Church Pension Plans, Structured Products, Job Report, Avoid State Taxes from Federal Debt, Chickens and Eggs, Chocolate Lovers, Government Employees, Tariffs, Kraft Heinz Alcohol & Tax Identity Theft

Church pension plans may be at risk

I hate to say this because we all want to believe that one of the safest places to go is church. Unfortunately, there are church pension plans like Saint Claire’s Hospital in Schenectady, New York and Saint Joseph Hospital in Rhode Island that had no or very little money left for retirees when it was time for their retirement. You may be wondering how can that be? Pension plans should be safe especially under federal law where there are protections from the Employee Retirement Income Security Act of 1974, which is commonly known as ERISA.

You may also think if you know something about pension plans that employers must pay into the pension benefit guarantee corporation or what is also known as the PBGC. Unfortunately, when the government came up with the federal law on pension plans to protect retirees, there was concern about the constitutional separation of church and state and they did not want to cross that line. So they exempted churches and employers related to the church, which would include schools, hospitals and publishers.

Church pension plans are allowed to contribute to the pension benefit guarantee corporation, but they’re not required to and unfortunately most do not. It is sad that we cannot trust some of our religious leaders to protect our financial future. If you or someone you know works for a type of association related to a church and they have a pension plan they may want to dig deep into it to make sure it’s really there. Unfortunately, there have been church pension plans that have exaggerated the returns on their investments in their pension plan and ultimately collapsed when people began retiring. It may be unfortunate but it could be wise to have a secondary retirement plan if you work for a church just to be on the safe side so you have something there in your golden years! 

Structured products are back from 2008

Structured products that destroyed the economy in 2008 are back once again. In 2008 there was nearly $1.8 trillion of structured products issued. For 2025, the experts are forecasting structured product issuance of $2 trillion. If you don’t understand what a structure product is, it is nothing fancy other than Wall Street creating loans that hide their true value. In 2008 these were mainly mortgage-backed loans that Wall Street sold and told people there’s no way that these borrowers would default on their real estate loans.

Today, they are even riskier with the loans backed by weak assets such as credit card debt, lease payments on cars, airplanes, golf carts and even plastic surgery loans. Recently in Las Vegas there was a convention for four days that was packed with bankers from Wall Street and around the country that were all in the buzz about the hype of the profits they can make off of these structured products. So far investors have been safe and have not had any losses, but that will change in the years to come especially if the economy weakens. With higher demand, prices for these products are now higher and I believe overpriced.

The higher demand also creates riskier investments that look similar to products with less risk but make no mistake, they have far greater risk. It appears to me that the greed on Wall Street is back and the bankers are trying to tell you that stock investing is out. They tell you that you should be putting your money into these structured products for diversification to avoid market fluctuations, but the real reason for this is the fees they make are so much higher than if you just invested in good quality equities that pay dividends and grow over the long-term. Wall Street makes nothing off of that!

Jobs report seems uneventful, which is a good thing

February nonfarm payrolls increased by 151k in the month, which was less than the estimate of 170k. While I wouldn’t say that’s a positive, it was better than last month’s reading of 125k and it still shows the labor market remained healthy. Revisions to the previous two months were extremely minor as December was revised up by 16k and January was revised down by 18k for a net impact of -2k. Many areas remained strong with health care and social assistance adding slightly over 63k jobs, construction saw growth of 19k jobs, transportation and warehousing was up close to 18k jobs, and manufacturing increased by 10k jobs.

Some areas were a little disappointing with professional and business services declining by 2k jobs, retail trade fell by a little over 6k jobs, and leisure and hospitality was the biggest drag with a decline of 16k jobs. The big question many people had was if the cuts from the Department of Government Efficiency, also known as DOGE, would be felt in this report. It appears there was a minor impact as government jobs actually increased by 11k in the month, but that was in spite of a decline of 10k federal jobs. My estimation is that we will see the declines for government jobs increase in future months as the survey data came largely after many of these announced job cuts.

In a separate report from outplacement firm Challenger, Gray & Christmas there were 62,242 federal job cuts in the month of February. The report also showed U.S. employers announced 172,017 layoffs in the month of February, which was the highest monthly amount since July 2020. Announced layoffs through the first two months of the year totaled 221,812, which was the highest for the period since 2009 and up 33% compared to the same period last year. While this may sound concerning, the big question that we will have to follow is can the private sector replace these cuts with new hiring? Based on the continued strength we have seen in job openings; I believe the labor market will remain in a good place. With that said, the data should definitely be much more eventful in the months to come. 

Avoid State Taxes from Federal Debt

Interest rates have been higher than normal for the last several years, and many investors have been taking advantage of this by placing cash in areas that pay higher rates of interest. A great way to do this is by buying U.S. Treasury Obligations such as Treasury bills, notes, and bonds. These are guaranteed, often pay a higher interest rate than high-yield savings accounts or CDs, and the interest is exempt from income tax at the state level.

By purchasing a money market mutual fund that holds exclusively U.S. Treasury Obligations, you keep all those benefits while also maintaining liquidity. While this should not be viewed as a long-term investment, it is a great place for short-term cash. However, in order to receive the tax benefit, the interest income must be property reported. Every year investors receive 1099-INT’s for interest income and 1099-DIV’s for dividend income which includes interest from U.S. Treasury Obligations.

However, the tax-exempt status of the interest is not always obvious on the 1099 form, especially when the interest came from a fund. Every year, custodians like Schwab, Fidelity, and Vanguard produce a supplementary tax information form that breaks down how much of their funds’ income was from non-taxable government debt. This form along with the 1099 can be used to calculate exactly how much tax-exempt interest you had so that you can correctly report your investment income. Whether you do your taxes yourself, or work with a tax preparer, make sure you are aware of any federal debt interest so that you don’t overpay on your state income taxes.

Understanding the chicken and the egg

With the price of eggs and chickens rising dramatically, there is more interest in using a vaccine that has been developed by Zoetis for the bird flu. Keep in mind if it is approved for commercial use, it would still take time to sort out the trade issue with 150 countries, develop a distribution strategy and ramp up manufacturing. That simply means it is unlikely we would see any pricing relief in the short term. The avian flu has nearly a 100% mortality rate in chickens and it is very contagious.

The flu is picked up from wild birds like ducks and geese where droppings can end up in the barn and the virus then spreads quickly. There is also concern that vaccinating over 300 million US hens would be a rather large expense and also raise the price of chicken and eggs. The big companies that produce chickens for meat are concerned about a $5 billion export business to 150 countries around the world. They point out that from birth to slaughter, chickens raised for meat have around a 45-day lifespan. Your egg laying commercial hens on the other hand are kept for roughly 2-3 years.

It is also worth knowing that 75% of the total deaths from the current outbreak are hens used for egg production while chickens raised for meat only accounted for 8% of the total bird flu deaths. So is it worth doing the vaccination, or is it better to simply produce more chickens and try to protect them from the wild birds? I’m also wondering, will RFK go along with the bird flu vaccination? There’s a lot of wild cards here and in the meantime, I don’t see how the price of eggs and chickens will come back down anytime soon. 

Being a chocolate lover is expensive

If you love chocolate, you’re not alone as it is estimated that 89% of Americans eat chocolate once a week in some form or another. But if you look back just three years ago you may notice that the price of chocolate, which comes from cocoa has surged! During the 2024 holiday season, cocoa peaked well over $12,000 per ton. This compares to 2022 when cocoa was slightly less than $2000 per ton. This means prices essentially rose 6 times what they were just a few years ago.

The reason chocolate lovers are paying more is because of bad weather and plant diseases that have reduced the cocoa crops in West Africa. Also, a European Union deforestation law has reduced planting of new groves. The bad news for us chocolate lovers is that we probably will not see the price of chocolate drop from here and it’s possible over the next year or two chocolates could be higher because to grow cocoa trees it takes years. As a chocolate lover, it is ridiculous to think about trying to switch over to French vanilla or strawberry ice cream. I guess somethings are just worth the extra cost. 

What’s the big deal about the government wanting to know what their employees are doing?

It seems to have cooled down a little bit, but all the hoopla over the government asking their employees what they do or did seems blown way out of proportion. As a business owner or a manager at a corporation, it is normal and expected that you know what your employees are doing and how productive they are. It is so mainstream now that there are software programs and technology that let bosses and managers know how many sales presentations their sales people did or how many customer complaints a customer service representative handled. This can be done with sophisticated data analysis tools that sift through their employees’ emails and chat messages to measure productivity. This has all been a positive for businesses because we have seen productivity in the US increase with technology and knowing what employees are doing.

Generating weekly reports for the private sector has been the norm for many years and it has helped make our country one of the most productive if not the most productive in the world. It has also helped with cost efficiency as well. Why should the US government not have the same privilege of becoming more productive and cost-efficient? I believe this is a great opportunity to implement new technology and practices that ultimately could save money for US taxpayers. 

Should you worry about tariffs?

There have been a lot of headlines around the tariffs the last few days after the US began 25% tariffs on imports from Mexico and Canada and increased tariffs on Chinese goods to 20%. All the countries have now made statements that they will essentially be tough and fight back against the tariffs with actions of their own. China went as far to say, “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”

As we have been saying we are firm believers these trade talks will create an immense amount of volatility in the markets in the coming months. When there are headlines that look good the markets will likely rise, when there appears to be escalations, the markets will likely fall. Unfortunately, I don’t see this getting resolved quickly. Especially since this round of tariffs that are being implemented are apparently due to concerns around fentanyl. April 2nd we will supposedly learn more about reciprocal tariffs that I believe will be more widespread and could create further concerns.

While all of this sounds troubling, remember volatility is not a bad thing and in fact it could be used as a great opportunity to find some great values in the market that go on sale. I would never recommend going all to cash as no one knows exactly when the markets will move and when these trade talks will be resolved. With that I do believe having a little more cash in your portfolio at this time, we have around 20-25% for our clients, is a prudent move to take advantage of those potential opportunities.

It is also important to remember that countries around the world are far more reliant on our trade business as we import much more than we export. My belief is that the trade talks will continue to ramp up, but we could see some good progress within the next 3-6 months. This means if you are sitting all in cash you could miss some great opportunities as your emotions will likely get the best of you. The main point I want to illustrate is be ready for the volatility, but don’t do anything silly like sell great companies with good valuations that pullback because of the volatility. 

Will selling alcohol boost Kraft Heinz lagging stock price?

Kraft Heinz has been a major disappointment for investors going back over the last eight years. The stock was over $91 a share in 2017 and today it trades around $31 a share, roughly a 66% decline. The company has consistently paid a good dividend and the current yield is over 5%, but that has not been enough to offset the huge decline in the stock price. They have had their problems over the years, this includes most recently the diet drugs hurting sales of their shall we say not so healthy products and concerns over RFK. For some reason, they now think coming out with an alcohol product in grocery stores under the Crystal Light brand will turn things around for them.

I think somebody in their back room forgot to a look at the trouble alcohol sales are having these days. What they are trying to do is modernize the Crystal Light brand, which came on the scene about 40 years ago. The company is going to use Crystal Light for vodka seltzers with flavors like watermelon margarita, black mojito, and mai tai. Executives got this idea after realizing that consumers already mix the Crystal Light with alcohol. My concern is why would a consumer pay extra for it in a can, if you can simply pour Crystal Light into your alcohol? The company has tried alcohol sales before, which did not go well partly because I think the product flavor was bad. They had a white wine that was infused with Grey Poupon mustard seeds.

I don’t know about you, but that doesn’t sound good to me. They also tried a sparkling wine with the taste of Claussen pickles, another one that I don’t think sounds that appealing. I would like to invest in this great historical company, but I believe current management is going in the wrong direction. I would think they should be working on how to improve the health of their food, but yet still give the same great taste. Maybe what the company needs is a good management shakeup?

What is tax identity theft?

We all know about identity theft, but there’s a special identity theft that is happening with tax filing. What the scammers do is at the beginning of the year as soon as possible they file a fake tax return and claim a refund that will go to the scammer’s account. The problem is, it is not caught until you file your real return and it triggers your return as a false return and it gets rejected. Now you are a victim and you have to file affidavits, prove your identity and then submit paper returns to get your refund and also to make sure the proper information was filed on the tax return. At the end of last year, it was reported that there were 470,000 open cases for this type of tax return identity theft. Unfortunately, we know that the government does not move very quickly and just in the last four years these types of cases with the IRS now take almost 2 years versus four months in 2020. There’s a couple of things taxpayers can do to avoid this dilemma.

First, don’t procrastinate in getting your taxes done. The longer you wait the bigger the window of opportunity for the scammers to file a false return. The IRS also has six-digit IP PINs, which stands for identity protection personal identification number. If you have these IP PIN numbers and it’s not on the tax return, the IRS will reject that tax return. It is important not to confuse this with the five-digit pin tax payers use to e-file. At this time only 10 million taxpayers out of the roughly 200,000,000 Americans who qualify for them have obtained their IP PIN. Unfortunately, it is one more thing we have to do to protect ourselves from scammers.