Donald Trump signs new crypto tax law
lanning For 2018, The Tax Cut, And More On Crypto
Today's preparation determines tomorrow's achievement.
When you go to college, by the end of your sophomore year, you need to declare your major. During that important year, I determined that economics would be my major, but discovered that in order to have that priviledge, I needed to earn at least a 3.0 grade point average in the three mandatory economic classes. The second course of study was a macroeconomics class taught by the distinguished professor, a Mr. Robert Erfle. It took place at a movie theatre at eight in the morning, and during the mid term, Mr. E ripped up a students test as he failed to put the pencil down when they were supposed to. Mr. E was also a product of the sixties and wore tie died shirts to class. Yes, these things go on at a UC campus, imagine that. Anyway, as is typically the case, your final grade is heavily weighted by the final exam grade, typically 50-60% of the total.
Clearly, it mattered, and was especially important to my chances to major in economics. I recall studying for four hours a day for nearly two weeks in a row, and ultimately, I believe it turned out pretty well as I got an A in the class. Ultimately, economics became my major and it is a subject which I truly enjoy. As such, I found it encouraging that Paul Ryan, the House Majority Leader and architect of the recently passed tax cut, also specialized in economics, but much of his training came at the foot of the noted conservative Jack Kemp, the ex-pro quarterback and a free market officianado. Anyway, there is much conjecture about the effectiveness of the recent tax cut, but my thought is it is based on sound economic principles, so now I am sure you will breathe easier.
From an investment point of view, now is the time to consider things like the tax cut as 2018 is imminent. Based on my perspective, with a brisk economy, new stimulus with Ryan’s creation passing, and interest rates headed higher (based on the Fed statements and consensus view), banks seem ideally positioned to benefit, especially if the long end of the yield curve continues to strengthen (2.5% on the 10 year Treasury). I also look at the sorry state of affairs in Venezuela and the dramatic reduction of its ability to produce and refine oil and think energy related stocks have a nice chance of doing much better in 2018.
The thesis is also probably helped by the dramatic reduction in investment over the last few years as the largest oil companies have been far more concerned with returns on capital than growing production. Also, efficiency in the shale space has stagnated over the last year, and taken together, in combination with consistent oil demand, makes energy quite intriguing, but I am biased on the long side toward the industry. As for areas to avoid, I believe large cap tech, where 30% returns took place in 2017, you know, the Amazon’s and Netflixes of the world, is vulnerable for lackluster returns for quite some time. I don’t see large corrections, just not much appreciation. I think 2018 will start out with sellers taking gains they postponed in 2017, so the first month may see some selling pressure, potentially offset by fresh money from year end bonuses and distributions. As an aside, a few weeks ago I mentioned the tax bill could include the potential elimination of choices on allocations for sales, but that did not make it into the final version. It seems the investment industry has a bit of influence with Mr. Ryan and his minions.
In the markets this week, earnings were light but FedEx (NYSE:) reported a strong number with optimism about how the tax plan will help business in 2018. Nike (NYSE:) suffered on the margin front, and Paychex (NASDAQ:) was solid as it is tied to the small business market, a good place to be with a improving economy. bs continued with two small companies, Litespend and Long Island Iced Tea. The first rocketed higher when they announced an acquisition of a blockchain company (with no revenues and owned by the CEO), and the second changed their name to include blockchain. Definitely worth a billion dollar improvement in market value, no question. Not that I would ever suggest such a thought, but if one wanted to profit from cryptocurrency, the safer strategy is to own things like the CME, CBOE Holdings Inc (NASDAQ:), TD Ameritrade Holding Corporation (NASDAQ:), The Charles Schwab Corporation (NYSE:), or E-TRADE Financial Corporation (NASDAQ:) as they will benefit from the futures speculation. If one was more aggressive, you could arbitrage Bitcoin by selling the higher futures price and buying the lower one from the respective exchanges (right now it is the CME, CBOE, and TD). The futures price at each exchange is calculated differently, which is why there may be an opportunity. Not for the faint of heart, to be sure.