The CPI-W is an Accurate Measure of Retirees' Household Inflation

FALSE!

The Bureau of Labor Statistics very clearly states in their FAQ re the CPI "it seldom mirrors a particular consumer's experience".  Gosh, I wonder why, since they use the CPI-W to determine Social Security cost of living adjustments.  CPI-W is how urban wage earners and clerical worker spend their money with these two qualifiers:

• More than half the household income must come from clerical or wage occupations
• One of the household's earners must have been employed at least 37 weeks during the previous 12 months.

This group represents only 29% of the population, and certainly not most seniors.

This is why we require our clients to develop an Expense Plan, or budget:  To determine what their particular household's inflation rate is and will be in the future.  Of course, these are just estimates.  For example, our expense plan template assigns different inflation rates for many of the line items:

• If you have a fixed mortgage, that payment has an inflation rate of zero
• If you spend a lot on medical expenses then those line items will inflate much more
• If you buy a lot of clothing, those prices haven't inflated much at all.

So the point is, every household should have a customized estimate of their inflation rate.  Averages are never very accurate.  For example if you have a boy and a girl, what is their average gender?

Your Constructive Comments are Welcome!

IRS Top Ten Criminal Cases in 2021

Not a myth, today.  Below is the article in its entirety.  This is important because these big bad examples can help you recognize, and avoid, future such scams.  These are some especially rotten people.  I encourage you to read the entire stories.

ssue Number:    IR-2022-04

Inside This Issue

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IRS-CI counts down the top 10 cases of 2021
Cases include tax evasion, Ponzi schemes, COVID fraud, cyber crimes

WASHINGTON – Internal Revenue Service Criminal Investigation (IRS-CI) began counting down the top 10 cases for calendar year 2021 on its Twitter account on Jan. 3. These cases include the agency’s most prominent and high-profile investigations of 2021.

“The investigative work of 2021 has all the makings of a made for TV movie – embezzlement of funds from a nonprofit, a family fraud ring that stole millions in COVID-relief funds and a $1 billion Ponzi scheme used to buy sports teams and luxury vehicles. But this is real life and I’m grateful to our IRS-CI agents for pursuing these leads and ensuring that the perpetrators were prosecuted for their crimes,” said IRS-CI Chief Jim Lee.

The top 10 IRS-CI cases of 2021 include:

10. Albuquerque couple sentenced to federal prison in Ayudando Guardians case
Susan Harris and William Harris were sentenced to 47 and 15 years in federal prison, respectively. They stole funds from Ayudando Guardians Inc., a nonprofit organization that provided guardianship, conservatorship and financial management to hundreds of people with special needs.

9. Rochester man going to prison and ordered to pay millions in restitution for his role in Ponzi scheme that bilked investors out of millions of dollars
John Piccarreto Jr. was sentenced to 84 months in federal prison and ordered to pay restitution totaling $19,842,613.66 after he was convicted of conspiracy to commit mail fraud and filing a false tax return. He conspired with others to obtain money through an investment fraud Ponzi scheme.

8. Orlando sisters sentenced in $25 million tax fraud scheme
Petra Gomez and her co-conspirator, her sister, Jakeline Lumucso, were sentenced to eight and four years in federal prison, respectively. They operated a tax preparation business with five locations in central Florida that filed more than 16,000 false tax returns for clients from 2012 to 2016 with a total estimated loss to the IRS of $25 million.

7. Russian bank founder sentenced for evading exit tax upon renouncing U.S. citizenship
Oleg Tinkov, aka Oleg Tinkoff, was ordered to pay more than $248 million in taxes and sentenced to time-served and one year of supervised release after he renounced his U.S. citizenship in an effort to conceal large stock gains that were reportable to the IRS after the company he founded became a multibillion dollar, publicly traded company.

6. Ontario man who ran multimillion-dollar unlicensed bitcoin exchange business sentenced to 3 years in federal prison
Hugo Sergio Mejia was sentenced to three years in federal prison and required to forfeit all assets derived from running an unlicensed business that exchanged at least $13 million in Bitcoin and cash, and vice versa, often for drug traffickers. He charged commissions for the transactions and established separate companies to mask his true activity.

5. Owner of bitcoin exchange sentenced to prison for money laundering
Rossen G. Iossifov, a Bulgarian national, was sentenced to 121 months in federal prison for participating in a scheme where popular online auction and sales websites — such as Craigslist and eBay — falsely advertised high-cost goods (typically vehicles) that did not actually exist. Once victims sent payment for the goods, the conspiracy engaged in a complicated money laundering scheme where U.S.-based associates would accept victim funds, convert these funds to cryptocurrency, and transfer the cryptocurrency to foreign-based money launderers.

4. Ex-pastor of Orange County church sentenced to 14 years in federal prison for orchestrating $33 million con that defrauded investors
Kent R.E. Whitney, the ex-pastor of the Church of the Healthy Self, was sentenced to 14 years in federal prison and ordered to pay $22.66 million in restitution to victims after defrauding investors of $33 million by orchestrating a church-based investment scam. At his direction, church representatives appeared on television and at live seminars to make false and misleading claims to lure investors to invest in church entities. Victims sent more than $33 million to the church and received fabricated monthly statements reassuring them that their funds had been invested, when in reality, little to no money ever was.

3. Prairie Village Man Sentenced to 12 Years for $7.3 Million Dollar Payday Loan Fraud, $8 Million Tax Evasion
Joel Tucker was sentenced to 12 years and six months in federal prison and ordered to pay over $8 million in restitution to the IRS after selling false information or fictitious debts to payday loan businesses and not filing federal tax returns – for himself or his businesses – with the IRS for multiple years.

2. DC Solar owner sentenced to 30 years in prison for billion dollar Ponzi scheme
Jeff Carpoff, the owner of California-based DC Solar, was sentenced to 30 years in federal prison and forfeited $120 million in assets to the U.S. government for victim restitution after creating a Ponzi-scheme that involved the sale of thousands of manufactured mobile solar generator units (MSGs) that didn’t exist. He committed account and lease revenue fraud and purchased a sports team, luxury vehicles, real estate and a NASCAR team with the proceeds.

1. San Fernando Valley family members sentenced to years in prison for fraudulently obtaining tens of millions of dollars in COVID relief
The Ayvazyan family received sentences ranging from 17.5 years in prison to 10 months of probation for crimes ranging from bank and wire fraud to aggravated identity theft. The family used stolen and fictitious identities to submit 150 fraudulent applications for COVID-relief funds based on phony payroll records and tax documents to the Small Business Administration, and then used the funds they received to purchase luxury homes, gold coins, jewelry designer handbags and more. Richard Ayvazyan and his wife Terabelian cut their ankle monitoring devices and absconded prior to their sentencing hearing; they are currently fugitives.

Follow IRS-CI on Twitter @IRS_CI to learn more.

IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, boasting a nearly 90 percent federal conviction rate. The agency has 20 field offices located across the U.S. and 11 attaché posts abroad.

Your Constructive Comments are Welcome!

Trees Can Grow to Outer Space

I don't have to tell anyone that the title of this blog is an obvious myth.  

• It doesn't matter how confident we are (investor sentiment).  
• It doesn't matter how fast they grow (momentum).  
• It doesn't matter how much we spend on fertilizer (stimulus, hedging).  
• It doesn't matter which financial entertainer is telling us to believe it:  

Trees can't grow to outer space.  In fact, due to the sheer physics of being a tree, they can't even come close.

Which is why I find this chart so fascinating.*

The chart shows the inverse relationship between real (adjusted for inflation) S&P500 performance and margin debt balances.  Margin debt is the money investors have borrowed to buy securities in their brokerage accounts.  For example, my Interactive Broker's account says I have nearly $900,000 in "Buying Power" even though my cash balance is 1/5 that amount.  You can't tell me that huge number, "$900,000" coupled with the words, "Buying Power" isn't very seductive to even experienced investors.

Jill Mislinski warns that there simply aren't enough major corrections to call Margin Debt a reliable leading indicator of a recession.  But it sure quacks like a duck, doesn't it?  When margin debt peaks, stock values plummet.  That "mirror" image is classic inversity.

*From Top Ten Charts of the Year, courtesy of the brilliant and prolific Jill Mislinski, in the 12/14/2021 issue of Advisor Perspectives.

Your Constructive Comments are Welcome!