Wednesday, December 13, 2017

The New Tax Plan

While the new tax plan that's being bandied about Congress is not yet law, there's enough we now know of what's likely going to be in what's eventually passed that we can start to get a general idea of how it might impact taxpayers.  Below Business Insider does a pretty decent job I think of summarizing what the proposed tax brackets will be going forward for both single filers and married individuals filing jointly.  Below I've shown in the tax brackets as compiled by them.

First is the brackets for single filers:

Then here's what a married couple filing jointly will pay:

Notice there are no personal exemptions anymore but the standard deduction increases.  Also, as I indicated above, this isn't the final bill.  The middle-class should see a slight decrease in their tax burden but it doesn't seem to be some huge windfall and one estimate I've seen pegs it for many families at a savings of a bit over  $100 a month.  I have some thoughts on how this will impact Americans in the middle but I'm going to wait until I see a final cut of the bill to discuss what I think it all means for them.

Monday, December 11, 2017

Biosynthesis & Marijuana

For those of you interested in the developing marijuana industry I invite you to head review over at Visual Capitalist website this post called "Biosynthesis:  The Science That May Unlock the Medical Potential of Cannabis".  It's too long and published in a visual format that's difficult for me to post here, but that link gives you a long form visual reference on the developing sciences and processes that are being used on cannabis to potentially unlock its medical benefits.  

Now before the marijuana bugs come out in full force at me, I want you to know that I am making no investment references here.  What I'm trying to show is the developing science that's trying to extract value out of the plants.  Invest on your own and at your own risk in this industry.  I have no opinions and make no recommendations.

Back Wednesday

Friday, December 08, 2017

In The "Things Are Getting Better" Department

We like to note from time to time how things are getting better.  In that vein I saw this the other day that according to Bloomberg Americans' nest eggs have never been bigger.  Bloomberg cites data from Fidelity that shows the average 401(k) account now has a balance near $100,000 and the average IRA has an all time high balance of $103,500.   The share of American families with retirement accounts is also now over 52%.  

Now look  there's still an awful lot of folks with no retirement plans at all and Americans for the most part have woefully little saved for retirement, but this is a step in the right direction and is further evidence of the improvement we've seen in economic news these past few years.

Back early next week.

Thursday, December 07, 2017

Still At Sea

USS Arizona {BB-39} departed Naval Station Pearl Harbor 0806 hours Hawaii time December 7, 1941. Sill listed at sea by the United States Navy.

As of last summer there were only five survivors left of the USS Arizona.  

Wednesday, December 06, 2017

On President Trump

I get asked all the time how the market can continue to trade higher in the face of what to many is an incompetent President.  Today I'm going to try and answer that.  First off let me get a few things out there.  I don't do politics on this blog.  There are plenty of other places you can go to get that sort of fix.  If I discuss anything political here it is solely in trying to get you to understand how events in the political sphere bleed over into the economic environment.  A growing economy, and the resultant growth in corporate earnings is what ultimately grows stock prices.  I also don't believe Americans are as divided as those on the extreme right and left would have you believe.  Unfortunately though, they're usually the ones with the media soapbox.  We're a country of over 330 million people, living in multiple regions and coming from many different backgrounds.  There will always be somebody or some event that fits into the expectancy bias of the most vocal voices on both the right and the left.  For the most part though, the rest of us have opinions and believes that somewhat occupy the center.  With that being said here's my take on the President.

The markets have been going up this year on an elixir that includes an improving global economy, growing employment, an attack on government regulation and the possibility of tax cuts.   Of these four things, the seeds for the first two were planted early in the Obama Administration and have begun to bloom for the past few years.  It is a measure of how badly the last economic depression stung us that it took so many years to climb out of it's depths.  President Trump can really take no credit for those even though he will.  The attempt to rollback regulation and the now real possibility of tax reform are things that are happening on his watch.  However, they also represent standard Republican beliefs on taxes and the role of government.  Tax reform in particular is largely happening on Capital Hill.  Of these four then the President can really only take credit for the rollback of certain regulations.  So what's changed?

In my opinion, what's changed for many investors is that the shackles of government are being loosed from business.  Note I said loosened and not removed.  The reaction to the Great Recession was perhaps an overreach on many businesses, particularly those like housing and the financial industry that may have played a large role in bringing it about.  I think there is now an attempt to get rid of the regulations that make no sense, while keeping the ones that have been shown to work.  I think all that plus a growing economy sends a signal that it's ok to make money again.  You won't be demonized by those in power if you do.  I think on top of all other things the markets like that.  You may not like that answer and I'm not trying to convert you if you don't care for what you just read.  I'm trying to tell you what I see.  Money goes where it's treated best and right now a large beneficiary of that is the stock market.

You of course will hear none of this from the American news media.  They hate Mr. Trump with a passion reserved previously only for Richard Nixon.  There's not one thing he has done or plans to do that receives anything but a chorus of boos from everybody out there but Fox News.  It's understandable.  They backed the wrong horse in the last election and now stand with a torn up winner's bet.  But, in doing so, they've shredded for the most part any mantle of impartiality they may at one point have held.  I say this again not to be on a soap box but as a way of trying to explain why stocks have ignored most of the negative news out of Washington.  If things continue to get better then stock prices have the potential over the next few years of moving higher as well.  That's because things will continue to get better.  I say this again without trying to preach or step on anybody's political views.   I care about any of this in the context of managing money how the political realm might impact my client's accounts.  I say don't get blinded by the rhetoric out of Washington.  Follow the money.  So far this year it's voted for stocks.

Monday, December 04, 2017

Market Returns

Here are the 2017 total returns of major asset classes through the end of November.  {You can assume that we are long the majority of the equity related classes in client and personal accounts plus a smattering of accounts own gold.}  A few things I've noted:

Foreign equity has outpaced the US this year.  The belle of the ball has to be emerging markets, up 32% so far in 2017.  However, let's also note that emerging markets haven't participated all that much so far since around Labor Day.  You won't see that here but just pull up any major emerging market ETF and you'll see what I mean.

A 60/40 portfolio is up 13.5%.  The chart above assumes you rebalance this portfolio so one would assume there would be performance drag from capital gains in taxable accounts and commissions.  

US stocks are up about 20% when using the Russell 3000.  

Gold up a bit over 10% would usually have that crowd up and yelling but its returns this year look a bit punk when compared to other asset classes.  Still 10% is not something to sneeze at.

Cash finally yields something again.

Friday, December 01, 2017

Chart Talk {12.01.17}

Two of the things that have been underpinning this market have been corporate profits and low inflation.  Two posts below we showed a chart that shows the growth of corporate profits in 2017.   The chart above shows that corporate profits as a percent of GDP are near record levels.  The negative way to read this is that from these levels, corporate percentages have nowhere to go but down over the next several years.  Probability would suggest that corporate profits being range bound somewhere between current levels and around the 10% level would be supportive of equities.

Also below see the graph that shows historical Price to Earnings levels {P/E} for inflation.  The average P/E is 17.6 based on the 2-3% inflation environment we are currently in.  Stocks right now trade on average with an 18 P/E.  That is slightly above the average rate and elevated from the lowest P/E.  Notice though that were well below that highest level of 26.7.  Again, about average on P/Es for this inflation environment is an element supportive of stocks as we start looking ahead to 2018.

Back early next week.

Wednesday, November 29, 2017

Chart Talk {11.29.17}

We've recently discussed the lack of volatility in the markets this year.  This chart does a pretty good job of showing its hiatus in 2017.   We've roughly seen a 3% pullback in the S&P 500 earlier this year.  You have to go back to last summer's worries over "Brexit" to find a little over a 5% decline.  Prior to that, the worst showing was late in 2015 through early 2016.  That decline was a bit over 13%.  Declines over 10% have been rare over the last 6 years.  Some day that will end but probability and market seasonal factors  suggest that right now that will not be anytime soon.

We own ETFs related to the S&P 500 in client and personal accounts. Short S&P 500 in a personal account as part of a separate individual strategy. Positions can change at any time without notice on this blog or via any other form of electronic communication.

Back Friday.

Tuesday, November 28, 2017

Stocks Follow Earnings

Stock prices follow earnings estimates, pure and simple.  If you doubt that premise than look at the chart above.  You can see how stock prices respond when earnings estimates are increasing versus declining or flat.  It's hard for stocks to move higher when earnings are going nowhere and they go in freewill when earnings collapse as they did back in 2007 through early 2009.  Current forward estimates for the S&P 500 are in the $142-143 range for 2018.  That gives the S&P 500 a forward PE of roughly 18.20.   That may be considered high by historical standards but it's not as high as it was at the peak of the last bull market and it's not considered by many as high in an environment where interest rates are likely to stay lower than their average mean, where the economy is growing around 3% and where earnings have the potential to increase by 10% year over year.

We own ETFs related to the S&P 500 in client and personal accounts. Short S&P 500 in a personal account as part of a separate individual strategy. Positions can change at any time without notice on this blog or via any other form of electronic communication.

Wednesday, November 22, 2017

Happy Thanksgiving

We're going to be taking some time off the rest of this week as we do the traditional Thanksgiving thing.  We'll pick things up Tuesday or Wednesday of next week.  Of course we'll break away from the food table though if anything important comes over the transom.   For me the most important thing will be spending time with family and having my bride and three children together from all parts of the country.

It has certainly been an eventful year and I hope {as I suspect many of you do as well} that 2018 is filled with less drama and divisiveness in this country.  In that vein I'm going to leave you with something I wrote last year around this time.  

"And finally, contrary to what you may read at other places or see on TV, I believe that we as Americans have much more in common than what we perceive as our differences.  We may not agree on the best way to get to certain places but I believe we all for the most part want to get to the same destination.  It is my hope that we remember that in the coming months and years.  Tomorrow is Thanksgiving.  It is the most American holiday with traditions that extend as far back as the first European colonists and was thrust onto our national consciousness by President Lincoln during our most terrible of wars.  No matter how you feel about the election, and in particular if you are feeling negative or scared remember if we can live through and recover from our Civil War then we'll probably get through this.  Whether you are elated about the election results or depressed or perhaps even indifferent then know through whatever lens you view the outcome, America has dealt with better or worse Presidents and survived."

Someone who seems to agree with me is Politico's Ken Stern.  In that vein please go read his excellent article, "Americans Aren't As Divided As You Think".  

Until after the break I want to wish each and every one of you a Happy Thanksgiving!  May your travels be safe if you're going over the river and through the woods to Grand Ma's house, your belly's full of laughter brought by family and that the rest of 2017 is a wonderful year!  

God Bless!