MidSouth Week in Review:
June 25, 2018

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

The S & P 500 declined 0.7% for the week.  The Dow was positive today following eight consecutive down days.  The Dow announced this week they are dropping GE from the index and replacing them with Walgreens Boots Alliance.  GE has been a member of the Dow since 1907.  Their stock is down 25% year-to-date and down 59% from its 2017 high.  New stocks added to the index have a median decline of 6% after being added to the index over the next one-year period.  Crude rose $4.80 today to close at $68.02 on speculation that OPEC’s intention of increasing production may be less than previously forecasted.  Bitcoin declined 7% for the day to $6,225, its lowest level since mid-November, and down 67% from its December high of $19,066.

BuzzBits

Used Car Prices – hit a 13-year high in rising 17.6% in the 1Q to an average price of $19,657 – www.Edmunds.com ….. If Trump initiates his proposed 25% tariff on imported autos, look for foreign used car prices to surge.  China currently charges a 25% import duty on passenger vehicles which they plan to reduce to 15% on July 1, which is still far higher than the 2.5% charge the U.S. has on imported cars.  The EU currently charges a 10% tariff on auto imports vs. 2.5% for their autos entering the U.S.  The “Big Three” German auto makers are in favor of creating a tariff-free zone with the U.S. – Bretton Woods Research

Financial Loss vs. Financial Gain – “Losing one dollar feels roughly twice as painful as gaining a dollar feels”. – Nobel Prize winner and behavioral economist Daniel Kahnerman

Tax Refunds – are estimated to be 26% higher according to Morgan Stanley.  Much of the windfall is due to the fact that 75% of U.S. workers will be guilty of “overwitholding” after the new tax law passed in December 2017 that cut personal income tax rates.

Harvard Admission Policies – Only 4.6% of applicants were admitted last year.  Asian Americans make up 20% of the admissions but would make up 43% if based on academic credentials alone.  An Asian male with a 25% chance of admissions would increase his chance of admission to 36% if treated as a white applicant, 75% as a Hispanic applicant and 95% as a Black applicant – Harvard …. Asians make up 5.5% of the U.S. population.

Shrinking Labor Force – The percentage of Americans age 65 and older has risen from slightly less than 10% in 1970 to 16.5% today and is expected to rise to 20% by 2030.  27.7% of Japanese people are over 65, which is possibly a reason the country has seen little growth over the past 29 years.  The Nikkei’s stock index currently stands at 22,555, down from its 1989 high of 38,957.

Rich Kids – 63% of affluent children between the ages of 18 and 22 (Generation Z) say financial stability in retirement will depend on inheriting money.  In addition to their parents, 17% are betting on support coming from their grandparents and 14% say extended family will shell out some cash – Merrill Edge survey

Multigenerational Households – have increased from 12% in 1980 to 20% in 2016.  Much of the increase is attributed to the growing number of Hispanic and Asian families which are more likely to be multigenerational.  A 2014 study by Columbia University found that people living in two-generational households had lower premature mortality.

Good Teens – Last year, 40% of teenagers said they’d ever had sex vs. 48% a decade ago · Only 9% are smokers vs. 27% in 1991 · 30% say they use alcohol vs. 51% in 1991 · Marijuana use is unchanged with 36% of students saying they had ever tried it · Illegal drug use is falling – Centers for Disease Control

Vermont - Education is the state’s largest expense at $17,500 per student, which includes free lunches and only 9.49 students per teacher vs. the 15.96 national average.  The average education expense per resident family is around $6,500 – Wall Street Journal

Underwater Mortgages – 9.1% of homeowners with a mortgage owe more than their house is worth.  The five cities with the smallest number of homeowners underwater:  San Jose (1.9%), San Francisco (3.1%), Portland (4%), Boston (4.4%), Los Angeles (4.7%).  The bottom five:  Virginia Beach (16.7%), Chicago (15.5%), Baltimore (14.2%), Cleveland (13%), St. Louis (12%) – USA TODAY

Seniors Charitable Giving

The number of tax returns that will report income tax savings from charitable donations is projected to plummet from 37 million in 2017 to just 16 million in 2018.  The staggering decline of 21 million returns is due principally from two changes in the Tax Cut and Jobs Act of 2017: (1) limiting the itemized tax deduction for state and local taxes to $10,000 per return ($5,000 for married taxpayers filing separately); and (2) increasing the standard deduction to $12,000 on single returns, $24,000 on married joint returns and $18,000 on head-of-household returns – with even higher thresholds for individuals over aged 65.

For individuals over 70 ½, the good news is that no change was made to the law that permits them to make charitable gifts from their individual retirement accounts without recognizing taxable income.  These individuals are therefore still able to get income tax savings from their charitable gifts.  They can, for example, make charitable gifts from their IRAs and apply those gifts to satisfy their required minimum distribution obligation for the year, yet pay no income tax on those charitable IRA distributions. – Wealth Management

Incentivized Grades

When my daughter Annsley was in the third grade she brought home a C on her report card, so I offered her a proposal.  I would pay her $5 for her A’s, nothing for B’s and she would pay me $5 for C’s.  She accepted the offer and never made another C.

My granddaughter Frances had a spotty first report card in the third grade, so I offered her the same deal, which she took.  Her grades improved.  At the beginning of her fourth grade I offered to also pay her $10 for all A+’s earned and $100 if she made all A+’s.  Sensing she might have a shot at picking up the $100 for the end-of-year report card, I offered her $40 when we were in Iceland two weeks ago vs. waiting to get her report card.  She declined the offer.  Wednesday she gleefully called to inform me she earned all A+’s, including her first A+ in math.  I told her I was proud of her but she was getting all my money to which she replied, “Granddaddy, next year I am going to get all your money.”  Guess I had better start charging her for her lowly A’s next year - Buzz

buzz@msifund.com

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