagging due to COVID-19 lockdowns.

The pace of the economic recovery slowed in the final quarter of 2020, based on a smaller quarterly rise in GDP than we saw in the third quarter, ending the year 2.5% lower than the fourth quarter of 2019. Consumer spending growth was also up, but limited, constrained by the pandemic. Raymond James Chief Economist Scott Brown said he expects a sharp rebound in the latter part of the year as the distribution of vaccines continues.

The anticipation of another stimulus package is supportive of equity markets, noted Chief Investment Officer Larry Adam, with the expectation it will build a bridge to a more normal time by the second half of the year.

So again, we look to Washington. President Joe Biden has proposed a $1.9 trillion stimulus package, and while the administration seems to be seeking bipartisan support, the majority-rules budget reconciliation process could allow a unilateral approach in the end. The month to watch will be March, Washington Policy Analyst Ed Mills said, which is when many elements of the December stimulus package are set to expire. One thing to remember, Mills said, is that “significant action in D.C. is frequently impossible right before becoming inevitable.”

So, as we work our way through these extraordinary times toward a more ordinary future, let’s take a look at the numbers since the start of the year.

Performance reflects price returns as of market close on Jan. 29, 2021.

Other developments throughout the economy and the world follow similar contours.

The oil wait and see

The energy sector is closely watching the new administration’s changes in policy. While moves intended to address climate change are the largest catalyst for change, this is not the only factor. For example, relations with Iran could have significant effects on the oil market if the Biden administration seeks to change course by reengaging with the nuclear agreement and relaxing sanctions placed against the nation in 2018, which sharply decreased oil exports. Timing is a question mark. Though many expect quick action on this front, it could instead be a late-year priority, after Iran holds its presidential elections on June 18.

Pandemic environment drives international markets

British and European markets look similar to their counterparts in the U.S., with limited gains in January following strong showings in November and December. Many European countries have shifted back into lockdowns and only the U.K. has shown strong actions regarding COVID-19 vaccinations. The International Monetary Fund pulled back its 2021 growth estimates.

Asian markets had a much stronger month in comparison, with China reporting positive economic data. Dispelling rumors of a pullback on stimulus, China now appears to be continuing its push to maximize growth through the year.

Late-year expectations raise bond yields

Fixed-income yield curves steepened as long-term rates went up while short-term rates stayed essentially flat. Demand for higher yields tightened high-yield corporate spreads, continuing a trend since September.

Fear of inflation is starting to percolate on assumptions made about individuals’ stimulus spending, but that is likely overstated, Senior Fixed Income Strategist Doug Drabik said. Pockets of inflation are possible, but “there is no mounting evidence to think inflation greater than 2.5% is around the corner.”

The bottom line

The surge in COVID-19 cases and increased restrictions has moderated the pace of the economic recovery, but widespread vaccinations should help to propel a sharp rebound in consumer services (and the overall economy) in the second half.
The market continues to be driven by positive sentiment about a return to normal by the middle of the year, assuming a strong vaccination rollout.
The possibility of fiscal stimulus remains a powerful carrot to some of the positive investment sentiment. How it comes together may tell us a lot about how the new administration works and whether Congress has created a new dynamic with both houses controlled by one party.

I hope you and yours continue to remain safe and well as we cope with the difficulties affecting the world. Thank you for your continued trust as we navigate this complex era together. If you have any questions, please do not hesitate to reach out.

As a reminder, the U.S. markets and our office will be closed February 15th in observance of Presidents’ Day.

Sincerely,

Matt Goodrich, Financial Advisor

President, Goodrich & Associates, LLC

Branch Manager, RJFS

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Raymond James Chief Investment Office and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges which would reduce an investor’s returns. Small cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Material prepared by Raymond James for use by its advisors.

AOC and Ted Cruz, Agree!

February 1, 2021 Tyler Goodrich

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

February 1, 2021

Yes, 2021 is starting off as crazy as 2020. They don’t agree on the Green New Deal, or Socialism, but Ted Cruz and AOC both agree that limiting investor access to markets is a mistake. In case you missed it, last week, Robinhood, a new online trading platform that marketed itself as democratizing investment, stopped investors from buying certain stocks.

They did this during a “short squeeze” that apparently pitted small investors who bought stocks that hedge funds had sold short. The result: these stock prices sky-rocketed. Billions were made and billions were lost. What actually happened: Who lost money and who made money is still being sorted out. What we do know is that some trading platforms locked investors out.

One explanation for keeping small investors from buying certain stocks was that their inexperience made them vulnerable to a big drop in the stock price.

To be clear, we have no idea what “fair value” is for the companies at issue. And, yes, there are very inexperienced “investors” in this market. However, both buyers and sellers influence market prices…and the result of those actions, no matter how much volatility must be allowed to play out.

Short-sellers sell shares of companies they don’t own, with a promise to buy the shares later so they can complete the transaction. In general, if the price of the stock goes down after they short it then they make money; if it goes up, they lose money. Sometimes shorting can overwhelm a security and send its price well below fair value.

At that point, investors who short a security become vulnerable. Remember, being short a stock means there will be future demand, so when buyers push up a stock price it can set off a stampede sending the price even higher. Shorts rush to unwind their positions while other investors, knowing the shorts are vulnerable, rush to bid the stock price up even higher.

Some say this “short squeeze” is bad because it can drive prices above fair value. But what this ignores is that a periodic squeeze is free-market medicine that prevents short sellers from getting to pick and choose which stocks they want to drive below fair value. Imagine a world in which a squeeze on the shorts were impossible, where they would never risk a major loss. That’s not a world that investors should want to live in.

We also can’t help but notice that some of those bashing the small investors who are making short sellers take a major loss, claiming it’s because some stock prices are now above fair value, were also on the side of the short sellers in 2008-09 when they drove the value of mortgage securities well below fair value. Back then, they supported mark-to-mark accounting because it was supposedly more transparent, even though it distorted prices for mortgage securities and led to a financial implosion that cost regular people millions of jobs.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

2-1 / 9:00 am ISM Index – Jan 60.0 59.9 58.7 60.5

9:00 am Construction Spending – Dec +0.8% +1.7% +1.0% +0.9%

2/2 / afternoon Total Car/Truck Sales – Jan 16.1 Mil 16.3 Mil 16.3 Mil

afternoon Domestic Car/Truck Sales – Jan 12.6 Mil 12.6 Mil 12.7 Mil

2-3 / 9:00 am ISM Non Mfg Index – Jan 56.7 57.2 57.7

2-4 / 7:30 am Initial Claims – Jan 30 830K 830K 847K

7:30 am Q4 Non-Farm Productivity -2.9% -4.7% +4.6%

7:30 am Q4 Unit Labor Costs +3.8% +5.7% -6.6%

9:00 am Factory Orders – Nov +0.7% +1.0% +1.0%

2-5 / 7:30 am Non-Farm Payrolls - Jan 50K 50K -140K

7:30 am Private Payrolls – Jan 35K 30K -95K

7:30 am Manufacturing Payrolls – Jan 30K 0 38K

7:30 am Unemployment Rate – Jan 6.7% 6.7% 6.7%

7:30 am Average Hourly Earnings – Jan +0.3% 0.0% +0.8%

7:30 am Average Weekly Hours - Jan 34.7 34.7 34.7

7:30 am Int’l Trade Balance – Nov -$65.7 Bil -$65.8 Bil -$68.1 Bil

2:00 pm Consumer Credit– Dec $12.0 Bil $15.0 Bil $15.3 Bil

Weekly Economic Monitor -- GDP

January 29, 2021 Tyler Goodrich

Economic Commentary | Published by Raymond James & Associates

Scott J. Brown, Ph.D.

January 29, 2021

GDP – Real GDP rose at a 4.0% annual rate in the advance estimate for 4Q20, a much more moderate pace of recovery than was seen in the third quarter. Details were mixed, but consumer spending showed a significant loss of momentum and monthly figures reflected weakness in November and December. The surge in the pandemic and efforts to contain it dampened holiday sales and travel. This may, in turn, give way to seasonally adjusted strength in 1Q21, as there should be less of a fallback in the unadjusted data. However, as the Federal Open Market Committee noted in its January 27 policy statement, “the path of the economy will depend significantly on the course of the virus, including progress on vaccinations.”

This Week – There is more than the usual uncertainty in the Employment Report. Annual benchmark revisions to the establishment survey data (payrolls, hours, wages) are expected to be small, but seasonal adjustment could exaggerate the January figures. The January ISM surveys should reflect moderate strength, although the headline figures are likely to remain exaggerated by the pandemic’s impact on supplier delivery times.

To view the the entire report click on the link below!

VIEW FULL REPORT

IMPORTANT INVESTOR DISCLOSURES

This material is being provided for informational purposes only. Expressions of opinion are provided as of the date above and subject to change. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Links to third-party websites are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any third-party website or the collection or use of information regarding any websites users and/or members. This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate, or commercially exploit the information contained in this report, in printed, electronic, or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret, or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec. 501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works.