Stock buyback have been getting negative press lately. The recently signed Inflation Reduction Act calls for a 1% excise tax on these transactions. Many proponents of this tax hope it will dampen the enthusiasm for stock buybacks.  It is not clear why.

Stock buybacks are a legitimate technique for value maximizing managers to distribute excess cash to shareholders. Cash is a nonproductive asset. Theoretically, if a firm has productive uses for cash, it should undertake them, if not, surplus cash should be distributed to shareholders.  This excess cash could come from a reduction in taxes.  If there are no good uses in the company for this cash, a stock buyback is a legitimate way to return it to shareholders.

Stock buybacks do not create value – fewer shares are offset by reduced cash.  Repurchasing shares that are priced in a well-functioning market is a “zero-sum” transaction.  Observed increases in stock price might reflect reduced tax rates, signaling new information, or other factors but not buybacks per se. It is not productive for management to keep unnecessary cash in the company to avoid criticism of a stock buyback.

During the pandemic, unemployment benefits were increased significantly to help alleviate the financial burden for those who found themselves out of work. An unfortunate outcome is that unemployment fraud has become much more common, and many people have unknowingly had unemployment benefits claimed against their Social Security number in 2021.

The NYS Department of Taxation has been sending out letters over the last few weeks for taxes owed on employment benefits during 2021. If you have received a letter stating that you owe taxes for fraudulent unemployment benefits received in 2021, here’s the website for submitting a fraud claim:

This claim will be reviewed by the Department of Labor, and they will follow up with you if they need more information.

Here are other things you should do in addition to filing the claim with the DOL.

  • Dispute NYS Taxation and Finance Letter: The letter itself will come with your options for filing a protest. You can either do so online (at, by phone (518-599-6837), or by mailing/faxing in the letter with an explanation. Once the DOL has confirmed that the benefits paid were fraudulent, they’ll communicate with the Department of Taxation and Finance to clear up any balance owed. You should receive a corrected 1099-G showing no unemployment benefits paid for your records
  • Contact the three major credit bureaus: If someone was able to claim unemployment benefits on your behalf, they likely have your Social Security number. Knowing that’s the case, you should freeze your credit by contacting Equifax, Experian, and TransUnion.

If you or somebody you know has had this happen to you or have questions about the process, don’t hesitate to reach out to a Rockbridge advisor.

As if the financial industry weren’t complicated enough, there are fee-only investment advisors and fee-based advisors — and a Registered Investment Advisor firm can be either. As the wording implies, fee-only investment advisors like Rockbridge receive NO commissions or any other forms of compensation from ANY outside sources. At the other end of the spectrum, commissioned brokers receive most or all of their revenue from the companies whose products they buy and sell.

Fee-based advisors fall into a gray area. They receive most of their revenue from client fees, but they can also receive portions of their revenue from outside sources. A common example is investment advisors who also are insurance agents, receiving fees from their clients as well as commissions from selling insurance policies, annuities, mutual funds loaded with fees, etc.  Most importantly, fee-based advisors are not required by law to act in the best interest of their clients.  They are held to a much more lenient standard, knows as a “suitability standard”, meaning, as long as they provide advice that’s suitable for their clients they can’t get in any trouble.  Fee-only advisors, like Rockbridge, are held to a much more stringent standard known as a “Fiduciary Standard”, meaning we are required by law to act in your best interest.

Imagine if you went to a doctor with a health issue.  The doctor diagnoses the condition as life threatening.  There are two known treatment regimens for this condition, one consists of a regimen that will cure the condition forever (but means the doctor won’t receive much compensation for it), and the other consists of taking multiple prescriptions for the rest of your life to treat the condition, but means the doctor will receive large commissions for recommending the prescriptions.  If the doctor was a fee-based advisor, he would only be required to provide advice that’s suitable for you, and he may be inclined to recommend the lifetime treatment and receive kickbacks from the drug companies for the rest of your life.  This is why suitable advice ≠ advice that’s in your best interest, and why fee-only advisors  ≠ fee-based advisors.  A fee-only advisor is required by law to act in the best interest of the client.  Period.  

Unfortunately, Syracuse and all of Central New York is littered with fee-based advisors that have slick sales pitches about why the fact that they aren’t fee-only doesn’t matter, and how they always act in the best interest of their clients because they are “nice guys”.  There are plenty of advisors, doctors, attorneys, you name it, that are in jail even though they are nice guys.  If the advisor isn’t required by law to act in your best interest, then why bother?

Personally, we prefer to keep things clean and simple. If an insurance policy or any other wealth management strategy is in your best interest, we provide you with our unbiased, fee-only advice on how to proceed. We collaborate with our team of Certified Financial Planners (CFP’s) to implement the advice. With this arrangement, you have the peace of mind in knowing we have no conflicting incentives.  

The Consumer Price Index (CPI) climbed to a historically high 9% over the past twelve months prompting concerns for ongoing inflation. There is much discussion in the popular press as to the causes and to the extent it is “transitory” or is becoming embedded in economic activity. While the emergence of inflation contributes to market volatility, given the responses to the pandemic which include massive government stimulus payments, supply chain disruptions and an accommodative monetary policy coupled with a boycott of Russian oil due to its invasion of Ukraine it is not surprising that we are seeing significant price increases, which are having a negative effect on many people’s personal spending decisions.

The longer-term worry is that inflation gets baked into a cycle of wage and price increases, which can be not only difficult to deal with, but painful to break. In the meantime, the Fed has been increasing interest rates. Our usual models often tell us that rising interest rates will have a negative impact on growth. Currently the employment numbers remain positive. Regardless, this expected conflict between inflation and growth, plus the difficulty with measuring economic activity is a source of uncertainty in today’s markets. While July’s results were pleasant, expect continued market volatility.

After a sharp decline in the first six months of this year, stocks were up nicely in July; a global equity portfolio was up just over 6%. These results were a welcome respite from what we have experienced thus far this year. Markets look to the future. Let us hope they signal positive expectations for the Fed tamping down inflation while avoiding a recession. Uncertainty remains, but an upbeat month is a welcomed change, nonetheless.

Yields were up at the short end, but down a bit for longer maturing bonds in July. These twists in the yield curve are consistent with the Fed increasing the short-term interest rates it controls coupled with reasonable inflation expectations over extended periods. The spread between nominal and inflation protected yields continue to signal inflation in the range of 2.5% over five and ten-year periods.

First quarter measures of Gross Domestic Product (GDP) and National Income, which ought to equal, provide conflicting indications whether we are in a recession. Employment numbers continue to be positive. Keep in mind that the economy is coming out of a 100-year pandemic – we should take measures of economic activity with a “grain of salt”. Although they can change quickly, signals from stock and bond markets are positive.