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Thoughts in Charts: Are the Tax Winds Shifting?

In Kansas you’ll often hear – “If you don’t like the weather, wait a minute.” Long-Term Capital Gains tax rates have historically been a bit like the shifting Kansas winds. The current proposal has a long way to go before its final, but it’s bringing this tax to the forefront of conversation.

Here is a bit of vocab so that you can sound smart when this comes up over dinner:

  • Capital Gains are the difference between the amount you paid for an investment and the amount the investment is worth when you sell it.
  • Long-Term means that you held that investment for over 1 year.
  • The tax applies when trading taxable accounts meaning that it doesn’t impact retirement accounts like IRAs or 401(k)s.
  • It’s a tax on realized gain so it only applies when you sell the investment.
  • The rate on the chart above is the top nominal rate which is the top rate paid on the last dollar. The proposed 43.4% would be assessed on taxpayers with greater than $1 million in taxable income. For those under that threshold, the top rate remains 23.8%.
  • The current proposal is retroactive. The timing is a bit vague, but, for now, there isn’t an incentive to run out and sell now to avoid higher taxes later.

I’m not going to lie; this proposed rate changes the equation on taxable investments. This tax is currently 100% avoidable by holding onto the asset. There are several factors that go into a sell decision, of which tax impact is one; the higher the tax rate, the less likely it is that selling is a good idea.

“If you don’t like the weather, wait a minute” isn’t a flippant statement. In Louisiana, as it was in Kansas, the weather is a life changing force. The statement is more pragmatic. We can no more control the weather than we can the tax legislation. We will deal with what comes and then we will wait for whatever comes after that. Even if it’s not right now, as this chart illustrates, it’s reasonable to hope that the tax winds shift favorably sometime in the future.

For disclosures, please click here.

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Thin(k) About Your 401(k) Plan

Market Volatility Is A Reality

It is Thursday, June 24, 2021, and one of my favorite financial periodicals arrived in the mail today.  It is dated June 21, 2021, with a cover article exclaiming that last week was the worst week of the year for the DOW with the Index down 3.45% at 33,290.08.  The market seems a bit skittish to me with the pundits speculating on inflation and what the Fed might do to interest rates and when.  Volatility is real and it impacts the value of investors’ portfolios.  So, I do not take these swings lightly; but I do try to take them with perspective.

First, the DOW, while a very popular index watched by many, tracks 30 large, publicly owned blue-chip companies trading on the New York Stock Exchange and the Nasdaq Composite.  The S&P 500 which tracks the 500 largest corporations by market capitalization listed on the New York Stock Exchange or Nasdaq Composite is naturally more diversified and was down only 1.9% over the same period.  Here is a time where diversification worked to protect on the downside when the S&P 500 is compared to the DOW.  So, before you get excited or nervous, look at your portfolio to see if it looks more like the DOW or the S&P 500.

Second, the markets have periods of time where they are up or down dramatically.  We call them “corrections” and they are measured as declines of more than 10%.  In fact, the chart below illustrates very well what transpires when markets correct, which is a much bigger event than a down week.  As you can see, corrections happen fairly regularly and every year noted has a down period of time as noted as the “intra year decline.”

Now, below is a chart of the S&P 500 over roughly the same time period.  The trend is upward even though down periods occurred each year.

Back to the present. As I mentioned earlier, the periodical is dated June 21, so now it’s Thursday, five business days after the sell-off began.  The DOW just closed at 34,196.82 and is UP 2.72% for this one-week period (June 17-24).  Much is happening in the markets as we emerge from the pandemic with economies re-igniting around the world, albeit at different paces.  I fully expect volatility to remain in the markets.  However, this is good.  We are returning to normal and that means good things for the world economy and the markets over the long-term.

Just a reminder, that volatility can be positive too.  Let’s celebrate a week where the DOW was up 2.72%.

For disclosures, please click here.

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Thin(k) About Your 401(k) Plan

What Is Bitcoin and How Does It Work?

I have to admit, I may have been bitten by the Bitcoin bug.  To be clear, I have not invested in Bitcoin because I am unconvinced the words invest and Bitcoin should be used in the same sentence, yet.  However, my recent readings on the subject leave me intrigued.  For this and my next post, I want to examine Bitcoin as an asset class and whether or not it is appropriate for a 401(k) Plan.

First, anyone interested in learning about Bitcoin should read Matt Houghan’s and David Lawant’s Brief entitled: “Cryptoassets: The Guide to Bitcoin, Blockchain, and Cryptocurrency for Investment Professionals” published by The CFA Reasearch Foundation in 2021.  Although it’s 50 pages, I found it hard to put down and easy to understand.  A few key takeaways:

  • Bitcoin is a cryptoasset resulting from blockchain technology born from a decentralized, distributed database that is accessible to anyone. In essence the technology functions as a transaction ledger that anyone using it has access to review and verify its accuracy.  This network has incredible potential, including three current and readily identifiable possibilities that have only just begun to be developed:
    • Lightening fast transaction settlement with very low costs available 24/7.
    • The Bitcoin “mined” in the process of creating the Blockchain network acts as a new store of value often compared to gold based on its inherent scarcity. The maximum number of Bitcoin that will ever be created is limited to 21 million and the provenance of each is never in doubt.
    • The potential for digitally recording contracts and thereby creating “programmable money.”
  • Bitcoin and blockchain are just beginning, but if we compare them to the Internet in 1990, Houghan and Lawant make a startling statement

“The internet clearly represented a new way to distribute information and could have major consequences, but moving from that to predicting that people would, for example, regularly use smartphones to rent out a stranger’s house rather than staying in a hotel is a whole different matter.”

  • Bitcoin’s performance has been characterized by high returns, high volatility and low correlation with traditional assets.
    • Bitcoin’s high returns are easy to document. If one had invested $10,000 in Bitcoin on July 17, 2010, on September 30, 2020 that investment would be worth $2.2 billion.
    • As illustrated in the chart below, the value of Bitcoin is incredibly volatile even though its volatility has decreased since 2011.

    • Bitcoin’s historical returns have been very uncorrelated with the returns of all other major assets making Bitcoin appear to be an effective diversifying asset for a portfolio.

Pretty interesting and maybe enticing too? But as I said at the start, I’m still unconvinced Bitcoin is appropriate for 401(k) Plans. In my next post “Should Bitcoin Be Offered in My 401(k)?”, I’ll show you how many are now arguing for including Bitcoin in a 401(k) portfolio, and why I don’t think it appropriate, yet. Until then…

For disclosures, please click here.


Thoughts in Charts: Do I Need That?

These two charts aren’t earth-shattering bits of new information; however, they did give me pause. I came across these while reading Jonathan McCarthy’s “Discretionary and Nondiscretionary Services Expenditures during the COVID 19 Recession” post on Liberty Street Economics. McCarthy is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group. Nearly 10 years ago, he published a framework for examining personal consumption expenditures (PCE) and every so often, he applies it to current situations. This January, he was back with insights on the current spending.


These charts divide discretionary and nondiscretionary consumer spending. Starting with the bottom chart, nondiscretionary spending in housing, financial services, and health care dropped sharply as the pandemic set in. Based on McCarthy’s data analysis, most of this drop was in health care because elective care was postponed or suspended. As of November, health-care spending had returned to near the pre-pandemic levels as did non-discretionary spending.


Discretionary spending, however, has plateaued after a sharp increase in June. Not surprising, the main culprits remain transportation, recreation and food services. These segments of the economy clearly remain under enormous pressure, but the “stall” described by McCarthy is really interesting. As of November, it hasn’t had an upward trajectory. The data from June through November asks us to consider: have consumers reached a comfortable level of non-discretionary spending? What will it take for them to start increasing that spending toward the pre-pandemic level?


If COVID has taught us anything, it’s that tomorrow may bring a whole new set of experiences – sometimes challenging, sometimes hopeful, and sometimes inconclusive. While the stock market has soared as of late, clearly for a lot of us, we are still deciding if we are ready to spend on much more than what we absolutely need.


McCarthy, Jonathan. “Discretionary and Nondiscretionary Services Expenditures during the COVID-19 Recession.” Liberty Street Economics, 15 January, 2021, https://libertystreeteconomics.newyorkfed.org/2021/01/discretionary-and-nondiscretionary-services-expenditures-during-the-covid-19-recession.html.


For disclosures, please click here.

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Thoughts in Charts: Quilting Lessons

My grandmother was a skilled quilter. She and I spent many summers in her sewing room meticulously building these works of art. I often would get so lost in the block-by-block detail, that I’d forget to step back and see what was really being created.

Sometimes I get stuck in the blocks with this chart too. I immediately dive into what segments of the US Markets did the best or the worst during specific periods. I wrote (and deleted) four paragraphs on the nitty gritty of this chart before I remembered my grandmother’s advice to step back.

Big picture, I see is a fairly random quilt. The bottom of the chart is a bit darker, with underpriced value companies toward the bottom but sometimes popping to the top. The lighter blocks, the growth companies, tend toward the top but sometimes fall downward. It’s just two years of information, so the picture is small.

Delving into the details of this chart, you can get trapped into looking for conclusive patterns. It’s tempting to think that if one segment is doing badly, it will pop to the top next quarter, or that a block will continue to stay at the top because it’s been there for several quarters. I often hear pundits articulate their points of view as if they are a foregone conclusion – like they are reading from a clear pattern. This chart, however, illustrates that they are not.

Our job is about probabilities and risks. If anything in our business is actually a certainty, then it has no risk, and therefore, no upside or downside potential. Our job isn’t to know the future. When I step back and look at the entire quilt, I’m reminded that our task is attempting to increase our probability of success while managing the risks that make return possible.

The chart is not only one color and that’s what makes my job interesting. We stay exposed to the pieces or boxes, because we don’t know for certain what order the blocks will fall next quarter. This chart informs decisions, and this chart also reminds us that all portions of the market have good times and bad.

For disclosures, please click here.

Lynch, Katherine. “2020 Market Performance in 7 Charts”, Morningstar. 5 January 2021. https://www.morningstar.com/articles/1016670/2020-market-performance-in-7-charts

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Thoughts in Charts: Office Space


Office Uncertainty: it’s a real thing. With so many people working from home, I’d love to see a graph about how much time people have spent wondering if they will ever return to the office. It’s probably up there with the thought time spent how to make sourdough.

Office uncertainty has also led to some discussion about the virus’s impact on the broader real estate market. With people leaving cities, will apartments struggle? Now that companies know we can work from home, will they cut down on the overhead of office space? We learned that everything can be delivered to our door – will we ever go back to shopping in person?

The answers to these questions may not matter as much for publicly traded US Real Estate Investment Trust (REIT) investments as you may think. These investments allow liquid access to real estate exposure, so they are a nice fit for most clients. Like many things, all of the uncertainty around the virus left this investment space pretty banged up, but the above chart challenges the notion that real estate can’t thrive without offices and malls.

A large part of public real estate is now cell phone towers and data centers.  I recently spoke with a fund representative who reminded me that when you order something from your phone, you actually engage three types of real estate: cell phone towers, data centers, and industrial properties. By his measure, that is about 45% of the public REIT universe.

That office space we have been pondering so frequently lately – it makes up about 7% of the public REIT space.

Alright, so about that sourdough…

For disclosures, please click here.


Thoughts in Charts: The Price of Pie

Back in May, I posted “Thoughts in Charts: The Price of Food” which explored food inflation as a portion of the changes in prices we see in our daily lives. This chart from The Wall Street Journal article “Thanksgiving in a Pandemic Means Smaller Birds, Fewer Leftovers,” puts a Thanksgiving spin on the issue. It reports that the typical price of a Thanksgiving meal will be 3.5% higher this year than last.

Curious, I went back to the US Bureau of Labor Statistics to check on the 12-Month “food at home” category. It turns out that the increase in food prices has actually fallen slightly in the last few months. The food at home year-over year increase peaked at 5.6% in June, and is now down slightly at about 4% as of the end of October.

Economics 101 reminds us that an increase in demand on limited resources increases prices. The Wall Street Journal article reports that grocery stores are stocking Thanksgiving food early this year due to concerns about high demand. With food suppliers already struggling to keep up with demand, there is little incentive for food items to be discounted this season.

In true ThirtyNorth fashion, I’m always challenged to think about money and meaning. With food making up a large portion of most people’s monthly budgets, the charts remind me that donations to charity holiday food drives are even more valuable this year.

Just a little “food for thought” – if you will.

For disclosures, please click here.



Thoughts in Charts: Red or Blue Economy?

As we near some answers about the presidential election, I’m breaking out one of my favorite political prospective charts.

This Pew Research Center survey found that economic perspective varies significantly based on political leanings. The red line scrolls above the blue during a Republican presidency and the blue above the red during the Democratic presidency. We shift our sentiment on election day – prior to new policy implementation.

Our economy has all sorts of hurdles in front of it, but I use this chart to check my own biases. It reminds me that economic prospects may be a bit more middle ground than they feel.

For disclosures, please click here.

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Thoughts in Charts: We Will Pay for This

Source: Congressional Budget Office

This week’s graph is a bit of a bummer, so if you are having a “rainbows and butterflies” type of day, maybe just skip it. The chart is the Congressional Budget Office’s (CBO) projection of the national debt as a percentage of output if we don’t make any changes to current taxes and spending. We are already at World War II levels, and the projected uptick is steep.

There is a solid argument out there that says that the national debt really doesn’t matter that much. I tend to agree with a lot of that – to a point. I also believe that there is a level at which it very much will matter. I buy into the CBO’s statement that:

“High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.” 1

The good news is that this is a ratio. If Gross Domestic Product (the denominator) goes up, then the overall percentage goes down. If we produce more than anticipated, it may not look quite so bad down the road.

Will we reach a point where changes will be required? As I look at this chart’s big picture, I think we will eventually have to face the spending and revenue numerator in this ratio. Yes, I mean changes to both government spending and taxes. I warned you that this wasn’t a feel-good read.

At some point, it seems likely that this level of debt will matter enough that we need to act. That being said, there are a lot of variables at play. If you’d like to dig in and find out what drives this projected ratio, “The 2020 Long-Term Budget Outlook” is very readable – plus, it has a lot of great charts!

For disclosures, please click here.

1 Congressional Budget Office. “The 2020 Long-Term Budget Outlook.” PDF file. September 21, 2020. https://www.cbo.gov/system/files/2020-09/56516-LTBO.pdf

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Where Did It Go?

When special US government programs distribute money to individuals broadly, we often wonder how the money was actually used. It can occur after a natural disaster, and it happened in March with the $2.2 trillion CARES Act stimulus in response to the pandemic.

Federal Reserve Bank of New York economists published in Liberty Street Economics the results of surveys they conducted to answer this very question. You can read the entire report, “How Have Households Used Their Stimulus Payments and How Would They Spend the Next?” Here are the key points:

  • While the payments ($1,200 for qualifying adults and $500 for each child) were a significant boost to the economy, only a small share (29%) was spent by June 2020. The remaining funds were allocated to savings (36%) and paying down debt (35%).
  • Survey results suggest “households expect to consume even smaller shares of a potential second round of stimulus payments, while they expect to use a higher share to pay down their debt”.
  • Across all demographic sectors, an average of 8% of the funds were spent on non-essentials, such as hobbies, leisure or other items not absolutely necessary. This 8% is included in the 29% spent by June 2020, as is 3% which was donated.
  • The same survey found respondents receiving Unemployment Insurance payments during June consumed in approximately the same percentage (28%), but that amounts allocated to savings were less (23%) and a greater amount was used to pay down debt (48%).
  • The New York Fed Survey of Consumer Expectations (SCE) is a nationally representative, internet-based survey of approximately 1,300 U.S. households. The analysis in the post is based on data collected as part of two special surveys on the pandemic fielded in June and August, 2020. In the June survey, 89% of respondents reported that their households had received a stimulus payment.

While the allocation of these payments varies among differing income and age levels, the results speak to the high uncertainty of how long the pandemic will last and the possible economic impact on recipients. Questions abound about how much money will be needed and when. For example, were parents concerned about “holding the spot” with their daycare provider? Was there concern about how long rent forbearance would last? Concern about layoffs this fall?

For a rough validation of the results of the survey, you can consider that the average U.S. FICO credit score increased in July to 711, the highest level in the past 15 years. Consumer debt levels represented by credit card balances have also decreased from $6,934 in January to $6,004 in July.

The average American was likely using sound financial strategy with their stimulus payments. The choice to forego spending where possible, add to cash reserves, and reduce personal debt is a healthy one during uncertain times and should reduce the possible negative economic implications as we work out of this situation.

Suzanne T. Mestayer is managing principal of ThirtyNorth Investments, LLC.

All investment strategies have the potential for profit or loss.

ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

For disclosures, please click here.