Dear Friends and Family,

Innovation has been the driving force behind economic growth and the growth of civilization. Innovations are sometimes overlooked in the history books and sometimes underappreciated in the investment community. Investors focus on the inventor of new innovations. This misses the major impacts that the users of the innovation have on the economy. The automatic teller machine manufacturer gets the attention. But the banks were the major beneficiaries. The same was true of the point of sale terminals, a major advantage for retailers especially supermarkets. So relatively minor innovations can cause major positive growth in the users of the innovations and the economy. Meanwhile the manufacturers of both the ATMs and POS machines underperformed.

What motivated the innovators both individuals and the companies’ Research and Development departments? When we think of innovators, we think they are motivated by dreams of helping society and/or growing rich. We think that outside influences of all kinds are ignored. We had no data to confirm our views. Now we do.

Over time a number of data bases were digitized on Patents, research expenditures at corporations, tax rates and industry R&D employment. A major research report was recently published using all this data to answer the question, Do tax rates impact innovation? The answer was YES. At first, I found that hard to believe. You need money to innovate so the lower the taxes the more funds are available.

In summary Innovation feeds economic growth. Innovation grows when taxes are lower. The tax bill has lowered taxes. Another reason to believe the economy will continue to grow.

Housekeeping Note: In an effort to keep our fees at 1%, anyone who is currently signed up for their Fidelity statements to be mailed will be changed to e-delivery. If you are currently receiving your Morning Star reports via mail, that will not change.

Katz Family Financial