Category: Blog

Municipal Bond Outlook for 2024

3 min read

Municipal Bond 2024One of the positive aspects of sustained high-interest rates is higher yields on bonds, particularly high-quality municipal bonds. It is possible that 2024 will present a different scenario as the Federal Reserve begins a schedule of monetary easing by reducing interest rates over time. The potential for this strategy, combined with a slowdown in inflation and economic growth – and exacerbated by the potential volatility of a U.S. presidential election – offers a hazy but ultimately positive outlook for municipal bonds.

For now, investors with a long-term outlook (up to 10 years) can take advantage of current high-interest rates before they begin declining. A key recommendation is to focus on the credit quality of muni bond issuers, which is more likely to face adjustments due to lower reserves and unreliable revenue streams during an economic slowdown.

The following are some municipal bond market considerations for long-term investors.

  • While absolute rates are expected to decrease in 2024, muni bonds should continue to offer high yields and strong credit quality.
  • Speaking of credit quality, despite the larger universe of corporate bonds, there are more AAA- and AA-rated munis than corporate bonds. For example, there are only 13 unique issuers of AAA-rated bonds within the Bloomberg U.S. Corporate Bond Index. Of these 13, two comprise the majority of outstanding AAA corporate bonds. This means an investor is better able to diversify assets across a mix of high-quality muni bonds or a municipal bond fund.
  • Remember that munis are generally exempt from federal and state income taxes (when the investor lives in the issuing state) and might therefore provide a higher tax-equivalent yield when compared to yields of other long-term bonds.
  • In order for municipal bond income to be comparable to the after-tax yield of corporate bonds, the investor should be subject to a 45 percent or higher total cumulative tax rate. This is referred to as the “break-even” rate wherein municipal bonds will likely yield more after-tax income.
  • Longer-term, AAA-rated municipal bonds (up to 10 years) are expected to offer greater value compared to shorter-term munis.
  • Credit conditions are expected to continue their upward trend in 2024. As a general rule, municipal bonds are highly rated, but the average credit rating has increased even more since the pandemic. For example, the percentage of AAA- or AA-rated bonds in the Bloomberg U.S. Municipal Bond Index increased from 67 percent (pre-pandemic) to 71.4 percent as of November 2023.
  • Some of the most popular provisions of the 2017 Tax Cuts and Jobs Act are scheduled to expire in 2025. Demand for muni bonds might soar this year as taxpayers seek more tax-advantaged benefits given the potential loss of itemized deductions and a reduced standard deduction. Look for this sunsetting tax legislation to be a hot issue as this year’s election season gets up and running.

Given the higher yields available for the past 15 years, municipal bond returns are projected to be favorable in the near term. However, be wary of issuers that lack strong reserves and whose revenue streams are linked to economic activity.

Perhaps most importantly, investors should consider their objectives when investing in municipal bonds. If you are already in or nearing retirement, take into account your current tax bracket, the type of account you plan to invest in (taxable or tax-advantaged), credit quality, and time to maturity to effectively assess the value of municipal bond income in your portfolio.

New Email Deliverability Rules: Reaching Gmail and Yahoo Subscribers in 2024

4 min read

New Email Deliverability Rules Gmail and YahooEmail marketing remains the most powerful and effective tool, especially for its high ROI, reach, and engagement. It plays a significant role in business growth. However, more stringent measures are necessary due to evolving threats, hence the recent email deliverability requirements.

Starting this February, major email providers Gmail and Yahoo are implementing stricter email deliverability rules to combat spam and protect user inboxes. This announcement was made by both Google and Yahoo on Oct. 3, 2023, indicating a united effort to enhance email security.

Initially intended for bulk senders (marketers, businesses, and individuals) sending more than 5,000 emails a day, it also applies to senders who send regular emails to their subscribers and meet criteria as per the updated Google Email Sender Guidelines.

Although it may sound strict, there is nothing to worry about. By understanding the rules and adopting best practices, you can ensure your messages land safely in your subscribers’ inboxes.

Key Rules to Remember

  • Domain Authentication is Paramount – Implement security protocols, including Domain Keys Identified Mail (DKIM), Sender Policy Framework (SPF), and Domain-based Message Authentication, Reporting and Conformance (DMARC) to verify your sending domain and prevent spoofing. DKIM digitally signs emails for verification. SPF confirms that sending domain authorization prevents spammers from impersonating and sending messages from your domain, while DMARC specifies the handling of unauthenticated emails. Basically, these protocols confirm your sending domain as legitimate and not from a malicious email spammer or phisher. Although these protocols have been previously considered best practices, many senders have unknowingly or knowingly bypassed them. Some have ignored them, considering them challenging to deploy. Hence, the step to enforce them as mandatory requirements.
  • One-Click Unsubscribe is Mandatory – Make it easy for subscribers to opt out with a clear and accessible unsubscribe link in every email. The unsubscribe requests must be honored within 2 days. You can add an unsubscribe button to the header, whereby recipients can unsubscribe easily instead of marking an email as spam. This will ensure email deliverability is not harmed. Allowing easy unsubscribe also offers the benefit of having an email list of quality subscribers.
  • Maintain a Low Spam Complaint Rate – Keep your spam complaints below 0.3 percent (ideally, this should be below 0.1 percent) to avoid landing in the spam folder or getting blacklisted. Failing to comply with the spam complaint threshold could put the sending domain under review, restricting your email reach.

Beyond the Rules: Deliverability Best Practices

  • Clean and Permission-Based Email Lists – Send only to subscribers who have opted-in, and keep your list clean by removing inactive users and bounced addresses.
  • Personalization and Segmentation – Tailor your emails to individual preferences and segment your list based on demographics, interests, or engagement levels.
  • Mobile-Friendly Design – Ensure your emails are optimized for mobile devices, as most users check their email on smartphones.
  • Subject Line Optimization – Craft compelling and relevant subject lines that invite users to open your emails.
  • Craft High-Quality and Engaging Content – Provide relevant and valuable information to maintain audience interest and avoid being marked as spam.
  • Avoid Spammy Tactics – Avoid excessive images, ALL CAPS text, and misleading content.
  • Engagement and Reputation – Encourage engagement by asking questions, including social media links, and providing valuable content. Positive user interactions improve the sender’s reputation.

Consequences of Ignoring the Rules

Failing to adhere to the new rules can have severe consequences, including:

  • Emails Landing in Spam Folders – Your messages may never reach your intended audience.
  • Domain or IP Blacklisting – Repeated violations can lead to your domain or IP address being blocked by email providers.
  • Decreased Sender Reputation – This can negatively impact your future deliverability rates, affecting domain reputation and overall business performance.

Adapting to the New Landscape

Although these requirements may seem overwhelming, they represent an opportunity to improve your email marketing practices and build stronger relationships with your subscribers. By prioritizing sender authentication, clear communication, and valuable content, you can ensure your emails reach the right inboxes and achieve your marketing goals.

Remember, staying informed about email deliverability best practices and adapting to evolving regulations is crucial for successful email marketing in today’s landscape.

Understanding How Variances Vary

3 min read

how to calculate VariancesVariance analysis is found by determining the difference between what was budgeted and what actually occurred. Additionally, when variances are added together, we get a better picture of how well a company is measuring its performance against expected metrics. It’s also important to be mindful that each metric is measured to determine what the actual cost is versus the industry’s standard cost.

Whether it’s materials, labor, electricity, or another metric, if the actual cost is lower than the standard cost for the same quantity of materials, it would be a favorable price variance. However, if the number of materials was more than the standard quantity, it would be considered an unfavorable variance. Examining variance allows us to analyze the price and quantity of the variable being analyzed. Always keep in mind that unusual or significant variances should be investigated to see why such anomalies exist.

It’s important to distinguish between variances and the types of inputs. When it comes to materials, labor, and similar variable overhead, variances to be analyzed are for price and quantity/efficiency. When it comes to fixed overhead, analysis looks at variances in budget and volume.

One way to conduct variance analysis is through the Column Method. The following example illustrates this:

A business produces widgets. The following assumptions are made:

  • 6,000 widgets are produced in a month
  • Direct labor hours are used as the basis to allocate overhead costs to products
  • Denominator level of activity is 8,060 hours, resulting in $48,360 in fixed overhead expenses budgeted.

Other cost assumptions include:

Direct Costs

Labor: 2.6 hours/widget @ $14 per hour

Materials: 10 pieces/widget @ $1/widget

Overhead

Variable: 2.6 hours/widget @ $8/hour

Fixed: 1.3 hours /widget @ $12/hour

However, the business saw the following costs for the month’s production:

Variable overhead manufacturing costs: $34,000

Fixed overhead manufacturing costs: $50,000

Both of the following are Direct Costs:

Material: 50,000 items bought @ $0.96/widget

Labor: 8,000 hours totaling $128,000

Materials Variance

Real Quantity x Real Price = 50,000 pieces x $0.96 per widget = $48,000

Real Quantity x Industry Price = 50,000 pieces x $1 per widget = $50,000

Standard Quantity x Industry Price = 36,000 pieces x $1 per widget = $36,000

Price Variance = $50,000 – $48,000 = $2,000

Quantity Variance = $50,000 – $36,000 = $14,000

When we find the difference between these two amounts, there’s an unfavorable variance of $12,000. Additionally, it’s worth looking at why there were 50,000 pieces used versus the standardized 36,000 pieces. It could be due to defective materials, problematic machinery, etc.

Labor Variance

Real Hours x Real Rate = 8,000 hours x $16 per hour = $128,000

Real Hours x Industry Rate = 8,000 x $14 per hour = $112,000

Standard Hours x Industry Rate = 7,800 x $14 hour = $109,200

Rate Variance = $112,000 – $128,000 = -$16,000

Efficiency Variance = $109,200 – $112,000 = -$2,800

Based on this calculation, there’s a total unfavorable variance of -$18,800. Management should look at why labor costs are higher than the standard and why production took more supplies than the industry standard.

While this is not all-encompassing, it does show the importance of understanding the nuances of calculating variances and how it’s essential to understanding a business’ (in)efficiency.

Your February Financial To-Do List

3 min read

February Savings TipsJanuary has come and gone. You may or may not have stuck to your resolutions, but the good news is that February is here. Now is the perfect time to hunker down and get your monetary ducks in a row. Here are a few things to put on your agenda to get your financial house in order.

Pay Off Holiday Debt

Yes, it was fun to go shopping for holiday gifts, but those interest rates are high – you’ll want to pay your balances off as quickly as possible. And here’s a tip: you can make more than one payment per billing period. In other words, instead of waiting for your next paycheck, pay some of the balance now and some later. This will reduce the interest you’d pay if you waited two more weeks to pay in full. This way, you can actually pay your credit card bills more frequently and pay less over time. While you’re at it, look for lower interest rates and transfer those balances. All it takes is a Google search for “zero balance transfer credit card offers,” and you’ll find what you need in no time.

Start Working on Your Taxes

April will be here before you know it, so getting a jump on taxes is a smart idea. Also, filing early will give you more time to figure out how much you owe, if anything. If you want to take the guesswork out of preparing your taxes, you might consider hiring a tax professional. When you make your selection, ask for a price quote. Some tax preparers often want to see which forms you need before they work on your taxes, but you can still ask for a list of fees for various types of tax help to get a ballpark idea. Here’s a red flag: if someone says they’ll base your fees on a percentage of your refund, run away. This is a violation of IRS rules.

Get a Free Credit Report

All the big reporting companies – Equifax, Experian, and TransUnion – offer a free report one time every 12 months. So why not find out? When you see the truth of your credit report, it can motivate you to change some habits, like paying earlier, more often, and on time. No one likes late fees.

Save on a Gym Membership

In January, you probably got pummeled with lots of solicitations for a gym membership at low, low prices, but in February, the prices are even lower. If you don’t want to commit, you can sign up for a trial run. You can even negotiate a deal if you ask to speak to the manager. Finally, some gyms will offer you a deep discount if you agree to use the facilities during off-peak hours or on certain days. Flexibility is the key!

Buy Things on Deep Discount

With high prices and high-interest rates, it makes sense to check out all the price cuts on Consumer Reports. On this site, you’ll find all the good stuff: cars, home and garden supplies, appliances, electronics, and more.

These are just a few of the items you can put on your financial to-do list. All it takes is carving out some time and getting started. Once you get going, you’ll probably make more progress than you ever dreamed.

Sources

https://www.consumerreports.org/personal-finance/february-financial-to-do-list/

Optimizing Your Business’ Performance with Capacity Management

3 min read

what is Capacity ManagementWhen it comes to business operations and measuring performance, the optimal production scale a company can sustain is an important metric to measure. If a business’ capacity can’t be realized and sustained – or the bottlenecks can’t be identified and addressed in a timely manner – a business will likely stagnate and fail. Understanding more about capacity management can help businesses reduce the chances of dealing with sub-optimal performance.

Capacity Defined

A business’ capacity is defined as its highest level of production on a consistent basis. By measuring the capacity of a business, we can calculate its ongoing revenue projections. This type of evaluation also can help a company determine how to manage production snarls and identify ways to increase capacity reserves to help it manage abnormally high production demands. 

Capacity Utilization Rate Defined

This ratio is the percentage of a business’ production capacity that’s currently utilized. If an organization has a capacity utilization rate of 60 percent, the firm is currently operating at 60 percent of its theoretical capacity. When it comes to analyzing a business, this percentage can determine how much capacity may be available for spikes in demand.

This is calculated by taking the actual output and dividing it by theoretical output, with the result multiplied by 100, or as follows:

(actual output/theoretical output) x 100 = capacity utilization rate

Activity Capacity Overview

Activity capacity assesses the scale of production of a particular task over a given time frame (a quarter, six months, or a 12-month fiscal year) while accounting for regular production factors. Common facets of production that affect output include worker rest periods, equipment upkeep, crew swaps, etc. This investigation allows a business to determine if it can accomplish projected production in the near term with existing equipment or if the business needs to analyze bottlenecks before reassessing.

Budgeted Capacity

This method is used to approximate the manufacturing quantity scheduled for subsequent time frames. Criteria that’s analyzed for the plan hinges on forecasted market demand, resource availability and production capabilities. It’s an imperative consideration that impacts sales forecasts, indirect operational budgets, and the direct production budget.

Depending on the type of business, budgeted capacity can be represented in either hours or units. For example, a company would evaluate industry and economic demand trends, along with the time frame it’s trying to forecast and what resources the business has available for production. The following steps are commonplace during this process:

Step 1:

  • The business plans to produce 480,000 widgets for the projected time frame.

Step 2:

  • The business looks at how many shifts will be run, how much each shift can produce, how many days the company will operate, and the number of hours available for production for each shift. This will help the company determine production and resource availability for the projected time frame.  

Step 3:

  • The business will look at what it’s able to produce based on its full capacity:
  • Potential per shift = 100 widgets per hour x 8 hours a shift x 1 shift = 800 widgets
  • Potential per day = 800 widgets per shift x 3 shifts per day = 2,400 widgets
  • Annual production = 2,400 widgets per day x 275 working days per year = 660,000 widgets

Conclusion

The budgeted production of 480,000 widgets annually is approximately 73 percent of the business’s total production capacity. This leaves the business with ample room to respond to new clients and/or increased demand from existing clients for unexpected orders.

While each business is unique, taking steps to analyze and make more educated projections is one way to increase a company’s efficiency.