Third Quarter 2020 Newsletter

INVESTMENT QUARTERLY

SEARCHING FOR REMEDIES

As we head into the second half of this strangest of years there are 5 major events that will likely influence the kind of environment we will live in this year and next. The five events are COVID-19, the Federal Reserve’s policy, the government’s fiscal policy, the election, and psychological impact of these events on the investment world.

COVID-19

Despite the optimism in some areas that we will have a vaccine late this year, the time it will take to vaccinate enough people to reign in the virus is significant. The late surge of infection in the first wave has caught most of us by surprise and leaves me wondering what the second surge Dr. Fauci and others are talking about will look like. If it leads to a second shutdown, all bets on a recovery will be off. The Great Depression may move down a peg to Second Greatest Depression in that event. At least one of the theories, that heat would knock out the virus, has been proven to be incorrect.

Until we can move freely in an open economy and travel without fear, shop without masks and eat inside restaurants, there is likely to be a significant headwind to economic recovery and a more upbeat psychological outlook.

FEDERAL RESERVE POLICY

The FED has stated that they will do whatever is necessary to keep the economy afloat. This implies that interest rates will be kept low for at least the next eighteen months unless there is a significant change in economic conditions. Low interest rates have led to a boomlet in new housing starts and a robust market where properties are selling for decent margins over asking price. The concern in many corners is that the FED’s policy will lead to significant inflation. To an extent this concern is being realized, but in the stock market and gold, not the economy as a whole. One major concern is that much of the FED’s stimulus is ending up in the stock market rather than in investment or in consumer spending. A recent paper by economists Van Hoisington and Lacey Hunt Phd., Indicated that 92.9% of national economies are now in recession. In 14 prior global recessions the average was 54.3%. With world trade likely declining 15% in 2020 one beneficial catalyst has hit the dust. The record debt of the US, aided and abetted by FED stimulus steps, has shown it will depress growth. In earlier US economic history, a dollar of new debt provided three dollars of new domestic growth. In the last four quarters each dollar of debt has generated only 13 cents of GDP growth. Our past GDP growth, since 2008, was the lowest recovery rate in over 50 years, but our debt grew at a phenomenal 28% annualized rate in the same period.

We need sustained economic growth to pull out of this mess and there is no evidence yet that it will result from the FED’s policies. The obstacles that we are trying to overcome are new and significantly large enough so there is no precedent, only trial and error or, hopefully, success.

FISCAL POLICY

Finally, the government woke up to the fact that economic recovery needed the support of fiscal as well as monetary policy. Unfortunately, it took COVID-19 to set the wake-up alarm. We are now in the midst of the largest giveaway program the country has ever seen. By default, we are now in a state of MMT (Modern Monetary Theory), a Leftist ’s theory that says it doesn’t matter how much we borrow as long as we are only borrowing from ourselves. If that doesn’t make sense to you, join the club. Debt is debt and eventually needs to be paid back. While original MMT thoughts were based on support for social programs and infrastructure, the current programs have dwarfed the original proposals. Working this out, if it can be, as we go forward will be a real test for our economy.

I presume this largesse cannot go on forever so what will happen when it stops is a worrisome unknown. It will slow down the recovery even if it does eliminate a real collapse of the economy.

THE ELECTION

The positional spread between both parties and candidates should lead to a very volatile market heading into the election. The implications for the economy and U. S. policy across the board are significant. Right now, the polls are favoring Biden and his tax and economic package that are likely to negatively affect the economy and the stock market. If Biden does win and increases the long-term capital gains tax to 40%, there is likely to be a lot of selling late in this year. Also, a return to an over regulated economy would tend to slow down any recovery from the current deep recession.

PSYCHOLOGY

Sentiment in the market is upbeat judged by market performance relative to economic performance. Forecasts for 2nd quarter GDP range from a negative 35% to a negative 15%. In the face of this the market has rebounded strongly and speculation is starting to break out. The recent example of a bankrupt Hertz stock with 0 value being driven up to over $4 by Robinhood speculators is only one example of a return to the 1999-2000 market psychology. Some bad news can easily turn market psychology negative and it is more likely that bad news will develop down the road.

The caution flag is still out. Stay healthy and financially protected.

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.