Of course Democrats want huge tax increases. Tax increases cause expanding deadweight loss and ultimately contract economic growth. Democrats clearly want to crash the economy while President Trump is in office to make sure that he’s a one-term President only.
Warren Buffett let the cat out of the bag today on why the rich and powerful are not selling stocks. Warren Buffett told CNBC today that he’s not selling and booking profits in his positions until he finds out what the capital gains tax rate will be under a Trump tax cut. Think about it. The difference could be millions of dollars in lost profit if stocks are sold before the end of the year and before Trump’s tax cut hits in 2018. Continue reading “Warren Buffett Let Cat Out of Bag On Why Rich Are Not Selling Stocks”
The Russell 2000 crushed the market prediction path and exploded higher this week on Republican’s tax plan. The idea is that small cap stocks are mostly domestic companies that are less able to take advantage of tax loop-holes and so they are the companies that will benefit the most from tax cuts. Continue reading “Russell 2000 Market Prediction Update For 9-28-2017”
Republicans have officially given up on trying to pass a border adjustment tax to even the playing field with our trading partners. The Retail Industry Leaders Association celebrated the news and said they are now ready to get on-board with the President’s tax reform.
The retail sector, and stock traders, won a significant victory Thursday when the White House and Congressional leaders announced that they have set aside a border adjustment tax that could have raised the cost of imported products by up to 20 percent.
Republican leaders said on Thursday that the proposed border-adjusted tax won’t be part of negotiations on how best to overhaul the U.S. tax code, giving a victory to retailers’ and stock traders that had opposed the measure. Retailers said that a BAT would be passed on to consumers.
For stock traders, this is a big win because 75% of GDP comes from consumer spending at the retail level. A border adjustment tax basically would play out as a consumption tax which would reduce consumer spending. You raise taxes and can do things like a border adjustment tax in a strong economy with runaway inflation where you’re trying to cool off the economy and so fiscal and monetary policy support each other. In a weak economy with flat wages and struggling consumers, you lower taxes and do things that increase consumption. We are in a weak economy and so a border adjustment tax right now would have hurt the economy and thus job growth.
Border Adjustment Tax Impact On Consumers
Some traders told me that if costs of a BAT were passed on to consumers then that would be inflationary and help the Federal Reserve achieve their 2 percent target. The problem with that logic is that what if it didn’t work? I mean it’s only inflationary if someone is willing and able to pay the higher prices caused by a BAT. What if consumption instead contracts as a result of higher prices? If demand contracts then supply contracts and that would work against supply-side economics.
A statement Thursday from House Speaker Paul Ryan, Ways and Means Chairman Kevin Brady, White House economic advisor Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell and Senate Finance Committee Chairman Orrin Hatch said that due to the unknowns associated with the border adjustment tax, they had decided to set this policy aside to be able to advance tax reform.
For stock traders this is a big win as tax reform will lower our capital gains tax and allow us to invest and trade even more. Anything that advances tax reform is a win for traders. We are very close to going into a Bear market unless President Trump’s agenda moves forward IMO.
BAT was holding things up and we buried that several times and it kept coming back… Small businesses are going to get a tax cut, that was a very important part of the Trump plan. They talked about expensing and will have unprecedented write-offs, this is very important from a cost of capital viewpoint… Repatriation is going to be in here… Unlike health care, on taxes the Trump Administration had its act together and secondly, the Republican party basically agrees with itself.
Pitched as a major revenue source in a Republican-backed tax reform program, the border adjustment tax was touted as a key to returning manufacturing jobs to the U.S. by making imported products less competitive.
Ryan and Brady, who spent over a year championing the border adjustment tax, told Republicans prior to the statement’s release that the concept would no longer be part of tax-legislation negotiations.
Target called the leaders’ joint statement a step ahead for tax reform.
By eliminating the BAT, the way has been cleared for swift action on a middle-class tax cut which will put more money in the wallets of the American taxpayer.
I’m so happy to hear that Speaker Paul Ryan and Ways and Means Committee chairman Kevin Brady have decided to set the border adjustment tax aside and not include the controversial tax in tax-legislation negotiations. I think we finally have a chance at the first comprehensive tax reform in more than 30 years. However it leaves a question as to how to pay for these tax cuts. The BAT would have raised more than $1 trillion over a decade, according to estimates. A BAT would have helped pay for tax cuts for everybody. The problem though is that with a BAT included in tax-legislation negotiations, there’s no way tax-legislation would have passed. It was a catch 22.
Without BAT revenue, it is going to be more difficult for Republicans to keep the tax cuts permanent and to produce the kind of tax cuts that President Donald Trump has promised. Under the budget rules that GOP leaders plan to use, any tax-legislation changes that increase the deficit can only be temporary.
I think that the Federal Reserve should sell-off its balance sheet and use that money to send to the Treasury to pay for tax cuts. Have the Federal Reserve do something that’s good for the American people and main-street instead of always focusing on what’s good for Wall Street. We could corner the debt on the balance sheet of the Federal Reserve instead of the Federal Reserve spending our tax dollars and then leaving the debt cornered with the public. I’m just throwing that idea out there. That’s what we have to do. We need to come up with creative and alternative ways of paying for big permanent tax cuts.
Congressional tax writers will need to consider multiple ways of raising revenue to pay for tax cuts from various businesses by closing loopholes.
Here’s an idea. Let’s push NASA to advance the space-mining industry and then any proceeds gained from NASA mining an asteroid would go to pay for tax cuts. Just one asteroid mined could be worth trillions of dollars in tax cuts.
If you have any creative ideas for how to pay for a big permanent tax cut, leave your comments below.
Shortly after President Trump won the election in November of 2016, big money raced into the US dollar. The idea was that a new President with an America first agenda in which China would be labeled a currency manipulator had to be good for the US dollar. Lots of money raced into the US dollar and in funds like the PowerShares DB US Dollar Index Bullish Fund (UUP).
US Dollar Chart
Within two months of Trump winning the White House, UUP was up by more than 5.5% but shortly after January when Trump took office, UUP has been in a strong downtrend since. In fact, UUP is -3% lower than when Trump won the White House in November. Investors have now pulled more than $265 million from the fund this year.
Trump didn’t label China a currency manipulator on day one of his presidency and so the US dollar fell. It fell again in March when we all learned of the stupid idea that tax cuts and an infrastructure spending program were not going to take place until the Affordable Care Act was repealed.
In each of Trump’s legislative defeats on repealing the Affordable Care Act, it has pushed out tax cuts and an infrastructure jobs program further and we are seeing that reality reflected in the US dollar.
Presidential Theme Investing Does Not Work
The massive losses piled up by traders who went long the US dollar serves as a reminder that presidential theme investing doesn’t work.
I learned this lesson the hard way with Obama back in 2009. I went long solar power stocks when Obama won thinking that with his liberal anti-oil, anti-coal agenda, solar power companies would surely benefit.
I suffered massive losses and it took me years to get my trading account balance back up to where it was before the disastrous “go long solar on Obama” trade.
I don’t do presidential theme investing anymore.
I did jump into cement stocks back in February as a play on Trump’s border wall. I didn’t do it because of Trump. I did it because cement charts started ripping higher as other traders were betting on cement and I figured I could take a little bit of money from those presidential theme traders. I rode up cement and then sold it quickly when it started to look topy.
I recommend against doing presidential theme investing unless you are going for a quick swing trade on a technical setup.
A powerful catalyst for some stocks will be the big tax cut coming by the end of the year or early next year. The idea is to find stocks to buy of companies that are paying the highest in income taxes as these are the companies that will benefit the most when taxes are lowered.
The way this catalyst works is that going into next year, I forecast that we will get some kind of tax reform and tax cuts. Therefore companies that are currently paying high tax rates will have positive earnings revisions as a result of a big Trump tax cut.
Stocks to Buy
According to 2015 taxes, Amazon has one of the highest tax rates of any company. The company paid a Federal tax rate of 31.5%. Big tax cuts will impact Amazon in a big way. Amazon is my favorite of the top stocks to buy for future tax cuts.
AMZN presents a decent setup pattern. Prices have been consolidating lately and the volatility has been reduced. There is a resistance zone just above the current price starting at 998.31. Right above this resistance zone may be a good entry point. There is a support zone below the current price at 983.11, a stop order could be placed below this zone.
In 2015, Facebook paid a Federal tax rate of 78.9%. Facebook disclosed in early 2016 that it could owe billions due to an IRS investigation into the way it moved assets to an Irish subsidiary to avoid higher taxes.
The IRS tax penalty could total $3 billion to $5 billion, plus interest, according to a Facebook filing with the Securities and Exchange Commission.
FB also presents a decent setup pattern. Prices have been consolidating lately and the volatility has been reduced. There is a resistance zone just above the current price starting at 155.28. Right above this resistance zone may be a good entry point. There is a support zone below the current price at 151.81, a stop order could be placed below this zone.
#3. Walt Disney
Disney paid a 2015 Federal tax rate of 33.2% and is one of my least favorite of the stocks to buy because of its current downtrend.
Prices have been consolidating lately and the volatility has been reduced. There is a resistance zone just above the current price starting at 104.34. Right above this resistance zone may be a good entry point.
#4. Altria Group
Altria paid a 2015 Federal tax rate of 29.4% and again is one of my least favorite stocks because of its chart.
Altria Group’s price movement has been a little bit too volatile to find a nice entry and exit point. It is probably a good idea to wait for a consolidation first.
A bear market is coming if President Trump’s agenda does not move forward quickly. I have been saying for months now that the Federal Reserve is hiking rates not because we are in a strong economy that needs cooling off but instead to save pension fund holders and others who depend on the income generated from bond yields.
The Trump rally ended back in March. That was the turning point when the markets started pricing in the reality that President Trump was being blocked even on a common-sense travel ban from radical Muslim countries that support terrorists and that generally dislike America. If a common-sense travel ban can’t even get put in place, how does Trump’s economic agenda have any hope?
Bear Market Coming As Economy Slows
We are six months into Trump’s presidency and we have no clear plan for raising the debt ceiling when the government runs out of money in August. We have no big comprehensive corporate tax reform yet. We have no tax cuts for working Americans yet. We have no repatriation of trillions of overseas dollars yet. We have no massive infrastructure plan to boost the economy yet. Meanwhile, the Federal Reserve continues to hike rates.
The chart below shows the effects of rate hikes on commercial and industrial loans.
The arrows mark the three rate hikes since the end of the Great Recession. When the Fed hikes rates next week, we could have commercial and industrial loans drop below the zero line and signal a contraction for the first time since the Great Recession.
Today, there’s a greater chance that a bear market will happen than not happen because of trend logic. Trend logic is the idea that a trend will continue until it actually ends. Assume continuation of the previous trend until proven otherwise. The Federal Reserve is on a rate hike up-trend. Commercial and industrial loans are in a downtrend. Assuming these trends continue, the yield curve will go flat or inverted within the next few months. The only thing that will stop this gloomy scenario from taking place is if one of those trends change.
The only thing capable of preventing the next bear market is if Trump’s economic agenda moves forward on tax cuts and infrastructure spending, or if the Federal Reserve does not raise rates in June. Since I see neither of these outcomes happening right now, rather than assume a magical trend change appearing from out of nowhere, it’s better to assume continuation of the previous trends until proven otherwise.
Peter Schiff gave an excellent speech at Cambridge House recently about the deteriorating US economy, check it out: