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Tag Archives: S&P 500

2018 Annual Dinner Recap

27th February, 2018 · CFAMNEB · Leave a comment

By Elliot Smallidge, a student at the University of Minnesota Carlson School of Management, Class of 2019

I was ecstatic when I heard about the opportunity to see Professor Jeremy Siegel speak. As the highly acclaimed author of Stocks for the Long Run, I knew that Dr. Siegel’s lecture would complement everything I had learned in school. His take on investing would corroborate the conclusions of class after countless class: buy and hold stocks because you can’t beat the market. I arrived at the Minnesota CFA Society Annual Dinner eagerly awaiting his remarks.

Dr. Siegel contracted the flu and was forced to withdraw on short notice. Replacing him would be Doug Ramsey, CIO at Leuthold Weeden Capital. This change of speaker didn’t just shake up my night, but rather my entire perspective on investing.

Every undergraduate portfolio management class teaches that markets are efficient. No amount of fundamental analysis, and especially not technical analysis, could give an investor a sustainable edge. Enter Doug Ramsey, CFA, CMT, and master of market technicals.

His remarks upended everything I had learned in class about investing. Never had I seen anyone seriously attempt to understand markets by examining patterns in the relationships between various economic data in the way that Mr. Ramsey did. His opening comments centered on what he called the eight “Bellweather” indices. Displaying a chart of the S&P 500, Dow Jones Industrial Average, and several sub-sectors, Mr. Ramsey pointed out that every sector (except utilities) had trended upward in unison through January 26; the market was rising broadly across all industries. In a further analysis, we broke the S&P into deciles based on market capitalization and found a similar result: strong stock performance across the board. This pattern, Ramsey explained, has historically indicated not the peak of a bull market, but rather an average of 59 more prosperous weeks.

All my life I learned that there was no science to historical trends, yet here it was so clear before me. I will admit, some of Mr. Ramsey’s further analysis went a bit over my head, but his message has stuck with me. I now know that, however unpredictable the markets are, I cannot discount the value of patterns in historical data.

I was fortunate enough to meet Mr. Ramsey the next week at his office. In a phrase, the theme of our conversation was trust yourself. News outlets and publications are important, but at the end of the day, he cautioned me, your own analysis and critical thinking are the most valuable assets.

Although I did not have the chance to hear Dr. Siegel speak, my experience at the Annual Dinner altered my perspective on investing and opened my eyes to a brand new skill set in a way that I never could have imagined.

Thank you, Doug Ramsey and CFA Society Minnesota, for this wonderful opportunity.

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Posted in Hot Topic Commentary | Tags: Annual Dinner, Carlson School of Management, CFA, CMT, Doug Ramsey, Leuthold Weeden Capital, market technicals, S&P 500, University of Minnesota |

Spatchcocked

21st November, 2017 · Susanna Gibbons, CFA · Leave a comment
Susanna Gibbons, CFA

Always on the lookout for a better way to prepare a Thanksgiving dinner, I recently came across what I believe to be the latest and greatest method: Spatchcocking. By removing the backbone of the Turkey, you are able to lay the Turkey flat on a cookie sheet, and roast it in a little over an hour. According to my research, the bird will cook thoroughly & evenly, and the shortened roasting time (not to mention height in the oven) makes preparation incredibly efficient.

Interestingly, it appears that spatchcocking is also the rage on Capitol Hill. After a year with few achievements to show for it, there are many members of Congress who appear to have very little left in the way of a backbone. As a result, the current tax plan is being rushed through the legislative process at an incredible pace. Whether this level of efficiency is as desirable in re-writing the tax code as in cooking turkeys seems highly questionable.

As investment professionals, how can we make sense of this process, and incorporate the proposed changes into our analysis? I don’t think we can. There seems to be overwhelming agreement that the tax code is too complex, and needs to be simplified, and that taxes (especially corporate taxes) are too high, and need to come down. The headline grabbing number of reducing the statutory tax rate from 35% to 20% suggests that a lot more money will be dropping down to the bottom line, and this belief has fueled the continued rally in equities.

However, if you look at what corporations actually pay in cash taxes, the Companies in the S&P 500 are, in the aggregate, paying an effective tax rate of – you guessed it, 20%. If the deductions and tax breaks that currently riddle our system are eliminated at the same time, there shouldn’t be any drop in taxes paid. Instead, you will see a shift in the winners and losers. Some companies that currently pay next-to-nothing will have to start writing checks, and others will likely get some relief.

It is virtually impossible to anticipate all of the implications of such a significant structural shift in the tax system. The Commonwealth of Puerto Rico provides a cautionary tale as to the dangers of such dramatic shifts. In the 1970s, Congress passed Section 936 of the tax code to encourage manufacturing companies to locate on the island, which spurred growth. When the tax break was eliminated in the 1990s, it kicked of a long cycle of deterioration from which Puerto Rico has yet to extricate itself.

Now, I am not arguing that we ought to use the tax code to achieve such narrow policy objectives. In fact, I think it is a terrible idea. I mean – Section 936? That’s a lot of sections of code.  I do think that simplification is good idea. But unwinding this mess will be hard. Our entire economy has evolved alongside this current tax system over years, and companies have structured themselves, made investment decisions, and planned for a future based on that system. A complete and sudden shift will be economically jarring. There is enormous complexity to simplification, and the risk of unintended consequences will be high.  Before running off spatchcocked to push through this turkey of a bill, I really hope Congress slows down a little. Instead of ending up with a tasty roast, the long-term impact of hasty tax reform could be pretty foul.

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Posted in Hot Topic Commentary, Local Charterholders | Tags: Capitol Hill, Congress, investments, S&P 500, Section 936, Spatchcocked, Susanna Gibbons, tax changes, Tax code, tax reform, Thanksgiving |

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