Today, Paul and Evan talk about both the outcome of last week’s election and the workshop Paul hosted on that Thursday. The two big questions on many people’s minds are: “How did this happen?” and “How is this going to affect my retirement and markets?” Paul and Evan cover the Democrats’ tax policies, if markets can keep going up, and how the outcome may affect Bitcoin.
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Paul Winkler: All right, welcome. Did something happen this week? I’m just thinking something … That was a big week. I don’t know why.
Evan Barnard: I gained four pounds of muscle mass since my last weigh-in.
PW: There you go. Look at you. Did you really?
EB: Yeah.
PW: Seriously?
EB: Yeah.
PW: Four pounds? How do you know how much of it was muscle?
EB: Oh, well they like skeletal muscle mass and percent body fat and whatever scan that they’re using on me.
PW: They do the immersion?
EB: Yeah.
PW: Congrats, man.
EB: Still got to lose some around the gut, though, so I still got to go.
PW: How do you do that? Man, how do you do that while still eating french fries?
EB: The doughnuts and fries make it harder, I got to tell you.
PW: You brought us all ice cream this afternoon.
Jeff Malinoff: I know, I know. What is that all about?
PW: We got to lose the belly fat. Wait, let me just take some ice cream first.
JM: He’s just trying to buy us, and I’m sold. I’m sold.
EB: Hauling all the compost around the farm counteracts all that stuff.
PW: Yeah, there you go. There you go. There you go. Eat less, move more.
EB: There you go.
PW: Or eat the same amount and move more and it’ll still work.
EB: Pray for the election to go the right way.
PW: So again, I have no clue what the right way is. I really don’t.
EB: You weenie. Come on, take a stand.
PW: Take a stand? That’s dangerous. Because I always say the markets go up regardless of which party wins.
JM: Can we make those quotes?
EB: That’s true.
JM: Just have a picture of him with a black and white photo underneath, “Pick a side, you weenie.”
PW: Well, see, basically what I did in the workshop I taught this week is I was very cryptic. I said either side and the stock market goes up.
I said, “And it may be because earnings are expected to go up, and it may be because expenses, like everybody getting fired, happens.” But joking aside, it was a super, super interesting week for that reason. I loved being out with all the people, all of the WTN folks on Tuesday evening.
EB: Yeah. That was a great group.
PW: Yeah, wasn’t that fun?
EB: Yeah. I enjoyed it.
PW: Speaking of weenies, I stayed there till midnight.
EB: I know. I’m still recovering, though. I had more to drink than you did.
PW: Which is nothing on my part, just for the record. Oh, man.
So yeah, I taught a workshop on this, and I thought I would cover a couple things that I did in my post-election workshop, because I think there are a few people out in the listening audience that probably weren’t on there. A lot of you, unfortunately.
But yeah, so if we look at what happened, there are a couple of big areas to discuss. I had a client of mine, Evan, and he’s very worried about the stock market.
And he goes, “I’m worried about this, I’m worried about that. What do you think?” And he said, “I know what you’re going to say in this workshop.”
He shot me an email, and it was an email responding to my workshop invitation. “I know what you’re going to say, and it’s going to be that the market’s going to go up regardless of who’s in there, blah, blah, blah.”
And I said, “No, you don’t know what I’m going to say. Because no, no, no, no, no.” That’s actually not even what I started with in the workshop.
And it was. It really was.
PW: So we look at that, and then I did talk about markets obviously, but if you look at the way our tax system works, people really get this screwed up. They don’t really know how the tax system works, for the most part. I’ll hear people say, “You’re going to be driven into a higher tax bracket if you do this.”
And I’m like, “So? Yeah.” And they’re like, “Why do you not care?”
Because it’s a graduated tax system, and your first income is going to be taxed at basically zero because you got a standard deduction. Then your later income, your next $11,000 of income approximately if you’re single, and the next $23,000 if you’re married, is going to be taxed at 10%. And then you’ll have some income, the next about $36,000, at 12% if you’re single, and it’s approximately the next $71,000 that’s going to be taxed at 12% if you’re married.
So what was going to happen, and this is where people are missing this in the commentary out there, is that at the end of 2025, you have that sunsetting, that whole thing. And right now, you got a 10% tax. Well, that was going to remain 10, but your 12% was going to go to 15, and then your 22 and 24 was going to go to 25.
And you look at that, you got 3% change, another 4% change, at the next bracket level, there’s 1% change, and the 35% tax bracket wasn’t going to change. And then you got the 37 to 39.6, so it’s going to be a 2.6% change right there.
You look at that and go, “Well, who was affected a lot?” Lower-income people.
EB: Yeah, just thinking about the percentage of the bracket itself.
PW: Sure.
EB: Lower-income people are seeing a 25% increase in their tax.
PW: Wow.
EB: If you’re going from 12 to 15, that’s a 25% increase in the tax you’re paying.
PW: Yeah, yeah. That’s a good way of looking at it.
EB: That’s a big number if you’re squeaking by already.
PW: It is a big number. It is a big number. So that was a big deal, and you can’t overemphasize how big of a deal that was.
PW: The other big deal, and this is something I talked a lot about, Evan, was, I don’t know about you, but I see a lot of attorneys doing workshops. And I’ve talked to several of them, and what they’re doing is trying to get people to do trust work in order to avoid estate taxes.
They were doing a lot of this work with just absolute certainty that our estate tax was going to drop, the exemption was going to drop significantly. And I told a story in the workshop about an attorney that I had a conversation with.
Highly skilled, highly educated, and I’ll never forget this conversation. He was getting out, he said, “I’m leaving.”
I’m like, “You’re not going to do estate planning anymore?” And he goes, “No.” And I said, “Well, why?”
And he goes, “I can’t get people to act on the information or act on the plans I come up with. I come up with these detailed documents and they won’t act on it.” And I said, “Yeah, why? Because it’s irrevocable?”
That irrevocable word just scares you a little bit. “Yeah, I’m going to cut off my arm. I can’t sew it back on.”
EB: Right, right.
PW: That is scary.
EB: God bless them, the ones that have stayed in and continue to provide the stability and clarity and all when someone passes away that wouldn’t be paying estate tax anyway, because there’s still a ton that you should work with an attorney on.
PW: Absolutely.
EB: But when you have the limit for federal estate taxes to start at $22 million and change for a couple, that’s a really small market.
PW: Right, right, right, right.
EB: When the rubber hits the road, that’s not a lot of people.
PW: Yeah, if you aggregate the two. So yeah, you go right now and it’s $13,990,000 I think next year is what it’s going to be.
But basically, yeah, portability is something you can take, both people can use that. And I talked a little bit about that, how it used to be you had to do gymnastics to get both of the exemptions.
But yeah, it is a really small group of people. But you get down to less than a $6 million exemption, and now you’re talking about a lot of people being caught.
EB: Oh, absolutely.
PW: Business owners, people that own farms, people that own any kind of property. Life insurance was actually added into that, so if you had life insurance that stayed in your estate, you had that issue.
EB: Or a house in Williamson County.
PW: Yeah, well, good point.
EB: If you own your home.
PW: Good point. Yeah, no question. So there are a lot of people that are going to be subject to those estate taxes.
So the situation is that we could very likely end up extending that because that’s one of the things that Trump wanted to do is to make those tax cuts permanent. So for that reason, I think it’s just a big win for everybody. I try not to take sides, but I’m going to take sides on this tax issue.
PW: I played a video from Art Laffer, and I’ve been told that Art might have a place in this administration coming up.
EB: I was going to say that if you didn’t already know.
PW: All right. I did, I did, I did. Yeah.
So you look at that, and you have a situation where all of a sudden now he’s back involved. Well, for those of you who don’t know who he is, he was Reagan’s economic advisor. He was largely given credit for the big boom in the 1980s, even though we hear that the debt went up because Congress is in control of spending and they weren’t past trying to spend every extra amount of money that was coming in from tax revenue.
But there was a huge increase in revenue during the 1980s. And what happened with Laffer is he has been a strong advocate, has done research on tax policy all around the country, and if he gets in, you look at some of this stuff and you say, “Well, he is a really big advocate for reducing taxes all over the place.”
I explained the Laffer Curve, and he jokingly talks about it that it’s his belly. The Laffer curve is his belly.
EB: That’s the Barnard curve now.
PW: That’s the Barnard curve. Hey, it’s coming down, though. It’s coming down. That’s a good thing.
“Everybody believes it, everybody knows it.” No, no, I can’t do it right. I am not going to ever pass as Trump. “Everybody loves it.”
EB: It’s a beautiful curve. It’s huge.
PW:
And the reason being is for several reasons, number one, people who weren’t paying taxes would come out of the woodwork. Number two, property that was sitting on the sidelines and nobody wanted to sell, they might sell because the tax rate was reasonable enough to go and take the hit and just move on and move it to something else. And I think it’s a great thing because so often, I don’t know about you, Evan, but I see — well, I know you do — but you see people hanging on to individual stocks.
EB: Yes. Or funds, frankly.
PW: Or funds. And just going, “I’m just going to sit there with this stinky portfolio just because I don’t want to pay taxes on it.” And that’s a problem.
EB: It is. And it’s not a perfect analogy for sure, but we talk about the velocity of money and the more money circulates throughout the economy, the more things are being produced.
And if capital is tied up in a company that really doesn’t deserve the capital, but it just sits there, it could be put to a better use. But people just don’t because they don’t want to pay the freight.
PW: Yeah. And government taxation is also something that affects that because it takes money out of circulation. And the government, they’re far less efficient at putting capital to work.
PW: So you look at that and you go, “Okay, there are a lot of reasons that we want the capital gains taxes to come down.” And I explained that capital gains tax is basically a tax on inflation.
So I buy a blank piece of property for $100,000, it goes up to $300,000. I got $200,000 of gain, and I pay taxes on it. Well, why did it move from $100,000 to $300,000? It moved from 100 to 300 because of inflation.
So that’s one thing I talked about. Another thing that I talked a little bit about is why the U.S. is so stinking successful. Because I hear people say, I saw something, “This has been a great economy. Look how much better we are than every other country around the world.”
And I was going, “It’s like trying to compare a major track star, and compare that major track star to somebody trying to run track against them on crutches.” Yeah, we’re so much better than other countries, we’re not screwing things up as badly as other countries are.
So if you look at government revenue as a percentage of GDP, in the United States, it’s high, it’s 29%. So that’s a lot of money going to the government out of our GDP. But look at Japan, we’re 29, they’re 37.
EB: I think France was 50. Or close to it.
PW: France is over 50. Yeah, no, you’re exactly right, Evan, it was 52. And then you’ve got the United Kingdom at 39, you’ve got Canada at 42.
So yeah, we’re better than them from an economic standpoint, but if you look at the level of regulation over there, it’s awful compared to our regulation. And our regulation’s getting bad, so that’d be something we could fix.
But the economists basically pointed out that we’re the envy of the world. And I’m going, “Yeah, you know why we’re the envy of the world?”
And it amazes me that they still don’t get it. They were actually pushing for Kamala, the economists, in a big way.
EB: Well, 65 Nobel Prize-winning economists anyway, or whatever award-winning economists.
PW: Well, I’m just saying, if you look at it. And yes, it tells you sometimes. That’s why I back off sometimes when I’m talking about Nobel Prize-winning research. I should say Nobel Prize-winning research that actually makes sense is what we apply.
EB: Right. Right.
PW: The other stuff, no way. Because you have stuff that wins Nobel Prizes and I go, “What for? I don’t get it.” But anyway, so that was one thing.
PW: Then I talked about the different presidencies and how the markets went up, and I talked about why that was the case, because you can either reduce expenses or you can increase sales. And the other thing I talked a little bit about is that it’s interesting if you look back over the past, what? I guess, oh my goodness, is it really?
It is, it’s like 20 years. Time flies.
I can’t believe it, I wasn’t even just thinking about how long of a period of time this was. But in ’08, you had Obama take over after the economic crisis of ’08, and then you had Biden take over in the COVID recovery, so you have that period of time.
Now Trump is taking over after four years of — there wasn’t a recession — we came out and we had revenge spending is what it was called. And people were in hiding for so long that once they got out of the COVID isolation, they couldn’t wait to go spend money.
EB: Especially those big checks that they got in the mail.
PW: Well, that didn’t hurt, either. Yeah, good point, Evan. Yeah, that didn’t hurt either.
EB: “Hey, let’s get a TV.”
PW: Yeah. So yeah, you had this four years of recovery. And the question I asked is, can markets still keep going up? And my point was, it depends.
Now, we look around, and I’m going to get into this a lot more later because this is really cool stuff. But if you look at what’s going on right now, you have large U.S. stocks selling for well over $4 for every dollar of assets of the company. Historically, that’s the neighborhood of 2.4 to 2.6.
And I’m not saying it’s overvalued or it’s going to crash down, you just don’t know. But you look at the next closest asset class at $2. That’s it.
Large value stocks are the next closest asset class, and then you got small companies under $2, and you got some microcaps, and you’ve got large international selling for just over $1.50. Emerging markets are under $1.50, international small companies are just barely over $1, and U.S. small value are just over $1.
Then the emerging market is small, and then you got international, and you got some asset categories selling for 81 cents on the dollar.
EB: Right.
PW: So I think it’s a bad question to ask. Because that was a topic of conversation on CNBC. So that was interesting.
PW: Then I talked a little bit about diversification, and I went through major fund companies. I went through the portfolios of Fidelity and Vanguard and the diversified portfolios, the ones that they put together, of John Hancock and Voya.
I showed how they just simply weren’t diversified. And I said, “That is a big issue.” And then of course, do you notice what happened the day after the election with gold?
EB: I was looking at small value so closely I didn’t pay attention to gold.
PW: Yeah, it was like small value’s up 6%.
EB: Six or seven percent in a day.
PW: Yeah, exactly. And then you see, but gold went down five.
EB: Yeah.
PW: So you go, “Well, why would that be?” And I said it was a risk trade.
You think about how central banks around the world have been purchasing gold and what’s been driving it up? Well, you think about it, why would you as a central bank in another country around the world buy more gold? Well, if you got Russia blowing up on Ukraine, and then you got North Korea …
EB: Supplying troops now.
PW: Yeah, going and doing what they’re up to in China. And as I was telling you, Evan, literally you have military bases that were used in World War II that had basically grown over into glorified jungles being cleared out to actually deal with the issue with China going into Taiwan.
And then you go, “Well, no wonder. No wonder they’re doing that.” Right?
EB: Right.
PW: So there’s a slot to talk about. We’ll continue on this line because there are a few other things I want to share with you, but I don’t want to go too far over on this break here. I am Paul Winkler, he is Evan Barnard. We’re going to take a quick break and be right back after this.
PW: So you know what? Another thing that I covered in the workshop, that I think is really pertinent, is I was talking about Bitcoin versus stocks over the past three years. And I show how the return of Bitcoin — and it’s not an investment, but it can go up and down in value — is actually less than a lot of different asset categories.
Like small value stocks, the return was lower than that. In large U.S. stocks and large value stocks, the return was actually lower. And the reason I chose that timeframe was because, why is it that Bitcoin took this jump after the election?
EB: Well, they’re thinking that Trump policies are going to either, well, for one, I think it’s easier for them to trade. They’re thinking SEC rules are going to be relaxed a little bit.
PW: Right, they’re going to legitimize it.
EB: And more people are going to buy into it. And it’s a supply-and-demand story.
PW: Yeah, legitimize it. No question about that. Exactly. Right.
So what I did is I chose that particular time horizon because Eric Adams, New York City Mayor, actually decided that he wanted to have his pay in Bitcoin three years ago.
JM: Oh wow.
PW: Yeah.
JM: Well, at least he’s committed.
PW: Yeah, exactly. So I chose that timeframe just to make the point that just because somebody legitimizes something, and well, you could say, well, there’s a difference between a mayor legitimizing and a president legitimizing it.
The example I gave is, if I had something that was paying 4%, a treasury bill that was paying 4%, and it was paying $4,000 a year, what would I pay to buy the whole, the investment? What would I pay for that if I knew something paid 4%, and it’s going to pay $4,000 a year, what would I pay for it?
PW: I know I can come up with the answer just like BAM, just like that, a hundred thousand dollars. Because 4% of a hundred thousand dollars is 4,000.
So I can tell you exactly what that thing’s worth. I can tell you what a large value stock is worth because I know large value stocks have more risk than growth companies.
So it has a higher expected return, is what we call it. Then the asset usually sells for 10 times earnings.
If I’ve got a company with a billion dollars of earnings, I can tell you that the company, if it’s selling for historic norms, is worth 10 billion. It sells one for 10, and it’s 1 billion of earnings, 10 billion. So I can tell you that.
Then the issue is that, well, why do I know the value? And I didn’t use this example, but if real estate, you got a piece of real estate that nets seven, or let’s say it nets $14,000 to make it a little bit more realistic, probably more, $21,000 would be even more realistic. Let’s say I’ve got something as $21,000 is the net rent that I get on that.
Okay. Now, if I know that rent typically nets out at about 7% of value, what’s the whole property worth? And the answer would be $300,000. I could tell you what it’s worth, because I can back into it based on the cash flow.
Whatever somebody is going to pay you for it, right? I mean, gee, there’s nothing risky about that, is there? What are they going to pay me for it? And so that’s one thing.
PW: So we had an analysis of a portfolio, a totally different topic. And I switched topics at that point in the workshop, and I said, so somebody, actually, an ordinary client of ours who I am completely indebted to for this one, went and had our portfolio analyzed.
JM: Oh, that’s right.
PW: I told you about this happening.
JM: Yeah, yeah.
PW: Jeff, you’re going to get a kick out of this one. So this guy goes and has our portfolio analyzed. And he goes, “Don’t worry, I’m not going to move over to them. I just had them analyze the portfolio because they offered to do a tax analysis, and all of this stuff.”
So they do an analysis. The look on Jeff’s face.
JM: I know where this is going.
PW: I know you know where it’s going.
JM: When someone says, “I’m not going to do X.”
PW: I will not say names, okay? So I just want you to get this point because it’s not just them, it’s all over the place.
JM: It’s everybody. That’s right.
PW: I see tons of TV commercials on this. I hear lots of radio commercials on this. It’s not just there. I see all kinds of stuff on it.
Here’s what they did. “We’re going to analyze your portfolio.” A, they overstated our expenses by like 50%. It was just stupid high.
JM: 50%?
PW: Yeah, it was just stupid high.
JM: It’s an absurd number.
PW: It is, sir. But that’s what you do when you don’t figure anybody’s going to check off on you. Then what they did is this. Here’s the thing that really got me, because you have so many different firms doing this.
JM: Yeah.
PW: They looked at it, and they told our client, “We’re doing a tax analysis,” and they said, “You need to immediately convert your IRA to a Roth IRA.”
JM: Oh my gosh.
PW: Now there’s only one huge problem here. Well, more than one. Yeah.
JM: 300 grand.
PW: Yeah. That means that his $900,000 IRA was going to be whittled down to less than $600,000 immediately.
JM: Wow.
PW: Now, I took the example of let’s say the guy was going to retire in 15 years. Now the $900,000, if you had an 8% return, was going to grow to just shy of 2, 3 million. So it’s 2.8 million.
Now, you take a distribution off of that every year. Your distribution would be about $114,000. And at $114,000, your tax is going to be at a 14.8% rate, versus over a third of your money going to taxes right away.
And I said, “What could possibly go wrong with this?” Well, what could possibly go wrong with this is you have Musk running around there. Who knows if this is going to happen? You know where I’m going, right?
JM: I’m not sure.
EB: Does he have the sink with him?
PW: Does he have what?
EB: The sink with him? Do you remember when he first bought Twitter and he walked into Twitter with the sink?
PW: No.
EB: You don’t remember this?
PW: No.
EB: Oh, I have to show you this. When we go to break I’m going to show you this.
PW: All right. All right. So he’s basically walking around going, “I’ve heard those retired people should be completely tax-exempt.”
He says, “They’ve paid their dues already.” And then you’ve got Trump saying, more publicly, that we should talk about eliminating income tax and social security payments.
And you go, well, what would that be like? If all of a sudden the federal government gets a big windfall from somebody that pays taxes prematurely on an IRA like this all at once? And it literally said in there, at once, immediately. To do this.
EB: Gosh. Wow.
PW: It said that in the analysis.
EB: Right?
JM: They still have bills to pay next year.
PW: Heck yeah.
PW: There was a lady on CNBC yesterday. And she was advocating for a consumption tax. Which I’ve been talking about for a long time here on the station.
So literally, it was one of those situations where you just go — shaking my head, SMH, shaking my head — what on earth are you thinking having people do this? And I’m seeing commercials all over the place. “You can have a tax-free retirement. You can have it.”
EB: Yeah, yeah.
PW: I’m going, at what price?
But you see it all the time.
EB: Yeah. Well, you talk about this frequently on the show, and we talk about it with clients all the time. There’s a difference between the effective tax rate, because here a lot of times people want to contribute to Roth IRAs. Let’s just say that they don’t have 900,000, they’re funding this thing.
PW: Sure.
EB: But you’re deducting at your highest bracket if you fund a traditional 401k or IRA. You’re spending at your effective tax rate. And even if rates go up a little bit, as to your point, it’s only that last dollar in your effective rate that’s still very likely going to be lower than your bracket today.
PW: Because of the graduated tax system that we’re under. And I’m telling you, I can’t tell you how many financial advisors over the years have done this. And I remember being at a conference in Washington, D.C., and there was a room full of people, they were so excited to be in this that they literally waited in line, and they ran in to get front-row seats to this guy that was going to be teaching.
And he taught basically this flat rate that you’d be at in the future. And just misrepresented the tax code.
EB: Wow.
PW: And this guy was like the guru. And we flew to Washington, D.C. and I was disgusted. I just get so frustrated. It’s people that should know better.
EB: It’s like Andy Rooney. You know what I don’t like?
PW: There you go. Bring back Andy Rooney. He and I will have a show together.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
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