At Strothman and Company we help entrepreneurial businesses grow. At every stage.  Every day. That's why we keep you up to date on relevant issues.
22nd Annual StroCo University 
Growth and Independence
November 30, 2017
8 AM - 12 PM
University of Louisville - Shelby Campus
We are proud to present our Twenty-Second Annual StroCo University Conference for CEOs, CFOs and Controllers.  This four hour conference will include a keynote address by Dr. Todd Mooradian, Dean of the University of Louisville College of Business, and nine breakout sessions on a variety of timely topics. Please invite business friends and associates to attend this conference with you. This program is designed to qualify for four (4) hours of continuing professional education (CPE) for CPAs. We hope you can join us for this informative and educational program. Please invite friends and associates to attend this FREE seminar with you.  

If you have any questions, please call Vince Cain at 502.585.1600 or email  

Real Estate and Construction Seminar Recap - November 16, 2017

The Real Estate and Construction Conference last week was a great success.  Bill Weyland of Weyland Ventures spoke about redevelopment of historical properties in Louisville, including many of the projects in which he participated.  He also highlighted the importance of the various tax credits used by historical developers, and how important it was for Congress to retain these in the tax law.  In the vast majority of cases, he said that the payback of these tax incentives is fairly quick in terms of jobs and related taxes generated from these projects.
Our Downtown Construction Update was fascinating.  Laura Thomas gave us an overview of the new University of Louisville Novak Center for Children's Health, scheduled to open next summer.  Maria Gratz of Weyland Ventures gave us an overview of the many other significant downtown projects being constructed or on the drawing board.  It is incredibly exciting to see the continued growth and development of our city.
Representatives from our strategic partner, the Alliant Group, gave an overview of tax incentives available related to construction projects.  Thanks to Valerie Ward and Estefania Quesnel for coming to Louisville from California and Texas, respectively, to participate in this conference.
To cap off our conference, we had various industry representatives participate in a Marketplace Panel.  Participants were: Tom Masterson (T.E.M. Group), Mark Deetsch (Travelers Insurance), Todd Loehnert (LA Surety), Dr. Wylette Williams (Louisville Urban League), and John Oliva (Builder's Exchange).  We discussed key issues of concern including staffing, bonding and succession planning. Dr. Williams oversees a program which provides entry-level training for people wanting to enter the construction industry.  She currently has 26 graduates that she is trying to place, but transportation is an issue because most of these people cannot afford cars until they begin working.  On the other hand, employers are desperately seeking qualified employees.  Mr. Masterson said that a number of construction projects were delayed in 2016, which has resulted in significant demand in 2017. Mr. Deetsch and Mr. Loehnert stressed the importance of sound financial practices and good financial statements when seeking bonding and insurance.
If you have any feedback on this conference or ideas for topics at future conferences, please contact Vince Cain,

Stock Market: Solid Economic Growth and Stellar Tech Earnings 

Standoffs with North Korea, three devastating hurricanes at home, escalating political tensions and political crises in Spain and Germany did not make a dent in Wall Street's bull run in the third quarter of 2017. October did not buck this trend. As the month drew to a close, the U.S. markets hit record highs and good economic reports gave investors more to celebrate.  Here are the highlights of financial news over the past month.

On Oct. 26, several major technology leaders in the United States announced better-than-expected results for the third quarter of 2017. As a result, the technology-heavy Nasdaq Composite and Nasdaq 100 indices rose 2.1 percent and 2.8 percent, respectively, to reach record highs that day before biotech shares tanked, dragging the healthcare sector lower and the Nasdaq in its wake. Amazon posted a dazzling 34 percent increase in revenues in the past quarter - its recent acquisition of Whole Foods helped to push earnings higher than earlier forecasts. Its net earnings of $256 million, or 52 cents per share, handily surpassed previous share earnings estimates. The good news from some of Nasdaq's best-known companies -Microsoft, Alphabet (Google's pare nt company) and Intel - also was credited with sparking a rally in the Asian equity markets.

The Dow Jones Industrial Average also was boosted by good third-quarter earnings. Nike commanded the spotlight as the blue-chip index's biggest gainer with share prices increasing 3.4 percent after the company raised its revenue growth targets for the coming years.  

GDP Results
All in all, analysts were happy with the third quarter Gross Domestic Product results, which showed a 3 percent annualized growth rate, up from the estimate of 2.5 percent. Forecasters noted that natural disasters like Hurricane Harvey and Hurricane Irma did not have such a negative impact on the national economy as they had feared. Businesses boosted their inventory holdings. This suggests they are expecting solid demand in the coming months. Business investment - spurred by spending on new equipment - rose during the third quarter of 2017 at a rate of 3.9 percent. On the trade front, exports rose by 2.3 percent and imports declined by 0.8 percent - a further contribution to positive growth.
Change Ahead
Speculation abounds regarding the Federal Reserve - most especially as to how the nation's central bank will respond to the recent solid economic data and to the equity markets' continued upswing. Many traders expect a rate increase before the year's end. The Fed's easing policy over recent years has helped keep the nation's recovery moving forward. Now that we are out of the woods, fund managers and investment strategists are hoping the Fed proves as adept at steering a successful course whilst tightening monetary policy.

Change always brings a certain amount of trepidation, and there's a lot of change on the horizon for the Fed. With Vice Chairman Stanley Fischer's recent resignation, the Fed will lose its most prominent policy hawk, as well as a strong advocate for tough oversight of banks. Janet Yellen's term as Fed Chairwoman concludes in February 2018. This means that the top two positions at the Fed will both become vacant within five months of each other. Among the four or five contenders for the top slot, Fed Gov. Jerome Powell is rumored to be a front runner , though many believe the president has not yet made up his mind. This appointment is a very important one with major ramifications for both the markets and the nation's economy.

The above is intended as general commentary and is not intended to be a substitute for counsel from professional tax and investment advisors.

Internship Considerations for Businesses

Strothman and Company has always had a vibrant internship program. In fact, two of our partners began as interns with our firm.

When it comes to businesses and organizations looking for talent, working with colleges and universities for future interns is a viable option. While projections for 2016 showed a 4.8 percent drop for internship opportunities, as the National Association of Colleges and Employers reported, the insurance, finance and real estate industries expected to increase their internship and co-op hiring by 8.4 percent in 2016 over 2015. Despite the variability, using internships can provide a great resource for finding and developing talent for the future.
There are many ways that businesses can help establish and maintain relationships with high schools and colleges for future interns. By volunteering to work with career development offices, businesses can go beyond submitting an advertisement looking for interns. A company representative might assist a university by looking over interns' resumes, helping students build interviewing skills through mock interviews or assisting with university-led workshops.
In fact, an experienced employee who is also an alumnus may be more effective connecting with potential interns than a C-level executive. Someone who has been in college more recently can give interns a timely outlook on their own experience transition from post-secondary education to the work world. While an organization's employee who is a recent college graduate may not be part of the human resources team, he or she could add a fresh perspective by answering student questions about the company's mission, culture and expectations of interns.
When it comes to giving an intern responsibilities, the type of tasks will vary depending on the internship's length of time in the industry. One responsibility an intern may be involved with is contributing to existing social media management or helping create new social media. Recent graduates are typically more familiar with the latest social media platforms and what content works with the public, and therefore can add a fresh perspective on how to procure younger clients and grow demographics. Regardless of the task assigned to an intern, supervision is recommended. Interns may be the ones who create social media, but it should be reviewed by a manager who can catch social media gaffes.
The question of compensation is often subjective. The U.S. Department of Labor maintains that if the following six criteria are met for an internship by businesses, the organization might not be subject to the pay requirements in the Fair Labor Standards Act.
According to the DOL website, the first criteria is, "the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment". Second, the intern must receive value from his time with the employer. The intern should not take the role of an existing employee, but be appropriately monitored by the business' regular employees. The business may not obtain a direct benefit from the intern, and may have the organization's normal workflow periodically slowed by the intern's experience. There also is no expectation of the intern being hired once the internship is completed. Finally, there is a clear expectation and agreement by the intern and employer that no wages will be paid.
While these are general guidelines, internships and the organizations that use them will vary. The overall benefit is that having interns at a business can provide a fresh perspective for both the intern and the employer.

Weighing the Impact of the Equifax Breach

Call it ironic that on the very day Equifax went public with news of its massive data breach, Congress was holding hearings on reducing the regulations imposed on U.S. credit bureaus. Long before the recent breach that exposed confidential data affecting about 143 million Americans, Equifax had been lobbying aggressively on issues involving data security and breach notification, as well as proposals to limit exposure to lawsuits. These lobbying efforts have cost the credit reporting agency a reported half million dollars, as Equifax tried to drum up support from lawmakers in Congress. Democrats have been vocal in their opposition to legislation that limits credit agencies' exposure to class-action lawsuits. Sen. Elizabeth Warren (D-MA), who introduced legislation aimed at cracking down on credit bureaus, and New York Gov. Andrew Cuomo, who wants to expand the state's strict cybersecurity standards for the financial sector to include credit reporting bureaus, are two Democrats who have taken up the fight on behalf of consumers.

Irony aside, the Equifax situation is a good example of what happens when theory and practical application in the real world collide. From the get-go, the Trump administration has highlighted excessive government regulations as an unnecessary drag on business profitability and economic growth, and has made loosening regulations on banks and other financial institutions a major priority. Few people want more red tape in their daily business dealings; but on the other hand, most people want more accuracy in reporting and more accountability from the credit agencies that play such a major role in our country's financial sector.

Credit agencies are integral to the financial infrastructure of the United States. When problems arise, the implications are serious. Apart from a major data breach like the recent one at Equifax, credit-reporting agencies' errors can cause significant difficulties for consumers who cannot buy homes and autos or get bank credit without good credit ratings. A Federal Trade Commission report published in 2013 showed that 5 percent of all consumers had errors on one or more of their credit reports that could cause them to pay more for transactions like auto loans and insurance. Consumer complaints, which have increased 1,700 percent over the past 20 years according to the U.S. Chamber of Commerce, have grown exponentially as the agencies' reliance on technology has soared. Industry critics believe the credit agencies should be held as accountable, and face as much scrutiny, as regional banks .

For their part, anti-regulation Republicans argue that abuses in the court system can adversely affect not only a business, but also its employees, customers and vendors. A bill to cap penalties resulting from class-action lawsuits and to eliminate punitive damages leveled against credit agencies, introduced by U.S. Rep. Barry Loudermilk (R-GA), was derailed by the Equifax data breach and by the agency's subsequent delay in making the news public. Given the extent of the data breach and vocal criticism of the company's handling of the situation, public opinion and sentiments on Capitol Hill most likely will be tipped in favor of the pro-regulation faction for the time being. 
This is the second in a series of articles discussing various types of high-concept investment styles. This month we explain evidenced-based investing.
Investors and their advisors frequently are influenced by a variety of factors, ranging from news, rumors, biases, gut instinct, emotions (from exuberance to fear), marketing tactics, compensation models and business models. While any of these influences can lead to investment outperformance, they are just as likely to lead to flat or underperformance as well. Without real fundamental analysis, investing is just a combination of luck and conjecture.
However, the concept of Evidence-Based Investing is a more disciplined approach to asset management and securities selection. The practice involves analyzing past performance data with present economic circumstances. In other words, instead of using ,relationships or emotions to guide investment selection, EBI money managers utilize facts, logic and reason.
EBI involves extensive research to discover new factors and then test (and often reject) them against data from various investment time periods. Not only is the past used as prologue, but evidence-based investing practitioners also must pay careful attention to the current state of financial economics.
The primary goal behind evidence-based investing is to eliminate subjective factors that might influence decision making, such as some tidbit on the news or passage of new government legislation. An EBI portfolio starts with a carefully constructed asset allocation designed to meet a specific goal, with secondary considerations of lowering costs and tax liability. The evidence-based portfolio is regularly rebalanced to maintain its strategic asset allocation. Any new security introduced to the allocation must undergo disciplined analysis based on the current evidence for its fundamentals.
Generally, an EBI-constructed portfolio undergoes the following process:
  • Asset Allocation - Determine how much to allocate to each asset class based on client goals and market-specific evidence.
  • Security Selection - Each security is selected based on market- and manager-specific evidence for each asset class.
  • Trading & Rebalancing - Portfolio changes are subject to specific guidelines regarding when and how to trade or rebalance given market-, tax- and transaction-specific evidence.
  • Tactical Adjustments - Portfolio investment mix is strategically altered when a security or asset allocation class is weighted outside the established percentage ranges; it is feasible that some tactical changes are made in order to capture excess returns (higher gains or fewer losses) due to short-term fluctuations - as long as those decisions are based on fundamental and technical evidenced-based analysis.
While the evidence-based approach tends to be more technical than goal-oriented, it still relies on specific objectives. The strategy uses the most current evidence available to stratify securities by particular factors, such as size (small, medium or large cap stocks), style (growth, value or balanced) or timing (business life cycle or economic cycle).
The evidenced-based approach to investing is designed to replace guesswork with a disciplined, research- and analysis-based strategy that pairs past performance with the most current information available. It takes emotion and irrational behavior out of the investment equation by relying on a systematic analysis that combines strategic asset allocation, tactical security selection, global diversification, tax sensitivity and regular, disciplined portfolio rebalancing techniques.

Technology: The Importance of Quantum Computing
To understand what quantum computing is and why scientists find it exciting, we need to understand how traditional computing works. Today's computers use switching and memory units - known as transistors - to store and retrieve data. These transistors handle many of the tasks calculators used to handle. Transistors have become much smaller - almost as small as an atom - but essentially they function just like the old calculators using a sequence of bits 0-1 (you can think of these as on-off) known as a binary system. This processes the data we provide by following a pre-arranged set of instructions, known as a program.

Binary Process
We have come a very long way with this binary process. Our computers can do some complicated processing and sorting tasks by using a string of binary mathematical operations known as an algorithm. Google and other search engines use algorithms to make the sorting process very fast. The binary system of conventional computing basically does the addition, subtraction and/or multiplication almost instantly.
So why do we need a different way of computing? Miniaturization has given us the ability to pack hundreds of millions of transistors on a chip of silicon about the size of a fingernail. However, as computer technology continues to advance, the more information we need to store, the more bits and transistors we need. Currently, our transistors are as small as we can make them. Most computer tasks we do are unlikely to max out computer power because they need more transistors than our computers can house. However, as computers continue to handle complex computing problems on behalf of companies (and private and public organizations), they will hit a ceiling and exceed the capacity and capability currently available. Scientists refer to these no-go situations as intractable problems - problems traditional computing cannot solve. Quantum computing - using atomic particles - is seen as a possible answer to the capacity and time limitations inherent in binary systems.

Quantum Computing
Quantum theory deals with atoms and the subatomic particles they contain. Atoms do not obey the basic rules of traditional physics. In quantum computing, qubits take the place of bits. Unlike a bit that is restricted to a binary system (think 0-1 or on-off), an atomic qubit can store an infinite range of values between 0 and 1 in multiple states. Don't worry too much about understanding exactly how it works, just remember this means quantum computing could do multiple things at the same time - unlike conventional computing, which does a series of things one at a time - and that it could work up to millions of times faster than our current binary systems.
Will quantum computing render traditional computing obsolete? No, that is unlikely. Most of us will not need such powerful computing technology. And the commercial launch of quantum computing is by no means a certainty. It's been about 30 years since researchers began to discuss quantum computing theory, and we have seen some significant progress in the past seven or eight years, with Google and MIT both producing prototypes. Researchers estimate we won't see mainstream quantum computing for some years. Interestingly, if/when quantum computing comes of age, it would have huge impact on our current encryption technology (encryption is really the deliberate manufacture of an intractable problem). Now, that might be something for us all to think about.

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