2017 seems to be flying by. We just finished the Super Bowl and along comes March Madness. Just like the Super Bowl there is a lot of money at stake. In this age of Brexit and comebacks; Patriots (once Falcons were up 28-3 the Falcons were a 99.9% lock), Cubs and the Cavaliers, I would bet the long shot.
Let’s look at the 2016 NCAA Basketball Tournament by the numbers:
• $1.9B – Corporate losses due to unproductive workers during March Madness
• $10.8B – Amount paid by CBS/Turner Broadcasting to acquire 2011-2024 TV rights for the tournament
• Average annual increase in the value of the tournaments TV rights since 1986 – 4,535%
• 1 in 9.2 Quintillion – Odds of filling out a perfect bracket
• 2 times easier to win back to back Mega Million Lotteries, buying one ticket both times.
• 19% increase in pizza orders by fans after losses vs. wins.1
We have received calls and questions regarding the current administration and the impact on the economy. I will focus my discussion on areas that could potentially stoke the economy. From the end of 2007 our economy has moved forward at a meager 2% a year. Bloomberg/Businessweek reports that if the economy had grown since the end of 2007 at the average pace it did from 1947 – 2007 it would be 22 percent bigger than it is today.
It has been said that you can’t make an omelet without breaking eggs and after years of slow growth, looking at fiscal policy versus monetary policy could have positive effects. The box below is from the Ways and Means “Better Way for Tax Reform” Blueprint. (June 2016)
The blueprint would consolidate the system down to three tax brackets, lower the top bracket to 33%, eliminate the alternative minimum tax, create larger standard deductions and child tax credits, repeal the death tax and encourage charitable giving. Also in the memo they hinted at a reduced corporate tax to get companies to repatriate trillions of dollars currently held overseas. CNBC says that US companies are hoarding $2.5 trillion in cash overseas.2
Let’s put the number into perspective. That amount would be 13.5% of our US GDP. That number is also so large that it would be higher than most countries GDP. In fact, it would rank sixth based on 2016 GDP numbers.5
There will be debate and there will most likely be a tax plan that is different from the blueprint, but we are encouraged that there may be actions put in place that could get some of the “trapped cash” coming home. One benefit would be potential tax revenue on the cash, where we currently receive zero tax revenue. The larger benefit could be what that money could do. That cash could be deployed to build factories or buildings, invest in technology, invest in employees, hire more employees or for potentially higher dividends.
Small Business Optimism
We have had a surge in optimism in the small business community, a level not seen since December of 2004. This optimism translates into hiring and spending which is good for GDP growth. The report stated that small businesses are hiring and their single most important problem was finding qualified workers. The reports also showed a decent amount of capital spending.3 Small businesses play a vital role in our economy, they produce close to 46 percent of the private nonfarm GDP in 2008 (the most recent year for which the source data are available)4
As we have mentioned in past notes, there are some areas of the economy that we find encouraging. There are also some negative winds blowing. I just finished the Berkshire Hathaway annual report, as I have done for the last 20 years. To quote Warren Buffett, “ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.” We will continue to bring you our thoughts on issues that matter to you and your accounts. We thank you for your continued support and will continue to be a sounding board you can count on.
P.S. Please don’t forget to “spring forward” as daylight saving will begin on March 12.
Morgan R. Christen, CFA, CFP®, MBA
Chief Executive Officer
* Past performance is not a guarantee of future results. Stock is the capital raised by a corporation through the issue of shares entitling holders to an ownership interest of the corporation. Treasury securities are negotiable debt issued by the United States Department of the Treasury. They are backed by the government’s full faith and credit and are exempt from state and local taxes. The indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results, and there is always the risk that an investor may lose money. Diversification neither assures a profit nor guarantees against loss in a declining market. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice. 1https://wallethub.com/blog/march-madness-statistics/11016/ 2 http://www.cnbc.com/2016/09/20/us-companies-are-hoarding-2-and-a-half-trillion-dollars-in-cash-overseas.html 3 NFIB Small Business Economic Trends. January 2017, William C. Dunkelberg and Holly Wade 4 http://sbecouncil.org/about-us/facts-and-data/ 5 http://statisticstimes.com/economy/countries-by-projected-gdp.php</span?