Again, Why We Don’t Recommend Securities On This Blog

So I recently ran into somebody I know who reads my blog, but does not work with my firm. He wanted to know why I don't post recommendations of my investments, which are currently almost exclusively ETFs, on this site.   I've covered this before but I'll go over it again today.

Primarily I write all of my columns for the clients of my firm Lumen Capital Management, LLC.  Next I write for friends of the firm and then I write for the general audience.  Since only my clients pay me and since I understand their investment profiles, I'm happy discussing with my clients the risk/reward characteristics of investments I make for them.  I'm happy discussing with them why a certain investment {primarily ETFs} is or is not bought for their accounts, why I think it is a good investment along with the risks of the investment as I currently understand them.  Since this is the only group with whom I have that conviction, these are the only people who get to know what we are buying or selling.  If you want to know what we're doing with client assets then you'll have to hire me.

We may from time to time discuss bigger picture overviews of the markets or certain sectors we think are worth commenting upon or even mention individual stocks as part of the overall commentary for that day.  We do not make any investment recommendations in these posts and we certainly do not recommend individual stocks.  When we make these comments, especially regarding sectors or different asset classes, we stress that any investor that is not a client of our firm needs to do their homework, talk to their advisor or better yet to hire us before acting on anything they read on our blog.  If you decide to invest in any security based on what you read here then you are on your own!  We may or may not come back to revisit any topic or overview article on this blog.  We will attempt to give appropriate disclosures on client and personal holdings related to the article but we will not discuss on this blog any individual security we may buy or sell.  In particular we are under no obligation to report here when we might decide an investment has become unattractive and we have sold it or parts of it out of client or personal accounts.

Also, if you invest based on what you read on this blog then you should consider that I may be wrong, particularly in the short-term.  I am not what some might call a short-term trader for clients.  In general my time horizon for an investment can be anywhere between 6-18 months and often is longer.  I currently hold many investments that stretch back multiple years.  For these investments, and for the clients who hold them, the near term may not matter so much.  Frankly most of my clients don't remember if I bought investment XYZ at $22 only to see it move to $20 before it finally began its move higher.  If you are a trader and make short-term decisions based on what you read here then there is a high probability that you will lose money.  Also I may just be wrong or early on my analysis of an investment theme.

Hope that explains what I'm trying to convey in these posts.  The best thing to remember if you read my blog is that if you are not a client and you invest based on anything you read here, you're on your own!   

Back next week.

Now again I'm asking for a favor. I'm trying to do an overall review of my communications strategy to clients and friends of the firm going forward.  If you are a client of mine please let me know via dropping me an email, text or call if you've been reading this blog in the past few months.  I'd appreciate finding that out.

Thanks.

Quick Hits

I don't often post to Twitter.  I could, as I have an account over there, but I've not been very good at doing that.  It just seems for me to be too time consuming.  However, if I were to be more active on a platform like that then these are some of the things I might have recently posted.

People wonder about the sluggish growth in Illinois and particularly in the Chicago area.  Here might be some of the reasons for that.  According to the City Combined Taxpayer Burden Report for 2021 a taxpayer resident of Chicago would owe on the combined pension burdens of the various entities of $74,000.  Add in the additional $52,000 that taxpayer owes on Illinois' pension obligations and you get a whopping $126,000 burden per taxpayer.  Hard to get excited about wanting to come here and assume that.

We seem to be in the inverse of last year's economy.  Back then we were shutting down businesses at a rapid pace over a very short period of time.  Now we're trying to reopen these same things at a rapid pace over a very short period of time.  Not surprised then as demand exceeds supply that in the short-term we're seeing inflation.  Let's see where we are with this in the next six months or so.

I've talked to at least six business people begging for workers in the past week or so.  Several have told me that when they call people who used to work for them, they're told point blank that they're not coming back until the government's money goes away.  Seems if you can make the same or about the same with a "stimmie" check by doing nothing versus actual labor then the default option for most worker is to do nothing.

Everybody is looking for this mass correction in the markets.  That could happen and we discussed it two three posts before this on May 4, 2021.  However it's also possible that stocks correct mostly by time.  That is they just churn around in a trading range for some period of time doing nothing.  That's boring for financial market commentators, but is not so bad for investors.  I mean if you look back to where we were a year ago at this time and see where we are today,  I think most investors would take a trading range where we worked off any valuation issues and let the earnings catch up with the markets and the economy.

The pain trade, the thing that hurts traders the most in the short-term, would be for a melt-up in stocks.  We've seen the fast money crowd raise a lot of cash in the past few months in expectation of said correction.  A correction may happen and perhaps the fast money will be correct but a rapid rise in prices here would likely hurt them the most.

Back next week.

Now again I'm asking for a favor. I'm trying to do an overall review of my communications strategy to clients and friends of the firm going forward.  If you are a client of mine please let me know via dropping me an email, text or call if you've been reading this blog in the past few months.  I'd appreciate finding that out.

Thanks

I'm Asking My Clients For A Favor

I'm trying to do an overall review of my communications strategy to clients and friends of the firm going forward, so I'm going to ask a favor.   If you are a client of mine please let me know via dropping me an email, text or call if you've been reading this blog in the past few months.  I'd appreciate finding that out.

Thanks

Some Thoughts on Taxes

Here's an interested way to think about who pays what in taxes.  what I might have posted regarding taxes.  Tax increases of some sort are coming.  It's just a matter of who and how much.  In that regards here's some interesting numbers on who pays what.  {Hint:  The "rich" pay a large amount of the aggregate tax bill already.}  Statistics and commentary are from Ed Yardini's May 4th post.   Highlights Mine.

The total number of all the tycoons...including everyone with adjusted gross income (AGI) exceeding $500,000 a year, was 1.65 million taxpayers in 2018, exactly 1.1% of the 153.8 million taxpayers who filed individual income tax returns that year..... Adjusted gross income is income from all sources before subtracting deductions and exemptions. 

Adjusted gross income. During 2018, AGI in the US totaled $11.6 trillion. The AGI of the One Percent was $2.5 trillion during 2018, accounting for 21.7% of the total, up from 13.9% during 2009 and exceeding the previous high of 21.7% during 2007 (Fig. 2 and Fig. 3). Over that same period, the share of taxpayers reporting less than $100,000 in AGI fell from 50.7% to 36.6% of total AGI.

Collectively, during 2018, the One Percent paid $639 billion in income taxes, or 25.3% of their AGI....That amount represented a record 41.5% of the $1.54 trillion in federal income taxes paid by all taxpayers. That’s up from 29.8% in 2009. Meanwhile, the rest of us working stiffs, the “Ninety-Nine Percent,” picked up only 58.5% of the total tax bill during 2018. 

Three cheers for the Five Percent! These numbers suggest that the biggest winners {of the Trump tax cuts} were in the $200,000-$500,000 AGI group, accounting for 4.5% of all tax returns in 2018. They aren’t in the One Percent. They are in the “Five Percent,” the upper middle class with many of them owning their own businesses, which tend to employ lots of people. Arguably, their tax break provided them with more cash to expand their businesses, which certainly explains why the labor market was so strong in 2018 and 2019. 

The Biden administration has pledged that the tax increases it intends to enact will only hit taxpayers earning more than $400,000 per year. The problem is that lots of these people tend to have their own businesses. The latest data available show there were just under 32 million pass-through businesses in 2013, almost 20 times the number of C corporations. There are surely many more such proprietorships today. An increase in their tax bills reduces the cash that they have to invest in growing their businesses. One way or another, a tax increase on them will hurt the wages and employment opportunities of lots of people earning much less than $400,000. Tax increases on the rich inevitably trickle down to the rest of us. 

But at least there will surely be more income equality.

On Corrections, Governmental Spending And Taxes

I'm going to give out a few quick comments this week on market corrections, the government and taxes.  

Last week I republished a piece on market seasonality.  I like to put it out every now and then to remind people that in a normal years there's an historic ebb and flow to market cycles.  A simple way to think about this is that there's times when money flows more easily into stocks than others.  We have now entered a period between now and sometime in the fall where money doesn't flow quite so readily into equities.  I point this out not because markets have to necessarily follow this pattern, but for you to know it's out there.  Think of this outline as a map, in this case a map of a river.  Let's say if a map marks that around a certain bend of a river that at certain times there's a sandbar.  Maybe it's not there every year.  Maybe it's there seven years out of ten.  Wouldn't you want to know about the possibility of it being there even if you round the bend and this year it doesn't exist.  I would.  Major indices are up around 10% in 2021 and are up an astounding amount since their lows last spring.  Given market seasonal patterns and also given the amounts of gains people are sitting on then probability would indicate this might be a spot where stocks could pause a bit.  There's no law that says this will happen but it's good to know the possibility exists we could hit a rough patch for no other reason then it's time for stocks to pause a bit.

Historically stocks experience a correction of between 7-15% in most years.  Now that doesn't mean it's going to happen in 2021 but that's what the numbers show.  Stocks can also mark time by doing nothing, trading in a choppy range while they work off their excesses.  That may also be what occurs in 2021 as the underlying fundamentals are still quite good.  All I'm saying is be aware of where we are in the yearly cycle and evaluate this along with your own unique risk reward criteria.  

The amount of ink that's been used and bytes consumed writing about the President's spending and tax proposals is enormous.  Most of it is the financial press needing something to write about.  What should investors do?  Well, I believe most investors should do nothing based on what's just proposals at this point.  Here's my thinking.  Whatever ultimately emerges isn't going to look anything like what the Biden Administration has been laying out.  It still has to get through the political meat cleaver that's Washington.  That doesn't mean there's going to be nothing.  There's clearly political consensus on an infrastructure bill.  It's just unlikely to be in the trillions that the President's asking for.  But making investment decisions on what's currently nothing more than proposals doesn't seem to me to be an efficient way to allocate capital. Better to wait and see what these spending bills look like as they're closer to becoming law.

Similarly there's much talk about capital gains rates changing.  They probably will.  However, until we know what's in that tax bill, it's hard to make any clear cut investment decisions.  In particular, it's hard to make decisions on capital gains until we know whether the bill will be retroactive to January 1 of this year.  If it is retroactive to 2020, then the time to sell was last year.  Besides, if the Administration holds to the income threshold of $400,000 for a sharp increase in capital gains rates then only a tiny percentage of investors will be impacted.  Also the average investor has much of their portfolio holdings in retirement accounts and there capital gains rates currently don't matter.     Besides many investors won't need to sell because they're happy with their portfolios no matter what.  So far, even with the talk of a wealth tax, you're only hit with taxes when you sell.  

Better to wait at this point to see how spending and taxes shake out then reflexively hitting the panic button and selling.  It could save you money down the road.