Happy New Year to all as the macro-economy is roaring into the New Year. Retail sales over the Holidays were solid, both e-commerce and in-store. Stock markets are still hitting new highs with very little volatility. The 10 year Treasury continues to trade in a tight range, after spiking over 2.50%, it is back down in the low 2.40’s this week. Tax Bill Effects: The bill contains positive provisions for REIT’s and other owners of commercial real estate due to favorable treatment of “pass through” income. The residential market effects may be more “checkered” with limits on mortgage interest and state tax deductions may negatively impact high end housing markets in California, New York, New Jersey and other high tax states. Increased purchasing power among regular consumers is complicated by uncertainty over corporation passing savings/bonuses to workers (some major companies have started) and the sunset provision for many of the individual cuts set for 2025, setting up a potential “fiscal cliff” for future congresses to deal with (or not). Interest rates: Higher rates are expected as increased deficits will necessitate a bigger supply of Treasuries. Today’s Fed Minutes release from last month’s meeting showed classic policymaker dilemma over the tax bill:tax policy does not dictate corporate or individual behaviors. For example: Will corporations increase investment in capital spending, which can increase economic capacity without spurring inflation? Or will they use it to execute financial investments such as stock buy backs or debt reduction? This could spur inflation. The Fed’s stated course is three rate increases in 2018 and their projections indicate, that will be sufficient. 2018 Government Action: Dodd Frank “adjustments” are on tap, including the elimination of stress tests for many regional and community banks, this may spur lending among these middle market players. Also, various proposals for Fannie Mae and Freddie Mac “reform” are being discussed, but the main stumbling block is the lack of a pure private market in mortgage bonds, even 10 years after the crisis. It is doubtful that Congress will want to increase uncertainty in that market so quickly on the heels of the tax bill. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners