Down the Stretch
Posted on Sunday, April 25th, 2021
The kids are coming down to the wire as the Great Pandemic Academic School Year ends. This will go down as one of the greatest social experiments in human history. The kids just want it over. The feedback that I am getting is that this was not the easiest academic year especially for my 4th year UGA engineer. The kids have about 3 weeks left of school and tension is running high. There is a lot to do including papers and proms. I am working on the papers and mom is working on the proms. Hopefully, there is a beach on the horizon to celebrate.
Much has been made this week about Joe Biden’s tax plan that would increase the capital gains rate into the 50% area. We think it is much ado over nothing. We always manage for taxes. There is no easier way to pick up returns for our portfolios. The thing is we can defer capital gains by not selling the asset in our taxable portfolios. In our retirement accounts capital gains don’t apply. You may see that our taxable accounts are a bit less invested in stocks than our taxable accounts. That is because we can move that asset allocation needle further there without worrying about the tax situation. Another reason that we think it will not be a big deal is because it won’t happen. Biden’s plan will effect big mergers and acquisitions where business owners sell their long held business. Wall Street makes big money off of M&A. They got Joe into office and will not stand for it. Capital gain rates will go up but not as high as 50%. Write it down.
Inflation is rising. We have written about its rise repeatedly but more news this week on how this hits home. Procter Gamble, Kimberly Clark, Coca-Cola, Pepsi, General Mills and Hershey are just some of the consumer companies talking about rising costs. This inflation will get passed on the consumers in coming months. They are all planning on raising their prices 5-10%.
It seems as if every investment banking house on the street is bearish, we don’t blame them as valuations have gotten historically extended and we are overdue for a pullback. However, as we have been saying for sometime – this ends up not down. US Trailing PE is 29 x rather than the average of 15x for the past 100 years. We are back to peak levels in 1999 before the Dotcom crash. But why shouldn’t we be. Global central banks have pumped in over $30 trillion of stimulus!! There are signs of excess in the IPO market, SPAC’s, GameStop and Archegos’ collapse due to being over leveraged. The latest signal comes from Insider Selling – Sales of corporate stock held by insiders is reaching all time highs. The signs are there. It’s just that the upward pressure remains in stocks. Any selloff will be met with buyers. Analysts are calling for a 10% pullback. They will all be buyers down 8%.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.