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Smartleaf
May 16, 2019

Loss harvesting gets all the attention, but it's gains deferral that does most of the work.

I recently defended tax loss harvesting against its critics. But there was a twist. I noted that while tax loss harvesting is well and truly valuable, it is not the star of tax management. That honor belongs to gains deferral. For many folks, this is a bit shocking, like learning that Sherlock Holmes has a smarter older brother (Mycroft Holmes). Loss harvesting gets the attention; gains deferral does most of the work. We thought we’d do our bit to bring gains deferral out of the shadows and give it the acclaim it deserves.

 

What is gains deferral?

Gains deferral is the act of holding a position that, but for tax considerations, you would otherwise sell. There are two types:

  1. Short Term Gains Deferral: You delay selling a short-term position until it’s long term. Roughly speaking, this cuts your tax bill in half. 
  2. Long Term Gains Deferral: You delay selling a long-term position, maybe for just a while, maybe indefinitely. If you sell eventually, you’re still getting value, in the form of a delayed (deferred) tax bill. It’s the equivalent of an interest-free loan. And if you never sell, either because you hold the position until death, or you donate the position to charity, you avoid capital gains taxes entirely. 

 

Why is gains deferral more valuable than loss harvesting?

One of the criticisms of loss harvesting is that, on average, markets and investment portfolios go up in value, so, eventually, you have no more loss harvesting opportunities. We’ve explained why this isn’t quite true. (There’s always stuff happening, like rebalancing and cash flows, that can create new loss harvesting opportunities.) But it’s not completely false either. In a portfolio that is properly managed for taxes, you will get lots of appreciated securities. That’s bad for loss harvesting, but good for gains deferral. After a few years, gains deferral becomes the dominant tax management strategy. We can quantify this. Smartleaf generates a Taxes Saved Report for every account managed in our system that breaks down taxes saved from loss harvesting and gains deferral. In 2018, 78% of taxes saved came from gains deferral, compared to 22% from loss harvesting.

 

Why is gains deferral hard?

Gains deferral sounds simple. After all, how hard is it to not sell something? But there’s more going on than just refraining from a sale. The challenge of gains deferral is to avoid selling appreciated positions while still ending up with the portfolio you want. The downside of holding onto a position for tax reasons is that you’re left owning more of the position than you want. And that means you're exposed to a particular stock’s performance more than you want to be. The key to competent gains deferral is keeping this risk under control.

How? First, actively “counterbalance” overweighted positions by underweighting securities that are most correlated with the security that is overweighted.  If you’re overweighted in Exxon, underweight Chevron. The idea is to keep core “characteristics” (e.g. beta, capitalization, P/E, sector, industry, momentum, etc.) of the portfolio unchanged.1

Second, don’t overdo it in the first place. If an appreciated security constitutes the majority of a portfolio, a deferral of all gains would be a case of the proverbial tax tail wagging the investment dog. How much is too much? It depends on 1) how volatile the security is, 2) your return expectations for the security, relative to alternatives, and 3) how well you can effectively undo the overweight risk through counterbalancing.

So, let’s put it all together. Well executed gains deferral means prudently holding onto overweighted positions with unrealized gains, and then minimizing the risk and return impact by carefully counterbalancing. It is an optimization problem. And, unlike loss harvesting, your work isn’t done in 30 days. You have to keep monitoring the overweighted positions and evaluating how to counterbalance the overweight for as long as you own the security.

And that’s why gains deferral is hard. Done well, it requires sophisticated optimization analytics.  It is exceedingly difficult to do well manually.2 And it’s an open-ended commitment — maybe even a lifelong commitment if you hold overweighted positions till death.

 

Why don’t we hear more about gains deferral?

Given gains deferral status as the core of efficient tax management, why don’t we hear more about it?

One reason seems clear: implementing gains deferral manually requires a level of attention and care that is only economical for high net worth — or perhaps ultra high net worth portfolios. The good news is that modern automation tools are changing this. Sophisticated gains deferral, like sophisticated loss harvesting, can now be implemented inexpensively and at scale.

But there may be another reason why gains deferral doesn’t get the attention it deserves: Clients may value it less. It appears to be doing nothing. What client wants to pay their advisor for doing nothing? This applies double for legacy holdings — positions that the client transferred in to be managed by the advisor. Why should the client pay an advisor for holding a security that the client bought? The reasoning isn’t sound. Risk-managed gains deferral is really valuable. And hard. But it may not be highly valued by clients.

 

Having conjectured on why gains deferral doesn’t get the credit it deserves, we’re still a bit puzzled. On this point, we’d especially like to hear from you. Leave comments or reach out to us directly. We’ll share what we learn.

 

 



1 Not everyone will focus on the same characteristics — also called “factors.” Some correspond to plain-English characteristics, like “sector” or “capitalization.” Others are purely mathematical constructs with no obvious real-world counterpart.

2 There are cruder approaches to counterbalancing, such as  just underweighting everything else pro rata, or just buying less of whatever you were planning to buy next, but these simple approaches will result in greater risk and performance drift.

Written by Gerard Michael on May 16, 2019

Hard Assets Alliance
May 15, 2019

In 1803, one man made a discovery that would make the world — a better place.
 
And I’m guessing you’d like to invest in a metal like that.
 
Introducing:
 
Palladium.
 
And if you’re not in the loop.
 
You’re in for a real treat.
 
Take a look at this…
 

It’s a catalytic converter.
 
And every modern, gasoline-powered engine has one.
 
Including: electrical generators, forklifts, mining equipment, trucks, buses, locomotives, and motorcycles.
 
Why?
 
Because a catalytic converter reduces emissions of three harmful compounds:
 

  • Carbon monoxide (a poisonous gas).
  • Nitrogen oxides (a cause of smog and acid rain).
  • Hydrocarbons (a cause of smog).

 
Which makes a catalytic converter — a life preserver.
 
The key precious metals inside?
 
Platinum and Palladium.
 
Now, let’s talk about demand.
 
What kind of continuing demand is there for palladium in the auto-industry?
 
Well, the global market for catalytic converters is predicted to hit a staggering $73.1 billion by 2025.
 
Why?
 
Transportation.
 
And with 7+billion people on the planet, the demand for personal and commercial transportation has never been greater.
 

“And since Standards requiring the use of catalytic converters on [gasoline-powered] cars first came into force in 1993 with EURO I, which was replaced by EURO II in 1997.
 
Even stricter standards have been agreed, with EURO III and EURO IV, coming into force in 2001 and 2006 for passenger cars and in 2002 and 2007 for light commercial cars.”


But, that’s not all...
 
Because it’s NOT just the West —  ‘driving’ the demand for ‘catalytic converters’ —  the East is joining the party too.
 
And as the Asia Pacific regions – like Japan, China, India, and South Korea – continue to need more and more passenger cars – due to their emerging middle class…
 
The demand for palladium in the auto-industry looks promising and profitable.
 
Want another reason?  You got it.
 
Question:
 
How else could 7+billion people influence the need for catalytic converters?
 
How about: Food and Tractors.

 
Agrievolution data shows that in 2017 more than 2.1 million new tractors moved around the world. Which is a 13% increase over the previous year and an 11% increase over 2015.
 
And more recently:
 

Charlie Glass, Chairman emeritus, Farm Equipment Manufacturers Assn.’s (FEMA) Dealer Relations Committee said:
 
“Tractor and combine sales for 2018 showed a very good increase in nearly all categories and that growth will continue into 2019. Our models indicated growth above the normal replacement activity and that should provide for another good year ahead.”
 

Do modern tractor engines ALL have a catalytic converter?  You bet.
 
And catalytic converters account for 50-70% of the total demand for palladium.
 
Will demand continue?
 
Consider this:
 
If emerging markets continue to grow, if people continue to desire personal transport and if 7+billion people continue to need food.
 
Then you might like to invest in palladium.
 
More info: https://www.wealthcareconnect.com/index.php/advancedmarketplace/detail/72/precious-metals/

Hard Assets Alliance
April 30, 2019

 

What do these industry giants...

 

Nike*. Microsoft. Disney and Dell - have in common?

 

They ALL started in a garage.

 

Now, picture your garage or living room.

 

And imagine a pure platinum bullion cube - wall to wall - inside it.

 

Can you see it?  Good.

 

That's the total amount of platinum EVER extracted from the earth.

 

Approximately 248.83 metric tonnes.

 

Which makes platinum 30 times rarer than gold.

 

And in a moment...

 

I’ll give you 4 reasons why you might reconsider this noble metal for your portfolio.

 

But first...

 

What makes Platinum an industry ‘giant’ in the making?

 

It functions as a precious metal...

 

… and as an industrial metal.

 

Which means it doesn't just look pretty.

 

It has infinite economic uses.

 

And wouldn't it feel good... to own and invest in a metal like that?

 

You know...

 

One that can appreciate - without the world coming to an end?

 

Well, you can.

 

Here's the deal...

 

If you'd like to add some platinum to your precious metals portfolio.

 

Now, we’re making it even easier to get started with adding platinum to your portfolio.

 

For this week only, you’ll get 1% cashback on all platinum you purchase for storage using your SmartMetals account.

 

Need more info? I got you.

 

Here are 4 reasons - why platinum is so special - and widely misunderstood.

 

  1. Military. Platinum’s resistance to high temperatures, means defense systems use it.

 

For example: Under extreme temperatures durability is essential. So Military aircraft and missile nose cones need it.

 

  • Are armies around the world currently stockpiling weapons?

 

  1. Medical. Platinum has a variety of little-known uses in medicine.

 

Did you know that doctors use it in cancer-fighting chemotherapy treatments?

 

It’s true, they really do.

 

It's also biocompatible and can safely remain in the body.  Connecting pacemakers to hearts.

 

It makes precision instruments visible during keyhole surgery.

 

And, it gets used as non-corroding replacement parts for the human body. 

Think joint replacements.

 

  • Are doctors and surgeons performing life-saving miracles every single day?

 

  1. Auto-industry. Platinum is used in catalytic converters to clean exhaust emissions from diesel engines.

 

And as China and India work towards upgrading standards.

 

Millions and millions of vehicles will need to meet Euro regulations.

 

Meaning the global catalytic converter market could explode.

 

And, with the push for electric cars ever present.

 

While some believe this will negatively affect platinum.

 

Not so - because electric cars use platinum too.

 

Fuel cell vehicles use a platinum catalyst.  Making tailpipe emissions pure water.

 

  • Are car manufacturers still producing and innovating?

 

4.Hot Works/Smelting. Platinum has a high-melting-point and is resistant to abrasion and corrosion.

 

Making it ideal for handling very hot substances like molten glass.

 

And, fiberglass gets used in a variety of ways.

 

Tiny circuit boards.  Kayaks. F1 Chassis.  Big Yachts etc.

 

  • Are luxury boat builders still building?

 

  • Race cars still racing?

 

So there you have it…

 

4 reasons platinum is a very special precious and industrial metal.

And hopefully, you now understand the true value of silver’s little brother.

If you’ve heard enough and you want to get some of this very special metal into your portfolio.

 

All you need to do is login to your SmartMetals account and buy platinum for storage.

 

And if you make your purchase before midnight on Sunday, May 5th… you’ll also receive “1% cashback” as a special rebate.

 

“Platinum got started in the ground - and turned into billions”

 

And now, the above ground supply, can sit in your garage or living room.

 

Its total value?

 

Approximately $6.4 billion USD.

 

Is this just the start?

 

Could the value of each ounce grow higher?

 

As you can see, the demand is strong.

 

In fact, it's increasing.

 

"It is encouraging to see investment demand for platinum growing rapidly in 2019, and we expect this trend to continue.”

 

  • Paul Wilson, CEO of The World Platinum Investment Council (WPIC)

 

But the thing is: some are predicting the supply could be dwindling.

 

Because the platinum mines in Russia and South Africa, have a problem... a BIG problem, and I'll tell you about that tomorrow.

 

I almost forgot to mention.

 

Here are 3 more reasons experts are saying platinum looks like the deal of the decade.

 

  1. It’s cheap. In fact, it looks undervalued.

 

So says Georgette Boele, senior foreign-currency and precious-metals analyst at ABN Amro Bank NV.

 

“Platinum has been beaten up too much and became too cheap.”

 

Which means now could be the perfect time to get your ounces.

 

  1. It's silver's little brother. And while many investors turn their back on platinum, to focus on something else. One day they may regret it. Those who didn’t may celebrate.

 

Look:

 

“This is a market nobody cares about. Such markets are good to buy into. One day a lot of people will care.”

 

– Dominic Frisby, Moneyweek Newsletter

 

  1. Gold/Platinum Ratio.

 

Do you like a good bargain?

 

Right now, platinum is close to its lowest level in nearly a decade…

 

It’s trading about 30% below the price of gold, and could start to attract value investors looking to get in cheap.

 

“Platinum has some significant upside potential from current levels, as a result of its overall industrial usage and within autos.

Platinum currently trading both below gold and palladium makes it attractive from a pure price standpoint, as historically platinum has traded at a premium to both.”

– Ed Egilinsky, managing director of Direxion.

 

You may consider this your time to strike.

 

Could Platinum be the deal of the decade?

 

You decide.

 

Remember: For a LIMITED TIME only...

 

You'll receive "1% cashback" when you decide to buy platinum for storage - using your SmartMetals account.

 

However, this offer will expire at midnight on Sunday, May 6th.

 

P.P.S * Nike actually began in the trunk of a Plymouth Valiant.

Hard Assets Alliance
April 28, 2019

 

You know that contributing to an IRA or 401k is an easy, tax-advantaged way to save for retirement.
 
But how confident are you that your nest egg will be as valuable in 5, 10, or 15+ years as it is today?
 
A market crash or an unstable economy could strip the value of your entire retirement portfolio in a flash…
 
But there are ways that may help protect your retirement assets.
 
Most people don’t even know about this so I want to show you how easy it is to do...
 
One option to consider is something called a Gold IRA.
 
Unlike the usual IRAs – which are limited to stocks, bonds or cash – this account holds physical gold or other precious metals…
 
Which means the value of this account is dependent on the value of gold inside it.
 
And we all know gold has a history of maintaining its value over centuries, even millennia.
 
That includes through everything from stock market crashes...
 
like in 2008... where gold recovered in months, giving investors easy access to capital when assets of all kinds were cheap to buy…
 
To the demise of currencies… which, by the way, have a pretty fantastic record of failing eventually.
 
There are no guarantees, of course. But gold has a proven historical track record of hedging against disaster.

More info at:  https://www.wealthcareconnect.com/index.php/advancedmarketplace/detail/72/precious-metals/

 

Hard Assets Alliance
April 25, 2019

 

North Carolina Professor, Dan Ariely... wrote a book about you.
 
It’s called: ‘Predictably Irrational’.
 
Inside, he argues
 
That the decisions you make are far less rational than you think.
 
Well, Dan got it WRONG.
 
What if I told you:
 
There was something you can do for your future, right now.
 
That could help you have a much more predictable and comfortable retirement.
 
A DECISION you could make...
 
That would be ‘Predictably Rational’.
 
And, prove Dan wrong.


Let me explain...
 
As you know, your existing 401k or IRA allows you to save money for retirement in a tax-advantaged way.
 
But chances are, you only have access to a limited number of investment options… like stocks, bonds, mutual funds, and cash.
 
Now, I don’t know about you, but when it comes to keeping my retirement funds safe…
 
I’d like some more freedom and flexibility with where I invest my money.
 
I’d much rather also have real, physical, tangible assets that have a proven track record of safety…
 
Which is why so many people are opening up a Precious Metal IRA with Hard Assets Alliance.
 
Interested?
 
It gets better…
 
Because YOU have four IRA options to choose from.  
 

  1. The Traditional IRA allows you up to $6000 in pre-tax contributions per year in 2019. Taxes on gains are deferred until you withdraw, typically many years later in retirement.

     
  2. Roth IRA is like a Traditional IRA except Roth IRA contributions are not tax deductible, but gains are tax-free forever.

     
  3. SEP IRA, the SEP stands for simplified employee pension. It’s like a Traditional IRA but with higher limits for the self-employed.

     
  4. A SIMPLE IRA (Savings Incentive Match Plan for Employees) is similar to a SEP, and also for small business owners.

 
Each option has its own pros and cons, especially as it relates to taxes…
 
So please talk to a qualified tax professional about your specific situation.
 
But if you decide to apply for your account before midnight on Sunday, April 28th…
 
We’ll give you free storage on anything you buy, no limit, through September 30, 2019.
 
But back to Dan’s point about people being irrational…
 
If you ask me, this isn’t a question of rational or irrational decision making.
 
It’s about having the freedom to choose what makes the most sense for you.
 
And for me, that’s a “Predictably Rational” choice I’ll make any day of the week.
 
Go here to apply for your Precious Metals IRA now

WealthCare Connect may receive compensation from this provider for purchases you make through the above link.

 

 

Hard Assets Alliance
April 23, 2019

 

Do you ever worry about your retirement savings getting wiped-out right when you need it most?
 
When your retirement funds are in a 401(k) – you're limited to traditional investments…
 
Like stocks, bonds, mutual funds, and cash.
 
But what if you don’t trust the stock market to keep your life savings safe?
 
Eith a self-directed IRA You can choose from many more asset classes… including precious metals.
 
Even better, you can buy your gold (or other precious metals) at an unbelievable 15% to 45% discount.
 
How is this possible?
 
Like your 401(k), all the money inside your self-directed IRA goes in pre-tax…
 
Which means any investments you make using pre-tax money is like getting an instant “discount” on anything you buy.
 
Here’s what I mean…
 
Let’s assume you pay 30% of your income in total taxes.
 
That means for every $100 you earn, you wind up with $70 after taxes.
 
And if you buy precious metals with that money, it means you’re already “down” 30%.
 
Ouch!
 
PLUS! You’ll pay no capital gains taxes for any transactions you make inside of your Freedom Account -- either deferred until you retire/withdraw, or tax free forever.
 
Pretty sweet right?

More info at: https://www.wealthcareconnect.com/index.php/advancedmarketplace/detail/72/precious-metals/

Hard Assets Alliance
March 20, 2019

 

 

I don’t like to speculate on what the market is going to do next, but there are three things that have me worried right now...
 
See this chart?

 

This shows how much US households are spending on goods and services…

And spending has absolutely CRATERED!

Like, “we haven’t seen this since 2008” kind of bad.

The personal savings rate has made a HUGE jump...

 

 

And most disturbing of all…

The number of major S&P 500 tumbles in the last three-year window has hit its highest level since the 1940s!

 

What the heck is going on here?
 
Is this a warning sign for trouble ahead?
 
Or are people just getting jittery, and it’ll all be okay?

 

P.S. Precious metals – like gold, silver, platinum and palladium – are a great option to consider if you’re looking for a reliable safe haven from the stock market.

 

For more info, click HERE

Smartleaf
March 14, 2019

 

We’ve written before about the advantages of direct indexes over ETFs and Index Funds (see Direct Indexes are Better than ETFs). And we’re not alone. The coming rise of direct indexes has even been called the “The Great Unwrapping.”1 But not all are convinced. So we thought we’d address some common objections to direct indexes.

 

Direct indexes are unwieldy. (Who wants to own 500 shares?)

Owning the 500 securities in the S&P 500 — or, worse, the roughly 5,000 securities in the Russell 5000 — would seem to make for dreary statements and endless Schedule Ds.

But with computer-generated statements and tax statements, advisors find that large holdings are not actually burdensome. In any case, direct indexes rarely include all the holdings in the underlying index. Most direct indexes are just a representative sample of the index holdings, say 50 to 150 stocks. It’s less fuss and less expensive.

 

Direct indexes do a poor job of tracking indexes.

As mentioned above, most direct indexes don’t hold all the securities in an index; they hold a representative basket, which won’t track indexes perfectly. But the returns will be pretty close, typically within one percentage point plus or minus. And, for most investors, this is OK, since the purpose of investing is not to track an index; it’s to maximize (after tax) risk-adjusted returns, and here direct indexes shine — they outperform comparable ETFs on an after-tax expected basis. They’re also customizable — you can add social screens, work around outside holdings, counterbalance geographic and employment risk exposures, etc.

 

High minimum investments put direct indexes out of reach of ordinary investors.

Don’t you need to be rich to invest in a direct index? For most investors, the practical minimum is around $100,000. Anything less, and it becomes difficult to own all the shares in the index in the right proportion — think about Google, which trades at around $1,200 / share. At $100,000, that’s 1.2% of your portfolio, so there’d be no way to own, say, a 1.8% Google position. But more and more custodians, like Apex Clearing, FolioFn, and DriveWealth, let investors buy securities in increments of 1/1000 of a share. This makes direct indexes accessible to investors with as little as $100.

 

Direct indexes are expensive, and this pretty much negates any advantage they have over ETFs.

Historically, direct indexes have been premium products, costing as much as 10X similar ETFs. And, yes, this undid much of the direct index’s advantage. But one of the drivers of the rising interest in direct indexing is reduction in costs — as low as 10 bps. The management of direct indexes, even with tax optimization and high levels of customization, can be largely automated. We haven’t seen any true robo direct indexes yet, but this isn’t because of technological barriers. More to the point, at scale, direct indexes should be less expensive than both index funds and ETFs, which are structured as investment companies that are required to have boards, file annual reports. Direct indexes have none of this overhead.  

 

So what is stopping investors from adopting direct indexes? Mainly, familiarity and availability. It took index funds years to come into their own, and it will take time for direct indexes to do the same. But the benefits to investors make the long-run success of direct indexes pretty much inevitable.

It’s a win for advisors, as well. As Inside ETFs’ Chairman Matt Hougan put it “When I think about you building portfolios and you out there competing, and you’re competing with Wealthfront and Vanguard and Schwab, I just see a bunch of sadness. But when I think about designing portfolios that you get to know your clients and you build Bob’s portfolio and you build Janet’s portfolio and you build specific portfolios that you’re delivering with tax-loss harvesting, in a mixture of direct indexing and ETFs, I think I see the next $1 billion, $10 billion, $100 billion financial advisor opportunity.”  Let the great unwrapping begin.

 


1We like the phrase “The Great Unwrapping” and wish we had come up with it, but credit goes to Inside ETFs’ Chairman Matt Hougan and ETF.com CEO David Nadigand. See What’s Next in ETFs? The Great Unwrapping

 

Hard Assets Alliance
March 6, 2019

The Wild Ride

On any given day, you can find numerous articles about the hazards posed by our federal debt, municipal debt, consumer debt, and so on. The list is long and plenty scary.

But there is surprisingly little talk about one of the most dangerous situations of all: the trouble in America’s recently booming oil patch.

Most people may not realize that the largest oil producer in the world today is not Saudi Arabia, nor Venezuela, nor Russia. It’s the U.S.  

The extraction of fossil fuels from shale formations, via fracking and horizontal drilling, has sparked a revolution so all-consuming that it’s forged an entirely new reality. About 20 years ago, fracking technology hit a point where it suddenly started to make a lot of economic sense. It “crossed the chasm” as they say in Silicon Valley, going from an expensive developing technology with its roots back in the 1960s to a mature and (frankly) cheap way to extract a familiar resource more easily (much like LED lights, which came out of RCA in 1964, but have only recently become ubiquitous).

Since then, the drilling of fracked wells has proceeded in earnest, exploding over the past decade.

What an amazingly fast, wild ride it’s been. It has:

  • catapulted the U.S. from back in the pack to the top of the list of global oil and natgas producers, with the Dept. of Energy (perhaps through slightly rose-tinted glasses) predicting the country would be a net exporter of both by 2022.
  • transformed obscure rural areas like Williston, North Dakota into rowdy, populous frontier towns.
  • provided high-paying jobs to those willing to relocate to Texas and North Dakota. The latter vaulted from 45th in the nation in per capita income in 2004 to 2nd in 2013; though it’s since pulled back, it’s still 6th as of 2017.

This has not happened without controversy. Objections have been raised about earthquakes, air and water pollution, disturbances to land and animals, and exploding pipelines. Environmental concerns have, if anything, intensified. Though they have not yet disrupted the industry, neither are they going away.

Like information technology saw setbacks in the early 2000s only to continue apace, the fracking boom experienced its own short-lived crash from 2014-16, when a global supply glut drove the price of oil as low as $26/barrel. During this period, according to The Economist, writing in March of 2017: “The number of drilling rigs in America dropped by 68% from peak to trough. Companies slashed investment. Over 100 firms went bankrupt, defaulting on at least $70B of debt.”

Yet today, the boom goes on. And on. Again, in The Economist’s wry words of 18 months ago: “Exploration and production (E&P) companies are about to go on an investment spree. Demand is soaring for the industry’s raw materials: sand, other people’s money, roughnecks and ice-cold beer.”

That’s just what has happened. Written off as dead in 2016, the fracking industry has roared back to life. In a 2018 forecast, the Energy Information Administration predicted that production across the U.S. oil patch is expected to average almost 10.6 million barrels per day this year, and to reach 12.1 million barrels a day by 2023. That’s about two-thirds of U.S. national usage.

 

DIY Marketplace: Hard Asset Alliance:  https://www.wealthcareconnect.com/index.php/advancedmarketplace/detail/72/precious-metals/

 

RiXtrema
February 26, 2019

On January 15th I wrote an article in which I described that the most likely outcome to fund the government was congress passing a bipartisan resolution while President Trump declares the situation at the southern border a national emergency. And on Friday, this largely played out (though I also predicted that all of this would take place by January 21st and end the first shutdown). So, while I was correct on the ultimate outcome, I was off by a few weeks on the timing. But my other expectation was that all of this would have no effect on markets.

And on this point, I stand with my original conclusion – neither the contents of the bipartisan resolution nor the nature of the declared national emergency will have any effect on the markets. In fact, the market barely reacted to the declaration in real time. From a market perspective, this is as close to a non-event as it gets. Trade with China, Brexit, the Fed and other economic issues will continue to dominate the market cycle. Any noise surrounding the emergency declaration, be it a congressional override, lack of a congressional override, a lawsuit, or any other political maneuverings, will also have no effect on markets.

The decision to declare a national emergency to get what couldn’t be passed through congress is one with which I strongly disagree. It sets a very dangerous precedent where the current or future presidents could declare national emergencies to fulfill their campaign promises or other pet projects. And the results may not always be so benign for the markets. A democratic president could declare a national emergency on gun violence where they ban the sale of certain weapons. They could declare a national emergency in health care and mandate Medicare for all, enact a Green New Deal unilaterally, etc.

While this turn of events doesn’t warrant a new risk scenario in Portfolio Crash Testing, be sure that if the ‘emergency’ isn’t reversed by congress or the courts, we will begin to create scenarios around potential future ‘emergencies’ that may occur by presidential decree. We have promises from various parties that lawsuits are on the way to being filed, and we have the House likely to pass a resolution effectively undoing the ‘emergency’, and potentially even more than 50 votes in the senate. Overriding a veto is another issue, and it may come down to the courts to decide. Hopefully, we don’t have to start creating those scenarios.

Source: https://www.rixtrema.com/blog/emergency-sos/