Have We Hit The Top?

[changegonnacome]

1 hour ago, Blake Hampton said:

If the federal corporate tax rate is raised from 21% to 35%

 

Yep recessions are recessions - couple of years of depressed earnings....so what....in the scheme of things it doesn't matter to the underlying long term value of a business.

 

TCJA cuts don't get renewed...and all the profit shifting & avoidance rules TCJA created stay (which they will)........and so we go from 21 back to 35%...but it won't be your old late 2010's 35% rate... it will be 35%++ with TCJA avoidance rules layered on with the BEPS & global minimum rates still in place....once that happens, given the very difficult budgetary math in D.C.,  you could be at 35% topline for a very very long time.

 

That really does change the long run value of future cash flows. 

 

TCJA was a very clever piece of Republican electioneering...it created a constituency of capitalists (tech billionaires, private equity etc.)...and helps explain some surprising defections from heretofore die hard liberals.....to the Trump/Republican ticket in 2024.....Biden's age gave them a mental loophole previously to turn red for the first time in their lives....I've seen some of them struggle now to explain why Trump is still their guy in 2024 post-Kamala taking top of the ticket......they can't quite bring themselves to admit thats its the TCJA that really matters to them.

[Red Lion]

2 hours ago, changegonnacome said:

TCJA cuts don't get renewed...and all the profit shifting & avoidance rules TCJA created stay (which they will)........and so we go from 21 back to 35%...but it won't be your old late 2010's 35% rate... it will be 35%++ with TCJA avoidance rules layered on with the BEPS & global minimum rates still in place....once that happens, given the very difficult budgetary math in D.C.,  you could be at 35% topline for a very very long time.

If I’m not mistaken the 21% corporate tax rate was permanent, and would take an act of congress to increase. 
 

The pass through deduction and lower personal income tax rates would revert to pre TCJA. 
 

[changegonnacome]

@Red Lion Yes but the US is headed for a fiscal math problem…..~7% deficit with record unemployment….you don’t really need the economy to roll over to cause problems for the 2025 congress…obviously if it does things just get worse….….you've got a situation where personal income taxes are in a bake off with corporate taxes…they are locked in a barrel together going over Niagara falls regardless of the political engineering…and Trump played quite a magic trick with this new GOP….lots of republican congressmen have a ‘Trump constituency’…which is to say one that used to vote democratic…but liked MAGA…..TCJA was politically palatable cause everybody got a cut…TCJA 2025 where only corporates get to keep their cut is politically unpalatable.

 

TCJA + fiscal math mean taxes have to go up…it’s as plain as day…..and while corp tax cuts can roll on…there’s one problem…corporates don’t vote but people with income taxes do.

[Blake Hampton]

This whole market situation appears to me to be a tension between valuations and future inflation. Valuations seem to be crazy but when you have a government that is at 120% of debt to GDP and is spending like there is no tomorrow, it seems like cash isn’t as safe as some think.

 

It’s interesting because if you look at Berkshire’s financial assets, it’s basically a 50/50 split between cash and equities (This is including receivables into the cash category.) I understand that Buffett has special covenants but I still think this is how he’s decided to play the current scenario. Also it's clear that he absolutely despises fixed income, with it only making up around 2% or so of those financial assets I was talking about. I mentioned this already earlier and someone who seemed to understand Berkshire quite well pointed out that even this little amount of fixed income is a requirement, meaning he might not own any if he didn’t have to. 

Edited August 7 by Blake Hampton

[Blake Hampton]

One thing I’m certain of in this world is that you should listen to Buffett on financial matters. If the people in power would’ve heeded his advice in the past, we would’ve all been better off. 

Edited August 6 by Blake Hampton

[Dinar]

2 hours ago, changegonnacome said:

@Red Lion Yes but the US is headed for a fiscal math problem…..~7% deficit with record unemployment….you don’t really need the economy to roll over to cause problems for the 2025 congress…obviously if it does things just get worse….….you've got a situation where personal income taxes are in a bake off with corporate taxes…they are locked in a barrel together going over Niagara falls regardless of the political engineering…and Trump played quite a magic trick with this new GOP….lots of republican congressmen have a ‘Trump constituency’…which is to say one that used to vote democratic…but liked MAGA…..TCJA was politically palatable cause everybody got a cut…TCJA 2025 where only corporates get to keep their cut is politically unpalatable.

 

TCJA + fiscal math mean taxes have to go up…it’s as plain as day…..and while corp tax cuts can roll on…there’s one problem…corporates don’t vote but people with income taxes do.

No, there is no need for taxes to go up to fix the budget deficit.  Tax rates are already 55%+ in NYC, CA, etc...  Government spending must be cut.  Federal government just spent a billion dollars and will spend more on helping victims of Lahaina (Maui fire), so $100K per person and counting.  Hundreds of billions of federal spending (student loans, flood insurance, government subsidies to universities, foreign aid, welfare, and the list goes on) is simply wasteful. 

 

You want tax hikes?  Ok, Insane subsidies to hedge funds with a propaganda arm attached (aka Harvard, Yale, et all) must be curtailed: first step - eliminate tax deduction for charitable contributions, 2nd step: tax endowment earnings.  Horror of horrors, may be professors will have to work more than 10 hours a week 12 weeks a year and not enjoy $300K+ salaries & perks.  

[Castanza]

1 hour ago, Blake Hampton said:

This whole market situation appears to me to be a tension between valuations and the future inflation. Valuations seem to be crazy but when you have a government that is at 120% of debt to GDP and is spending like there is no tomorrow, it seems like cash isn’t as safe as some think.

 

It’s interesting because if you look at Berkshire’s financial assets, it’s basically a 50/50 split between cash and equities (This is including receivables in the cash category.) I understand that Buffett has special covenants but I still think this is how he’s decided to play the current scenario. One thing I do know is that he absolutely despises fixed income, with it only making up around 2% or so of those financial assets I was talking about. I mentioned this already earlier and someone who seemed to understand Berkshire quite well pointed out that even this little amount of fixed income is a requirement, meaning he might not own any if he didn’t have to. 

US debt burden is lower now than it was in the 80s when debt made up 40% of GDP. 
 

http://scottgrannis.blogspot.com/2024/07/how-bad-is-fiscal-policy.html?m=1

[Gregmal]

Every time the market dips 5-10% there’s this huge wave of people who have to manufacture some sort of macro reason for it. Often there’s none. It’s just the market doing market things.

[Parsad]

2 hours ago, Castanza said:

US debt burden is lower now than it was in the 80s when debt made up 40% of GDP. 
 

http://scottgrannis.blogspot.com/2024/07/how-bad-is-fiscal-policy.html?m=1

 

Debt burden isn't lower...only interest payments.  A lot of those stats are headed in the wrong direction.  We don't want to let them get too far.

 

Cheers!

[Red Lion]

3 hours ago, Dinar said:

first step - eliminate tax deduction for charitable contributions, 2nd step: tax endowment earnings.

Yes this. Why isn’t anyone else saying this? All the ultra wealthy are avoiding estate tax and capital gains by giving all their appreciated stock to foundations setup to push their personal agenda. 
 

I don’t think the taxes should be changed, but how much revenue would be generated by taxing “non profits” on investment income, and by reducing or eliminating the tax deductibility of contributions? A lot I’m sure. 

[nwoodman]

This becomes somewhat of a circular argument

 

https://www.reuters.com/markets/asia/boj-wont-raise-rates-when-markets-unstable-deputy-governor-says-2024-08-07/?utm_source=Twitter&utm_medium=Social

[UK]

7 hours ago, Gregmal said:

Every time the market dips 5-10% there’s this huge wave of people who have to manufacture some sort of macro reason for it. Often there’s none. It’s just the market doing market things.

 

This is so true! And at the same time I think nobody knows much about the future either. Maybe this short panic will be enough for a sentiment reset, maybe not yet. Even anecdotally, some people I know, who were eager to buy NVDA just at the top a few weeks ago, already do not want to look at it now, after it is down almost 30 percent or actually to look at anything at all:), so looks promising. But If you look at this episode not at as an isolation, but it terms of what markets (and economy) did in the last 15 years, then I do not know, maybe there is a case to be somewhat more demanding? At least until the next year/elections or maybe until FED communicates at some point whatever on earth they are going to do next etc. One thing to a some degree I have a feeling about though, is I do not understand how one could be excited much or at all on the index level (again this is not telling much about particular securities) at the current valuations. SNP at an estimated (likely not conservative or recession adjusted) ~250 EPS for a next year would be only 20x at a level of 5.000 (we are not even there yet). Down 20 percent from it, it would be at a another nice round number of 4.000, which would coincide with a 20 year forward average of 16x. I could be very wrong, but I just do not think it makes a lot sense to become very offensive until at least similar level. And I do not event want to start discussing some greedy levels suggested by some using Shiller or whatever PE. Again all this is more about market / index and not about any of anybody's favorite investment:)

 

Edited August 7 by UK

[Castanza]

8 hours ago, Parsad said:

 

Debt burden isn't lower...only interest payments.  A lot of those stats are headed in the wrong direction.  We don't want to let them get too far.

 

Cheers!

 My point (Scotts point) is the debt even at 120% of GDP is more easily serviced now than it was at 40% of GDP in the 80's primarily because of interest rates. I think the govt has a lot of bloat and needs to be cutting expenditures greatly (mainly because interest payments are about to outpace tax revenue). But if you look at the numbers it's not as "bad" as one would think; but definitely needs to be kept in check as you said. Some other charts further down in Scotts post are great. #8 in particular really highlights US dominance in global finance. I have shared similar view as Blake Hampton in the past and probably still do share many similar views. Remember I am personally a very debt adverse person and it definitely bleeds over into my political views as well. However I recognize there is difference (to a degree) in managing a State and managing a household; but that things can sour quickly as well. Ignore the doomsayers and ignore the overly optimistic. 

[73 Reds]

8 hours ago, Red Lion said:

Yes this. Why isn’t anyone else saying this? All the ultra wealthy are avoiding estate tax and capital gains by giving all their appreciated stock to foundations setup to push their personal agenda. 
 

I don’t think the taxes should be changed, but how much revenue would be generated by taxing “non profits” on investment income, and by reducing or eliminating the tax deductibility of contributions? A lot I’m sure. 

Why would we want to dissuade charitable giving?  As it is most folks do not earn enough or give away enough to avail themselves to an income tax deduction for charitable gifts.  if anything, we ought to pay much closer attention to what actually qualifies as a 501c3 organization and whether the endeavors are in fact in furtherance of the public good.

[changegonnacome]

14 hours ago, Dinar said:

eliminate tax deduction for charitable contributions, 2nd step: tax endowment earnings

 

14 hours ago, Dinar said:

Federal government just spent a billion dollars and will spend more on helping victims of Lahaina (Maui fire), so $100K per person and counting.

 

Everybody has their pet peeves - on the expenditure side......and everybody has their pet peeves on revenue side

 

People talk about billions here and billions there.........but in a multi-trillion dollar federal budget....with a trillion dollar deficit it just doesn't do anything worth talking about to change the math.

 

You really need to go after the BIG ones on the expenditure side -the sacred cows - Social Security, Medicare, Medicaid, Defense...if your gonna save money there.

 

Then on the revenue side...I mean you can close carried interest for the PE guys or tax endowments......but it doesn't move the needle one iota.......you have to go after the big stuff - and simply.....they are income taxes and corporate taxes....or you introduce a federal value added tax.

 

 

Edited August 7 by changegonnacome

[Red Lion]

1 hour ago, 73 Reds said:

Why would we want to dissuade charitable giving?  As it is most folks do not earn enough or give away enough to avail themselves to an income tax deduction for charitable gifts.  if anything, we ought to pay much closer attention to what actually qualifies as a 501c3 organization and whether the endeavors are in fact in furtherance of the public good.

I don’t give a shit about dissuading charitable giving. Why should someone get a tax deduction for giving to the ACLU/NRA/PETA etc? Especially when the billionaire class (I’m talking about Warren Buffett) avoids their entire tax bill while setting up foundations that their children will benefit from for generations and then the rest of us end up paying a far higher percentage of our income/nw as a result. 
 

I feel like there’s easy middle ground here. You could cap the deductible donations at death to the same $$$ amount as the estate tax to prevent the big tax avoidance moves by gates, Buffett, Zuckerberg, etc. 

 

Edited to say that your last line is a slippery slope. Scrutinizing 501(c)(3)s to decide which ones are deductible…who does that? How does this not turn into another political endeavor getting the government involved in which non profits should actually be deductible? 
 

Edited August 7 by Red Lion

[Red Lion]

44 minutes ago, changegonnacome said:

or you introduce a federal value added tax.

I think this is an under rated idea. 
 

it seems like many of the countries with generous social safety nets finance this at least in part with a value added tax. 
 

In the USA the democrats of the last 4-8 years want nothing but class warfare. They buy votes from non tax payers by saying “pay your fair share”. How about actually let these parasites pay a value added tax? 

[73 Reds]

12 minutes ago, Red Lion said:

I think this is an under rated idea. 
 

it seems like many of the countries with generous social safety nets finance this at least in part with a value added tax. 
 

In the USA the democrats of the last 4-8 years want nothing but class warfare. They buy votes from non tax payers by saying “pay your fair share”. How about actually let these parasites pay a value added tax? 

I seem to recall studies that show how a value added tax could completely replace the income tax at rates that might be widely acceptable.  I don't think too many folks of any socioeconomic class (other than the very poor who pay no income tax) would argue that our tax system is fair.  By the same token, few would argue that the government is in any way efficient at allocating our tax dollars.  Would anyone here invest in a for-profit enterprise run by the government?

Edited August 7 by 73 Reds
spelling

[rogermunibond]

This Bloomberg piece from Monday does a decent job of explaining some of the VIX related selling on Friday and Monday.  Seems like more a market event than a recession call, though maybe partially fueled by the employment #s and yen carry trade stuff.

 

https://archive.ph/Ks2Rw

[Red Lion]

42 minutes ago, 73 Reds said:

Would anyone here invest in a for-profit enterprise run by the government?

Are there put options available?  

[rogermunibond]

@73 Reds practically speaking that's Fannie and Freddie pref holders

[John Hjorth]

The discussion about the deficit [in US and in other countries, for that sake, too] is always interesting.

 

So is the discussion about tax deductions for charitable donations and taxation of foundations, as a measure to keep up a state deficit in check.

 

I'm lucky to live in a country up North in Europe, where we by now actually are in a bright spot on a green branch of the tree [doing reasonable well, while running with no defit, and pretty stable situation], and I personally think we by trial and error as a society have found the something that have created  'an accepted social contract' between the countrys need for income streams, and tax regulations, that create some kind of overall cooperation for the benefit of both the state, the Danish society and  the Danish foundations.

 

But we need to place in them another topic than this.

[Blake Hampton]

2 hours ago, changegonnacome said:

 

 

Everybody has their pet peeves - on the expenditure side......and everybody has their pet peeves on revenue side

 

People talk about billions here and billions there.........but in a multi-trillion dollar federal budget....with a trillion dollar deficit it just doesn't do anything worth talking about to change the math.

 

You really need to go after the BIG ones on the expenditure side -the sacred cows - Social Security, Medicare, Medicaid, Defense...if your gonna save money there.

 

Then on the revenue side...I mean you can close carried interest for the PE guys or tax endowments......but it doesn't move the needle one iota.......you have to go after the big stuff - and simply.....they are income taxes and corporate taxes....or you introduce a federal value added tax.

 

 

This is a great point. Dems and Reps are really just two sides of the same coin where they offset themselves financially with both their respective policies. Dems want to increase taxes but also want to spend, and Reps want to decrease spending but also want to decrease taxes. Really what we need is a less bipartisan congress that can actually come to an agreement on something. I guess that’s easier said than done.

[changegonnacome]

Yeah listen I don’t actually worry about the deficit or the debt….where the US is concerned. Deficits & debt are for every other country to worry about…but not the US. I think about only from policy perspective and how it might affect asset prices….never one of the Cassandra types with a bug out kit from Costco!
 

It’s just not really a problem when you think of the US as the global hegemon militarily and the reserve currency.

 

Not only is there vast amounts of untapped income / wealth to tax in the US if/when needed.

 

But the US always holds the joker in the pack…run the following scenario…Biden gets on TV tomorrow and says due to extraordinary financial constraints…the US is turning all foreign held US bonds to zero coupon ones….just this one time.

 

I mean sure financial panic for a few days….but what is anybody gonna do about it really?? When you get down to it…the US sets the rules of the financial game everyone else plays…a month after the ‘bond zero’ day….the Deutsche Bank guys will be sending treasury bills over to the UBS guys as collateral like they always do….I mean there is no alternative (bitcoin won’t solve this).
 

It’s the American century for as far as the eye can see…..when you’re both the referee and a player in a game…the fiscal budgetary ‘rules’ are for the players, not you. 
 

Edited August 7 by changegonnacome

[Spekulatius]

10 hours ago, Blake Hampton said:

This is a great point. Dems and Reps are really just two sides of the same coin where they offset themselves financially with both their respective policies. Dems want to increase taxes but also want to spend, and Reps want to decrease spending but also want to decrease taxes. Really what we need is a less bipartisan congress that can actually come to an agreement on something. I guess that’s easier said than done.

The Republican Party equals Trump now and Trump definitely does not want to reduce spending. Dems and Reps will just spent on different things but they both will spend.