La Jolla Mutt Strut

Over the weekend, Callan Capital was a sponsor and participant in the 2022 La Jolla Mutt Strut, an inaugural spring fundraiser presented by the Foundation of La Jolla High School. It started with a 1-mile dog walk from La Jolla High, proceeding on Draper, and ending at the La Jolla Rec Center.

2022 Q1 Market Update

Russia’s invasion of Ukraine, continued supply-chain issues, accelerating inflation, the Federal Reserve’s interest rate hikes, China’s continued Covid lock-down, and inversion of the yield curve put into context negative quarter one returns in equity and bonds. Long-term implications may include more military spending, acceleration of green energy, shifts from global to regional economies, greater unity among the European Union and NATO, countries taking sides (or forced to), and impact on US and China interactions. Officially, stocks and bonds entered a correction. ¹The quarter ended with negative returns: S&P 500 -4.6%, NASDAQ -8.9%, and ten-year treasuries -5.5%. International markets were down as well with the Nikkei -2.6%, Stoxx Europe 600 -5.9% and the Dax -9.3%. In contrast, energy finished 41.3%, agriculture 25% and industrial metals 21.5%. The labor market is tight with employers adding 431,000 jobs in March. Airline fares are up 10.7% in March from February.

Yield-Curve

²Notably, the two-year treasury yield outpaced the ten-year treasury yield, and the five-year treasury yield outpaced the 30-year treasury yield. Not all inverted yield curves lead to recession but often it can signal an upcoming recession. The Federal Reserve owns about $9TN in bonds which is 25% of the Treasury Market. Historically, quantitative tightening in 2017 resulted in volatile equity returns and bond yields plummeting.

Inflation & Federal Reserve

³Inflation is the highest it has been in 40 years having accelerated to 8.5% in March which is a four-decade high. This marks six straight months of inflation above 6% and is above the Federal Reserves’ 2% target. Meat is 13.7% more expensive than it was last March, cereal and bakery products up 9.4%, and fruits and vegetables up 8.5% according to the U.S. Bureau of Labor Statistics. Some increase in pricing is because of the Russia-Ukraine war as the countries are big producers of wheat, maize, and fertilizer. The Organization for Economic Cooperation and Development estimates that global economic growth may be about 1% lower and inflation almost 2.5% higher than if Russia’s invasion of Ukraine had not occurred. The Federal Reserve’s top priority is to reduce inflation while still tightening monetary policy. It is considering raising rates by a half of a percent instead of a quarter point in May given strong job growth and inflation numbers.

Source: BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of March 31, 2022
Ukraine

Russia’s invasion of Ukraine is a grave, profound, and unthinkable humanitarian crisis with about 4.9MM refugees having fled Ukraine since February 2022 and about 13MM stranded or unable to leave according to the UN Refugee Agency. The depth of economic hardship in energy, commodities, trade, and supply chain reverberates worldwide. Russia and Ukraine are key players in energy, agriculture, and metals. The European Commission recently announced plans to eliminate dependence on Russian natural gas and crude oil this decade. ³The European Union currently imports 40% of its natural gas from Russia. Russia supplies about 19% of the world’s natural gas, 11% of oil. Green energy acceleration will not be easy given dependence on scarce metals and materials. More than 35% of the world’s palladium is in Russia, and Ukraine has abundant lithium reserves. Fuel cells for hydrogen-powered vehicles use palladium and electric vehicle batteries use lithium.

Source: FactSet, J.P. Morgan Asset Management; (Left) Bloomberg, CME; (Right) EuroStat, HSBC. Guide to the Markets – U.S. Data are as of March 31, 2022.
China

China’s gross domestic product grew 4.8% in the first quarter of 2022 with most growth occurring in January and February. However, the world’s second largest economy slowed in March because of Beijing’s efforts to curb Covid outbreak and businesses being forced to suspend operations. About a quarter of the country’s population (40% of its economy) are subject to lockdown. Beijing’s 5.5% GDP growth target may be out of reach. China responded with interest rate cuts in effort to boost the economy and spur lending.

Conclusion

Many analysts continue to favor equity over bonds and cash for 2022 assuming the U.S. does not fall into recession but caution that the market may remain volatile with significant uncertainty. The White House announced a record release of one million barrels per day of oil for the next six months to address oil and gas prices. The U.S. labor market is very strong, unemployment is decreasing, and baby boomers are exiting the workforce.  Inflation is likely to remain moderate. Forecasts of 3% of less for real GDP on a year-over-year basis by fourth quarter remain.

It is important to keep in mind that financial markets are forward-looking, while economic data tends to be retrospective.  More balanced diversification across the market sectors is our basis for a prudent long-term investing approach.

Disclaimer

The information provided is for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Callan Capital Management’s views as of the date of distribution. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Callan Capital does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. Callan Capital has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Callan Capital makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Callan Capital is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of Callan Capital Management. For detailed information about our services and fees, please read our Form ADV Part 2A, and our Form CRS which can be found at https://www.advisorinfo.sec.gov or you can call us and request a copy at (866) 912-4888 

All data presented as of March 2022

Sources:

¹https://www.cnbc.com/2022/03/30/stock-market-futures-open-to-close-news.html

²https://www.pgpf.org/blog/2022/03/the-federal-reserve-holds-more-treasury-notes-and-bonds-than-ever-before

³https://www.bbc.com/news/58888451

³https://www.marketwatch.com/story/palladium-eyes-record-prices-as-russia-ukraine-war-looks-to-deepen-supply-deficit-11646419466

Estate Tax Planning

Jessica L. Cafferata, JD, CFP®, CDFA®, Callan Capital

Estate planning is an evolving and perpetual process although not often thought of in this manner. Chances are, when you finalized your documents, you stored them securely and may not have seen your documents since. Estate and tax laws constantly change, warranting review of your estate plan. Your wealth impacts your experiences, relationships, and community, and your values and relationships evolve and change over time. Estate planning requires upkeep, review, comprehension, and flexibility. See below for an overview of the Federal Estate Tax Exemption and three estate planning considerations.

Federal Estate Tax Exemption

Estate planning documents should be reviewed at least every five years and more frequently if you experience major life changes and as significant tax and estate laws pass. As of 2022, the federal transfer tax exemption for estate, gift and generation skipping transfer tax is $12.06MM per person ($24.12MM per married couple) with a 40% top tax rate and indexing for inflation. The tax applies to the portion of the decedent’s estate that exceeds the federal exemption level. Keep in mind that states can also have state estate tax exemptions that differ from the federal estate tax exemption value. The Tax Cuts and Jobs Act (TCJA) doubled the estate tax exemption through 2025. Many Americans are not currently subject to estate tax. However, starting in 2026, legislation mandates the exemption revert to the 2018 exemption amount of $5MM thereby extending the tax to more people. To shelter assets and appreciation from estate tax, consider a bypass trust (also known as a credit shelter trust). A bypass/credit shelter trust is an irrevocable trust that upon the death of the trust creator or settler, assets specified in the trust agreement are transferred to the trust passing free from federal or state estate tax. In addition, a bypass/credit shelter trust provides other benefits such as probate avoidance, enhanced creditor protection and ensuring that assets pass to intended beneficiaries. 

Estate Planning Considerations

Update Documents – For those with estates valued at less than the federal estate tax exemption and not subject to state estate tax, it may make sense to consider a disclaimer trust. A bypass/credit shelter trust created by disclaimer is optionable and the surviving spouse determines whether to disclaim inheriting an asset outright. If the spouse disclaims, the bypass trust funds, and the surviving spouse determines how much to fund it. Older drafted documents often have mandatory funding with a preset formula clause. 

Increase Lifetime Gifting – The IRS and Treasury clarified that the government will not “claw back” full exclusion amount gifts or partial exclusion amount gifts that are greater than the exclusion amount in effect at death. This applies for gifts given between 2018 and 2025 for someone who passes away in 2026 or beyond creating a unique opportunity for lifetime gifting before the exemption decreases. 

Portability – Unused estate tax exemption is portable between spouses if the surviving spouse timely files an estate tax return. Portability is permanent but there is a last deceased spouse rule than forfeits the exemption transferred to the surviving spouse if the new spouse predeceases. Keep in mind that most states do not allow portability of state estate tax exemptions and the generation-skipping transfer tax exemption is not portable. You can do both, applying the exclusion to the bypass/credit shelter trust and transferring “left over” exclusion via a portability election. Whether to rely on portability, fund a bypass/credit shelter trust, or do both is an important income and estate planning decision to discuss with your attorney. 

Disclaimer: Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities-based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov. 

Callan Capital is Growing!

Over the past few months, Callan Capital has added new team members. Each member brings a wealth of experience and knowledge that allows us to deliver high quality of service to our clients.

Our team embraces the mission and values of Callan Capital: Investing in our local community, a healthy work-life balance, grit, and maintaining an open culture.  These values motivate our team to bring excellence to clients every day.

Christina James
Fabiola Sanchez-Martinez
Jessica Cafferata, JD, CFP®, CDFA®

Christina joined Callan Capital in October 2021 as Senior Associate, Client Service and Administration.  Christina is responsible for the office management of Callan Capital.

Fabiola joined Callan Capital in November 2021 as a Client Service Associate.  Fabiola is responsible for assisting clients with money movements, meeting follow up tracking, and private equity.

Jessica joined Callan Capital in March 2022 as Managing Director of Financial Planning.  Jessica will oversee the firm’s financial planning process and manage client relationships.

Callan Spotlight: 15 Years, What’s Next!

Callan Capital is celebrating 15 years!  With our continued growth and success, we wanted to sit down with the founding Partners and look back on how things have evolved throughout the years.

Trevor

What do you love most about working at Callan Capital?

Trevor:  What I enjoy most is being able to help the families we serve create a vision and financial plan that provides them comfort and clarity. Being able to help clients with the financial aspects of their life and knowing that frees up time for them to focus on other things is extremely rewarding.

How has servicing clients changed from when you started?

Trevor:  The services we provide are broader.  We now have more team members with enhanced skills they have gained over the years that allow us to better service our clients.

What has been your biggest accomplishment both personally and professionally during the last 15 years?

Trevor:  Personally, it is investing more time with my family; Tanica, Jade, and Smith.  Professionally, it’s realizing that our clients have entrusted approximately $1.5Billion dollars (as of 12-31-21) in assets under management to us.  This is very humbling and not something that I take lightly.

Tim

What do you love most about working at Callan Capital?

Tim:  At Callan, it’s our core values, specifically our belief in a healthy-work life balance. We encourage our employees to have a healthy work-life balance and I have really been able to see the value that provides our employees, both inside and outside of work.

How has servicing clients changed from when you started?

Tim:  The quality of service we can provide our clients has increased tremendously throughout the years. We have been able to hire people internally with specific expertise and skill sets that allow us to provide a higher quality of service.

What has been your biggest accomplishment both personally and professionally during the last 15 years?

Tim:   I have become more of a family man over the years. Creating a family with my wife Jackie and having our daughter Lily has been my biggest personal accomplishment.  Professionally, watching Callan grow to what it is now.  We have more Callan Capital team members that service our families and help deliver peace of mind to them.

Ryan

What do you love most about working at Callan Capital?

Ryan:  Working with our clients every day and helping them achieve their financial goals is what I enjoy the most.  Additionally, being able to watch our employees at Callan grow throughout the years has been amazing to witness.

How has servicing clients changed from when you started?

Ryan:  We have invested heavily into technology that allows us to manage our clients’ accounts more efficiently. 

What has been your biggest accomplishment both personally and professionally during the last 15 years?

Ryan:  Personally, my wife, Heidi and my biggest accomplishment is being able to watch our sons, Ethan and Parker grow up, one in college and one in high school. Professionally, watching Callan grow with new team members whose expertise has allowed us to expand our suite of services.

Take action with Callan Capital for Amplify Austin Day 2022!

Central Texas has experienced tremendous growth over the past decade. Thousands of people have come to call Austin and the surrounding communities home.  This has created a greater need for resources and support for local nonprofits. As Central Texas grows, so must giving.  We are proud to stand with I Live Here I Give Here and support our community’s 10th annual Amplify Austin Day.

Amplify Austin Day, is the biggest day of giving in Central Texas, raising $82 million dollars* for the local community since 2013.  During a single 24-hour period, from 6pm on March 2nd, to 6pm on March 3rd, residents across our 7-county region will come together to support 700 nonprofits by making a donation through the platform, AmplifyATX.org

This year, our company is participating as a Business Fundraiser.  We encourage our employees to make a gift of any size to a local cause that is important to you at AmplifyATX.org 

Join us in making an impact on our local community this Amplify Austin Day (March 2-3)!

*March 2013 – 2021

Q4 Market Commentary

2021 began with the promise of vaccines and a belief that everything would return to “normal” after a turbulent year due to the pandemic. Over the past 12 months, we have seen historic price spikes for companies and consumers, acute labor shortages across industries, and an ongoing bottleneck in the global supply chain that continues to this day. However, after a slow start this quarter, growth quickened at the end of 2021 and is expected to continue strong as re-openings resume and companies try to rebuild inventory. Despite the many curveballs thrown by the COVID-19 pandemic, consumers are learning how to adapt to ever-changing conditions and remain financially healthy with job growth and increased wages. 

COVID-19

There are plenty of factors to watch as we move into 2022. First and foremost, the COVID-19 pandemic is still present and weighs heavy on investors’ minds. As the fourth quarter progressed, investors saw market risk shift to a new coronavirus variant from South Africa. Like the Delta variant, Omicron shocked the markets and caused lockdowns to resume in many parts of the world. Fortunately, a national uptick in vaccination rates [including booster shots] have allowed for a reduced infection rate, hospitalization stay, and an overall milder case for those with the Omicron variant. This should lead to fewer cases and, moreover, fewer fatalities over the coming months. In addition to the business disruptions the pandemic caused, there was also a strain on healthcare, education, and travel. Moreover, the pandemic is continuing to cause product shortages and supply chain disruptions. This has driven up product demand resulting in the increase pricing of goods and shipping costs, in combination with labor shortages contributing to storage surpluses and a lack of truck drivers.

Source: Centers for Disease Control and Prevention, Johns Hopkins CSSE, Our World in Data, J.P. Morgan Asset Management as of December 31, 2021

Supply Chain and Inflation

This year demand for many products increased beyond the capacity of the world economy to supply causing businesses to struggle, and sometimes fail, to meet consumer demand and investor expectations. There were many factors contributing to the global supply chain’s disruption, including cutbacks in production prompted by the COVID-19 pandemic, the growing demand for goods, and labor shortages that led to delays at ports and across the transportation sector.

Many companies have cited a challenging labor environment, including higher labor costs, which has not only pushed them to cut margins, but also created inefficiencies within their operations. By mid-October, most S&P 500 companies had warned investors they would be impacted by supply chain issues, leading to lower profits and revenues.

Source: BLS, FactSet, J.P. Morgan Asset Management as of December 31, 2021

The price of goods and services has risen significantly this year as consumer spending has outpaced supply shortages across major sectors of the economy. U.S. household net worth has grown tremendously because of strong employment gains, rising wages, government transfers, and booming stock and real estate markets. In November 2021, the US 12-month CPI inflation rate reached its highest level in the US in nearly 40 years at 6.8 percent. The indexes for gasoline, shelter, food, used cars and trucks, and new vehicles were among the larger contributors. Airline fares also increased in November, rising 4.7 percent from October after declining over the previous few months as people geared up for holiday travel. More than half of the month-over-month increase in the CPI was due to price increases in cars and energy. Energy index measures were up 3.5 percent in November, while gasoline measures were up 6.1 percent.

Many aspects of the recent inflation surge appear to be transitory, specifically in terms of energy and supply chain issues. It is expected that base-year effects will help reduce inflation rates from current 30-year highs, and there are signs that some of the most extreme supply-related pressures are dissipating. Worker shortages should subside as more employees re-enter the labor force. Nevertheless, labor markets will remain tight enough to maintain solid wage growth, which will limit the downward trend of inflation rates. We see inflation settling at levels higher than pre-Covid whenever these supply bottlenecks ease.

The Federal Reserve

As we move into 2022, the Federal Reserve is expected to raise interest rates to fight inflation. At the December Federal Open Market Committee (FOMC) meeting, the Fed accelerated the pace of tapering by $30 billion per month, suggesting they would conclude the process by March 2022. The median forecast of FOMC members now calls for three rate hikes in both 2022 and 2023, with a terminal rate of 2 percent – 2.25 percent by 2024. The Fed’s key rate, currently at near zero, influences many consumer and business loans, including those for mortgages, credit cards and auto loans.

Source: Bloomberg, FactSet, Federal Reserve, J.P. Morgan Asset Management as of December 31, 2021

Policy makers expect the U.S. economy to grow 4% in 2022 and unemployment to fall to 3.5% by year-end, according to the Fed’s latest growth forecast, a key criterion for the Fed before it lifts rates of zero, where they have been since March 2020 at the start of the pandemic.

A rising number of Coronavirus variants and severe supply shortages have made the road to pandemic recovery more challenging than anticipated. After slowing in the fall, growth re-accelerated at the end of 2021 and is expected to continue strong as reopening’s resume and companies try to rebuild inventory. Despite the many curveballs thrown by the COVID pandemic, consumers are learning how to adapt to ever-changing conditions and remain financially healthy with job growth and increased wages. 

Disclaimer

The information provided is for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Callan Capital Management’s views as of the date of distribution. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Callan Capital does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. Callan Capital has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Callan Capital makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Callan Capital is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of Callan Capital Management. For detailed information about our services and fees, please read our Form ADV Part 2A, and our Form CRS which can be found at https://www.advisorinfo.sec.gov or you can call us and request a copy at (866) 912-4888 

There’s Still Time to Get a Tax Break for Donations to Charity

With just a few weeks left in 2021, you may be thinking about how to approach your charitable giving plan. Several tax-conscious strategies for charitable giving – including gifts of appreciated stock, qualified charitable distributions, and donor-advised funds – remain effective in the current environment. Here we highlight some opportunities for charitable giving between now and December 31 that may help you achieve your charitable goals and maximize your income tax savings.

Gifts of Appreciated Stock A charitable contribution of appreciated securities – such as stocks, bonds, and/or mutual funds that have realized significant appreciation over time – is one of the most tax-efficient ways to give.  By giving the gift of appreciated stock that you’ve held for more than a year, you receive a double tax benefit:

  • You avoid capital gains tax on the appreciation that would be due upon sale.
  • You can receive a charitable income tax deduction for the current fair market value of the property – up to 30 percent of adjusted gross income.
  • You can carry forward any unclaimed portion of the deduction for up to five additional years, subject to the annual limit.

Make a Qualified Charitable Distribution (QCD) from an IRA A QCD is a direct transfer of funds from your IRA, payable directly to a qualified charity, as described in the QCD provision in the Internal Revenue Code. QCD’s may be particularly appealing if your client has a few other itemized deductions or if they are near their charitable deduction limitations. A QCD must meet the following requirements:

  • You must be at least 70½ years old at the time you request a QCD. If you process a distribution prior to reaching age 70½, the distribution will be treated as taxable income.
  • For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline, which is generally December 31 each year.
  • Funds must be transferred directly from your IRA custodian to the qualified charity.
  • The maximum annual distribution amount that can qualify for a QCD is $100,000. This limit would apply to the sum of QCDs made to one or more charities in a calendar year. If you’re a joint tax filer, both you and your spouse can make a $100,000 QCD from your own IRAs.
  • The account types that are eligible for QCDs include:
    • Traditional IRAs
    • Inherited IRAs
    • SEP IRA (inactive plans only)
    • SIMPLE IRA (inactive plans only)

Donor Advised Funds. DAFs allow donors to maximize the tax efficiency of their charitable giving by generating a tax deduction when it’s most valuable to the donor, then allowing for distributions out of the DAF to charities over years to come.  Current rules allow for one to deduct up to 60% of AGI for cash contributions and 30% for appreciated stock as well as receive fair market value for the contribution of assets. Additionally, funds in your DAF account can be invested and grow over time, thus enhancing (tax-free) the gifts that will ultimately be made to an operating charity. Other reasons financial advisers are high on including a DAF in one’s overall financial portfolio include:

  • Creating a legacy DAF that can help reduce estate taxes.
  • Funding a DAF while approaching retirement so one could get the tax deduction while they were still making a high income.
  • Creating an account for children to give separately and “learn” how to be a strategic giver.
  • Using a DAF in connection with another operating charity to meet the unique 2020 and 2021 100% AGI tax deduction made possible by the CARES Act.

Callan Capital does not provide legal or tax advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with securities-based financing, residential and commercial financing, and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov

‘Tis the Season

At Callan Capital, one of our core values is to invest in our community.  When you build a culture of giving back, you set the stage for a purpose-filled environment that inspires passion.  Depending on where you decide to focus your volunteering efforts, you make a real difference in the lives of those who the organization serves.

Recently, Callan Capital volunteered at the Central Texas Food Bank. With help from Austin’s, I Live Here I Give Here, we chose the Central Texas Food Bank as one of the local non-profits with the most need. Given the holiday season around the corner, Callan Capital opted to help serve those most in need.  During our brief time with the Food Bank on Tuesday, we helped ready over 500 boxes, providing over 9,000 meals to Central Texans in preparation for Thanksgiving Day.  We plan on going back very soon!

For more information on the non-profit organizations we support, please visit:  https://callancapital.com/giving-back

Q3 Market Commentary

Q3 Market Update  

After solid performances in both July and August, the S&P 500 ended September 4.8% lower, its first monthly drop since January and the biggest since March 2020, at the onset of the COVID 19 pandemic.   

There are plenty of possible explanations for the market’s diminished presence:  

  • Delta Variant  
  • Potential default of Evergrande  
  • Pending Congress legislation & the national debt crisis  
  • Concerns about inflation and supply chain issues 

Delta Variant  

The momentum of the U.S. economic recovery slowed in the third quarter as a surge of Delta variant infections led to a deceleration in economic activity in industries such as travel, restaurants, and tourism. Fortunately, COVID 19 cases, hospitalizations, and deaths are once again declining in many parts of the country.  Vaccines are working and boosters are becoming widely available.   

The current 7-day moving average of daily new cases (84,555) decreased 12.5% compared with the previous 7-day moving average (96,666) for the week of October 6 – 13. A total of 44,615,528 COVID-19 cases have been reported as of October 13, 2021.  

Source: www.cdc.gov as of October 13, 2021

Evergrande 

Globally, markets were shaken by the potential collapse of Chinese property magnet, Evergrande.  The Chinese and Hong Kong markets were unstable throughout the month while they waited to hear the fate of Evergrande’s debt. With a staggering $300 billion in outstanding debt, the company’s potential failure risk set off a chain reaction in China and overseas markets. About 67% of Evergrande’s debt is cash that customers have paid towards property that is still under construction.  Evergrande is currently attempting to sell assets in order to raise the cash needed to meet its debt obligations.  

Source: CNBC as of September 24, 2021 
 

Congress 

Investors kept their eyes on Washington, while Congress debated extending the national debt limit. The House of Representatives approved an extension of the nation’s debt limit through early December to avoid catastrophic default and economic disaster.   

Details on the much-debated budget reconciliation bill emerged and provided the first detailed look at the major tax provisions affecting large corporations and high-income households. 

Proposed tax policy changes include:  

  • A 15% corporate minimum tax that could affect companies that are profitable but report low tax rates 
  • U.S.-based multinational companies could face a different 15% minimum tax on their foreign income.  They could pay at least 15% in each country in which they operate 
  • For individuals, the plan includes a 5% surtax on adjusted gross income above $10 million and an additional 3% on adjusted gross income above $25 million 
  • High-income business owners could face a 3.8% tax on active business income 
  • Corporate stock buybacks could face a new 1% excise tax

Inflation & Supply Chain Issues

This year’s inflation jumps were largely caused by a combination of factors - a spike in the prices of products that are in high demand as the pandemic lockdown restrictions loosened, supply chain disruptions, and monetary relief benefits that are keeping some workers at home rather than back to work.  

The biggest increase in prices is noted in oil and gas, with a barrel of oil sitting at $80/barrel at the beginning of Q4/2021. But it is not only oil and gas, our basic goods like produce and meat are also becoming more expensive.  

Consumer spending has further been inflated by temporary payments disbursed through various pandemic fiscal programs which expired in September.  

Source: JPM Guide to Market as of August 31, 2021

There is still a silver lining to the headwinds described above.  The economy appears to have a supply problem, not a demand problem.  Recession usually begins when we have excess supply and falling demand.  Demand has been rising most of 2021.  These savings do not include the increased wealth effect from the large gains in stocks and real estate.   

Our base case is that the pandemic has ironically prolonged this expansion by taking the world offline for two years; removing excess supply in the system while demand has continued to rise, stoking supply chain bottlenecks and increasing the demand side of the equation. We believe that if this current bottleneck in the supply chain is resolved, the demand will take time to meet, creating a continuation of this economic recovery.  Despite the Q3 weakness, we expect the U.S. to bounce back in the fourth quarter and continue growth into 2022.

 
Disclaimer

The information provided is for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Callan Capital Management’s views as of the date of distribution. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Callan Capital does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. Callan Capital has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Callan Capital makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Callan Capital is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of Callan Capital Management. For detailed information about our services and fees, please read our Form ADV Part 2A, and our Form CRS which can be found at https://www.advisorinfo.sec.gov or you can call us and request a copy at (866) 912-4888