Weekly Reflection for December 15, 2023

The Week - An Update in Charts

The major U.S. stock market indices were thrilled on Wednesday after the Federal Reserve's announcement that it would hold rates steady. Following remarks from Chair Powell that rate cuts for next year coming, the market threw itself a party.

At this point the Dow has surpassed the previous high level set at the end of December 2021. The S&P 500 and Nasdaq still have a little ways to go.

On Wednesday the Federal Reserve announced that it would leave the interest rate alone at the current range of 5.25% - 5.5%. It also shared expectations for three rate cuts in 2024. The markets cheered the decision and the comments from Fed Chair Powell, including this one on inflation at 2%: “The reason you wouldn't wait to get to 2% to cut rates is that would be too late. You don't overshoot.”

The European Central Bank and Bank of England also left their rates on hold.

As war in Ukraine closes in on its 2nd anniversary in February, it remains a lose-lose battle for both Ukraine and Russia. A more recent side effect, per reporting from The Economist, is spiraling inflation in Russia, which has been on a spending spree. Among the government's outlays are defense spending, doubling over last year, and payments to deceased soldiers’ families, which apparently are as much as 30 years of the average salary. President Putin is also buttering up the poor with generous welfare payments ahead of his upcoming reelection next year.

Russia is trying to get inflation under control. The central bank just raised interest rates by 2%, when only a 1% lift had been expected. The current rate is 16%.

While there is still much frustration over 30-year mortgage rates, now under 7% for many borrowers, a large share of Americans have no mortgage at all. To be fair, these are mostly baby boomers, many of whom traded in the family home for a smaller, less expensive version. Others in this group refinanced over the last decade to a shorter, lower-rate mortgage for faster payoff.

It finally happened – Americans on average had a net $1,000 extra to spend this year! Real wages after inflation have been positive and for the first time since 2019, people have enough money to spend on needed services and goods, plus a little extra.

Although your run-of-the-mill plane ticket has been coming down (see chart above), there is no word on whether the cost of a suborbital trip, which can last 10-15 minutes and take days to prepare one for, will be coming down anytime soon. As of today, a trip on Jeff Bezos’ Blue Origin costs $250,000.

Giving the Gift of Cash

It is nearly year-end and gifting is in full swing. The season brings to mind thoughtful giving, white elephant parties, secret Santa and the unfortunate mashed up Yankee Swap that The Office holiday party devolved into in Season Two.

It also is the time for estate planning and squeezing in financial gifts before year-end. Giving money is a popular way to remove assets from an estate that might be subject to hefty federal or state taxes after one's death.

A giver is permitted to gift anyone up to $17,000 in 2023 without incurring a tax or filing paperwork with the IRS to disclose the gift. As a rule, the recipient may not give anything of material value in return. Donors can give to as many people as they would like as long as it does not breach the annual amount. Exceptions to the limit are payments made directly to a school for tuition or to a medical facility for health-care related expenses.

For payments over $17,000 to a single recipient, the donor should file IRS Form 709. The excess payment forces them to start using their “lifetime exclusion” bucket. The lifetime exclusion is how much an estate can transfer before or after death before the IRS will tax you. For a single person, the amount is currently $12.92 million (although read below for the lower potential amount in a few years).

While states generally follow federal rules on annual gifting, they are all over the place when it comes to estate and inheritance taxes. Oregon has no inheritance tax but taxes net estates over $1,000,000 from 10% - 16%. No other state taxes estates as low as Oregon.

Washington does not have an inheritance

tax either but for estates over $2.19 million, taxes at 10% and going up to 20%, one of the highest rates in the country.

California, which rarely misses an opportunity to slap a tax on it, has recently gotten rid of its estate tax and does not have an inheritance tax.

A quick note on the federal estate and gift tax law, is scheduled to sunset at the end of 2025. This is per the law that gave us these current limits, the TaxCuts and Jobs Act (TCJA), passed in December 2017. The sunset will reset the gift and estate amounts back to 2017 levels. For a refresher, in 2017, the gift amount was $14,000 and the estate tax exclusion was $5,490,000. However, depending on which way Congressional elections go in 2024, the legislature may either extend or make permanent the TCJA provisions.

Guinness Records - the Holiday Version

And for something a little more lighthearted, the Guinness Book of World Records has a few holiday and winter themed categories. In no particular order:

MOST LIGHTS: A family in upstate New York holds the record for the most lights on their property during December. It takes them three months to put up 720,000 lights. All laid out, the lights stretch 40 miles; the extension cords are another 8 miles. There is music coordinated to the pulsating light display. Visitors are encouraged to drive through and make a donation, which goes to charities, not their electric bill, which is manageable for them. The secret to the family's $350 electric bill is the use of LED lights.

MOST CANDY CANES IN A BEARD: Joel Strasser, originally of The Amazing Race reality TV show fame, is a repeat in the Guinness Book of World Records. This year he is listed for his feat of jamming 187 wrapped candy canes in his beard. It looks less painful than his 2022 record for the most baubles in his beard, 710.

LARGEST GATHERING OF SANTAS: 18,112 "Santas" gathered in India in 2014 on behalf of a charity raising funds for the poor. This took place on December 27th, fortunately after the "Santas" had wrapped up their annual work.

MOST SLEDDERS ON A HILL: The longest chain of sleds is held by 508

sledders who managed to stay tied together and not tip over on this hill in Austria in 2017. The leader for the 600 meter slide is a brave soul!