Opportunity Funds: Great Tax Savings, but Caveat Emptor

he Tax Reform and Reconciliation Act that passed last year contains provisions that allow for significant tax benefits for targeted investments in certain economically distressed communities. The legislation incentivizes development in these areas by allowing deferral and/ or reduction of capital gains taxes regardless of the source of the gains. The goal of this program is to spur development and the law is a descendant of enterprise zones championed by the late Jack Kemp.

Return of Volatility

The first quarter of 2018 marked the return of the kind of volatility that investors have not seen for some time. In just the first ninety days of 2018, the S&P had 25 separate sessions where prices moved up or down more than 1%. This compares with only 10 such moves during the entire course of 2017. Thus, in the first few months of this year, investors are being treated to almost three times the level of volatility experienced in all of 2017. If last year was an unusually quiet ‘kiddie’ ride at the park in volatility terms—2018 by comparison is a return to more ‘thrills and chills.’

Does Market Timing Work?

The increase in Internet connectivity in the past two decades has brought with it countless benefits in terms of productivity and access to knowledge. It has also brought investors 24/7 access to stock market news as well as their investment portfolios. This level of access can be useful, but overexposure can often leave investors feeling panicked or that they need to ‘do something’—to time the market.

Facebook: The (anti)Social Network

“ Users are fickle, Friendster has proved that. Even a few people leaving would reverberate through the entire userbase. The users are interconnected, that is the whole point. College kids are online because their friends are online, and if one domino goes, the other dominoes go, don’t you get that?”
–“The Social Network (2010)”: Mark Zuckerberg’s character to Eduardo Severin on the importance of the network staying up.

Growth Ahead, Monetary Questions Remain

• Synchronized global growth continues as expansion enters 9th year after the Financial Crisis
• Central Banks own $11 trillion of government bonds, mortgage debt and corporate bonds
• Monetary stimulus will end and tightening begins in 2019
• Fundamentals should determine investment decisions and personal circumstances govern asset allocations
With the end of 2017, we can look back over the past nine years and take stock of how the world has fared. Memories of the 2008-2009 Great Recession are still quite vivid for some, but for many more, enough time has passed that fear has yielded to participation in the bull market.

2017 Tax Cuts and Jobs Act

  • Act provides for lower tax rates compared to the earlier code
  • No changes to capital gains and dividend tax rates
  • Higher standard deduction will limit itemization for many filers
  • State and Local property tax deduction capped at $10,000
  • Increased gift limit to $15,000 and estate tax exemption doubled to $11.2 million

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 (TCJA) into law. Most provisions of this legislation became effective as of January 1st , and will remain in place for seven years, until midnight, December 31, 2025.

Cryptocurrencies and the Bitcoin Phenomenon

  • Bitcoin’s use as medium of exchange is growing, but limited
  • Bitcoin is a speculative trading vehicle which we do not recommend purchasing since it’s impossible to value
  • Cryptocurrencies and blockchain are in the early stages of development and could revolutionize finance

Bitcoin is a digital currency that was developed as an alternative to government-backed currencies such as the US Dollar, Euro and Japanese Yen. The currency was created by a dedicated cadre of computer programmers to reduce the frictional costs associated with moving money between parties by creating an ingenious verification mechanism.

Low Wage Growth - Low Inflation - Does It Ever End?

In our 2Q 2017 quarterly commentary, we highlighted what we saw as a “Goldilocks” environment: a belief that a buoyant stock market could continue to be reinforced by a US economy with just the right balance between modest GDP growth and surprisingly tame inflation. Our thinking was: ‘This could go on a while.’ In the third quarter, it did. The S&P 500’s +4% return exceeded even optimistic expectations.