It’s Almost Like They Never Heard of Capital Gains Taxes

I was talking with a friend about the current state of the stock market. And in particular, the insanity in late December over the sell-off. See the image for an overview. (Clicking on it will enlarge the view, as always.) More on the image in a bit.

But of course the Left and the media (but I repeat myself) were HOPING for a stock market collapse. Because they were hoping that it would help them take out Trump.

Now we may be at the start of a Bear Market, or we may be near the end of a correction. But I guarantee that no one in the media knows what is coming next. If they could predict the future, they would have make a fortune already and be sitting on a beach somewhere. But let’s take a look at the December insanity.

I could make that list much longer of course, but you get the point.

One of the other sources I reviewed for that list (I forget which) said something like “It’s been a party for 5 years on the stock market.” Which is pretty much true, and it is why when November’s downturn hit, (Now is a good time to view that image) everyone who manages their own portfolio, and every financial planner and fund manager started looking at the question, “Are there any stocks where I want to take my profits?” and in mid-to-late December the question became “Is there anywhere I want to take a loss for tax purposes?” You know (or maybe you don’t), capital gains taxes also talk about capital losses.

It’s almost as if no one working in the media has ever paid attention to the stock market. Or the business cycle. Or taxes. Or anything. There is an entire investment strategy around looking for stocks that are ripe for tax sales, and then buying them between Christmas and the first week in January. Because if they were sold based on taxes, they will likely rebound. (Make sure they weren’t sold for fundamental reasons, or you could be part of the Dead Cat Bounce.)

But of course 99.9 percent of the coverage the stock market in December and January, wasn’t about informing the investing public, it was about destroying Trump, because even by December the “Russia! Russia! Russia!” attacks weren’t looking so good.

As I said at the start, I don’t know if this is the start of a bear market, or the end of a correction. When I look at things like housing sales and freight numbers, things look good to me, but I can’t predict the future. The point is, neither can any of the talking heads on the 24 hour news cycle.

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Why is it that people have the memory of gnats?

Forget that they don’t remember the drubbing that the Democratic Party took in the 2010 mid-term elections, but they don’t remember the really important stuff – stuff that has to do with money. I just don’t get that.

Of course it probably doesn’t help that the media doesn’t so much report on the financial markets, as use them as a weapon to beat up anyone they don’t like. Mostly because they too have the memories of gnats, and they don’t understand enough math to balance their check books, let alone explain the derivatives market.

So along about the 2nd or 3rd week in December, the media, and the sheep that follow them looked at the Dow Jones Industrial Average – it is the only measure of the markets they know without looking – and saw this big dip. Why was this happening? “It’s all Trump’s fault!” (Pay no attention to what the Fed is doing to interest rates. The Fed really is “the man behind the curtain.”) They don’t know what a correction is. They don’t know what tax selling is – because they don’t do it. (If all your investments are in mutual funds, you have no control over your taxes.)

Click the image for a larger view, and you can find up to the minute info on the Dow 30 at this link. (Well, it is probably actually delayed 15 minutes when the markets are open.)

But people who actually manage portfolios – their own, or other peoples – looked at what was happening, considered the lessons of history, and decided to cut losses and save on taxes. From the view of those ignorant of history (or at least of the history of financial markets), the last week of December must have looked like the end of the world. It wasn’t the end of the world. By selling anything you had at a loss, you can impact your taxes. (While I’m not a tax person or an investment advisor, my understanding is that an uninsured loss – like a capital loss – can be carried forward as much as 3 years. I do know you can write it off in the year in question.) So cutting your losses in a down year, can make sense. I think – though am not sure – there is a minimum time you have to wait before buying the stock back, but I usually sell stock that have lost faith in.

So if the end of December looked like the end of the world, what does the middle of January look like? Sure, we are still in a correction, and maybe it is the start of a bull market, but if you only look at the Year-to-Date numbers, the markets look pretty damn good.

‡ A Quiz on the history of markets and investing after the break.

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