Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Commodities King Gartman Says Gold Soon Reach $1,400 As Drums of War Grow Louder - 25th Sep 17
Stock Market Mixed Expectations, Will Stocks Continue Higher? - 25th Sep 17
22 charts and 52 questions that will make you Buy Gold - 25th Sep 17
Speculation Favors Overall Higher Silver Prices - 25th Sep 17
The Advertising Breakthrough Revolutionizing Gaming - 25th Sep 17
Stock Market Forming a Reluctant Top - 25th Sep 17
Grid Forex Strategy - All You Need to Know - 25th Sep 17
Catalonia, Kurdistan, Patriotism, Flags and Referendums - 24th Sep 17
Two Key Indicators Show the S&P 500 Becoming the New ‘Cash’ - 24th Sep 17
The Felling of Sheffield's Big Street Trees 2017 - Dobcroft Road - 24th Sep 17
Advantages of Forex Trading - 24th Sep 17
Stocks, Gold, Dollar, Bitcoin Markets Analysis - 23rd Sep 17
How Will We Be Affected by a Series of Rate Hikes? - 23rd Sep 17
Fed Quantitative Tightening Impact on Stocks and Gold - 22nd Sep 17
Bitcoin & Blockchain: All Hype or Part of a Financial Revolution? - 22nd Sep 17
Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms - 22nd Sep 17
Will North Korea Boost Gold Prices? Part I - 22nd Sep 17
USDJPY Leads the way for a Resurgent Greenback - 22nd Sep 17
Day Trading Guide for Dummies - 22nd Sep 17
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Tax Reform and the ‘Repatriation’ Trade

Politics / Taxes May 16, 2017 - 06:00 AM GMT

By: Gary_Tanashian

Politics

Since the Trump victory we have heard all about the coming fiscal policies that would replace the non-stop and brilliantly evil* monetary policies employed by the Fed since the 2008 market crash. These fiscal policies range from the hair-brained (rust belt factory job repatriation) to the silly (building a border wall in lieu of modernizing security-focused information and surveillance technologies) to the arduous (fixing the Healthcare system) to the sound (well-targeted tax cuts). We’ll get tax cuts, but how well targeted they’ll turn out to be will be debated endlessly and I for one don’t think the trend of the rich getting hyper richer and the poor getting poorer is going to reverse any time soon. For reference, see this post at Biiwii.


Under the taxation aspect of the coming fiscal policy bundle, a consensus is gathering about how unbelievably beneficial this will be to the large, multi-national technology companies. We are talking the likes of Apple, Intel, Cisco, Microsoft, etc. So much so that Tom McClellan is even talking about a “QE coming for Tech” in the form of repatriation of massive hordes of sheltered tax dollars.

Now, these are the financial markets and as with the bullish play on Europe’s actual QE as noted by Kevin Muir of the Macro Tourist, we need to realize that these kinds of stories come out in mature bull markets. I am not saying I am not on board; indeed I still lean bullish on the markets, but resoundingly bullish assertions… meet grain of salt.

That said, I am personally watching Cisco drop after recently selling its pop. I am also still holding Intel despite its drop last week because it’s chart is intact. What’s more, if this ‘tax dollar repatriation as QE’ theme starts to look doable we will go with it. This is a market all about liquidity after all and if the Trump administration would quit acting like a bunch of lunatics long enough to concentrate on the sounder of their proposed policies, we will get a chance to actually find out if the theory meets the coming reality.

Here is a chart of the S&P 500 (source: Slope Charts) and its constant companions, post-2008; the Monetary Base (MB) and the 3 Mo. T-Bill rate, which is a reflection of the Fed Funds Rate. There are a lot of inputs into the MB, but suffice it to say it is a measure of the Fed’s willingness to monetize bond assets in order to keep the system liquid. The T-Bill yield is now rising as the Fed slowly withdraws its absurd ‘ZIRP (almost) Eternity’ policy. If/as the Fed stands down, the job that’s been done by that black line is going to have to come from somewhere because distortions are built in to this FrankenMarket.

People can argue all they want about how the economy is doing (it’s okay) or the fundamentals behind stocks (overvaluation aside, they are fine too when taking a surface look). But it is all underpinned by distortion, from QEs implemented every time the market hiccupped to the 7 year run of the war on savers known as ZIRP.

The bottom line is that you’re on, Donald. This is not a TV show. You need to stop clowning around and be real about this. Stop obsessing on “fake news”, firing people indiscriminately, and please stop the nonsense about repatriating US factory jobs that are gone forever (and should be gone forever as progress and automation march on).

Trump needs to get tax reform right because we appear to be in a shift from the monetary to the fiscal. If I had to pick which is sounder, it would be fiscal by a country mile. But I don’t have faith in Trump to get through a day without making a fool of himself, let alone oversee something as intricate as the reformation of the tax code.

The point I am trying to make here is that if the Fed remains in policy abdication mode, the fiscal side had better be ready when the market and eventually the economy need it. What if the transition is not a smooth one as the markets currently seem to be expecting?

* The simple fact is that money has been fire hosed into the system at the expense of savers in order to boost asset prices and by definition, the wealth of asset owners. Further, in many cases the first users of the new ‘money’ have been giant financial institutions, which were first bailed out and then have benefited by doing business as usual, where in 2008 there almost was no more business to be done after these firms were left to their own devices in almost wrecking the system.

Subscribe to NFTRH Premium for your 40-55 page weekly report, interim updates and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com. Also, you can follow via Twitter ;@BiiwiiNFTRH, StockTwits, RSS or sign up to receive posts directly by email (right sidebar).

By Gary Tanashian

http://biiwii.com

© 2017 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife