US Tax Reform & Cryptocurrencies – December 4, 2017

hello it's Jonathan Wellum of rock link investment partners and it's December the 4th 2017 it's hard to believe but we're almost through 2017 now there's two large areas I want to speak about today and that will be the US tax cuts that you're hearing quite a bit about and then in the second place I want to talk about Bitcoin or more specifically crypto currencies and so on the slide in front of you now I'm sort of giving you the four points that we'll cover in terms of big headings that are going to be they're sort of the details of today's presentation that'll be the proposed US tax cuts the rise of crypto currencies the pros and cons of crypto currencies along then with Roc links crypto position so on the next slide I just want to say a couple things about US tax cuts you can see here that what's being proposed at this point is a corporate tax cut from 35% down to 20% now there's some talk that that might go back up to 22 but you're talking here about a substantial tax cut for US corporations particularly small to midsize corporations who don't have the luxury of all it all of the tax planning is some of the large multinationals have already been doing and so their tax rates actually are quite a bit lower than 35% already but for a lot of domestic companies their tax rates are quite high and this is gonna have a dramatic impact we should see overall in terms of the S&P 500 over 10 percent increase in earnings next year if this actually goes through which is a substantial increase in earnings simply as a result of tax cut there's also a 1 times tax cut on a overseas repatriation of earnings and that'll be 14 and a half percent so there's a lot of multinational corporations that are a US base that have at this point the estimate close to 3 trillion dollars sure that is staying offshore because of the high tax rate in the US what Trump is proposing is that that tax would go from thirty five percent to fourteen and a half percent and so quite a bit of that money you would expect would come back to the US and that is obviously going to benefit those corporations and then you have a personal tax reduction in simplification which is always a net positive if you keep money out of the inept state if you will or the the coffers of the state where they typically waste taxpayers money now in the next slide we just talked a little bit more about these US tax cuts the big question of course is how much of the tax cut is already priced into stocks and I think quite a bit probably is so yes we're getting a jump in the stock market today but it wouldn't surprise me if we actually had the market come back a little bit because often you buy on rumors and sell on new so we'll see what happens also the impact of the tax cut on especially the corporate tax cut should be quite large across the world as companies will have more money multinational companies u.s. companies will have more money to invest in their business also to buy back stock and perhaps increase dividends the last point I have on the slide I just talked a little bit about the fact that Canada it should put more pressure on Canada to be careful about increasing taxes and if we if we continue to increase taxes and we continue to go the way that we have been going the last couple of years both provincially and federally this will be a disadvantage to Canadian companies so that's just a little bit about US tax changes let me speak now in regards to crypto currencies on the next slide we talk here about the rise of crypto s– what is a cryptocurrency is the is this really just a 21st century unicorn if you will something that's imaginary a fantasy or is it the money of the future and so let's to step back a second mean what is really the purpose of Bitcoin in the cryptocurrencies that you're hearing so much about in terms of the market well it's to develop a peer-to-peer electronic cash system a direct cash system between individuals and so the definition that I have on the slide in front of you is that cryptocurrency is supposed to be a medium of exchange it's created and stored electronically it's all digital in what they call the blockchain which is a distributive ledger so that the money isn't just in one spot or the Bitcoin is in one spot is distributed amongst digitally in the system and it's encrypted so there's a control over the Bitcoin or the cryptocurrency so there's a security protection if you will through encryption and therefore a part of that blockchain and the encryption is that you can go direct to direct to someone else and be assured that they actually have what you're looking for and so you can do this exchange and protect yourself so that you're getting in the exchange what you are intending to get in other words what you've transacted the bitcoin is the first cryptocurrency and that was actually created back in 2009 now in the next slide I just point out a couple things about crypto currencies first of all there really is no intrinsic value in the sense that they cannot be redeemable for another commodity ie gold as an example they have no physical form and exists only in a digital network as we've talked about the blockchain and their supply is not fixed by a central bank but controlled by the system if you will control by the founder or the person who originated or developed the particular cryptocurrency and the network is completely decentralized and that's very important to understand when you're talking about these crypto currencies on the next slide I have an interesting observation from Caleb Chen who's an expert in the area of crypto and he says in the next few years were going to see national governments take large steps towards instituting a cashless society where people transact using centralized digital currencies and I agree that is the case that's what's exactly what's coming down the pipeline a cashless society using digital currencies and so what the founders of the cryptocurrencies are attempting to do is create a you know at the same time a parallel system of a medium of exchange that is completely decentralized and gets you around the state if you will around the state the different central banks creation of money and so on they would argue that as this whole digitization of money takes place that people are going to be more interested in Bitcoin in the cryptocurrencies than state-run currencies because of all of the problems you have with fiat currency in the fact that you can't trust governments and so forth I would suggest though that that's assuming that you can have full confidence and full trust in the crypto currencies which is a step of faith also but this is this is an important quote that Caleb gives us because it gives you a sense of their thought process in terms of offering the crypto currencies now in the next slides a couple slides are really talked about the pros and cons of crypto currencies and again this is really just a distillation of of our thought process here so on the first slide we talked about the pros of crypto currencies and so yes direct peer-to-peer electronic cash payment it's very powerful it's irreversible you can do it without anybody knowing who they're transacting with it's fast in its global second you bypass the banking system in the central bank's as I said before it's a separation of money in the state I actually like that I think that's a great idea the state controls too much of our monetary system and it doesn't working isn't working out that well third you get around the use of depreciating fiat currencies which are built to lose value all of the paper currencies of Governments the fiat currencies that we have are all programmed actually the lose value as a result of printing them and creating inflation I mean the ultimate goal most governs is two to three percent inflation so by definition they're depreciating your currency and in extreme cases like Venezuela or Zimbabwe or you could talk about Nigeria you talk about South Africa Brazil all sorts of countries around the world a lot of people in those countries would much rather have a cryptocurrency than their own national currency and so this is a probe and then there's the promise of a fixed supply that within each currents cryptocurrency there's only so much and that's it they don't create anymore so that is a as a pro also and then the last point v owners of these crypto currencies are typically not spending them they're hoarding them and therefore if someone else wants to buy them they're actually spiking the price of the crypto currencies and that's why you've seen such massive uptick in some of these crypto currencies now on the next slide there's there's also cons as you would expect when it comes to any new technology and so I've listed some of the cons first the volatility is extremely high it's impossible to value in any traditional manner and that makes them difficult to to value and put into a portfolio they're digital they could be open to hacking yes there's a lot of security around them but that doesn't mean they're good they can't be hacked you could lose them there's significant use by criminals and money launderers most of the people using the crypto currencies are just honest ethical people but there's no question that there is a an unseemly group of people that do use the crypto currencies increasing number of crypto currencies entering the market so there's the proliferation of crypto currencies which can add to a dilution if you will over time even if the individual crypto currencies are maintaining your supply you can get you know more and more hitting the market in terms of new types of currencies and new individuals try to cash in on success and then the last one is really increasing government regulations and oversight I think our it you know is on the way in fact governments have mentioned that they will be doing more oversight and watching the cryptocurrencies and and this this could include the launch of their own crypto currencies some of the governments and central banks have talked about launching their own crypto currencies so those are some of the cons now Rock links view the next couple of slides is why chocolate bubble rock links view first of all we want to stay true to our investment philosophy we're not speculators or long-term investors cryptos are difficult to value and they're very volatile for investors portfolios and we're not trying to make a prediction of the future price of any crypto currencies what we're saying is it's almost impossible for us to value them and to know what the future has for these various crypto currencies and and that concerns us as long-term investors and certainly as individuals that are stewards of your capital currently we do not understand them enough to buy them there's just too many unknowns including pending regulation and the drive and the parts of the government a governments all around the world to legislate and control all aspects of not just cryptos but our lives including even our thoughts and our beliefs if you're really following the news you're hearing more and more about government's trying to control more and more of our lives and I'm going to give you a quote in a second that I think exemplifies the view of people who are supportive of kryptos but I just cannot see a future where the government is not going to have its meat hooks all over crypto currencies and include anything that is being transmitted digit digitally and then the last point it just say here's Western civilization overall is in decline and with it many freedoms and freedom of speech and freedom to to transact directly and governments want more and more control over everything that we do now I make those points because in the next slide as we just finish up this presentation there's a very important quote by Laura shin in terms of the crypto currencies and I've entitled this you know death of free speech is that not what we're already seeing today now if you look at this quote from Laura Shin I think it's very important I mean I wish it were true and I wish Laura was correct but I'm gonna disagree with her overall assumption which is behind this statement and so let me just go through this statement quickly I think it's very important in terms of understanding crypto currencies and in this case she's talking about Bitcoin is one of those crypto currencies what bitcoin did is it turned code computer code into money so bitcoin is pure code there's no paper there's no gun guns there's no federal government it's just pure code so to stop Bitcoin you've got to stop code and code is actually just speech it's just a bunch of numbers and letters that I write down and that the computer interprets so you have to stop me from writing those numbers or letters down in a certain sequence and conveying them to other people and to stop them from loading it on a computer somewhere in the world and to stop someone else from them turning that that into money so you can't control the way money flows unless you can stop the developers from talking to each other and thinking and the regime that could do that would probably be one of the evilest regimes on the planet now listen we live today in Canada in the Western world in a situation where in fact the government is overreaching in every different sphere of our lives including our families our schools our churches our freedom of speech our religious freedoms and I think that Laura is incredibly naive to think that our governments already in the current forms aren't going to want to overreach and obscure the freedom of speech that she's talking about the freedom to move code back and forth in the form of Bitcoin I don't buy it we live in a country in Canada and Ontario here that if you disagree with the Ontario government in terms of your view of a family even the formation of a family and there are the areas of human sexuality the state now has the right to take your children right out of your family we have a federal government that if you're a Canadian you're concerned about Isis fighters returning to our own country and you call the government to task for not protecting our security we have a prime minister that actually labels you and he calls you Islamic phobia or he gives you a political identity in order to shut down your free speech and that's in Canada it's far worse in Europe it's obviously far worse than communist countries like China and in many of the African in South American countries and so to think that the government is just going to allow this to go on and that we don't already have evil regimes around the world already I think is very naive so let me just take you to the last slide what the wise man does at the beginning the fool does at the end be careful yes there's been a lot of money made in crypto currencies there's been a lot of money made in Bitcoin but I think the easy money has been made and so be careful if you're going to trot into the area on your own now NV is not a good investment strategy just because your neighbor can brag about some returns doesn't mean you have to make the same returns in the same asset be very careful about that we wish success to the crypto currencies if they diminish the influence of the corrupt state and central banks in their control over you know a failed monetary policy the world if cryptocurrencies can do that wonderful terrific we're all behind it but I'm highly suspect that that in the end won't take place and so I suggest again as we do in a lot of our portfolios by tangible assets that food can at least protect you from some of the erosion of purchasing power make sure you've got some money as we do in precious metals and some of the related securities that also benefit from price appreciation in precious metals they are cheap and we believe that they could go up quite a bit in a bad market situation so there's an update I hope it's helpful I hope it's thought-provoking for you if you have questions please do not hesitate to email or call or stop by our office for our clients thank you very much for listening bye now

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