For the all the tensions in Washington D.C. over who’s the blame for the shutdown of the government, investors are going to be quite happy. A shutdown of government sounds negative but is viewed by investors as a wrinkle rather than a big fork in the road. This is seen from bond and stock returns that have been uniformly positive during and after shut downs and debt ceilings negotiations end. U.S. political risk is seen an investment opportunity and there are several reasons why. According to a Congressional Research Service report, when a “funding gap” occurs, government agencies start the process of “shutting down” activities and furlough personnel. The debt ceiling is a limit that Congress imposes on how much debt the federal

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Bitcoin futures were launched on the Chicago Mercantile Exchange in follow on to last week’s introduction on the Cboe. The result of these formal introductions is liquidity in the market for Bitcoin may pick up quickly. Naturally that would compress the price between futures and the underlying Bitcoin which is called the “the basis.” Currently the Bitcoin basis is around $450 to $800 which suggests there remains a significant liquidity difference between Bitcoin and futures markets. But now that futures on Bitcoin are introduced, institutional investors can develop a better fundamental view on what the “price of digital money” means for the global economy. In that regard, what’s important to watch is the “convenience yield.” This yield is the premium or benefit of holding

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Financial markets once again embraced President Trump’s tax reform with euphoria. Although details lack and uncertainties remain, the impact of reform was priced in as a positive outlook for the U.S. economy. This was seen from a strong rally in small cap stocks and companies with a current high effective marginal corporate tax rate. The dollar received a boost and Treasury yields rose on the prospect of higher GDP in the coming quarters. Now the question rises whether tax reform is an “inflection point” for the economy? That greatly depends on the effect of fiscal policy. The “fiscal multiplier”, which is the ratio of change in a nation's income level affected by a change in government spending, stands at the highest level since the

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Most clients have seen press reports about current tax proposals in Congress that promise significant changes to the taxation of individuals and businesses. H.R. 1, titled the “Tax Cuts and Jobs Act,” was introduced to Congress on November 2nd and is in the early stages of its legislative journey through the House of Representatives and the Senate. Prospects for the adoption of all, some or any of its current components is unclear at this point. One of the elements of H.R. 1 in its current form is a future repeal of the Federal estate tax. Specifically, the following changes would be made to the estate and gift tax system in the U.S. as it currently stands: • Beginning January 1, 2018, the amount which

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In her sit down discussion in London, Federal Reserve Chair Yellen presented a milder version of what Alan Greenspan once dubbed 20-years earlier as “irrational exuberance” to describe the state of the stock market. Fed Chair Yellen said valuations appear to be “somewhat rich” when measured on traditional models. The model she referred to is the “Fed model” of stock valuations, introduced by Alan Greenspan at the Humprey Hawkins testimony in 1997. The model uses the 1-year forward earnings yield of the S&P 500 and compares that to the 10-year Treasury yield. When these two are equal, the stock and bond market are in “equilibrium.” In Figure 1, the historical series is shown and it shows there is a wide gap between the S&

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The latest Consumer Price Index release was the third consecutive inflation report that came out on the soft side. The economy has been moderately growing at 2 percent average with wages around 2.5 percent and unemployment around 4.3 percent. An economist who advocates the “Phillips Curve” (the relationship between unemployment rate and inflation) would argue the U.S. economy is on the brink of a burst in inflation. And yet, the actual inflation is benign and even shows ingrained deflationary trends across a variety of core goods categories. Such are new and used cars, cellular plans and retail goods. Figure 1 shows the long term trend in some of these categories. They have been in decline for some time. What is going here exactly?

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Crypto Currencies, Blockchain and the ICO Crypto currencies are a digital currency that uses encryption techniques to regulate the creation of currency and verify the transfer of funds, operating independently of any central bank. They are built on top of a Blockchain, which is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. While not exactly new, the Blockchain and Crypto currencies may be hitting critical mass and are now simultaneously upending multiple industries. They will eventually disrupt almost all industries. The ICO may be it's first "Killer App". The world of finance in particular is directly in it’s line of sight. Because token holders need only hold private keys to guarantee custody, it means that as

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Yields are falling despite the Fed, the Bank of Canada and the Bank of England, want to hike interest rates. The long end of the yield curve responds with natural defense because soft inflation and hikes means the Fed will not meet the inflation target. Indeed, the Treasury Inflation Protected Securities (TIPS) curve discounts a below target inflation for the next 30-years. This expectation has been in place since late 2014 since QE3 ended. Since that time, the 10-year has been in a downtrend with occasional sell offs (like during Trump election). The chart below shows the 10-year since the end of QE3 (October '14) until today, compared to the 10-year during 2001-2006 period. Figure 1 Source: Bloomberg It is interesting to note the 10-year is

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We are proud to announce another significant addition to the Intellectus Team. Alice Wu, the former President of Robertson Stephens, Head of Asia Region has joined Intellectus. Alice will be based in our San Francisco office and will frequently be spending time in Asia. Please welcome Alice to the team! Our press release is below: Silicon Valley-based Independent Wealth Management Firm, Intellectus Partners, Hires Alice Wu as Head of Asia Pacific Region, Wealth Creation & Preservation NEW YORK, NY, June 20, 2017–Intellectus Partners today announced that the firm has expanded its leadership team with the addition of Alice Wu as Head of Asia Pacific Region, Wealth Creation & Preservation. Ms. Wu joins Intellectus Partners from Robertson Stephens where she was a Managing Director and President

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Once again, British polls turned out to be unreliable, and the political fallout may linger for some time. While Brexit negotiations are about to get under way, the Conservatives position in the House of Commons has weakened on May’s mandate backed by a slim majority. This is the uncertainty the Pound Sterling reflected on Friday by falling 1.5 percent against major currencies. A currency that expresses political risk may serve as a reflation backdrop because it can loosen global financial conditions. For example as Figure 1 shows, U.K. financial conditions are the easiest globally despite political uncertainty is perhaps the highest in Britain. Figure 1 Source: Bloomberg For financial markets this is good news because uncertainty begets low volatility when capital remains opportunistically

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Last Friday's (May 5) payrolls report was a steady as you go report. The consistent strength in payroll growth suggests "slack" is gradually removed. If there was an acceleration in reduction of slack however, not only wages may rise faster, but productivity would go up too. This hasn't been the case so far with the recent productivity report showing a meager 0.6% annualized increase. The labor market is therefore currently tightening in a moderate fashion and this coincides with a slow deterioration in the labor market conditions index published by the Federal Reserve. The graph below compares a measure of slack (part time employment for economic reasons) and the labor market conditions index. The positive change in the labor market conditions index has historically peaked

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"If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright." So said Warren Buffet in 2003. My how things change...Great investors are never dogmatic. As you may recall from our post three months ago(Nov 11, 2016), we have been unabashed bulls on the airline sector for a very long time. In a nutshell, we think capacity discipline and the rationalization of the US airline industry are driving significant efficiencies (not to mention the indirect benefit that they receive from all of the oil and gas that the US is pumping). This is likely to lead to real value creation In fact, we think it already is. Just last week, Delta announced that they were

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Over the past week, financial markets revisited the “Trump Trade” as a portfolio consisting out of 3 variables. The first variable is the dollar. The green buck resumed strength because of a more favorable stance by President Trump in trade discussions with Japan and China. Japanese Prime Minister Abe praised Trump for his business qualities with a trade deal potentially away from the Trans-Pacific Partnership (“TPP”). The conference call with Chinese President Xi Jinping resulted in a policy shift by Trump when he formally confirmed to uphold the “China One Policy.” The diplomatic nature of these discussions with Japan and China critically refrained from “currency manipulation” and was rather translated as a “level playing field” on currency valuation. The dollar index re-priced to moderately above 100,

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The Federal Reserve’s FOMC Statement may have had the look of a stalemate but the language was crafted such that there are two important implications. The first is both sides of the dual mandate (inflation & unemployment) are in the Fed’s view now at target. The outlook for inflation was changed from “expected” to “will rise to 2 percent.” The Federal Reserve has high conviction inflation will be at target by removing from the Statement “transitory effects of declines in energy and import prices dissipate.” The other part of the mandate, the unemployment rate, was described as “stayed near its recent low” rather than declining. The assessment of the mandate coming into balance, suggests the Fed is getting ready for the next phase of

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As Donald Trump was sworn in as the 45th President of the United States, there were two notable points in his inaugural speech. The first point is President Trump took a firm stance against the political establishment. His message was conveyed such there will be a power transfer from government back to the private sector. By ending state control, “carnage” as President Trump described it, would end effectively. That may imply government intervention in private markets is now something of the past. One may argue President Trump took to heart the ideologies of the late economist Paul Samuelson. He argued maximizing welfare for the public results in an economy operating at optimal efficiency. The speech focus on “buy American, hire American” is adage to Samuelson by

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