Quote of the Week
“Don’t downgrade your dream just to fit your reality. Upgrade your conviction to match your destiny.” – John Assaraf
Last week was a moderately good week for the equity markets being up between +1.06% for the Dow and +2.41% for the Nasdaq. Last week’s rally recovered a little of the stock market debacle that was January. The indexes are still down -5.47% for the S&P 500 and -9.84% for the Nasdaq. The probability of Quad IV in the Quarter 2 is now at 84%.
We are starting to see the signs of Quad IV coming down the tracks now. Growth is rolling over and inflation has begun to decline in all areas except for the oil markets. The next report for inflation will still probably be high due to the fact the cost of oil vis-à-vis gasoline. The fact that gasoline is such an integral and obvious part of people’s budget the Fed politically will be forced to start raising short term rates in March to address the inflation issue. The market is factoring in five rate increases.
The problem with the Fed raising short term rates is that oil and gas is a separate asset class that is only slightly controlled by interest rates. The price of oil and gas is a supply and demand issue. OPEC is not pumping enough oil to meet the demand as the world is coming out of COVID lockdowns. OPEC is more than happy to keep the supply lower than the demand, thus keeping the price up.
Raising short term rates won’t have that much of an effect on oil inflation. Raising short term rates will however slow the growth of the economy because it will raise the cost of borrowing for businesses and raise the interest on credit cards and consumer loans. The only effect on oil prices would be that people with less money in their pockets will spend less. The overall cost of transportation spending will go down because people will drive less and order fewer goods so less gasoline will be used to ship goods.
The Fed made the same mistake before raising interest rates into an economy where growth is already declining. The result was the the markets tanked and long term interest rates fell. This is why we are positioned out of equities and into long term bonds.
For decades, my mother was an enrolled agent, a tax advisor, who is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury. Whenever I see tax information, I always think of her.
Federal Tax Filing Season Has Started
The IRS announced that the starting date for when it would accept and process 2021 tax-year returns was Monday, January 24, 2022.
Tips for making filing easier
To speed refunds and help with tax filing, the IRS suggests the following:
- Make sure you have received Form W-2 and other earnings information, such as Form 1099, from employers and payers. The dates for furnishing such information to recipients vary by form, but they are generally not required before February 1, 2022. You may need to allow additional time for mail delivery.
- Go to irs.gov to find the federal individual income tax returns, Form 1040 and Form 1040-SR (available for seniors born before January 2, 1957), and their instructions.
- File electronically and use direct deposit.
- Check irs.gov for the latest tax information, including how to reconcile advance payments of the child tax credit or claim a recovery rebate credit for missing stimulus payments. Also, watch for letters from the IRS with important information about those payments that may help you file an accurate return.
Key filing dates
Here are several important dates to keep in mind.
- January 14. IRS Free File opened. Free File allows you to file your federal income tax return for free [if your adjusted gross income (AGI) is $73,000 or less] using tax preparation and filing software. You can use Free File Fillable Forms even if your AGI exceeds $73,000 (these forms were not available until January 24). You could file with an IRS Free File partner (tax returns could not be transmitted to the IRS before January 24). Tax software companies may have accepted tax filings in advance.
- January 24. IRS began accepting and processing individual tax returns.
- April 18. Deadline for filing 2021 tax returns (or requesting an extension) for most taxpayers.
- April 19. Deadline for filing 2021 tax returns (or requesting an extension) for taxpayers who live in Maine or Massachusetts.
- October 17. Deadline to file for those who requested an extension on their 2021 tax returns.
Awaiting processing of previous tax return?
The IRS is attempting to reduce the inventory of prior-year income tax returns that have not been fully processed due to pandemic-related delays. Taxpayers do not need to wait for their 2020 return to be fully processed to file their 2021 return.
The IRS encourages taxpayers seeking a tax refund to file their tax return as soon as possible. The IRS anticipates most tax refunds being issued within 21 days of the IRS receiving a tax return if the return is filed electronically, any tax refund is delivered through direct deposit, and there are no issues with the tax return. To avoid delays in processing, the IRS encourages people to avoid paper tax returns whenever possible.
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These are Larry Lof’s opinions and not necessarily those of Cambridge, are for informational purposes only and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.
The S&P 500 index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.
Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.