The jubilation that was rendered by the “market” over the past week, crystallizing in rocket-ship rides to all-time-highs, cheers and celebration, as the Senate worked feverishly into the wee hours of Saturday to finally write in enough give aways of pet cows, pigs, and other assorted farm animals to deliver the President a much-needed “win” was both surreal, as well as comical.
The issue with all this is: They haven’t truly passed anything. This was all about passing what they’ll now use as a template to further negotiate with, or against, what the House passed. i.e., This thing isn’t over – it’s just getting started.
It doesn’t matter what side of the political spectrum one falls on if they’re in business, for there is agreement on one thing when you ask any business owner, whether small or large: The tax code, along with its rates, are both cumbersome and ridiculous.
It is not only hard to imagine, but even harder to concede to the realization (i.e., as in when you have to file and pay those taxes) that the U.S. has the highest corporate tax rate in the industrialized world.
This is not only an aberration, but it’s also – an abomination. Allowing it to ever reach the top 10, let alone #1, proves de facto just how far the tax code needs a good overhauling. Yet, hence lies the key. e.g., “good overhauling.”
What we may get in the end is the equivalent of a superficial rebuild, thrown together with shoddy parts by “mechanics” in name only.
The issue that is now coming to light is this: The more we’re finding out what is in this current plan, along with what is not, is beginning to raise quite a few eyebrows. I have a feeling it’s going to raise a lot of ire along with them, as we go along.
As I have warned since this process began: If the “tax reform” bill is found to be nothing more, but a specious headline generating vehicle, rather than a true reform and overhaul? (i.e., at least in actual spirit) All bets are off. And I mean just that – all.
Whether one wants to agree or not, the evidence has now reached beyond questioning. Since the election the “markets” have hitched their bandwagon to not only the idea, but the certainty, that a meaningful tax reform package was going to not only be hashed out, but delivered and signed into law, before the close of 2017.
The “markets” neither waved, or faulted as two of the three-legged-stool consisting of healthcare reform, regulatory reform, and tax reform were annulled. This alone shows you just how important the “tax leg” truly is.
The entire market advance (forgive me for not mentioning “great earnings.” It’s too early in my day for comedy.) has been predicated on a president willing, able, and gladly so, to sign any proposed legislation into law.
Again, for I can not make this point any clearer: Sign into law.
If you don’t believe that premise, look no further for confirmation then how the “markets” reacted to the initial reporting of N. Korea launching a ICBM capable of now hitting anywhere in the U.S. as 3 aircraft carrier battle groups, along with B-2 bombers, and more patrol the peninsula. All while actively conducting war games, upping the potential for the slightest misstep by any, and all involved, potentially unleashing all out thermonuclear war, or WWIII – vs the Flynn plea deal.
The “market’s” reaction? “Look is that a missile? Should we duck and cover?” “Hell no! That’s a dip, back up the truck – and buy, Buy, BUY!!!”
To show the folly of what these “markets” had now become I posted the following chart in a note last week. To wit:
As illustrative as the above may be. What is even more so is what the next one should imply. Again, to wit:
Here’s the obvious: If one still doesn’t think this entire rally is based upon Trump? (i.e., Willing, able, and gladly ready to sign almost anything.) I have some really wonderful ocean-front property in Kentucky you can have, cheap.
The reasoning behind such a claim, again, should be obvious. e.g., Two houses controlled by the same party means diddly if there isn’t a president that will sign it into law. And these two bodies can’t get (or keep) enough votes within their own brethren to get something out of committee half the time, let alone, anything veto proof. It’s beyond bewildering.
We are currently finding out that there are hidden taxes, raising of rates, added brackets, not to mention what we don’t truly yet know with what was horse-traded in and out, just to get this thing out of committee, to now be horse-traded, again, with the House.
You could lose prior House votes with the Senate changes and vice versa. What’s worse is you could lose what is now perceived as “good” for something watered down, or worse, eliminated entirely, while something currently unknown gets added in. i.e., Think: more brackets, (again, infuriating!) sun setting clauses, and hidden rate hikes or fees as just a few examples.
Currently, as would be suspected, the politicians are stampeding to any camera, microphone, or media outlet to profess how this current “tax reform bill” is either the greatest since Ronald Reagan, or the worst since. All depends on which side of the aisle the current talking-head is standing. So since they keep continually bringing up the former president, I believe it’s only fitting to look at what Mr. Reagan’s former budget director thinks of all this. Hint: “Con Job.” Here’s a sample from one of his latest articles. To wit:
“During more than four decades in Washington and on Wall Street it is quite possible that we never picked up any useful skills. But along the way we did unavoidably acquire what amounts to a survival tool in those fair precincts—-namely, a nose for the con job.
And what a doozy we have going now as a desperate mob of Capitol Hill Republicans attempts to enact something—anything— that can be vaguely labeled tax reform/tax cut. And for a reason that lies only slightly below the surface.”
The above was before the now “updated” version since passed out of committee. What is yet to come forth is anyones guess. But guess it is, and that’s not what this “market” has been propelled by.
This entire “Trump trade” was supposedly fueled by certainty. Certainty that meaningful healthcare reform would already be passed. Certainty that meaningful regulatory reform would already be passed with further reforms in the queue. Certainty that meaningful tax reform would not only be banged out, but passed and signed into law before the end of 2017. And all we’ve gotten so far is certainty – that certainty – is anything but. That’s now for certain.
As we now stand this entire “celebration” stands square in the face of a government shut down debate, or debacle, scheduled on the 8th. A Federal Reserve FOMC deliberation ending on the 14th, where the “markets” will find out if the outgoing Chair will deliver a nice great big piece of “holiday cheer” (aka lump of coal) in the form of another rate hike to go along, or spike up the “egg nog”, if you will. (aka as balance sheet normalization.)
Look for Ms. Yellen to be all smiles at the presser as she leaves the stage littered with the tatters of any remaining Fed. credibility to the incoming “clean up crew.” (aka Mr. Powell and the yet named and seated others.)
My gut tells me, the more we find out about what is, and, what is not going to be in this so-called “tax reform” bill. The more hot air and gas of this pre-celebratory party balloon is going to leak out, along with its details. The real issue for the “markets” along with the political class is this:
If this “bill” morphs further along the lines of what Mr. Stockman labeled as a “con job?” Along with the ever-growing concern of a government shutdown and interest rates? This party balloon just might resemble another one. aka: “a lead one.” With similar results.
© 2017 Mark St.Cyr