Investor Insights

June 2017 Investor Report

Published: June 4, 2017Updated: April 25, 2019

June saw positive performance at Graham Capital Wealth and your respective account(s). We have observed ongoing weakness in the energy sector recently, which is one of the primary reasons we are pursuing energy sector bonds. We have found many quality bonds in a price range where we see value. It is important to remember that the idea of bond investing is to own the bonds until maturity. At that time, we will receive our invested capital back in addition to interest collected during the maturation period. While there can be fluctuations in the price of bonds as we own them, we always have an eye on maturity date.

One of the many strategic benefits of our location in Washington, D.C. is the time we are able to spend with the decision makers that influence policy. If you have listened to our radio broadcasts, you may have noticed our discussions of the various opportunities that Congress and the Administration have available to them to stimulate stock market growth. If you have not had an opportunity to listen to the radio spots, we have discussed healthcare Reform, domestic tax reform, repatriation tax holiday, and the forthcoming infrastructure plan. Some of these issues benefit the markets more than others, thus it is vital that we truly keep our “ears to the ground” to stay abreast of how they affect our investment accounts. Accordingly, we will address some of these topics briefly with a view to providing you some of our insights, as follows:

Healthcare Reform

The House and Senate are struggling to come to agreements on the terms of the new plan to replace the Affordable Care Act (ACA). First and foremost, it is important to note that neither the House nor the Senate bills are likely to enjoy much support from Members in the Democratic Caucus as the bills currently being discussed significantly curb entitlements. There is also significant division within the Republican Caucus ranging from those moderate Republicans who feel the current bill is too austere and the more conservative end of the party who feel the bill is not austere enough.

Domestic Tax Reform

This is easily the most anticipated reform by investors. However, it should be noted that the proposed tax reform is closely tied to the current provisions in healthcare reform. In the text of the House version of the healthcare bill, for example, there is a mix of tax credits and cuts that would benefit higher income earners as well as businesses that provide insurance to employees. This is important because healthcare related expenses remain a significant portion of an estate’s cash outflow. The tax reform is expected to bring adjustments in other policy areas and government sectors to maintain the Republicans’ focus on being “revenue neutral.”

Repatriation Tax HolidayThe prospects of tax repatriation have benefited the technology sector. This is because

larger companies within the space, such as Microsoft and Apple, have hundreds of billions of dollars stored

overseas. The Trump Administration is seeking policies that will bring that capital back into this country. The Administration of George W. Bush had a tax repatriation holiday in 2004 with a 5 percent flat tax. Surprisingly, the participation was rather low and vast majority of the incoming capital was used to buy back stock and pay dividends. This was beneficial to investors but ultimately helpful only the short term. It did little to spur job creation or domestic capital investment. There are several proposals being lobbied before the Administration, including a low repatriation tax rate with restrictions on how the repatriated capital can be utilized. Overall, although less prominent in news coverage compared to healthcare reform and domestic tax reform, the implications to the investing market of a repatriation tax holiday are enormous.

Infrastructure PlanThe prospects for an infrastructure plan this year are looking grim. Originally the Trump Administration laid out a timeline focusing on a new healthcare policy, followed by domestic tax reform, and then an infrastructure plan. This order makes budgetary sense. A new healthcare plan will pave the way into a new domestic tax plan, which is a prerequisite for the infrastructure plan in order to determine the availability of funding for infrastructure. If one institutes a big spending plan, like an infrastructure plan, without knowing how to pay for it, then national debt levels can be expected to increase. However, there is speculation that, in the absence of progression other policy fronts, the Administration might undertake an infrastructure plan without Congress. In any case, major infrastructure spending can be expected to provide the domestic economy its long‐awaited “shot in the arm.”