Two Tax Cut Views From The Wall Street Journal

by Michael Keane


As we continue to analyze the results of the tax cut, a curious thing happened. The Wall Street Journal put out conflicting articles on the subject. In one recent article this week written by Richard Rubin and Theo Francis (link here), the amount of money that has been repatriated by US corporations due to the changing tax law is currently at about 20% of the Trump Administration's expectations. This is presenting (or compounding) a higher risk for the US deficit in the next few years. But in an Opinion piece (link here) by Stephen Moore, the analysis is that the corporate tax cut is quickly and assuredly going to pay for itself and then some through GDP growth.

One of the areas that the US government expected to help nullify the hike in the deficit was corporate profit repatriation. If you follow the evidence presented in the first article, and current levels of repatriation continue, the government will not be able to deal with the deficit.If you follow the second article, the rise in GDP will do more than enough to cover the deficit initially created by the cut and overtake the issue of repatriation.  

Because the opinion piece came after the repatriation article, and filled with scattered non-evidence based data points, it might lead one to believe it was written as a rebut. But as always, time will tell where the Trump administration's economic decisions lead. In a thankful way, the decisions and moves have been big, so the results continue to be clearer.

KeaneVCC continues to follow this topic. Previous posts can be found here. 



  ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

Updates on Week Ending July 14th (Trade on Banks, Healthcare Lobbying, Bullied Comis, more)

The  week had some activity to it for KDK Options, and KeaneVCC.

KDK Options - There was a trade in financial ETF XLF. The update on the trade can be found here.

KeaneVCC - The following post discusses a New York Times article from Andrew Jacobs on how Healthcare companies have used their lobbying to influence US governmental policy on breastfeeding. The post is here.

KeaneVCC - Bullied Comics continues to develop its YouTube channel. A link for it is here. 

 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**
 

Healthcare Industrial Complex Hits Babies

In a landmark move, the United States as a government has sided with corporations and attempted to block a policy promoting breast feeding. In a New York Times article by Andrew Jacobs (link here), the US delegation went so far as to threaten the sponsors with trade sanctions. It took sponsorship by the Russian delegation for the US to fall in line. 

This event puts the topic of the Healthcare Industrial Complex into focus. This adds to the growing evidence that corporations involved in healthcare are involved in actions that are focused on profit rather than healthcare and use their ability to bully governments (even the government of the United States) to act on their behalf. The fact that babies' health is now part of the equation through formula profits is disturbing.

In addition to using their lobbying efforts to affect US governmental policy, corporations continue to control high prices on the most needed formulas and influence insurance companies coverage decisions. Blue Cross Blue Shield is one of those insurance companies that has denied prescriptions to the most expensive formulas even though it was the only formula not to create problems that caused blood in the baby's stool.

Please take the time to communicate with your politicians and companies like Abbott, and Nestle about these issues. A large threat to sell shares owned (we all likely own shares through retirement funds) or a large scale publicity campaign are probably two of the most effective. Even President Trump has started tweeting about high drug prices. But we'll get into that chicanery in a later post.

 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

  

Wall Street Journal's Article on Boomers' Retirement Troubles

There is an article written by the Wall Street Journal that investigates the reasons why Baby Boomers are less wealthy and comfortable than previous generations entering retirement.

WSJ Retirement Article

Some (but certainly not all) reasons are below:

- Healthcare

 - Supporting parents up to and including now.

- Accessing retirement during their working years

- Paying for their children's college education.
  

Effects of Tax Cut Are Emerging

We are 6 months into the new tax structure. Results are starting to emerge in terms of what corporations and individuals are doing with their new tax savings. A series of blog posts was written about possible results earlier in the year. They can be found individually below:

- Part 1 - Likely Outcomes

- Part 2 - Corporate Responses

- Part 3 - Earnings

- Part 4 - Debt Load

Former Federal Reserve Chairman Ben Bernanke recently wrote an article on the topic. The link to the Bloomberg article is here. 

There are some items that are becoming clearer now that the second quarter is coming to an end.

- Cap Ex is losing the battle against buybacks and increased dividends
- Earnings have increased, supporting stock prices
- Debt load is not looking to decrease
- Because the decision making of how the tax bill benefits would be distributed was given to the top, the advantages up to this point are clearly staying at the top.

  ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**

 

Waymo gains Taxi License in Arizona

by Michael Keane

Per a story written by Jonathan Gitlin fron Ars Technica (story link here), Alphabet's Waymo has been granted a license to operate as a taxi in the Phoenix, AZ area. This should add leverage to the autonomous driverless vehicle industry as more and more of the public will have access to its use. Fiat Chrysler should also see some added marketing and advertising coverage from this as more of their vehicles will be on the road and available for the public to experience.

Getting more eyes and experience behind the driverless vehicles is paramount to continue to develop the technology, and the attitude of the public. While there will be issues, it seems that step by step, driverless vehicles are becoming more of a reality. The likely jump in revenue is not far behind for Waymo and Fiat Chrysler. 

Part 4 - The Debt Load of the Tax Bill

by Michael Keane

Part 4 of the series on Likely Tax Bill Outcomes will focus on the debt load increase that has been created by the bill. There is a correct feeling of danger towards the idea that this will add over $1 trillion to the nations debt without a backstop or plan if the debt does not look to be paid off after a couple of years. If this is the case, it will be just another unfortunate financial burden that the Boomer and X generations (I am considered part of Generation X) will put on Millenials and beyond.

There is an ideology that the tax benefits from the increased profits from both corporations and individuals created will more than cover the current debt that has been saddled on the taxpayers. While this may sound like a probable process, greed and envy tend to get in the way of the plan. The likely scenario will be much different than this. Previous similar actions have been met with less capital expenditures and higher dividends to investors from corporations. Individuals that receive the most financial benefits will likely save and not spend the majority of their tax bill savings. There is also the issue of rising rates which will reinforce the issuance of dividends and increase savings.

This tax bill could not come at a more peculiar time. The Federal Reserve is about to start unloading their massive balance sheet. The administration is presenting a budget that increases spending. Adding all three actions up at the same time does not sound like good fiscal planning. The securities markets are going to need time to digest this action. You can look for ten year interest rates to continue to climb north of 3 percent in the next 6-12 months. If it moves quickly, ripple effects will be felt in the stock market and the economy as a whole.  It is strange that Republicans who champion the idea of fiscal conservatism are in charge. These actions on the tax bill clearly show that regardless of party, fiscal responsibility has some serious blinders on. It's kind of a bummer.

You can find the links to parts 1-3 below:

- Tax Bill Likely Outcomes (Part 1)

- Corporate Responses to Tax Bill (Part 2)

- Here Come The Earnings (Part 3)

 ** This blog is used for opinions and ideas and should not be used as a direction to act without doing your due diligence.**



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