As I suspected, the events of Monday were isolated to Monday. Underwhelming housing data was offset by better than expected consumer confidence data, so we can call it an economic draw. Despite that, homebuilders stocks rose and retail stock declined, on average. Biotech stocks seemed to find some support, as did the NASDAQ in general.
Yesterday the IRS issued an interesting bulletin with guidance as to the treatment of Bitcoin transactions. Quoting from the IRS notice:
…. virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:
- Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
- Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
- The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
- A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
This is all fine and dandy, and makes economic sense. However, it opens up a whole new can of worms in terms of accounting, audit and enforcement. By the way, the other day some 200,000 of the missing Mt. Gox Bitcoins were mysteriously found. How can anyone trust cyber currency? This is becoming a modern day bucket shop.
Overnight, Asian markets showed some strength. Impact, if any from the Malaysian Air incident seems to have run its course. Other than Durable Goods Orders, a very volatile data series, today has very little to offer in terms of information flow domestically. For the most part, I think that it is time to do a little bit of spring cleaning and get portfolios prepared for the second quarter. I began to do so the other day and expect that other portfolio managers are in the process of doing so as well.
So how does one do some spring cleaning? Here are a few suggestions:
- Eliminate underperforming stocks that are dead money. Dead money stocks are those that have future potential but the future is further out than the next few months to a year. Recently I eliminated two dead money stocks: Ford Motor (F) and JetBlue (JBLU). The former was replaced by Red Hat (RHT) which reports tomorrow and the latter by Juniper Networks (JNPR)
- Trim down some outperformers. I did so in the last few weeks for Priceline (PCLN). This allowed me to reap some gains while holding onto the stock for the future.
- Refocus assets on sectors that should outperform in the next few months. I believe that will be financials, technology, healthcare and industrials.
Use what should be a boring Hump Day to weed and feed your portfolios. As always, feel free to contact me directly if you want to bounce some ideas my way or need a portfolio gardener.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long JNPR, PCLN & RHT — although positions can change at any time.
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