New Year's Housekeeping Resolutions
Businesses and teams thrive when the best people are in the best positions. Wayne and Vickie, for example, are really good at details and process. Jim has a real gift for networking and polishing the client experience. Jude and I are good at filling in the missing pieces. Millennial new hire Brad Lanpher passed his exams and is chomping at the bit to become the next superstar at MK.
At MK we have a strong management structure. While many companies have a top-down, relatively formal chain of command, MK has more of a management web. We have formal officers like CEO (Vickie), President (Pete), Secretary (Jude) and CFO (Wayne) but we all wear more than one hat when it comes to the day-to-day operations of the firm. When we have a corporate financial matter, for example, we call Wayne. Having qualified people in the right positions makes the operation run better. Everybody wins when we all play to our strengths.
Every family has a Chief Executive Officer (CEO). In the Knutson Empire, my wife, Julie, keeps the machinery running. She coordinates practices, carpools, doctor visits, birthday parties, etc. Every family also has a Chief Financial Officer (CFO). In my family, bills, mortgages, insurance, taxes, etc. are my corner of the store. “Can-we-do-it?” questions get directed to my wife; “Can-we-afford-it?” questions come to me. I bet your family has something similar.
This January I’d like for my fellow CFOs to do your family a favor: share with your family what you’ve been up to. I want you to come up with an “If I’m not here” road map for your family and share it with them.
Included in this roadmap should be (among other things): your life, health and auto insurance policy agents and account numbers; bank and credit card usernames and passwords; mortgage, car and credit card account numbers (and approximate balances); what bills are on autopay and which ones are on manual; who does your taxes and/or handles your financial accounts; who your estate attorney is; a copy of your wills/trusts and powers of attorney; timeshares and investment real estate information, etc.
Basically, ask yourself what your family would have to do if you weren’t there to do it. Write all that down and share it with your family. Review it with them semi-regularly. Every year, we unwind a dozen or so family financial affairs, so we know what it looks like when someone is prepared and someone isn’t. The people who are prepared have a much easier time navigating all this than those who aren’t.
The more work you can do ahead of time and the more people you have involved the better off your family will be.
Market Commentary: Tax Reform for Christmas
Written December 21, 2017
By the time you receive this commentary, we’ll be headlong into the beginning of 2018. I hope that your holiday season was full of joy and the coming year is full of promise.
The big news is tax reform. Last month the 115th United States Congress presented a huge bill to President Trump, which he signed into law. The changes to the tax code will affect nearly every American in some way. It’s important for financial markets because it lowers tax rates for both households and corporations and is likely to provide a boost to both the U.S. economy and corporate earnings. But as with any good thing, it comes at a cost. According to the Joint Committee on Taxation, this tax reform will add $1.5 trillion over ten years to the national debt. However, I take that with a grain of salt. Let’s be real. There may be more tax reform in the next ten years, so what we have ten years from now may look nothing like what we see today.
When we look at the timing of this, it’s interesting to note that its stimulating effects come at the same time the Federal Reserve is trying to raise rates and pull back on the reins. To put it another way, the Federal Reserve is on one end of a big hole with a shovel filling it with dirt, while Congress is at the other end digging the dirt right back out.
Typically, a fiscal policy like raising or lowering tax rates has an immediate impact on the economy. On the other end of the spectrum, a monetary policy like raising or lowering interest rates commonly has a delayed impact on the economy. With this in mind, the new law may give a short-term bounce to economic data, and the Fed’s raising of rates will very slowly drain it away. Maybe it’s a stroke of genius that will ultimately lead to an expansion of this business cycle. Maybe it’ll end in disaster. It’s too early to tell. But we live in interesting times, that’s for sure. Let’s take a look at some of the pertinent changes this new law has to offer.
Lower corporate tax rate
The single most important change for financial markets is the reduction of the corporate tax rate from 35% to 21%. The math gets complicated, but according to Russell Investments’ calculations, the actual tax bill for S&P 500 companies could be reduced by anywhere from 3-5%. That will boost 2018 earnings without corporations having to lift a finger.
Another important provision for businesses is the so-called “deemed repatriation.” This is a one-time tax on $2.6 trillion of accumulated un-repatriated foreign profits of U.S. businesses. However, this probably won’t make a huge impact on corporations’ bottom lines. The bigger question is what companies will do with this money once they bring it back home. They could do share buybacks, but that really only helps shareholders if the shares are undervalued. There aren’t many undervalued stocks these days. They could use it toward mergers and acquisitions. This could benefit companies that are targets for take-overs.
Income tax reductions
The new law also overhauls the tax system for every taxpayer - and it’s complicated. The full text of the legislation is over 700 pages long, so I can’t go into too much detail here. The important bits are that it cuts income taxes for many families and lowers the highest marginal rate for individuals from 39.6% to 37%. It raises the standard deduction for couples to $24,000, so there’s a much higher hurdle to cross before itemizing makes sense. There is a $2,000 child tax credit added that will help make up for the fact there are no longer personal exemptions. For most people, this will probably lower their tax bill at least slightly and could boost consumer spending with those extra dollars. I say ‘could’ because it’s fiercely debated whether or not this actually occurs or if consumers largely do something more sensible like paying down their debt.
This new law has the potential to boost U.S. Gross Domestic Product (GDP) growth by 0.25% in 2018. The GDP was already accelerating, and this will add to that rise. That makes a recession in 2018 even less likely than it was before. It also adds extra tailwind for earnings growth due to slashed corporate taxes, so it’s likely that market returns will be positive. We are still in the very late innings of a bull market, so we always approach our optimism with caution. Tax reform is likely a short-term tailwind stocks and, as always, peering into the crystal ball to make predictions is a dicey game. For instance; some growth predictions are based on the assumption individuals and businesses will actually spend the extra money they get from tax cuts. Bear in mind, the economy is moving beyond full employment and the Fed is likely to take away any excessive fiscal stimulus with more rate hikes. Given the usual lag time seen with these kinds of adjustments to monetary policy, the new law could translate to strong growth in 2018, but set the stage for a potentially turbulent 2019.
Disclaimers and Notes
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Investment Advisory Services offered through Cetera Advisor Networks LLC and McDaniel Knutson Financial Partners. Cetera is under separate ownership from any other named entity.
The views are those of Victoria Bogner and should not be construed as investment advice. All information is believed to be from reliable sources, however, we make no representation as to its completeness or accuracy and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation. Economic and performance information is historical and not indicative of future results.
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Please join us for our Eighth Annual
McDaniel Knutson Night at Allen Field House!
February 21st, 2018
We've got a ticket for you to see our KU Women's Basketball team take on Oklahoma State!
Bring friends, neighbors, colleagues, kids, grandkids, anyone and everyone to our pre-game reception at 6:00 PM. We'll have food, drinks, noisemakers, posters, Big Jay, Baby Jay and a cheerleader or two!
We head next door to Allen Field House at 6:45 PM for the &:00 PM tip-off.
RSVP at [email protected]