Tax Euphoria Fades As Tech Rout Spreads

One look at S&P futures this morning reveals an unchanged market, however it is again the violent sector rotation that is taking place behind the scenes that is the real story, with defensive sectors real estate, retail, food, utilities outperforming while investors continue to bail and book profits on tech stocks after sharp gains since the start of the year. Monday’s Nasdaq rout also spread to European and Asian markets which fall on last minute changes to the tax plan, most notably the retaining of AMT which could prevent companies from making use of intellectual property tax breaks, effectively raising their tax rates. As a reminder, on Monday the Nasdaq fell 1.2% following broad based hedge fund liquidation from the most crowded sector, after tax experts said Senate Republicans unwittingly passed a bill that would mean higher-than-intended taxes for technology firms and other corporations; in sympathy Europe’s Stoxx tech sector index SX8P hit the lowest since late September, down 8% since mid-November
European stocks dipped, trimming the previous session’s sharp gains amid a renewed selloff in tech stocks globally and as weaker industrial metal prices weighed on mining shares which slumped ‘due to a marked slowdown in China’s metal consumption growth, with market participants foreseeing weaker public infrastructure spending growth extending into 2018,’ SP Angel analysts including John Meyer, Simon Beardsmore and Sergey Raevskiy write in note.
The Stoxx 600 is down 0.2%, remaining in a range between its 50-DMA and 200-DMA started in mid-November. The Stoxx tech sector SX8P index falls 0.6%, mirroring a drop in the Nasdaq Monday. As noted above, Europe’s tec sector is down about 8% since a peak in early November, amid a sharp sector rotation out of momentum stocks and into potential winners of the U. S. tax reform. UK’s FTSE 100 outperforms peers amid the weaker pound which had briefly tripped through 1.34 as Brexit talks had been unravelled over disagreements from the DUP in regards to a hard border between Ireland and Northern Ireland. UK grocery retailers are among the top movers in the FTSE 100 after a positive note from Goldman Sachs. Elsewhere, to the downside, health care and material names lag.

This post was published at Zero Hedge on Dec 5, 2017.

Plunder Capitalism

I deplore the tax cut that has passed Congress. It is not an economic policy tax cut, and it has nothing whatsoever to do with supply-side economics. The entire purpose is to raise equity prices by providing equity owners with more capital gains and dividends. In other words, it is legislation that makes equity owners richer, thus further polarizing society into a vast arena of poverty and near-poverty and the One Percent, or more precisely a fraction of the One Percent wallowing in billions of dollars. Unless our rulers can continue to control the explanations, the tax cut edges us closer to revolution resulting from complete distrust of government.
The current tax legislation drops the corporate tax rate to 20%. This means that global corporations registered in the US will be taxed at a lower income tax rate than a licensed practical nurse making $50,000 per year. The nurse, if single, faces in 2017 a 25% marginal tax rate on all income over $37,950.
A single person is taxed at a rate of 33% on all income above $191,651. 33% was the top tax rate extracted from medieval serfs, and approaches the tax rate on US 19th century slaves. Such an upper middle class income as $191,651 sounds extraordinary to most Americans, but it is so far from the multi-million dollar annual incomes of the rich as to be invisible. In America, it is the shrinking middle and upper middle class incomes that bear the burden of income taxation. The rich with their capital gains from their equity holdings are taxed at 15%.

This post was published at Paul Craig Roberts on December 4, 2017.

The US Aristocracy’s Smear-Russia Campaign: Big Brother At Work

Authored by Eric Zuesse via The Strategic Culture Foundation,
Billionaires, both liberal and conservative ones, own, and their corporations advertise in and their ‘charities’ donate to, America’s mainstream (and also many ‘alternative news’) media.
They do this not so as to profit directly from the national ‘news’media (a money-losing business, in itself), but so as to control the ‘news’ that the voting public (right and left) are exposed to and thus will accept as being ‘mainstream’ and will reject all else as being ‘fringe’ or even ‘fake news’, even if what’s actually fake is, in fact, the billionaires’ own mainstream ‘news’, such as their ‘news’media had most famously ‘reported’ about ‘Saddam’s WMD’ (but the’news’media never changed after that scandal – even after having pumped uncritically that blatant lie to the public).

This post was published at Zero Hedge on Nov 30, 2017.

Canadian Finance Minister Admits Selling Stock but Denies It Was Because He Knew Tax Hikes were Bearish

The Canadian Finance Minister Bill Morneau is refusing to say whether he sold millions of dollars worth of company stock just days before introducing tax changes that may have caused share prices to drop. This type of insider-trading is what politicians always manage to get away with no matter what the country. This dispute is rather interesting. Here the opposition is accusing him of selling the stock because he knew that raising taxes would cause the stock to drop. This is showing that the politicians were well aware of raising taxes would be bearish for the Canadian economy. That’s just OK as long as they get theirs.

This post was published at Armstrong Economics on Nov 30, 2017.

Second Republican Senator Says He’s Voting ‘No’ On Tax Reform

#BreakingNews: Sen. @SteveDaines aides to FBN: "No" on tax bill but optimistic about changes pic.twitter.com/2P07bfGIZo
— FOX Business (@FoxBusiness) November 27, 2017

Just hours after Sen. Rand Paul announced he would vote ‘yes’ on the Senate’s tax-reform plan, handing the White House a win, a second Republican senator has publicly declared his intention to vote against the bill, joining Wisconsin’s Ron Johnson in opposition.
And that senator is: Montana’s Steve Daines.
According to Politico, Daines and Johnson have similar objections: They both believe the bill is too generous to corporations while not doing enough to help small businesses, many of which would benefit from a more charitable pass-through rate. For “pass-through’ entities, taxes are generally filed through the individual income tax code and not the corporate tax code.
There are millions of these entities, and they are most often sole proprietorships, limited liability companies or partnerships.
Daines reportedly discussed his reservations about the bill with President Trump over the weekend.

This post was published at Zero Hedge on Nov 27, 2017.

Corporations Can’t Oppress Us without the State’s Help

In a piece recently published at The American Conservative entitled ‘Americans, We Aren’t So Tough, and It Shows’ I discussed the way in which a confluence of factors such as the decay of the intermediary institutions of civil society and economic insecurity leads to individuals being vulnerable and anxious. This vulnerability, I argued, leads to political tribes seeking to control the power of the state in order to prevent its massive power from being used against them, with the end result being increasing civil strife over the institutions of political power. In order to try and reduce such conflict, I argued that power should be disbursed throughout society, rather than concentrated with the state, in part by the revitalization of the institutions of civil society.
While many online commentators agreed with the detrimental effects of the decline of civil society, a somewhat unexpected vein of criticism emerged, arguing that reducing the power of the government will only leave individuals even more vulnerable and at the mercy of powerful mega-corporations than ever before. Given the large role that economic insecurity plays in the anxiety that leads many people to look to political institutions for protection, it makes sense that the power of large corporations would be concerning. However, this fear is based on an incorrect conflation of political and economic power that misunderstands the way in which the state distorts the dispersion of market power.

This post was published at Ludwig von Mises Institute on November 27, 2017.

The Dumbest Dumb Money Finally Gets Suckered In

Corporate share repurchases have turned out to be a great mechanism for converting Federal Reserve easing into higher consumer spending. Just allow public companies to borrow really cheaply and one of the things they do with the resulting found money is repurchase their stock. This pushes up equity prices, making investors feel richer and more willing to splurge on the kinds of frivolous stuff (new cars, big houses, extravagant vacations) that produce rising GDP numbers.
For politicians and their bureaucrats this is a win-win. But for the rest of us it’s not, since the debts corporations take on to buy their own stock at market peaks tend to hobble them going forward, leading eventually to bigger share price declines than would otherwise be the case.
The ultimate loser? The only people traditionally willing to buy in after corporations are finished overpaying for their stock: Retail investors, of course.
Let’s see how it’s playing out this time.
First, corporations spent several years elevating stock prices with share repurchases. Note the near perfect correlation between the two lines:

This post was published at DollarCollapse on NOVEMBER 26, 2017.

How to Beam Factories to Mars

In a recent blog post, Paul Krugman tried to illustrate a point about the GOP tax cut plan by imagining interplanetary trade with Martians. (At least he’s now entertaining voluntary transactions, rather than an alien invasion.) Yet in his zeal to downplay the potential benefits to workers from a corporate tax cut, Krugman ends up shortchanging the versatility of markets. As a teaching exercise, I’ll walk through the full implications of Krugman’s story about Martians, to show the elegance of capitalism.
Krugman’s Martian Scenario The context for Krugman’s fanciful thought experiment is the GOP plan to cut the corporate income tax rate from 35 to 20 percent. In order to sell this plan as pro-worker, the GOP defenders are arguing that capital is very mobile on the international market. Therefore, global investors can be picky, and must earn the same after-tax rate of return (due account being made for risk), wherever they invest. This means – so the GOP argument continues – that a large cut in the US corporate tax rate will simply invite a flood of foreign capital into the US, pushing down the pre-tax rate of return to reestablish equilibrium across all countries. Yet this process helps American workers, who are now mixing their labor with a larger capital stock. Because labor productivity is higher with more tools and equipment, wage rates end up rising. Thus, so the argument concludes, the primary beneficiaries of the GOP tax cut won’t be international capitalists, but instead will be American workers.
As you can imagine, Krugman has been doing his best to throw cold water on this chain of reasoning. One line of attack has been the casual assumption that a flood of new foreign investment could come into the United States and quickly increase the capital stock, in order to push down the earnings of capital (while raising the earnings of workers). Krugman argues that because global markets are not fully integrated, that the adjustment process could take decades, meaning that workers would have to wait a long time to see the alleged benefits from the big tax cut on corporations.

This post was published at Ludwig von Mises Institute on 11/22/2017.

Government Didn’t Save Us From Apple’s iPhone “Monopoly”

In 2007 Apple Inc made a move that changed the whole High-Tech world when it launched the first iPhone. The iPhone easily dethroned Nokia, and became the first smartphone that appealed to technophiles, businessmen, and everyday consumers.
Apple generated exceedingly high profits from the iPhone’s success. According to iSuppli, Apple made a $326 profit for every unit of the 2nd generation iPhone sold (excluding development and capital costs). Attracted by these profits, many companies had tried to find the formula for a mobile phone that will cut into Apple’s market share. Palm and Nokia failed miserably, while RIM’s Blackberry managed to find success only with businessmen.
This is a classical example of a corporation which has an almost absolute monopoly on a specific product. Over time, this product could become essential for many, allowing the corporation to sell it at a very high profit.
The conventional solution for this problem, suggested by many economists and politicians, is to impose price controls. After all, the free market failed in preventing a market failure from occurring so the power of government is required to save the day.

This post was published at Ludwig von Mises Institute on November 22, 2017.

Bank Insurance Clarification – A contagion eliminates all Rules!

The entire banking insurance schemes created during the aftermath of the Great Depression, are predicated upon an ASSUMPTION that a bank failure is a single isolated event. The contingency plan for a wide-scale banking collapse will default to a ‘per person’ basis despite what anyone else says. I have been in meetings and that is the stated fallback position. The closest example was the S&L Crisis of the late 1980s caused by Congress raising taxes changing the tax credits for real estate which led to a sell-only market.
The S&L institutions were insured by the Federal Savings and Loan Insurance Corporation (FSLIC) which was established to provide insurance for individuals depositing funds into S&Ls. When S&L banks failed, the FSLIC was left holding a $20 billion check. They inevitably left the FSLIC corporation bankrupt. The Federal Deposit Insurance Corporation (FDIC) that oversees and ensures banking deposits today is what also comes into play. During the S&L crisis, the deposits of some 500 banks and financial institutions were backed by state-run funds. The collapse of these banks cost at least $185 million and destroyed the concept of state-run bank insurance funds since they could not cover the losses.

This post was published at Armstrong Economics on Nov 20, 2017.

The Corporate Earnings Fiction in Q3

The Biggest Sinners in the Dow.
All 30 companies in the Dow Jones Industrial Average have now reported earnings for the third quarter. As required, they reported these earnings under Generally Accepted Accounting Principles (GAAP). These standardized accounting rules are supposed to allow investors to compare the results of different companies. But that’s too harsh a fate for many of our corporate heroes, and so they proffer their own and much more pleasing accounting strategies – as expressed in ‘adjusted’ earnings and ‘adjusted’ earnings per share (EPS).
Of the 30 companies in the DJIA, 14 reported ‘adjusted’ or ‘non-GAAP’ earnings in Q3 that were significantly higher than their GAAP earnings. Total ‘adjusted’ EPS of these 14 Dow components exceeded their total EPS under GAAP by 26%! Nice work!
‘Adjusted’ earnings are the great American fiction conceived to serve the great American passion: inflating share prices by hook or crook.
The biggest sinner: Merck & Co. miraculously turned its loss of -$0.02 per share under GAAP into an ‘adjusted’ profit of $1.11 a share. This is not a ‘one-time’ event either. Merck keeps showing up in the ignominious top five Dow earnings adjusters time after time. Among the repeat offenders in the top five are also Pfizer, Coca-Cola, and GE.

This post was published at Wolf Street on Nov 19, 2017.

18/11/17: ECB Induces Double Error in the EU Policy Markets

In economics, two key market asymmetries/biases lead to the severe reduction in markets efficiency often marking the departure from theoretical levels of efficiency (speed, with which markets incorporate new relevant information into pricing decisions of markets agents) and the practical outcomes. These asymmetries or biases are: information asymmetry and agency problem.
For those, uninitiated into econospeak, information asymmetry (sometimes referred to as information failure), is a situation, in which one party to an economic transaction possesses greater knowledge of facts, material or relevant to the decision, than the other party. For example, a seller may know hidden information about a car on offer that is not revealed to the buyer. In more extreme example, a seller might actively conceal such information from a buyer. This can happen when a seller ‘prepares’ the car for sale by cleaning the engine, thus removing leaks and accumulations of oil and / or coolant that can indicate the areas where the problems might be.
The agency problem, also referred to as principal-agent problem, arises when an agent, acting on behalf of the principal, has distinct set of incentives from the principal. The resulting risk is that the agent will act in self-interest to undermine the goals and objectives of the principal. An example here would be a real estate agent contracted by the seller, while taking a commission kickback from the buyer. Or vice versa.

This post was published at True Economics on Saturday, November 18, 2017.

The Hunt for Taxes Destroying Healthcare in Britain

The Hunt for Taxes is now creating a crisis in healthcare in Britain. The UK government is gearing up for a massive tax clampdown targeting private sector contractors. The UK Treasury estimates in its budget that this taxing of private contractors in healthcare will create 185m in new taxes for the year 2017/18. This is known as the IR35 regime, which will apply to hundreds of thousands of freelancers outside the public sector.
At the core of this is the issue where someone who is incorporated pays less tax and national insurance than an employee on the same income working freelance under contract. Many suspects that this is just a test run and the government will extend the tax increases to the private sector in a year.

This post was published at Armstrong Economics on Nov 18, 2017.

The Great Retirement Con

The Origins Of The Retirement Plan
Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a “pension”, was again offered to soldiers in the Civil War and every American war since.
Since then, similar pension promises funded from public coffers expanded to cover retirees from other branches of government. States and cities followed suit — extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.
A pension is what’s referred to as a defined benefit plan. The payout promised a worker upon retirement is guaranteed up front according to a formula, typically dependent on salary size and years of employment.
Understandably, workers appreciated the security and dependability offered by pensions. So, as a means to attract skilled talent, the private sector started offering them, too.
The first corporate pension was offered by the American Express Company in 1875. By the 1960s, half of all employees in the private sector were covered by a pension plan.
Off-loading Of Retirement Risk By Corporations
Once pensions had become commonplace, they were much less effective as an incentive to lure top talent. They started to feel like burdensome cost centers to companies.
As America’s corporations grew and their veteran employees started hitting retirement age, the amount of funding required to meet current and future pension funding obligations became huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in US history, was just entering the workforce by the 1960s.

This post was published at PeakProsperity on Friday, November 17, 2017,.

Muddy Waters Proved Right As Huishan Dairy Prepares For Liquidation

On March 2017, we discussed the sudden 90% drop in the share price of China’s largest dairy farm operator, the Hong Kong-listed China Huishan Dairy Holdings. The collapse occurred the day after its creditors convened an emergency meeting to discuss the company’s cash shortage and was three months after Muddy Waters’ Carson Block questioned its profitability and said the company was ‘worth close to zero.’ After the collapse in the share price we joked that ‘it suddenly almost is.’ Now we have confirmation that Block was correct, as Huishan is entering provisional liquidation, citing liabilities of $1.6 billion. From Bloomberg.
China Huishan Dairy Holdings Co., the Hong Kong-listed company targeted by short sellers including Muddy Waters Capital LLC, is preparing for provisional liquidation in a move that could protect its assets as it negotiates with creditors. The firm had told its Cayman legal advisers to make the preparations, it said in a Hong Kong stock exchange filing Thursday.
Huishan’s board earlier found that the net liabilities of its units in China ‘could have been’ 10.5 billion yuan ($1.58 billion) as of March 31, the company said. A provisional liquidation generally is used to safeguard a company’s assets before a court rules what action to take.

This post was published at Zero Hedge on Nov 17, 2017.

Rob From The Middle Class Economics

Much of our financial world functions as a ‘Rob from the Middle Class’ economy. The system robs from the middle class and poor via ‘money printing’ and inflation of the currency supply!
The rich get richer and the poor get poorer.
Little benefit comes from complaining about the process or fighting it. Understand the process, work around it, and use it constructively. Explaining Our Rob from the Middle Class Economy:
Governments, individuals, pension funds and corporations are increasingly financialized and dependent upon debt, central bank interventions and currency devaluations. Wages are less relevant in a financialized economy because wages rise slowly while debt, currency in circulation, and paper financial assets increase rapidly.

This post was published at Deviant Investor on November 17, 2017.

Reality On So-Called ‘Tax Cuts’

Let’s cut the crap, shall we?
Tax cuts have never resulted in any sort of material improvement in the living standard of the ordinary America — which I define as everyone other than the top 1% of earners.
It has simply never happened.
The last time the tax code was “reorganized” you got more buy-backs and stock options issued to executives.
The same thing happened with all the other tax cut packages since.
Further, when we had the so-called “Reagan Tax Reform” Tipper promised to cut spending in order to make them deficit neutral. He did not do so; no reduction in spending was ever delivered.
This will be no different. In fact, unlike the Reagan-era game nobody is even claiming to intend to reduce spending.
The chimera of “tax cuts” being “good for business” is nonsense as well. Almost no corporation actually pays the tax rate claimed, especially large firms. They all cheat — Apple has been caught in the “Paradise Papers” and others have as well. The claim of “repatriation” leading to some sort of boom in investment and wages is nonsense as well.

This post was published at Market-Ticker on 2017-11-17.

Silicon Valley Exec Has Created A New Religion That Will Worship A ‘Godhead’ Based On Artificial Intelligence

I know that the headline sounds absolutely crazy, but this is actually a true story. A Silicon Valley executive named Anthony Levandowski has already filed paperwork with the IRS for the nonprofit corporation that is going to run this new religion. Officially, this new faith will be known as ‘Way Of The Future’, and you can visit the official website right here. Of course nutjobs are creating ‘new religions’ all the time, but in this case Levandowski is a very highly respected tech executive, and his new religion is even getting coverage from Wired magazine…
The new religion of artificial intelligence is called Way of the Future. It represents an unlikely next act for the Silicon Valley robotics wunderkind at the center of a high-stakes legal battle between Uber and Waymo, Alphabet’s autonomous-vehicle company. Papers filed with the Internal Revenue Service in May name Levandowski as the leader (or ‘Dean’) of the new religion, as well as CEO of the nonprofit corporation formed to run it.
So what will adherents of this new faith actually believe?
To me, it sounds like a weird mix of atheism and radical transhumanism. The following comes from Way of the Future’s official website…
We believe in science (the universe came into existence 13.7 billion years ago and if you can’t re-create/test something it doesn’t exist). There is no such thing as ‘supernatural’ powers. Extraordinary claims require extraordinary evidence.

This post was published at The Economic Collapse Blog on November 16th, 2017.

House Passes GOP Tax Reform Bill In Major Victory For Republicans

Update: The House has passed its tax reform package with a final vote of 227 yeas to 205 nays. And while the Republican leadership has ordered the caucus not to gloat about the legislative victory – possibly the biggest so far for President Trump – Paul Ryan and Co. will be able to go home to their constituents and enjoy a relaxing Thanksgiving holiday.
Their colleagues in the Senate won’t be so lucky.
Senate leaders have said they’re working with holdouts like Ron Johnson as well as lawmakers like Bob Corker who are leaning toward voting against the bill in its current form. The Senate Finance is still marking up the bill, adding amendments and making alternations, but leaders say it’ll make it to a floor vote the week after Thanksgiving.
Senators Marco Rubio and Mike Lee have wanted to see a bigger expansion of the childcare tax credit. Johnson has said more of the tax relief should go to LLCs via the pass-through rate and less generous breaks should be given to corporations.
Here’s a list of the Republicans who voted ‘nay’.
GOP no votes on the tax bill pic.twitter.com/QJ9vVdgPhG
— Naomi Jagoda (@njagoda) November 16, 2017

This post was published at Zero Hedge on Nov 16, 2017.

New York Fed’s ‘Underlying Inflation’ Hits 11-Year High

Something is moving beneath the surface. Today is inflation day. After the Bureau of Labor Statistics released its Consumer Price Index for October this morning, several other inflation gauges were released, all based on rejiggering in some way the minute disaggregated details of the BLS data pile. This includes the Atlanta Fed’s ‘Sticky-Price CPI,’ which ticked up 2.2%, and the New York Fed’s ‘Underlying Inflation Gauge,’ which hit the highest level since August 2006.
Inflation – when defined as increase in consumer prices – is very much in the eye of the beholder, or rather of the spender. Every household has its own inflation rate, depending on whether they have kids in college, have high medical expenses, or rent an apartment in a city where rents are high and soaring at double-digit rates.
And now that the New York Fed’s Underlying Inflation Gauge has hit an 11-year high, in a sign of things to come, we better take a look at it.
The UIG comes, like most inflation measures, in two forms: The ‘prices-only’ UIG, which is based on 223 disaggregated price series in the CPI and is comparable to a ‘core’ inflation measure; and the ‘full data set’ UIG, which incorporates all the data of the ‘prices-only’ UIG plus 123 macroeconomic and financial variables.

This post was published at Wolf Street on Nov 15, 2017.