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DOW 28256 for Friday 1-31-20

Previous close 28858. 52 wk high 29373. 52 wk low 24680. Today's low 28169. High 28813.

DOW 28989 for Friday 1-24-20

NASDAQ : 9150 ▼

S&P: 3225 ▼

Oil WTI : 51.61 ▼

Soybeans : 8.73 ▼

Stay safe out there and have a good weekend...

Abrupt Reversal Of Shale Oil's Fortunes Points To A Radical Reset Of Oil Prices

What changed?

Well, a week ago, WorldOil reported that Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB) said:

"U.S. shale oil fracking has already peaked and is in a period of sustained contraction."

"Halliburton cut 22% of its frack fleet last year, Schlumberger has already cut its fleet in half; it has no intention of bringing that equipment back into service."

You would have thought that Halliburton and Schlumberger, the two biggest pumpers in U.S. shale oil, might have a better idea of what's going on than EIA or Rystad Energy that have been predicting a rosy future for shale oil.

So anyone who was active before the price bust was likely making a spectacular profit, which could explain why operators piled in with such enthusiasm, and why, after the writing was on the wall, so many hung on for too long.

But most of that profit was on paper because the expensive new equipment that powered the first boom was bought on credit.

When the price dropped below $40 (with the helpful encouragement of OPEC), the liquidations started. Those who survived, and the big boys like Halliburton and Schlumberger, were able to buy hardly used frac spreads and the like for pennies.

What Is a Frac Spread?

A frac spread (or sometimes referred to as a frac fleet) is a set number of equipment that a pressure pumper (oil field service company) uses for hydraulic fracturing.

This includes a combination of fracturing pumps (also referred to as frac pumpers and/or pumping units), data trucks, storage tanks, chemical additive and hydration units, blenders and other equipment needed to perform a frac stimulation.

DOW 28858

Previous close 28734. 52 wk high 29373. 52 wk low 24680. Today's low 28489. High 28897.

NASDAQ : 9298▲

S&P: 3283 ▲

Oil WTI : 52.69 ▼

Soybeans : 8.76 ▼

DOW 28734

Previous close 28722. 52 wk high 29373. 52 wk low 24680. Today's low 28728. High 28944.

NASDAQ : 9275 ▲

S&P: 3273 ▼

Oil WTI : 53.09 ▼

Soybeans : 8.93 ▼

DOW 28722

Previous close 28535. 52 wk high 29373. 52 wk low 24504. Today's low 28575. High 28823.

NASDAQ : 9269 ▲

S&P: 3276 ▲

Oil WTI : 53.57 ▲

Soybeans : 8.96 ▼

DOW 28535

Previous close 28989. 52 wk high 29373. 52 wk low 24323. Today's low 28440. High 28671.

NASDAQ : 9139 ▼

S&P: 3243 ▼

Oil WTI : 52.90 ▼

Soybeans : 8.98 ▼

Trumps Tax Plan: Low Rate for Corporations, and for Companies Like His

President Trump plans to unveil a tax cut blueprint on Wednesday that would apply a vastly reduced, 15 percent business tax rate not only to corporations but also to companies that now pay taxes through the personal income tax code — from mom-and-pop businesses to his own real estate empire, according to several people briefed on the proposal.

Republicans are likely to embrace the plan’s centerpiece, substantial tax reductions for businesses large and small, even as they push back against the jettisoning of their border adjustment tax. The 15 percent rate would apply both to corporations, which now pay 35 percent, and to a broad range of firms known as pass-through entities — including hedge funds, real estate concerns like Mr. Trump’s and large partnerships — that currently pay taxes at individual rates, which top off at 39.6 percent. That hews closely to the proposal Mr. Trump championed during his campaign.

S-Corp vs. C-Corp: What’s Best for Your Business in 2018?

In the wake of the Tax Cuts and Jobs Act, business owners nationwide are looking closely at whether incorporating as an S corporation or a C corporation will offer a greater reduction in their tax burdens over the long haul. While C corporations pay corporate taxes to the IRS, S corporations don’t have any entity tax — rather, taxes are paid via individual returns. “An S corp does not have a legal responsibility to pay taxes on its own — the owners of the company pay taxes on their income,” explains Scott Greenberg, senior analyst with the Tax Foundation, an independent Washington, DC think tank.

The 2018 tax law was beneficial to both types of companies. Tax rates for C corporations were slashed from 35 percent down to 21 percent. (Their dividends are taxed again at the individual level, with a top rate of 23.8 percent, resulting in a top effective rate of 39.8 percent, but the timing of those dividends is at the company’s control. More on that in a moment.) S corporation owners may benefit from a 20 percent deduction of pass-through income, reducing their effective tax rates from 37 percent to 29.6 percent (subject to certain income, wage, and property limitations).

Another look at C corp. vs. S corp. in light of tax reform

The centerpiece of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, is the permanent flat 21% tax rate on C corporations it put into effect as of Jan. 1, 2018. Considering that the top individual tax rate was dropped only to 37% (from 39.6%), even with the addition of a 20% deduction for qualified business income (QBI) that can effectively lower the rate to 29.6%, many passthrough taxpayers may be interested in possibly changing their businesses into C corporations.

However, now that the dust has settled after the TCJA's enactment to allow a clearer view of the opportunities and pitfalls of tax planning, it seems far more advisable for many existing S corporations and partnerships to retain their pass through-entity status rather than converting.

Individual taxpayers with a married-filing-jointly status who use the standard deduction will not pay a rate as high as 21% until their adjusted gross income (AGI) reaches $402,500. Assume, alternatively, that all of their income is sourced from a Schedule K-1 from a nonservice business S corporation they own but do not work at, but many others do. This would allow them the full 20% shelter of the QBI deduction on all of their income. This means they would not reach the effective tax rate of 21% until they have over $808,000 of AGI. (In both cases, assume they have no other income and are not subject to the AMT.) Based on this alternative, the pool of businesses that would benefit from the 21% C corporation tax rate is much shallower. Even a comparison based on the marginal rather than the effective tax rate would conclude that converting to a C corporation would not produce a net tax savings at some income levels. The married-filing-jointly 22% bracket (the closest one to the corporate rate) ends at taxable income of $165,000, which leaves a reasonable amount of room to pick up income before any savings would result from being taxed as a C corporation.

To obtain the greatest tax benefit while limiting some of the risks described above, it is likely that using a C corporation in conjunction with a passthrough entity can offer the best of both worlds. Segregating business units such as sales and marketing in a C corporation might allow taxpayers to retain modest amounts of 21% taxable income while allowing for now-nondeductible expenses, such as client and prospect entertainment costs, to have a much lower tax cost. Perhaps portions of specified service limited liability companies (LLCs) could be owned by a C corporation (being careful of the excess accumulation of earnings) to reduce the passthrough-entity income to the members and allow them to qualify for the QBI deduction. In the right circumstances, a January fiscal year-end C corporation could own 50.1% of the LLC's profits and capital interests and force the LLC to report on the Jan. 31 fiscal year under Sec. 706(b)(4). This would not only reduce passthrough-entity income, but also create a natural tax deferral for the 49.9% still personally owned.

2019/2020 Private Equity Year-End Review and Outlook

Private equity is posting a strong finish to the decade, continuing the trend of the past several years. Fundraising remains healthy, and both terms and interest rates remain favorable to borrowers for leveraged deals. And while some Brexit-related uncertainty remains, the recent Conservative victory seems to be bringing that long-running drama to an end.

Global fundraising activity in 2019 has remained steady after the record-breaking levels achieved in recent years. With nearly $200 billion of capital raised through the third quarter, we expect this year’s total to match, if not exceed, the amount raised in 2018. While changing economic, political and regulatory landscapes may affect the private equity fundraising markets as we head into 2020, investor appetite generally remains strong, and so we anticipate this long-running fundraising strength to continue.

One of the most notable trends in the private equity fundraising space is the growing desire of investors to diversify their portfolios. LPs are expanding their mandates to include more jurisdictions and strategies. Sponsors are responding by diversifying their businesses both geographically and across asset classes, increasing the number of product lines they offer and pursuing new types of strategies. Over the past year, we saw multiple firms that historically focused on raising traditional buyout funds expand their businesses to include more specialized strategies, including infrastructure, emerging markets and growth equity. With many of the view that we are at or close to a market peak, we expect to see further diversification next year with firms increasingly pursuing distressed debt, special situations and credit strategies.

Collateralized Fund Obligations

The groundbreaking development in fund financing for 2019 was the growing use of collateralized fund obligations (CFOs) to help sponsors raise capital for their private funds. These structures are particularly appealing to insurance companies investing in funds on a risk-based capital-efficient basis. CFOs can be structured as investments in a diversified portfolio of funds or used in a single commingled fund. During 2019, we advised on several of these transactions, as sponsors and investors sought to find innovative and effective ways to structure investments in funds.

It Was A Dismal Year For Hedge Funds

It Was A Dismal Year For Hedge Funds: Here Are 2019's Fund Closures And Family-Office Conversions

All things considered, it wasn't a terrible year for hedge funds who unlike 2018, when the average hedge fund was down almost double digits on the year, are up roughly 10% YTD according to the latest Goldman hedge Fund Trend monitor

There was a glimmer of good news in November, when this dismal trend reversed and investors allocated $4.45 billion to the industry, easing industry fears that hedge fund outflows would match or surpass the $112 billion that was pulled from the industry in 2016, even though the November 2019 year to date outflows of $81.53 billion - more than twice the amount pulled for the whole of 2018 - were still a shock.

Confirming the ongoing revulsion toward highly paid active management, Bloomberg notes that the hedge fund industry continues to contract, and is now on track to record more closures than launches for a fifth straight year, a blow to a market that once minted millionaires at a heady pace. More than 4,000 hedge funds have been liquidated in the past five years, according to data compiled by Hedge Fund Research Inc.
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