Anuncios

The Intelligent Investor Newsletter – January 23, 2017

Consultiva

A bi-weekly publication from Consultiva Internacional, Inc. (Registered Investment Adviser)

For those of us waking up every morning to the financial news, 2017 is starting out as a promising year mixed with illusion and confusion. As highlighted in Ed Yardeni’s newsletter, the S&P 500 exemplifies the prevailing bullish sentiment after the elections, rising to a new record high of 2276.98 on January 6 (See graph I below). However, skeptics point-out that the market is naively betting that the incoming administration’s economic policies will be implemented swiftly and that they will have the desired effect. Implementing new policies will often require legislation, so we could start comparing the President Elect’s views with Capitol Hill’s. Last summer House Speaker Paul Ryan unveiled the party’s tax reform plan in a report called “A Better Way”. It called for lowering the top statutory corporate tax rate from 35% to 20%. It would terminate the tax deductibility of net interest expenses, but would allow for immediate expensing of capital spending. Ryan explained their rationale; “Allowing investments to be immediately written off provides a greater incentive to invest than is provided through interest deductions under current law”. While on the campaign trail last year, Trump proposed a lower tax rate, boasting that “no American company will pay more than 15% off their business income in taxes”. Under Trump’s plan, businesses could either expense equipment or take a net interest deduction. Which would work better? Let’s look at the data. According to the Bureau of Economic Analysis (BEA) the S&P 500 corporations had interest expense of $19.87 per share during 2015, which amounted to only 8.8% of their EBITDA. The BEA also reported that monetary interest paid by nonfinancial corporations totaled $486.6 billion during 2015, and that spending on equipment totaled $1.05 trillion during Q3-2016. It would seem obvious that deducting equipment outlays rather than interest expense would serve as a greater stimulus. However it remains to be seen if it is as obvious for President Trump, and if the Oval Office and the Legislature will see eye to eye on this and other economic matters.

by Myrna Rivera, CIMA®
Founder & Chief Executive Officer

GRAPH I

graph 1

 

FURTHER READING AT CONSULTIVA INTERNATIONAL INC.

DISCLAIMER:

Consultiva is a Registered Investment Adviser. The registration with the Securities and Exchange Commission does not imply a certain level of skill or training. Consultiva has compiled the information for this report from sources Consultiva believes to be reliable. Sources include: investment manager(s); mutual fund(s); exchange traded fund(s); third party data vendors and other outside sources. Consultiva assumes no responsibility for the accuracy, reliability, completeness or timeliness of the information provided, or methodologies employed, by any information providers external to Consultiva. Conclusions reflect the judgement of Consultiva Investment Strategy Committee at this time and is subject to change without prior notice. There also can be no guarantee that using this information will lead to any particular result. Past performance results are not necessarily indicative of future performance. Diversification does not guarantee a profit or protection against loss. This document is for informational purposes only and is not intended to be an offer, solicitation, recommendation with respect to the purchase or sale of any financial investment/ security or a recommendation of the services supplied by any money management organization neither an investment advice or legal opinion. Investment advice can be provided only after the delivery of Consultiva’s Brochure and Brochure Supplement (ADV Part 2A and 2B) once a properly executed investment advisory agreement has been entered into by a client and Consultiva. This is not a solicitation to become a client of Consultiva. There are risks involved with investing including the possible loss of principal. All investments are subject to risk. Investors should make investment decisions based on their specific investment objectives, risk tolerance and financial circumstances. Global and international investments may carry additional risks that are generally not associated with U.S. investments, such as currency fluctuations, political instability, economic conditions and varying accounting standards. Annual, cumulative, and annualized total returns are calculated assuming reinvestment of dividends and income plus capital appreciation.

Anuncios