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This is one of those “there but for the grace of God” stories, although it is not out of the question this tale may be quite germane and helpful to you in your lifetime: it has to do with the wash sale rule.
In case you are unacquainted with this bit of the tax code, it’s pretty easy to understand. Let me offer an example to illustrate its original intent. Let’s say you bought $50,000 of a stock which you intended to hold for a while. Unfortunately, the stock went to $40,000 in value, although you still had every intention to hang on to it. However, the end of the calendar year is approaching, so you decide to sell it, take the $10,000 loss for your taxes that year, and a few seconds later buy the stock back at almost exactly the same price. Thus, you still have the stock but you get to bank the loss straightaway.
Well, you can’t do that. You have to wait at least 30 days before you get back into the stock in order for the tax man to consider it a valid loss. Otherwise, the loss simply gets added back to the basis of your new purchase. In this specific instance, even though you spent $40,000 getting back into the stock, the $10,000 loss would be added to its basis, meaning whenever you sold it in the future, your cost basis would be $50,000. In other words, no harm, no foul. You don’t really make or lose anything, even though you don’t get to enjoy the loss like you intended. Doesn’t seem so bad, right?
Even just a couple of years ago, the notion that “blank check” companies (that is, publicly-traded shell corporations with no business, no revenue, no earnings, and no real purpose) would be one of the most popular vehicles for taking a company into the public markets would have been seen as laughable, if not scandalous. We live in wacky times, however, so Space Purpose Acquisition Corporations (SPAC) stocks have been all the rage.
Having seen what appears to be a very typical pattern among these stocks – – I would like to suggest a new definition to the acronym:
Scrutiny Precludes Ailing Corporations
Because any legitimately promising organization has to go through the travails of a lengthy road show and all the deep examination of investment banks and the buying public before they achieve what so few private companies achieve, which is to become a public-traded financial instrument. The “back door” that the SPAC provides allows sub-par companies to do the same thing without the discomfort of prying eyes.
Even today there is some pablum out there talking about how if inflation is good for gold it is especially good for gold miners. I will simply repeat once again that if gold usually does not benefit fundamentally by cyclical inflation (i.e. inflation promoted for and currently working toward economic goals) the gold miners never do, unless they rise against their preferred fundamentals as they did during two separate phases in the last bull market, which were justly resolved with crashes.
Here are a couple charts we used in NFTRH 648 in a segment written to set the record straight. We have also used these charts – especially the first one – since the caution flags went up last summer, visually by the first chart and anecdotally by the usual suspects aggressively pumping the unwitting masses. Buffett buys a gold stock!… okay, well so much for that. Sentiment became off the charts over-bullish and now, as we prepare for the final act of the correction, it’s the opposite. That’s perfect.