The Investment Scientist

Archive for February 2017

Allow me to answer these questions by two charts. The first one comes from the website of Nobel Prize winner Robert Shiller. It shows that the current Shiller PE10 is at 29.14. It is right at the level reached just before the Great Depression, and already far higher than the level just before the previous stock market crash in 2008. However, it still has ways to go before it reaches the peak achieved during the dot com bubble.

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The second chart represents Shiller PE10 among global stock markets. It shows the relative valuation of stocks across the world. In this chart, US stocks are red hot and they are currently the most overvalued stocks in the world.
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LasScreen Shot 2017-02-01 at 2.12.53 PM.pngt week I attended a tax seminar organized by McLean Estate Planning Council. The keynote speaker was  a CPA and lobbyist for the AICPA on Capitol Hill. He is privy to Trump’s tax reform plan and a number of other Republican tax reform plans. These plans have a long way to go to become law, but the contour is taking shape  so I thought I would share what I learned with you in a few bullet points. Note that I bolded the parts that may be disadvantageous to taxpayers.
On personal income tax:
  • The number of tax brackets will be reduced from seven to three, and the top marginal income tax rate will be reduced from 39.6% to 33%.
  • Personal exemptions will be eliminated.
  • Standard deduction for married filing jointly will rise from $12,600 to $30,000.
  • Itemized deductions will be capped at $200,000 per household.
  • Mortgage interest deduction will be eliminated.
Overall, taxpayers will get a tax break. However, there are some taxpayers who will end up with a tax increase.These are folks with many dependents, who have a huge mortgage or who give a lot to charities.
On corporate income tax:
  • Tax rate will be reduced from 35% to 25%.

Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



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