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Republicans win - and what it means for your stock


Guest Bronco
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I've talked about this before, but the US has a very poor policy on international taxation of profits.  The worst in the world, by far.

 

Look for a new congress to create a proposal to at least temporarily bring back profits from overseas affiliates in a tax effective manner.  This was done in the past.

 

Perhaps the biggest beneficiaries of this policy is companies with cash trapped overseas.  I would assume the Pfizers, Googles, Microsofts of the world fall in this boat.

 

Keep an eye for this policy shift, and then see which companies would get the biggest bang. 

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Generally speaking - I think the elections turned out fine. The tea party people got some press and some seats - rightly so. I like the balance - one chamber with one party and the other with another. The US system is designed pretty well - I must add.

 

The message got across to Mr President and the congressional leaders about the problems people are facing - we hope.

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Lol

 

I think its a bit myopic to look at elections from an Investment perspective. I predict massive chaos and more ineffective government. We will likely get higher spending and more tax cuts. Basically more of the same. Things will change when they have too, not when they need to inmo.

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Lol

 

I think its a bit myopic to look at elections from an Investment perspective. I predict massive chaos and more ineffective government. We will likely get higher spending and more tax cuts. Basically more of the same. Things will change when they have too, not when they need to inmo.

 

Exactly.  McConnell and Boehner have made it pretty clear that their legislative agenda revolves around making Obama a one term president.  Expect them to stonewall any proactive attempt to fix anything that might give Obama something positive to campaign on in 2012.  Mid 90's redux is what I'm expecting. Only economically, we're not in nearly as good a position as we were in the mid-90's so the stonewalling will likely be detrimental overall.

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You may be right about more of the same - it makes no sense to change strategies when stonewalling has been successful. I believe one of the tea party slogans was the huge deficits - it will be interesting to see what they do now they control one arm of congress.

 

The US currency policy with China ( and previously Japan ) was/is not very smart - instead of encouraging China to buy more US goods/services, they are asking China to appreciate its currency. I remember Charlie Munger raising this issue with Ronald Reagan's secretary of state ( in Poor Charlie Alamanac ) and the guy didnt want to deal with it. So this is a problem in the making for more than a generation...

 

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I didn't want to get political, I am making the point that if a IRC section 965 happens again, certain companies WILL benefit.  IRC 965 allowed companies to bring cash into the US at a tax advantaged rate.

 

This is something that I have written about here and is clearly gaining more attention and traction.

 

Something Republicans and Democrats could agree on. 

 

This will impact stocks, since stocks represent ownerships in companies.  The companies will have more access to cash for either buybacks/dividends/any other capital allocation that simply was not available before. 

 

Wait and see, but the point of my post was to see if this event happens and then be able to profit from it.

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The US currency policy with China ( and previously Japan ) was/is not very smart - instead of encouraging China to buy more US goods/services, they are asking China to appreciate its currency.

 

 

How is China ganna buy more. They make peanuts in purchasing power and we dont excel at making cheap crap. They have to let the currency rise to increase purchasing power, but that kills their competitive advantage. Its a tight rope. They have done great at navigating the trade war (helped out by idiot free traders) but they are running out of options.

 

China has an artificial peg which doesnt allow for market adjustments. This has to be stopped. Anything else is just selling out America for ideology inmo. How is it free trade if one country has prevented the free market pricing of its currency?

 

Bronco - My point was that one piece of legislation is peanuts compared to the gridlock we will see on major issues such as Climate, Debt, Taxes, Spending, Entitlements, and lack of growth in a must have growth world. Its like picking up a quarter when someone is taking a $20 out of your back pocket. It feels good but is largely irrelevant compared to what else is going on.

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I didn't want to get political, I am making the point that if a IRC section 965 happens again, certain companies WILL benefit.  IRC 965 allowed companies to bring cash into the US at a tax advantaged rate.

 

This is something that I have written about here and is clearly gaining more attention and traction.

 

Something Republicans and Democrats could agree on. 

 

This will impact stocks, since stocks represent ownerships in companies.  The companies will have more access to cash for either buybacks/dividends/any other capital allocation that simply was not available before. 

 

Wait and see, but the point of my post was to see if this event happens and then be able to profit from it.

 

 

You are more optimistic than me.  My observation about divided houses is that there is very little meaningful progress on policy issues...and the few policy changes that do occur are driven by populism (which places opposition parties in a poor position to fight) or compromise rather than sound principles.  Irrespective of my personal political beliefs, I tend to find that split houses or minority governments result in very mediocre government.  

 

I expect to see no changes that will impact my investments (which is actually ok, because changes can be both good and bad!).

 

SJ

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Lol

 

I think its a bit myopic to look at elections from an Investment perspective. I predict massive chaos and more ineffective government. We will likely get higher spending and more tax cuts. Basically more of the same. Things will change when they have too, not when they need to inmo.

 

Strongly, but respectfully, disagree.  Legislation can have a profound impact on investment returns. Examples are too numerous to cite.

 

Also, recent analyses have shown a moderate effect with better economic returns when congress has been divided than when controlled by one party.  Capitalism generally works better when government, like medical doctors, first does no harm.  Strict laissez faire isn't optimal, particularly when there are no restraints on the excesses of financial markets, but less government allocation of resources and more market allocation is how productivity generally advances at a high rate.  

 

When one party controls congress and the White House, the stage is often set for a recession or a subsequent bubble and crash.  :)

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Yeah, if this happens, it won't be peanuts.  It could be $500B - 1Trillion of cash coming into the U.S.

 

It is really a no-brainer, and there was compromise before on this. 

 

1 Trillion is enough to move the "wealth effect" needle in the US in terms of dividends / buybacks / acquisitions. 

 

We'll see - just throwing it out there.  It is way early and as you point out Myth this may never happen.

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Guest broxburnboy

I think this is clearly a case of rearranging the deck chairs on the Titanic... the new guys are the same as the old guys that were thrown out because of their incompetence. The Tea Party does not seem to have a clear set of relevant policies..lower taxes AND lower deficits without cutting "defense" or other highly wasteful spending.

The markets are waiting on the real policy announcement - The Fed's QE2 intentions tomorrow. Guess who's really in charge.

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I think this is clearly a case of rearranging the deck chairs on the Titanic... the new guys are the same as the old guys that were thrown out because of their incompetence. The Tea Party does not seem to have a clear set of relevant policies..lower taxes AND lower deficits without cutting "defense" or other highly wasteful spending.

The markets are waiting on the real policy announcement - The Fed's QE2 intentions tomorrow. Guess who's really in charge.

 

Brox this is my major issue with the elections. It seems like we are just oscillating between a set of incompetent leaders. I dont know if David Cameron is going in the right direction or not but would support him because at least he makes sense, and is making moves.

 

--

 

twacowfca / Bronco - I thought it was myopic (to view politics from an investment perspective, instead of more holistically) not irrelevant. It may happen, it may not but I dont think it will make much of a difference if our pressing long & short term issues arent hammered out.

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How is China ganna buy more. They make peanuts in purchasing power and we dont excel at making cheap crap. They have to let the currency rise to increase purchasing power, but that kills their competitive advantage. Its a tight rope.

 

It is not.

 

The recent airbus order - China could buy Boeings instead of Airbus.

Recent drop in export of US poultry to China - shouldnt have happened

 

Microsoft makes more money in India whose economy is 1/4th the size of China. Why is this the case? I bet it is the case with many US multinationals too.

 

When CNBC asked Ratan Tata a couple of years back about moving Tata manufacturing to China, he said "he doesnt understand china". They tried to prod him more but he just ducked the question.

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Yeah, if this happens, it won't be peanuts.  It could be $500B - 1Trillion of cash coming into the U.S.

 

Seems a bit too high and optimistic. The total cash on all SP500 companies balance sheet is about 1 trillion but they derive a good portion of their income from north america.  The interest rates are higher elsewhere compared to the US so why should the money be repatriated unless it is needed for capital investment or paying dividends in the U.S?

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http://online.barrons.com/article/SB60001424052970204914704575489830316294998.html

 

Title of the article suggests $1T parked overseas.  Cisco alone is $30B.

 

My point is that with a law change, Cisco will look drastically different before law change versus post law change.  In theory, there would be $30B (net whetever US tax would be paid) of cash that could be distributed that is currently unavailable.  No matter what anyone suggests, this would be material to the stock and the business. 

 

 

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My point is that with a law change, Cisco will look drastically different before law change versus post law change.  In theory, there would be $30B (net whetever US tax would be paid) of cash that could be distributed that is currently unavailable.  No matter what anyone suggests, this would be material to the stock and the business. 

 

 

 

Not to mention the flood of money that would come into play in the consumer ecomony.

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Yeah, if this happens, it won't be peanuts.  It could be $500B - 1Trillion of cash coming into the U.S.

 

It is really a no-brainer, and there was compromise before on this. 

 

1 Trillion is enough to move the "wealth effect" needle in the US in terms of dividends / buybacks / acquisitions. 

 

We'll see - just throwing it out there.  It is way early and as you point out Myth this may never happen.

 

 

I think it's a slam dunk that this will be agreeable to both political parties.  CISCO's CEO has been the point man for big companies that want to repatriate their overseas earnings.  He was the chief moneybags for Boxer's successful US Senate campaign.  Soon it will be payback time.   ;D

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