July 2021 Newsletter

American flag

Welcome to the July 2021 Newsletter. This month, we’re discussing the economy, employment, COVID-19 vaccine deployment updates, and more.


What we said last month is still true: There are three good reasons to believe the U.S. stock market will continue its upward trend for some time, even as it endures volatility and the occasional period of consolidation. First, the Federal Reserve is providing significant monetary stimulus by keeping short-term interest rates low and continuing its purchase of Treasury Bonds and mortgage-backed securities. The latter will keep long-term interest rates low. Second, Congress is forecasted to continue massive spending to prop up the economy and rebuild the country’s infrastructure. And third, U.S. citizens have embraced the COVID-19 vaccines, allowing the country to reopen faster than the rest of the world.

But we also believe that during the second half of the year, the stock market will be more volatile than the first half. Our recommendation: Long-term investors should summon up their courage and patience during times of stock market consolidations and corrections.

Employees should continue to make their weekly, biweekly, or monthly contributions to their employer’s retirement plan and personal and spousal IRAs. At this time, additional money can be added to an investor’s stock market allocation, but only on a dollar-cost-average basis spread over 12 months. All portfolios remain fully invested.

Quote of the Day

“I have never advocated war except as a means of peace, so seek peace, but prepare for war. Because war…war never changes. War is like winter, and winter is coming.”

– Ulysses S. Grant, 1885. Mr. Grant was a West Point graduate, the most acclaimed Union general during the American Civil War, and he served two terms as the 18th President of the United States.

A More Recent Quote

Woody Williams told his great-grandson, Cedar Ross, as he graduated from the Marine Corps boot camp at Parris Island, “The only advice I gave him was to do the very best he could, and then do a little more.”

Woody Williams and his great-grandson, Cedar Ross
Woody Williams (right) and his great-grandson, Cedar Ross (left)

Hershel Woody Williams is the last surviving Medal of Honor recipient to have fought in the Battle of Iwo Jima during WWII. During a four-hour period on February 23, 1945, using explosives and a flame thrower, Sergeant Williams wiped out seven Japanese machine gun nests protected by concrete bunkers.

The Economy

money as a paper boat on a blue wave background with stock chart


Total U.S. nonfarm payroll employment rose by only 559,000 in May, and the unemployment rate edged down to 5.8% from last month’s 6.1%. The Job Openings & Labor Turnover Survey said there were 9.3 million open jobs in the U.S. as of the last business day of April compared to 8.1 million openings the last day of March.

The seasonally adjusted, all-encompassing unemployment rate (U-6) declined in May to 10.2% from 10.4% last month. It was 21.2% in May 2020. There are 8.8 million people unemployed in the U.S., age 16 and older, compared to 9.2 million last month.

At their June meeting, the Fed predicted 2021 unemployment will reach 4.4 to 4.8% in 2021 and 3.5 to 4.0% in 2022.

May 2021 Unemployment

Unemployment Rates by Education Level, May 2021

Less Than High School Diploma9.1%
High School Graduate, No College6.8%
Some College or Associate’s Degree5.9%
Bachelor’s Degree or Higher3.2%

The rolling three-month payroll average increased slightly to 541,000 this month from 539,000 last month.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the final estimate of the 2021 first-quarter GDP increased by 6.4%. There was no change from last month’s estimate.

Chart, box and whisker chart  Description automatically generated

The Fed has predicted GDP to be 6.8% to 7.3% in 2021 and 2.8% to 3.8% in 2022.


Annual inflation increased to 3.9% in May as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, increased in May to 3.4% from 3.1% in April.

The National Association of Realtors said on June 22 the median existing-home sales price in May topped $350,000 for the first time.

The Fed has predicted core PCE inflation to be 2.9% to 3.1% in 2021 and 1.9% to 2.3% in 2022.

Long-term inflation expectations can be determined by measuring the differences between Treasury bond yields & TIPS real yields of the same maturities. Results are:

Bond MaturitiesAnnual Inflation Expectations
5 Year2.47%
10 Year2.32%
30 Year2.26%

This month’s estimated annual inflation numbers above are nine basis points lower than last month (one basis point is 0.01%).

Stock Market


There are several reasons to be optimistic about the economy. The entrepreneurial spirit is alive and well with 4.4 million new businesses started in 2020, the largest number on record. Trillions of dollars have been added to savings as a result of fiscal policy, and the current job market is the best in decades. The “quit rate,” which measures the number of workers who quit due to their confidence in getting a better job, is at the highest level in two decades. Record levels of pent-up demand should result in continued economic growth into 2022 as consumers unleash their spending power in the quarters ahead.

The Conference Board Leading Economic Index (LEI) posted a strong 1.3% increase in May, as it rose for the 13th straight month. The median national home price for active listings reached $385,000 in June and grew by 12.7% over the past year. Industrial production rose 0.8% in May as manufacturing output gained 0.9%. Semiconductor shortages continue to hamper the new vehicle sector, but relief should begin to show up in the 3rd quarter. The economic outlook for the U.S. in the next 12 to 18 months looks very positive.

Stock Market Valuations

Based on our forecast of strong economic growth in 2021, we estimate S&P 500 operating earnings will increase to $180 this year and as high as $210 next year. This assumes the corporate income tax rate in 2022 will increase to 25%. With a price/earnings ratio of 21 times, the S&P 500 Index has the potential to reach the 4,400s later this year or by mid-2022.

The S&P 500 Index closed Wednesday, June 30, at 4,297.50. That is up 2.2% since the close last month.

Recommended Action for Your Stock Portfolio

We recommend everyone’s portfolio should be highly diversified and low cost. In today’s market, we believe diversification means at a minimum owning U.S. stocks, international stocks, U.S. bonds, and cash. For an investor who wants to take diversification one step further, we recommend real estate. Of course, a person could buy an apartment building, but we recommend indirect real estate ownership through a mutual fund or ETF. Some real estate investment options that currently appear better than average are:

Real Estate Investment Options

The Electric Reliability Council of Texas (ERCOT): This Month’s Corporate Bad Boy

Source: Page A1, The Wall Street Journal, May 28, 2021

Details are coming out that the Texas electrical grid came within five minutes of a complete collapse in mid-February due to the electrical load exceeding the grid’s capacity during a severe winter storm. This drove the grid’s frequency dangerously low – below 59.4 hertz. At 59.3 hertz, the Texas power plants would have automatically been totally disconnected from the grid. Also, the little-known network designed to jolt the Texas grid back to life was not working properly. Texas grid operators, just like their counterparts all over the country, rely on standby generators (called black-start generators) to restart an “off” power plant. Their job is to rescue the grid by supplying electricity to power plants so the plants can restart after a grid failure – similar to jump-starting a car with a dead battery.

When the freak winter storm hit Texas, nine of the 13 primary black-start generators were out of commission. And six of the 15 secondary generators – the fail-safe for the fail-safe – had troubles as well, including freeze damage and lack of fuel. Instead of Texas homeowners being without power for a few days, a total grid failure, combined with insufficient operational black-start generators, would have taken many weeks to get the Texas grid back up and running.  Without a black start generator, a power plant that is electrically dead will stay dead.

Pat Wood III, former chairman of the Federal Energy Regulatory Commission, said the poor performance of the Texas grid stunned him. Mr. Wood said, “The black-start generators are what keep us from going back to the Stone Age.”

ERCOT has no on-site fuel storage requirements for its black-start generators. Throughout the U.S., it is recommended that black-start units be weatherized, but there are no federal requirements. A spokesman for the Public Utility Commission of Texas said, “There is no reference to black-start units in any of our rules.”

There is a lot of work to do in Texas and Washington, D.C. before next winter. For the sake of Texas citizens, we hope it gets done. In this situation, good effort and good intentions are not going to be good enough. The only things that will count are results.

Death & Taxes

Life Expectancy

Per CDC data, the average life expectancy at birth of all races and both sexes in the United States was just 47 in 1900 due to a dreadfully high rate of infant mortality. In 1950, life expectancy rose to 68. In 2000, it was 77; in 2021, it is projected to be 79.

Taxes on Social Security Income

For those approaching retirement, knowing what your Social Security income will be is an important part of a family’s long-term financial planning. But keep in mind that for most people, the federal government will tax 85% of Social Security income. As listed below, 13 states also tax Social Security income to one degree or another:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

The Bernie Sanders Tax Plan Might Become Law

In March, Senator Bernie Sanders and the White House formally proposed the Sensible Taxation and Equity Promotion Act of 2021. This bill puts forward the following:

Estate Exemption & Tax Rates: The act would decrease the federal estate tax exemption to $3.5 million and reduce the exemption by over $8 million from today’s law. In addition, the top estate tax rate increases from 40% to 65%. For example, if a person dies leaving an estate valued at $11 million, under today’s law, the estate would pay no federal estate taxes. Under the proposed law, the estate would pay approximately $4.7 million in federal estate taxes.

Annual Gifts: The act would place significant limitations on the annual gift exclusion. Today, anyone can give up to $15,000 to anyone else each year. For example, a husband and wife with two married children could each give $15,000 to their son and another $15,000 to his spouse, and $15,000 to their daughter and another $15,000 to her spouse — with no gift tax for the parents and no income tax for the children. At the maximum, this would be a total transfer from the parents to the two families of their married children of $120,000 per year. Of course, these are maximum amounts. Most parental gifts don’t come close to $15,000. The new act would limit the lifetime cumulation amount equal to twice the annual exclusion of $15,000.

Gain Recognition on Death: Under current tax law, assets inherited from an estate receive a “step-up cost basis” equal to the fair market value of the property as of the date of death. This essentially eliminates capital gain taxes on the inherited property. The beneficiary only pays a capital gain tax when the property (real estate or stocks) is sold. The proposed law would eliminate the step-up cost basis and cause the estate to recognize the gain on the property passing at death as if the property had been sold, causing the gain to be subject to income tax at that time.

If this proposal becomes law, what should families do? Our advice is to consult your CPA or IRS-enrolled agent for tax planning — and an estate attorney for estate planning — to determine the best action for your family before a loved one passes.

Bills like this one show the arrogance of the federal government.  In our opinion, this bill says, “We, the federal government, are smarter than you and we know better than you how best to spend your money.”

Even before Karl Marx (1818 to 1883), Etienne-Gabriel Morelly in France in 1775 proposed, “Nothing in society will belong to anyone. Every citizen will be sustained at the public expense.” Is this really where we want to go? Because this is where the Socialists in the U.S. Congress are taking us.

Additional Financial News

TikTok’s New Privacy Policy

TikTok has announced that their new privacy policy allows the collection of user’s biometric data, including face recognition and voiceprints.

Yes, Virginia, there is inflation!

Virginia McDonald's


staying healthy with face masks and hand sanitizer

Vaccine Deployment

U.S. Data by the CDC – June 30, 2021

Percent of the Total U.S. Population Fully Vaccinated46.7%
May’s Fully Vaccinated Percentage40.7%
April’s Fully Vaccinated Percentage30.5%
March’s Fully Vaccinated Percentage15.0%
Total Vaccines Administered in the U.S.326,500,000
Total Vaccines Delivered to U.S. Healthcare Facilities381,900,000

Worldwide Data by Johns Hopkins

Percent of Total Population Fully VaccinatedNumber of CountriesLast Month
Over 60%32
10% to 59%6547
3.0% to 9.9%2823
0.01% to 2.9%5055
No data reported1534

Vaccine Development

Below is a summary of vaccine development for four U.S. pharmaceutical companies and one U.K. company.

Pfizer reported on May 28 the European Union has expanded their emergency use authorization for the Pfizer COVID-19 vaccine to adolescents age 12 to 15. In the 27 EU countries, anyone age 12 and up is eligible to get the two-shot vaccine. This was based on a Phase 3 trial of 2,260 adolescent participants. The test results showed the vaccine to be 100% effective for those receiving the vaccine. The Pfizer vaccine has already received emergency use authorization by the FDA for children and adults age 12 and up in the U.S.

Pfizer said their vaccine study for children 2 to 5 years of age and a second group of children 5 to 11 years of age should be available in September. Results of the Pfizer vaccine for children 6 months to 2 years should be available in the 4th quarter of 2021. The various versions of the Pfizer COVID-19 vaccine for children contain different amounts of active ingredients from the adult version.

Moderna announced on June 1 they have begun the process of submitting a continuous flow of Phase 3 data to the FDA to convert their COVID-19 vaccine from emergency use authorization to full approval. The process will include a request for a Priority Review by the FDA. Hopefully, this review will take less than the allowed six months.

Moderna announced on June 10 they have submitted data to the FDA to apply for emergency use authorization for their COVID-19 vaccine for adolescents ages 12 to 17. The request is based on a Moderna study of 3,732 participants. The vaccine’s efficacy in the nearly 2,500 adolescents who received the vaccine was 100%.

Moderna announced on June 21 they are adding two new production lines for the COVID-19 vaccine at their facility in Massachusetts to supplement their existing three production lines. One new line will be operational in the fall, and the other in early 2022. These additions will help Moderna increase its overall production capacity by 50%. Doses available in 2021 should reach 1 billion and 3 billion in 2022. Matt Barrows, Director of Manufacturing, said they are receiving inquiries from governments in Asia, Africa, and Latin America seeking supplies of their COVID-19 vaccine.

Johnson & Johnson’s single-dose vaccine is back in production and distribution in the United States. On June 10, it was announced the FDA has approved J&J’s increased shelf life of their COVID-19 vaccine from 3 months to 4.5 months as long as the vaccine has been refrigerated between 36 and 46 degrees F.

Novavax announced on June 15 their COVID-19 vaccine was 90.4% effective in preventing symptomatic disease in adults in their 29,960-person trial in the U.S. and Mexico. Novavax’s vaccine candidate requires two shots, three weeks apart.

Novavax executives said regulatory clearances are still months away because the company needs to finish preparing its manufacturing facilities. The vaccine, once approved, is more likely to be used internationally as there are already three approved vaccines in the U.S. At full production, the company said they will be able to produce 2 billion doses a year.

AstraZeneca announced on June 15 their vaccine has demonstrated high levels of protection against the Delta variant (formerly known as the Indian variant).

Bond Market

bond market and pen


Members of the Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate at the 0% to 0.25% target range during their June meeting. The FOMC also decided to continue its asset purchase program at a pace of $120 billion per month. The next FOMC meeting is July 27 and 28.

Federal Reserve

Federal Reserve Chair Jay Powell said it is highly unlikely that inflation will rise to levels seen in the 1970s. Mr. Powell underscored his remarks on Capitol Hill on June 22: “Current shortages – including new and used cars, computer chips, and workers – will fade over time and bring inflation back down to the Fed’s target of 2 percent.”

U.S. Treasury

Secretary Yellen is calling on Congress to raise or suspend the debt ceiling as soon as possible. Yellen’s concern is that Congress will be away on summer recess at a time when the Treasury will hit its borrowing limit. Congress is scheduled to leave on recess at the end of July and return in September. Over the past year, the total public debt outstanding has increased by $2 trillion (from $26.3 trillion to $28.3 trillion). During the past 10 years, the debt has nearly doubled from $14.3 trillion to $28.3 trillion.

Recommended Action for Your Bond Portfolio

Most bonds are not appropriate today because of rising interest rates. We’ve reduced our bond market mutual fund recommendations to the list below:

  • Ultra-short-term U.S. investment-grade bond funds
  • Short-term U.S. investment-grade bond funds
  • U.S. Savings I Bonds

The most important aspect in selecting a bond fund in this market is to keep the bond fund’s average duration low. We suggest keeping a bond fund’s duration under two years. The higher the bond fund’s duration, the faster the fund’s price will decline as interest rates rise.

Another idea for safe money is to buy U.S. Savings I bonds. They have no credit risk and no interest rate risk, and income taxes are deferred until the bonds are sold or mature. I-Bonds purchased now are paying 3.54%. These can only be purchased directly from the U.S. Treasury at: https://www.treasurydirect.gov.

**Please note: Everyone should maintain a safe, liquid emergency fund of at least nine to 12 months of family expenses in an FDIC-insured checking account or money market account before investing in a stock or bond portfolio.**