Second Quarter 2022 Newsletter

INVESTMENT QUARTERLY

$5200

This not insignificant amount is the estimated increased annual cost to the average American Household as a result of the earlier inflation results reported by Bloomberg, the large provider of market data and commentary. As inflation creeps up, or roars up, this cost is likely to increase. Our discussion of inflation last quarter has played out more vigorously than anyone hoped. At 10%, which seems to be a consensus target, this inflation cost will be even higher. Of equal importance are the forecasts for economic growth in the first and second quarters of 2022. The Atlanta Fed’s 1st quarter GDP forecast is for 1.1% growth and the Blue-Chip Economic Group’s forecast is for 0.9%. Some other economists are forecasting modestly negative GDP for the second quarter. If this comes to fruition we will be in a stagflation, high inflation with stagnant economic growth.

The diminished economic results will be partially caused by the projected inflationary cost increase of $5200 annually per household. We are overwhelmed by reports of inflation driven cost increases in food, cars, energy and other commodities. The expectation that inflation will be transitory has lost credibility as reports have started to indicate a longer lasting problem. Cost push inflation, brought on by earlier $30,000 annual wages, has morphed into $40,000 as employers have had to go to $20/hour to attract needed workers. These wage increases are now being built into our economic system through increased product costs and are not likely to be reduced whenever inflation does subside. As frequently happens with inflation, it gets hotter as consumers want to buy now, before the price goes higher. A good example of this is the housing market. If you combine this behavior with the shortages brought about by the supply chain problems, it is easy to see how consumer markets can get red hot. Of course, the buying surge only causes inflation to move even higher. Inflation of 8.5% does not sound bad when compared to the 16% figures during our last inflation surge in the 70’s and 80’s. But how many know that there really is no difference. If we used the earlier calculation formula instead of the current revised one, we would be at 16% today. So, we do have a genuine problem.

There is a question as to whether we are united in working on a cure as the Fed and Administration seem to be pushing conflicting policies. The Fed is looking to increase interest rates over the next seven meetings and pull back some of the liquidity it introduced earlier to keep the economy afloat. The former Fed action led to an extensive period where the monetary base grew at unprecedented high rates for years. As we have indicated in earlier QUARTERLIES, this led to stock market inflation as there was too much money chasing too few stocks and not enough demand for capital expenditures to sop up some of the money. Now that the Fed has changed its course, the Administration is looking to provide stimulus to the economy through its spending proposals and potential future forgiveness of student loan debt. Unemployment is at all time lows and inflation is at the highest level in 41 years and still climbing. Something is going to have to give and the give may not be the best solution.

The “R” word is starting to surface in economic forecasts, particularly when 2-year Treasury yields exceeded 10-year yields recently. When that happens, it is called an inverted yield curve and almost always is a precursor to a recession. What the alarmists fail to mention, however, is that there is generally a lead time of seven to 18 months before the recession hits. A lot can happen during that time-period, particularly when all the variables that have come into play this time around are at, or near, extreme historical levels.

We can’t look forward without considering the impact of Russia’s genocidal war against Ukraine. The potential damage to energy supplies and commodities through sanctions and devastation is huge. Ukraine is one of the larger sources of a broad range of commodities that have been set back operationally because of the Russian destruction. Europe relies heavily on Russian natural gas, a source that sanctions are attempting to curtail. Over the short term there is little Europe can do to make up any shortage in energy supply, so they are likely to be hit much harder than the United States. Russia and Ukraine are large providers of wheat which will be in short supply. The economic effect on the European Union is going to be significant. Germany has lowered its GDP projection for 2022 to 1.8% and the World Bank has lowered its EU estimate by 1.2%. All of this is before seeing the impact of future problems from the war. Not a pretty picture.

At this point in my QUARTERLY, you might be ready to sell out everything and hide your money in a mattress or in a can buried in your backyard. Not yet. Some contrarians and technical traders see a strong upside to new highs coming soon. It is said that a bull market often climbs a wall of worry and there sure is plenty to worry about. It has not been uncommon for the markets to disconnect from the economy in recent years so a weak economy may not set off a market decline at this point. There is still significant liquidity around and will be for a while under the Fed’s gradual approach. In trying to achieve a soft landing for the economy the Fed may provide a reason for investors to feel they are protected on the downside. Event news has and will continue to have a significant and positive effect on short term market psychology. If Ukraine and Russia find a way to end hostilities, there could be a significant rally in the market. Some analysts see the potential for a strong hockey stick shaped rally graph similar to what occurred in the early 2000’s. This would move any recession further down the road, but not eliminate the possibility.

For the first quarter the Dow Jones Industrial average showed a negative return of 4.16%; the S&P 500 a negative 5.20% and the Russell 3000 a negative 4.52%. The bond market, reacting to the Fed’s early projections and actual moves to increase the Fed Funds rate, returned a negative 3.43% for the 1-5 year Corporate/Government index and double-digit negative returns for long term bonds. Better performance than one might have expected under the circumstances.

Robert B. Needham, CFA

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8 Financial Steps to Finish 2024 Strong with Needham Advisory

September 16, 2024

As we enter the final 100 days of 2024, there's still plenty of time to make this year count. At Needham Advisory, we've compiled a list of eight essential steps to help you finish strong and set yourself up for success in the new year. These actions can provide a financial cushion, streamline your investments, and give you a head start on your 2025 financial goals. 1. Save $1,000 with Daily Contributions By setting aside just $10 every day for the rest of the year, you can save $1,000. This simple strategy creates a financial cushion or helps you reach a specific savings goal with minimal daily effort. 2. Max Out Your Retirement Accounts Make the most of your retirement accounts by contributing the maximum allowable amounts. In 2024, the contribution limit for a 401(k) is $23,000 (or $30,500 if you're 50 or older). For Roth IRAs, the limit is $7,000 (or $8,000 if you're 50 or older). Maximizing these contributions not only boosts your retirement savings but also takes advantage of potential tax benefits. 3. Roll Over Old 401(k)s If you have any old 401(k) accounts from previous employers, now is the perfect time to track them down and consider rolling them over into a current retirement account. This can streamline your investments and potentially reduce fees. However, keep in mind that rolling a 401(k) into a post-tax account like a Roth IRA means you will have to pay taxes on the 401(k) balance. 4. Research High-Yield Savings Accounts Consider moving some cash from your checking or savings account into a high-yield savings account (HYSA). HYSAs typically offer higher interest rates, which can help your savings grow faster, maximizing the returns on your emergency fund or other cash reserves. 5. Take Advantage of Gift Exclusions This year, you can give up to $18,000 per person without incurring any gift tax. Consider giving financial gifts to family members as a way to help them financially while also reducing your taxable estate. 6. Review Your Budget Take a fresh look at your budget to identify areas where you can cut back or reallocate funds. Even small adjustments can lead to significant improvements in your financial health. If you anticipate receiving end-of-the-year bonuses, plan now for how you will use those funds wisely. 7. Start Preparing for the Holiday Season Early Set aside a little money each week for holiday expenses. Consider affordable gift options, such as homemade gifts or experiences, and start organizing any travel plans to secure better deals and ensure a smoother season. 8. Check in with a Financial Advisor Schedule a quick call or meeting with a financial advisor to enter 2025 with a clear, up-to-date plan and some financial planning momentum. Whether it’s refining your budget or optimizing your investment strategy, getting expert advice now can set the tone for a successful new year. These steps can significantly impact your financial stability and preparedness as we approach the end of the year. If you need help with any of these strategies, we at Needham Advisory are here to assist you. Let’s make the most of the remaining days of 2024 together!

Understanding the Massachusetts Wage Act: Protecting Workers' Rights

By duda • August 17, 2023

In the realm of labor laws, ensuring fair compensation for employees is a cornerstone of workers' rights. The Massachusetts Wage Act, consisting of Massachusetts General Laws Chapter 149, sections 148, 149, and 150, stands as a crucial piece of legislation that safeguards the rights of workers in the Commonwealth. Enacted to address wage-related issues and promote fair employment practices, the Massachusetts Wage Act plays a pivotal role in creating a just and equitable work environment for employees across various industries. The Basics of the Massachusetts Wage Act The Massachusetts Wage Act encompasses three key sections: 148, 149, and 150. Each section addresses specific aspects of wages, penalties, and legal recourse for employees facing wage-related violations. Section 148: This section focuses on timely payment of wages. It mandates that employers must pay their employees all earned wages within a certain timeframe, often weekly or bi-weekly. In the case of involuntary separation, employers are required to pay all wages due to the employee on the day of termination. If an employer fails to meet these requirements, they may be held liable for treble damages, which could amount to three times the unpaid wages. Section 149: Section 149 pertains to minimum wage regulations. It establishes the minimum hourly wage that employers must pay to their employees. This provision ensures that workers receive a fair wage that aligns with the cost of living and prevailing economic conditions. Employers are obliged to adhere to the minimum wage requirement, and failure to do so can result in penalties. Section 150: Section 150 deals with legal actions and remedies available to employees in cases of wage violations. If an employer unlawfully withholds wages, an employee has the right to file a complaint or bring a civil action to recover the unpaid wages. Moreover, employees who prevail in their legal claims under this section can recover not only the unpaid wages but also reasonable attorneys' fees and costs. Significance and Impact The Massachusetts Wage Act serves as a powerful deterrent against wage-related abuses and unfair labor practices. By establishing strict guidelines for payment of wages, minimum wage standards, and legal remedies, the Act empowers workers to seek recourse when their rights are violated. This legislation not only supports individual employees but also contributes to a more equitable labor market and promotes a healthier employer-employee relationship. Challenges and Controversies While the Massachusetts Wage Act is a commendable effort to protect workers' rights, challenges and controversies have emerged. One area of contention is the determination of what constitutes "wages." Some employers might argue that certain forms of compensation, such as bonuses or certain benefits, are not covered by the Act, leading to disputes over what is legally owed to employees. Additionally, enforcement and compliance can pose challenges, especially for small businesses with limited resources for administrative tasks. The Massachusetts Wage Act stands as a testament to the Commonwealth's commitment to ensuring fair and just compensation for its workforce. By outlining clear guidelines for payment of wages, setting minimum wage standards, and providing legal remedies for violations, this legislation bolsters employee rights and contributes to a more equitable workplace. As workers continue to play a pivotal role in the state's economic growth, the Massachusetts Wage Act remains a cornerstone of labor law, championing the rights of employees and fostering a more balanced employer-employee relationship.

Understanding the Massachusetts Independent Contractor Statute

By duda • August 17, 2023

In the modern gig economy, the classification of workers as either employees or independent contractors has become a significant legal and economic concern. In Massachusetts, the issue is addressed through the Massachusetts Independent Contractor Statute, found under Mass. Gen. L. c. 149, s 148B. This statute plays a pivotal role in determining a worker's classification, affecting their rights, benefits, and the obligations of employers. In this blog post, we will delve into the key aspects of the Massachusetts Independent Contractor Statute, exploring its implications for both businesses and workers. Understanding the Massachusetts Independent Contractor Statute The Massachusetts Independent Contractor Statute, often referred to simply as Section 148B, was enacted to prevent worker misclassification and protect individuals by ensuring proper classification and fair treatment. Under this statute, individuals are presumed to be employees unless all three prongs of the "ABC Test" are met: A: The worker is free from control and direction in performing the service, both under the contract for the performance of service and in fact. B: The worker performs services that are outside the usual course of the business of the employer. C: The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. Implications for Businesses For businesses operating in Massachusetts, correctly classifying workers as employees or independent contractors is essential. Misclassification can lead to legal consequences, including back payment of wages, taxes, and potential fines. By adhering to the requirements outlined in the ABC Test, businesses can ensure compliance with the law and avoid potential liabilities. Additionally, businesses must be cautious about reclassifying employees as independent contractors without substantial changes in the working relationship, as this may be seen as an attempt to evade employment-related responsibilities. Implications for Workers Workers in Massachusetts who are classified as employees enjoy various legal protections and benefits, including minimum wage guarantees, overtime pay, workers' compensation coverage, and access to unemployment benefits. On the other hand, independent contractors may not be entitled to these benefits, but they have the advantage of greater flexibility and control over their work. It's crucial for workers to understand their classification accurately, as misclassification can lead to them being denied their rightful benefits and protections. Challenges and Controversies The Massachusetts Independent Contractor Statute has been the subject of debates and challenges, particularly regarding its potential impact on businesses and the gig economy. Critics argue that the ABC Test can be too restrictive, making it difficult for some businesses to classify workers as independent contractors even if the working relationship genuinely aligns with such a classification. Proponents, however, emphasize the importance of protecting workers' rights and preventing exploitation through misclassification. The Massachusetts Independent Contractor Statute, Mass. Gen. L. c. 149, s 148B, plays a vital role in defining the working relationship between businesses and workers in the state. Its implementation through the ABC Test ensures that workers are correctly classified, granting them the appropriate benefits and protections. Businesses must be diligent in understanding and adhering to the statute's requirements to avoid legal consequences, while workers should be aware of their classification to assert their rights effectively. As the world of work continues to evolve, the statute's significance remains undeniable in maintaining a fair and balanced labor landscape.