Capital Gain(e)s

As the election nears, one of the few and yet highly controversial policies lobbed out by the Harris campaign is this idea of taxing unrealized investment gains.

Given the title of my writings, it seems only requisite that I offer up some commentary on the matter.

I am not alone in suggesting this policy proposal is pure lunacy for myriad reasons…most notably the way in which it stymies demand for future investment and unfairly shifts the risk/return dynamic of making investments.

One angle that isn’t being talked about much is how taxing unrealized gains could impact the way in which the Fed makes interest rate decisions. For example, if interest rates are lowered that generally bodes well for rising asset prices (stocks, RE, long term bonds, etc). If assets gain in value then under a Harris policy this would create more tax revenue for the Federal Government.

Therefore you could have a potential conflict of interest and further politicize the actions of the Federal Reserve as our government would prefer rising asset prices to fund its growing debt load.

Alex Tabarrok has an interesting piece out that discusses this in a little more detail, and it’s definitely worth a read.

Personally, I’m not expending a lot of mental energy on this tax proposal because even if Harris wins the election I do not see this concept make it through the rounds in DC and becoming enacted.

Finally, here is what’s on my radar:

private equity

You may have read that the NFL is close to allowing private equity firms a shot at owning a piece of the league franchises. While the proposal does come with strict guidelines (teams can’t sell more than 10% of their equity and only a select group of firms can invest), it does open the door to fresh capital and potentially higher valuations.

When evaluating private equity investments for families I work for one of the first questions asked should be “how do I exit this investment?”. For NFL teams and these PE firms, this could become an interesting component.

NFL teams don’t transact very often, so this backdrop against the typical 5-10 year funds from PE firms will make exit liquidity intriguing. I’m sure there will be plenty of continuation funds set up to roll this team equity into, thereby creating elongated revenue streams for these asset managers. In addition, the low perceived volatility of these investments (because valuations aren’t marked every quarter right now) will make it a compelling addition to a portfolio. Lastly is who will the investor base be comprised of, since the NFL has rules around entity ownership. Letting PE firms have access to NFL teams brings in not only family offices but possibly endowments and pensions as well.

Will be interesting to watch this unfold.

macro

Inflation in moderation is a good thing. However, inflation without growth is essentially a death sentence. This chart by the popular Substack blogger Cremieux is wild:

What you’re seeing here is how the US would look if its GDP growth rate was 25bp, 50bp, 75bp and 100bp less than it has been historically. The short answer is we’d be in really bad shape (underperforming by just 1% a year the US would be effectively as poor as Mexico!).

This highlights why growth is so important especially when we are nowhere close to figuring out the inflation challenge. Stagflation on the other hand, is a killer.

bitcoin

Bitcoin evangelist & blogger Anthony Pompliano has a piece out highlighting the inflection point in Bitcoin’s sample size when it comes to trading hours.

He references the US Stock Market’s nexus of August 1971, the year Nixon went off the Gold Standard, as the effective starting date for US stock market trading. Since that date, there have been approximately 100,000 hours of trading.

Bitcoin, which has only been trading since 2010, has amassed almost 125,000 trading hours to date.

Why this is important is that Bitcoin is becoming a legitimate market for how investors express risk appetite and as more traders spend more and more hours using Bitcoin exchanges, this method of expression entrenches itself further in the overall global market ecosystem. This delta between the two markets will continue to grow exponentially as Bitcoin trades 24/7.

Additionally, Michael Saylor sat with some of the CNBC talking heads where he reiterated his views of Bitcoin but also touched on why its become the asset of first resort during global unrest….mainly because an investor can tap into its liquidity 24/7…

final ask…

I enjoy writing that if a million people read it, or 2 people read it that’s fine with me. I’m so thankful to see the engagement (open rates) and growth rate of my audience. If you do enjoy these writings, the greatest compliment one can receive is word-of-mouth. So if you have a friend you’d think might like my ramblings please pass along and encourage them to spend all of 3 seconds signing up. Thank you!

Clark Gaines focuses on alternative investment strategies at Almanack Investment Partners, and is based in Charleston, SC.

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