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Everyone has been following the tax bill in Washington DC.  Right now I want to focus like a laser on just one aspect of it.  One of our long time analysts (and now head trader) just summarized the opportunity nicely.  He said that this is the best opportunity for taking a loss that most of us have ever seen in our careers.  The corporate tax rate is about to drop from 35% to 21%.  That is a 40% reduction!  At best you have six business days to take advantage of this opportunity.  In reality it’s even less because markets will be getting thin and bids will fade next week.

If you have room to take losses in 2017 you can use the 34% tax bracket to your advantage when you sell at a loss, then the income on the reinvestment is only taxed at 20% going forward.

I know you have a lot of things going on at year end, and that the timing on the passage of this bill makes things inconvenient, but I need to let you know the shot clock is ticking on this opportunity.  You have only until year end to do the trades, and the market will get thinner the close we get to that point.

The deals getting done so far have been selling short agency paper with low yields, then reinvesting in MBS and Muni’s.  EVEN IF THE TAX BILL FAILS…many of these swaps still add value.

So this is just a “last call” so to speak to let everyone know that the window is fading to get these deals done.  If you have any questions or if you’d like us to run an analysis to show opportunities just let us know.  We’ll need a current copy of your bond accounting report to get things started.  If you’re on our bond accounting system or if you’ve already sent a current copy you won’t need to do anything other than let us know that you’d like to see if opportunities exist in your portfolio.

Will Taylor
Vining Sparks