A Bird In the Hand Is Worth Two In The Bush-

Many people are introduced to the bible when they go to religious school at a very early age. During these sessions, instruction might include stories which some kids find fascinating, while others use them as a way to catch up on much needed sleep. You can see I am familiar with the setting, and clearly have some experience in a classroom situation. One such tale boils down to the above quote, which interestingly enough, was used by Warren Buffett in describing one of the most important principles in finance, that being the time value of money. Essentially, money today is worth more than it might be at a time in the future. Just as important, for evaluation and investment purposes, you can project forward what money today will be worth at different years and rates of return. Conversely, if you had a certain amount of money five or ten years from now, you could see what you would need to start with and what rates of return you would need to achieve to end up with that figure. It is probably the first principle any graduate business student learns when they are introduced to finance and you probably learned it in religious school at a very early age, if, of course, you were awake (clearly, some of us were).

Religious school teachers would be happy to know that the bird in the hand theory is going to prove quite important when looking at what might transpire in the United States economy in 2018. Essentially, because people, small businesses, and yes, the always evil, greedy corporations are seeing a structural shift in the tax rates, more money today will reach individuals, either through a change in withholding, complete expensing of capital expenditure, repatriation of foreign earnings, or just lower corporate tax obligations. As a real life example, here in Las Vegas, a shell of a project, a ten year old shelved casino called the Fountinbleau, is being given new life as the tax cuts will potentially free up the nearly $2-3 billion (with a b) it will take to build and create this entity. Small business don't operate at that scale, but projects ranging anywhere from thousands to tens of millions have a far greater chance of taking place because of the birdy theory. Some of this won't take place until next year as timing is always a concern for large companies, just look at Goldman Sachs declaring a 5 billion dollar write down for repatriation and the declining value of deferred tax assets. Now, and it is a legitimate concern, one might argue there will be too much capital being deployed, leading to rampant inflation. Until we see it, I am circumspect about that issue, so the real worry is the kinds of returns achieved on the capital employed. In sum, I suspect you are going to see increased risk taking across the land, in the form of capital deployed on all kinds of projects, as well as merger and acquisition activity, which has been strong for the last few years. 4% GDP growth wager anyone?

In the corporate world this week, it was a light week with retail sales showing strong numbers and a slight dip in consumer confidence, which remains at historically high levels. The end of the year always has some companies wrapping up mergers with approvals from the government, and it was also time to sell your losers or buy beaten down possibilities. Much depends on what your capital needs are as sometimes funds having poor years have to raise money for redemption. Of course, with the whole world on fire about Bitcoin and its brethren, and a 20% gain across most global markets, not too many issues with poor years in the investment world.

In the political universe, Donald Trump upset the entire environmental community, imagine that, by commenting about the need for global warming in the midst of the freezing weather affecting most of the country. Imagine that, Donald got under the skin of the only group in the world which is more thin skinned than he is. Not that he is wrong, mind you. Lastly, with new years day tomorrow and after a nice year in the markets, I hope you and yours get out there and apply the time honored tradition of celebrating the dawning of a new calendar period and enjoy yourself, but be safe and smart. 
If you are interested, I participated in a podcast involving the relative merit of Tesla. Call me a skeptic, but you can hear it here-

Anyway, I hope you enjoy the holidays, and good health to you and yours. 
     
Thank you for reading the blog this week, and if you have any questions about investing, please email me atinformation@y-hc.com

Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation.  The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees financial returns which exceed those of a market index.