AdaptFirst Tax and Investments

08/21/2025

Check your tax withholding on your paycheck right now -

One prominent thing we have found this past tax season is company payroll programs are often NOT taking out enough withholding taxes from people's paycheck to cover their taxes.

Why? My research suggests it's a combination of inflation adjustments made by the IRS on income brackets and an increase in the standard deduction.

Short story is that if you are not withholding enough in your paycheck, you will have a surprise and have to pay come tax time. Check your withholding now to confirm whether or not you are on track.

Hope this helps
www.adaptfirst.com

11/02/2024

Join us to learn more about long term medical care options for you or your loved one with Dr. Corinne Aumen! Nov 19 @ 6:30 pm Shephard's Center in Kernersville

Kernersville Chamber of Commerce

Our parents and ourselves are aging and will need care in the future, join us to learn what care options are available for your loved ones.

10/18/2024

AdaptFirst Weekly Tax and Investment Update -

Get tax tips, investment insights, company events, and more in this weekly update.

10/13/2024

Support local and come visit our vendors at today’s grand opening!

1-5 pm

109 East Mountain St, K-Vegas

Bring chairs and enjoy some live music as well on this beautiful afternoon!

10/08/2024

Grand Opening and Community Showcase -

Get tax tips, investment insights, company events, and more in this weekly update.

08/07/2024

The Most Important Chart
IMHO this is the most important chart right now to follow. Employment has been the glue holding everything together. It tends to be one of the last things to break before a recession. But do we have confidence in the data?

Distortion #1 - The pandemic created a mass distortion with shut downs and staggered reopening , yet wages increased due to massive government stimulus, not exactly the normal script.

Distortion #2 - The free money gift ignited a demand spike like we've never seen while supply chains were crippled. Employers were desperate for help because many older workers opted for an early retirement and didn't want to come back. So employers have been hesitant lay anyone off even as demand has started to soften.

Distortion #3 - Let's be honest, our systems for "monitoring" the economy are not perfect. In fact, we've been reminded of how IM-perfect they are since the pandemic. But despite those shortcomings, we need to have data to make policy decisions. The response rates for collecting this data have fallen dramatically in the last decade, accelerating with Covid. So how do we know if we have the right information?

So where are we today?

Distortion #1 - Unemployment has returned to the pre-pandemic trend suggesting labor markets have somewhat normalized. Meanwhile, pandemic spending has been spent and no longer available.

Distortion #2 - The total participation rate has also returned near pre-pandemic levels. While the 55 and older group never came back, there was a surge in participation in the 25-54 yr old group to fill the gap. So again, we are near "normal" levels even if the mix of workers has changed.

Distortion #3 - Response rates continue to fall. I don't know if it's apathy or a lack of accountability, but it's an issue. What we do know is there is a widening gap between headline numbers and the revisions, and not in a good way. It seems many less jobs were created over the last year than were first reported.

I can run this chart back to the 1960's with the same result, when we see an accelerating unemployment rate, that tends to be bad. (not exactly rocket science) Friday's report clearly shows an uptick, so this needs to be monitored carefully.

Rising unemployment can trigger a domino effect and negative feedback loop because you can't buy toys nor pay bills if you don't have a job. And that lower demand causes other people to lose their jobs, etc. This is why the chart shows unemployment start slow and then spike.

Keep an eye on this.

06/12/2024

The Game has Changed
We don't often have "regime" changes, but when they happen, it's meaningful and long lasting. So yes, I will go ahead and say it, this time is different. And what's changed is actually structural in how markets work and investment decisions are made. This has vast implications for future investing decisions. And just as an aside, there are a couple of other changes related to this one which are also contributing to a New Market Order.

What's changed is the dramatic increase in "passive investing". As you can see below, since 2012, the Passive % of All Equity Funds has increased from 33% to 58% in just 12 years.

Why does that matter?

It matters because investing "passively" means there is no analysis or thought going into what you are buying. You give the fund manager money, and they buy everything in the index and the price of a holding is irrelevant. An "active" fund manager, conversely, would actually do some type of analysis (economic, fundamental, technical, etc.) and try to allocate the contributions in the most advantageous way possible.

Now when the % of Passive funds was low, that difference didn't really matter. Now it apparently does. We seem to have crossed the threshold where Passive decisions (along with a few other things) are driving the bus when it comes to market moves.

The effects of this change have thus far been very positive. By default, if price doesn't matter, as long as money is flowing in, all is sunshine and rainbows. The problem comes when money is flowing out. Again, price doesn't matter. So the same indiscriminate buying, then becomes indiscriminate selling.

Mike Green makes a point that distributions are based on asset levels while contributions are based on incomes.

Think about that for a second -

A quick example, if asset markets are inflated due to structural passive investing, a 4% RMD distribution might be a relative large $ amount. In order to offset that distribution (more than offset to get net inflows), you need an equivalent $ amount from, say, 401k contributions linked to employee incomes.

Ok...

So that's fine as long as the working group (incomes) is bigger than the retired group (RMDs). But what happens if the retired group is much bigger? You get net OUT-flows, and if markets are 60%+ passive, that could be a real problem.

The economy still matters because certainly contributions going into passive investment funds is tied to retirement savings into 401ks. So again, employment is a lynchpin.

But flows out due to retirement needs, medical expenses, RMDs, travel, ... from the Boomers is going to be very important to monitor, because the mechanics around freeing up those funds has dramatically changed.

06/05/2024

How Powerful is Housing?
I saw an interesting chart the other day where the author was comparing home sales and unemployment. The point was that given how large the housing market is and the "ripple" affect it has throughout the economy, changes in home sales lead unemployment. This is also similar to Kantrowitz's "H.O.P.E." framework.

Now be careful to note, the green line in the chart above has been flipped, so it's saying that existing home sales have dropped (not increased) rather dramatically in the last couple of years. We know this of course because prices have skyrocketed and mortgage rates have climbed dramatically. The 1-2 punch has frozen existing homeowners, and transactions have plummeted to the lowest point since the 2008-2009 housing crisis.

Another charting note is there is a "lag" between the two data series. In the chart below, existing home sales has been shifted forward by ~1.5 years. If this timing holds true per history, we may start seeing unemployment tick up notably through the rest of the year.

It makes sense because there are so many industries and jobs tied to housing. Not only do you have construction and real estate sales, you also have furnishings which include big and small ticket items and the manufacturing and sales of those items. So when you get a dramatic drop in such an broad and influential industry, it's not surprising to see a meaningful impact. (at least historically)

Will it happen this time?

Something else to consider is that "this time is different". There is a laundry list of things that have just not happened (yet?) based on historical precedent. So it is possible that this seemingly clear and logical relationship may also breakdown. Maybe the government decides to keep hiring all the people that are being laid off. (which has been happening) Maybe unemployment breaks above 4% Friday and Congress decides to give everyone another check. Etc. Etc. Etc.

What I can say is that we have remained in an "abnormal" world for a lot longer than more distinguished and smarter people than I could have ever imagined. Further, many are arguing we are transitioning from a deflationary regime to another inflationary regime, which also has a plethora of implications in and of itself.

We really need to watch unemployment in the coming months, election or not. Some argue the numbers are being cooked and that may be true too. If they are, we may not be able to keep the true numbers hidden for much longer.

05/29/2024

Just In Time
There have been a number of indicators that the consumer is starting to crack. And that's at pretty much full employment. The deadly straw for the camel is if/when unemployment begins to accelerate. I think employment remains the key lynchpin holding everything together.

So it wouldn't be great in an election year if unemployment spikes and dominoes start to fall. The key is to keep demand and spending higher. And with stimulus gone and credit card debt delinquencies spiking, we need something else. So...

A proposal was submitted to the Federal Housing Finance Agency for approval in April 2024 to allow Freddie Mac to begin purchasing and guaranteeing second mortgages. The goal would be to provide borrowers with a lower-cost alternative to cash-out refinancing and tap their home equity without refinancing their first mortgage at current higher interest rates.

I believe the proposal is still in the comment period, but it made me think about this chart. I can't remember where I clipped and accidently missed the source, so note that. (If you know where to find it let me know in the comments)

Basically, it shows a link between credit availability and unemployment. That's pretty straight forward but credit availability tends to lead spikes in unemployment. Sure, lenders start to get more conservative and/or borrowers look more shaky, demand weakens more, then unemployment ticks up, then dominoes start to fall.

In the most recent period, 1) it was different this time - Covid stimulus negated the spike in unemployment and credit availability continued to rise through the pandemic. 2) As we have started to "normalize", we've seen a drop in credit availability and now we are starting to see unemployment tick higher.

Ok, so what?

Well if the Freddie Mac proposal passes, you could get a rebound in credit availability and ANOTHER stimulus from home "equity" as housing prices remain high which should help support spending. Now there's the obvious long term considerations for doing that, but when did we start caring about the long term? (medium term?)

The irony is that such support could also be more inflationary which keeps us "higher for longer". All of these "band-aids" that have been created over the last 50 years have certainly lengthened cycles, but I can't see a path to eliminating them which ultimately leaves us with higher volatility in the long run, bigger ups and bigger downs.