maybe4less Posted December 22, 2018 Share Posted December 22, 2018 Btw, I am in the camp that the fed shouldn't tighten. The reason for that, which is the right argument for tightening, is the headline numbers are painting a wrong narrative. If the economy is doing so great then the labour market is banjo tight. At this level we should see wage inflation, but we don't see that. So maybe the economy is not doing so great. One of the worst mistakes in the history of the fed was the recession of 1937. Maybe we should avoid that this time around. Totally agree with this. I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. It appears that the Fed might not be taking this into account and that there is therefore a meaningful risk of a policy error. I think we are seeing this concern reflected in the flattening or "inversion" at the front end of the curve. Ignore those complaining that the Fed doesn't care enough about the stock market, but I think serious market participants should be concerned about the Fed mistaking temporary strength for something persistent that they need to get ahead of. Link to comment Share on other sites More sharing options...
tylerdurden Posted December 22, 2018 Share Posted December 22, 2018 Really good conversation here. I enjoyed reading your posts. One thing I have not seen mentioned is the hidden third mandate (kinda) for Fed. They always talk about the financial stability alongside unemployment and inflation objectives. I think it totally makes sense to normalize the cost of money etc. especially if you are not sure where the bodies are buried. However I have to agree with Druckenmiller about timing. This market is really weird with all the algos and quants etc. We can easily find ourselves in a self fullfilling prophecy if the market keeps on tanking fast and this spreads into real economy and/or other weak countries etc. I think there is gotta be some concern here for overall confidence and sentiment. I like Powell but come on man he seems so tone deaf. They don't even know the exact impact of all these interest increases on real economy because of the lagged impact (18 months some say). No inflation. no real urgency and you decide to increase amid this lack of confidence in markets. why? I don't get it. why not waiting for Jan or March and make everybody happy including Trump for a while? I fully support normalizing rates but not like this. At the end of the day, no one knows about future so they have to be more careful/gradual... Look.. zero hedge is in the house! No, there isn't a third mandate for the Fed. Algos and quants don't matter. You don't get a helping hand. What is with all this bullshit? You get guys who spend all their days pontificating about the free market but once they start booking some losses they start crying like little girls and begging for a quasi-governmental agency for help. Grow a set. Ok, rant over. Now over to serious analysis. I'm not picking on you but I'll use your post as a spring board. By reading these boards I think there is some serious misunderstanding about what is meant by inflation when the Fed and pundits are using it. They don't mean actual inflation, they mean inflationary pressures. The fed's job is to look and combat inflationary pressure in order to keep inflation at 2%. It is not to fight inflation - i.e. if inflation gets up to 3%, then try to bring it back down to 2%. So you don't have to actually see inflation tick up for the fed to act. What you actually saw from the fed this week is really, really standard central bank stuff. If you have a strong economy around full employment that's expanding at a faster pace than potential you tighten. Btw, I am in the camp that the fed shouldn't tighten. The reason for that, which is the right argument for tightening, is the headline numbers are painting a wrong narrative. If the economy is doing so great then the labour market is banjo tight. At this level we should see wage inflation, but we don't see that. So maybe the economy is not doing so great. One of the worst mistakes in the history of the fed was the recession of 1937. Maybe we should avoid that this time around. Of course this is also political bullshit. They want the cake and eat it too. A booming economy and low rates. It doesn't work that way. If you have a booming economy rates will go up. If you want lower rates, it's because your economy ain't that good. They also fired Janet Yellen who was a looser money type with Jay Powell who was a tighter money type which conservatives liked. So why are they bitching now? They got exactly what they asked for! Hey rb I’ll have to include you as another tone deaf person like Powell. Tell me which recession we went into because of high inflation other than volcker fighting high inflation back in 70s. The real threat is bubbles (financial stability) and everybody including powell admits this except you. Anyways you just reminded how this board is full of people who have very closed minds and false sense of overconfidence in their views so no need to waste time posting probably. Good luck to all Link to comment Share on other sites More sharing options...
rb Posted December 22, 2018 Share Posted December 22, 2018 Really good conversation here. I enjoyed reading your posts. One thing I have not seen mentioned is the hidden third mandate (kinda) for Fed. They always talk about the financial stability alongside unemployment and inflation objectives. I think it totally makes sense to normalize the cost of money etc. especially if you are not sure where the bodies are buried. However I have to agree with Druckenmiller about timing. This market is really weird with all the algos and quants etc. We can easily find ourselves in a self fullfilling prophecy if the market keeps on tanking fast and this spreads into real economy and/or other weak countries etc. I think there is gotta be some concern here for overall confidence and sentiment. I like Powell but come on man he seems so tone deaf. They don't even know the exact impact of all these interest increases on real economy because of the lagged impact (18 months some say). No inflation. no real urgency and you decide to increase amid this lack of confidence in markets. why? I don't get it. why not waiting for Jan or March and make everybody happy including Trump for a while? I fully support normalizing rates but not like this. At the end of the day, no one knows about future so they have to be more careful/gradual... Look.. zero hedge is in the house! No, there isn't a third mandate for the Fed. Algos and quants don't matter. You don't get a helping hand. What is with all this bullshit? You get guys who spend all their days pontificating about the free market but once they start booking some losses they start crying like little girls and begging for a quasi-governmental agency for help. Grow a set. Ok, rant over. Now over to serious analysis. I'm not picking on you but I'll use your post as a spring board. By reading these boards I think there is some serious misunderstanding about what is meant by inflation when the Fed and pundits are using it. They don't mean actual inflation, they mean inflationary pressures. The fed's job is to look and combat inflationary pressure in order to keep inflation at 2%. It is not to fight inflation - i.e. if inflation gets up to 3%, then try to bring it back down to 2%. So you don't have to actually see inflation tick up for the fed to act. What you actually saw from the fed this week is really, really standard central bank stuff. If you have a strong economy around full employment that's expanding at a faster pace than potential you tighten. Btw, I am in the camp that the fed shouldn't tighten. The reason for that, which is the right argument for tightening, is the headline numbers are painting a wrong narrative. If the economy is doing so great then the labour market is banjo tight. At this level we should see wage inflation, but we don't see that. So maybe the economy is not doing so great. One of the worst mistakes in the history of the fed was the recession of 1937. Maybe we should avoid that this time around. Of course this is also political bullshit. They want the cake and eat it too. A booming economy and low rates. It doesn't work that way. If you have a booming economy rates will go up. If you want lower rates, it's because your economy ain't that good. They also fired Janet Yellen who was a looser money type with Jay Powell who was a tighter money type which conservatives liked. So why are they bitching now? They got exactly what they asked for! Hey rb I’ll have to include you as another tone deaf person like Powell. Tell me which recession we went into because of high inflation other than volcker fighting high inflation back in 70s. The real threat is bubbles (financial stability) and everybody including powell admits this except you. Anyways you just reminded how this board is full of people who have very closed minds and false sense of overconfidence in their views so no need to waste time posting probably. Good luck to all Yep, I'm tone deaf, Powell is tone deaf, the fed is tone deaf. We are lucky that we have a virtuoso like you around to guide us. Here's the thing though. The Fed actually has a stated price stability mandate. It doesn't have all these other mandates that you and other people are talking about. Maybe you should use that great hearing to listen to the Fed. Link to comment Share on other sites More sharing options...
Viking Posted December 22, 2018 Share Posted December 22, 2018 Jamie Dimon on Dec 6: TL;DR 1. There is a risk that Fed is doing too much too fast. There is also a risk that Fed is doing too little too slow. Fed normalizing rates in a strong economy is a good thing. Fed should not overreact to the stock market volatility. 2. American economy is strong and is growing. Business order books are good. Consumer balance sheets are good. Companies are hiring. Wages are going up. There is a chance that unemployment will hit 3.3% this year. 3. On the other hand, you have a bunch of geopolitical risks: oil, Brexit and trade. Trade is probably the factor that is swinging the market the most. Not the direct impact of tariffs but the fear of the unknown. How bad can it get if the trade war gets out of control. Speaking of trade, "I am the Tariff Man" tweet came out on Dec 4th: https://twitter.com/realDonaldTrump/status/1069970500535902208 Fed hiked on Dec 19th. Folks who blame Powell for the selloff should take a careful look at the market performance between Dec 4th and 19th. It ain't pretty. It would be easy to point finger at the Tariff Man and blame *him* for the correction. I'm not going to do that because that would be intellectually dishonest, just like it's intellectually dishonest to blame Powell. It's a fools errand to attach a simple narrative to the market volatility. Yeah, it's a platitude, but apparently it needs to be repeated when folks say it's all Powell's fault. The US consumer is in very good shape. House prices have increasing year over year by about 6% per year for the past few years and prices should continuee higher in 2019. This impacts an average families financial situation (wealth) much more than the stock market. Labour markets remain tight; workers are finally getting decent wage increases. It is getting easier to also find a better job. One likely effect of all the trade issues is manufacturing will be moving back to the US; we do not know how much but it may surprise to the upside. (Canada and Mexico will be short term losers; China will lose over the medium term). The Global Financial Crisis hit the US hardest. My guess is the next global recession will hit the US the least. Link to comment Share on other sites More sharing options...
rb Posted December 22, 2018 Share Posted December 22, 2018 Nonsense. Facts: Average annual growth of GDP during recoveries before 1990: 4%+ 1991-2001: 3.5% 2001-2007: 2.7% 2009-now: 2.1% Before sliding into political nonsense, please remember that this downward trend has transcended the political dimension and similar associated trends are in plain sight for progressively weaker recoveries in employment, business capital investment, real productivity etc What great recessions happened in the 90s? Or 00-07? What are these statistics referring to? Rrecoveries from the ‘98 EM stuff, nasdaq bubble, 9/11...stuff like that? That’s not what we are talking about here. Are you honestly saying recoveries were easier from 1929 and 1973? And that things are just getting harder because we keep carrying more debt into these massive every 40 year type crashes? Bah Anyway back to the Fed narrative. Just to be clear my comments earlier have little to do with the recent stock market gyrations. That stuff happens from time to time. I just question the constant raising with nary a pause to see where is the actual neutral rate. Williams and Powell talk like they know where the neutral range is but obviously they don’t because no one does. And the credit markets have staked trillions and trillions of dollars between 2 and 30 years and these guys have been of unwavering view over many months that the neutral rate is below where we are. Even the worlds forex markets don’t believe the Fed otherwise the dollar would be significantly stronger than it is versus a bunch of 0% currencies. If the Fed happens to be right here it will be one of the greatest contrarian bets I’ve ever seen. Actually 2001 was very, very concerning to a whole bunch of economists. Pretty much all recessions since the big one in the 30s has been as a result of the Fed hitting the breaks to cool things down. But the demand was always there. So as soon as the Fed too its foot off the break things started to pick up again. 2001 in itself was a relatively mild recession. But the Fed didn't touch the breaks, it was weak demand. Then it had a jobless recovery. This was very concerning because this was the 1930s type of recession. A large part of the economics profession didn't even think this could happen (the supply side/real business cycle guys). Another large part of the economics profession (the salt water guys) thought that it could happen in theory buy in practice it won't happen in advanced economies, only in EM countries with crappy banks. A few guys back then (off the top of my head Krugman/Stiglitz/Bernake) got really scared about what happened in 2001. They thought it was a really bad sign about what may come. So yea 2001 was different. In a bad way. Link to comment Share on other sites More sharing options...
Dalal.Holdings Posted December 22, 2018 Share Posted December 22, 2018 Amusing that everyone points to the Fed "screwing up" as cause for recessions. In 2000, when tech stocks were trading at absurdly high multiples and the Nasdaq was stratospheric, could the Fed have done anything really to stop a recession? Could the Fed have stopped the slowdown after an unpredictable event like Sept 11 2001 and get people to fly again??? Druck in his latest video claims that if Bernanke cut a little earlier, the 2008-09 crisis wouldn't have been that bad. Please. Would a little cut have prevented the failure of Lehman and AIG which had hundreds of billions in shady derivatives with counter-parties across the financial system bearing fallout? Would a little cut from the Fed really have prevented a crisis? AIG built up its hedge fund with terrible risk management over many years--it had nothing to do with the Fed, but the actions of bozos at the top of those firms. Go read "The Big Short" and tell me how Bernanke could have stopped that economic tsunami. The Fed is not the cause of recessions nor able to single-handedly prevent them. Cycles are normal. The bad businesses need to fail. Bank balance sheets were a mess and needed to be cleansed. That takes time. Link to comment Share on other sites More sharing options...
Cigarbutt Posted December 22, 2018 Share Posted December 22, 2018 Nonsense. Facts: Average annual growth of GDP during recoveries before 1990: 4%+ 1991-2001: 3.5% 2001-2007: 2.7% 2009-now: 2.1% Before sliding into political nonsense, please remember that this downward trend has transcended the political dimension and similar associated trends are in plain sight for progressively weaker recoveries in employment, business capital investment, real productivity etc What great recessions happened in the 90s? Or 00-07? What are these statistics referring to? Rrecoveries from the ‘98 EM stuff, nasdaq bubble, 9/11...stuff like that? That’s not what we are talking about here. Are you honestly saying recoveries were easier from 1929 and 1973? And that things are just getting harder because we keep carrying more debt into these massive every 40 year type crashes? Bah Actually 2001 was very, very concerning to a whole bunch of economists. Pretty much all recessions since the big one in the 30s has been as a result of the Fed hitting the breaks to cool things down. But the demand was always there. So as soon as the Fed too its foot off the break things started to pick up again. 2001 in itself was a relatively mild recession. But the Fed didn't touch the breaks, it was weak demand. Then it had a jobless recovery. This was very concerning because this was the 1930s type of recession. A large part of the economics profession didn't even think this could happen (the supply side/real business cycle guys). Another large part of the economics profession (the salt water guys) thought that it could happen in theory buy in practice it won't happen in advanced economies, only in EM countries with crappy banks. A few guys back then (off the top of my head Krugman/Stiglitz/Bernake) got really scared about what happened in 2001. They thought it was a really bad sign about what may come. So yea 2001 was different. In a bad way. The recoveries from 1973-4 and the early 80's were V-shaped and not comparable, in absolute numbers, to what we could achieve now, it seems. An intriguing narrative is that the downward trend in the strength of recoveries after downturns seen in the last 50 to 60 years has been attributed, by some, to an unavoidable cost related to a Great Moderation. When one looks at the progressively higher vigor of central bank interventions (post 1987 crash, Savings and Loan Associations in the early 1990's, the LTCM crisis, strong monetary response post dot-com and 9/11, and finally the unconventional policies post 2007-9), one is tempted to see a decreasing marginal return on the effort with an exponential rise in exposure to unintended consequences and moral hazard. FWIW, I think Mr. Powell et al are very smart people, well-meaning and likely animated by noble intentions. I would only hope that they would show an adequate level of humility in the face of quite obvious failures in economic theories of transmission. When facing uncomfortable darkness, the best response may be to confess that you don't know. “This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again.” John Maynard Keynes Link to comment Share on other sites More sharing options...
thefatbaboon Posted December 22, 2018 Share Posted December 22, 2018 I guess I see things total opposite to you cigarbut except for the bit where you caution for caution in the face of an unknowable future. But as for your little economic history I would reply simply that I would much prefer to have lived through and looked for work in 1973-1983 compared to 1929-1937 and I would much prefer 2007-2009 to 1973-1983. In each case the recessions were significantly milder and the recoveries more potent compared to the size of the decline being dealt with. Why not look to the mid 19th century and the pax britannica if you want a better idea of how growth rates and interest rates can moderate and debt capacity increase? I think it’s possible that the current American peace with higher levels of prosperity, lower population growth, the internet, and greater peacefulness should have a good chance of carrying more debt for longer and at lower rates than the British empire. Link to comment Share on other sites More sharing options...
John Hjorth Posted December 22, 2018 Share Posted December 22, 2018 Personally, I appreciate this discussion ongoing. To me, Mr. Powell & Mr. Williams are decision makers on this particular matter at hand, and we can each personally agree or disagree - which in the end won't change one whit [<-learned that expression from Uccmal!]. Somehow, I'm a more practical, hands-on person also, thinking in actual portfolio and what to do in this overall situation. Actually, I've been extremely busy during the downturn, buying and selling quite intensively. Every challenge is - approached mentally the right way - also an opportunity. In the accounts I have for years been struggling with "misplaced" stocks, between the tax deferred accounts and taxable accounts. It's about what I call "misplaced pure play compounders" [stocks with steady growth potential, paying no or low dividends], which I prefer to hold in taxable accounts, to defer taxes as long as possible]. For me, these are BRK.B, MKL & TOP.CPH [<- this one has been], and also FFH.TO is in this basket, for which I [for historical/legacy reasons] have been forced to buy them in tax deferred accounts, because of how and in which order capital has become available for investment. This sell-off has created an opportunity to sell at depressed prices in taxable accounts to get fairly low taxes on realized capital gains in taxable accounts, to rearrange stock positions between taxable and tax deferred accounts. [TOP.CPH has changed from being such a "pure play compounder" [with no dividends] to a pure play dividend stock, after Sampo Plc has taken effective control over the company and changing the buyback program to a dividend program.] [ I don't post on here about those transactions.> The opportunity to get out of small, low conviction positions ["legacy positions"], considered fairly priced, at low taxes, and at the same time the opportunity to roll into / adding to positions, that I right now consider cheap. [i post here about those transactions.> Link to comment Share on other sites More sharing options... Gregmal Posted December 22, 2018 Share Posted December 22, 2018 I personally find this whole thing to be hilarious. It's gotten so out of hand, and it's turned a lot of otherwise sensible people into clueless idiots. The stories and headlines, the emotional crap, the complete reversals in sentiment. Oh goodness. It's like everyone sits around bitching about valuations and begging for a pullbacks and then they get the most no brainer one possible and they don't know what to do with themselves...and these are just the people who call themselves investors! -Nothing changes but a .25% rate hike. So what? -The economy is still strong, but indeed shows potential signs of slowing a bit, so what? -The Fed has ALREADY basically said they fucked up and will cater to the market, if you read between the lines. These guys were out giving interviews and trying to say the right things A DAY AFTER they raised rates and saw the reaction! -The market turns the screws on Trump, I guarantee you we get a China deal next year; he needs good news. -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! -I've spoken to probably a half dozen CEO's and CFO's over the past two weeks, and maybe it's just particular to the companies Im invested in, but NONE have seen any reason to be have a different outlook or expectation that you had 6 months ago. Overall I think we just had a convergence of kind of one off events that tripped people out and caused contagious panic. First real year of widespread tax loss selling, no Santa rally on WS, massive fund liquidations and wind downs, minor softness in numbers plus super duper scary headlines and fear mongering. Fear that the Fed is going to crush the economy. People are just running with the crowds right now and have convinced themselves of something that doesn't exist. A stupid but true reality is once people started seeing turbulence, many likely just dumped shit and figured they'll pick back up after the holidays-on the institutional side there is definitely a lot of this type of stuff. I will be buying next week because I believe once the big boys get back from holiday in January things should get back on track. This downturn if anything has just given well run companies the opportunity to suck up A TON of their own shares and spring load next years numbers. Which in any case shouldn't be bad, especially at these new valuations. For example. I will be adding to MSG. If you can get to $5B on the Knicks, and add back the cash, you currently have a NEGATIVE EV! And then still have billions in other assets. There's plenty of others like this now. How does any of the shit all the pundits are "concerned" about all of a sudden effect my investments? It doesn't.... As such, I'm a buyer all the way down, screw the naysayers. There were people calling another 20% downside in the S&P when it hit 675 during the crisis. We are no where near a crisis, despite all the crazy things people are now saying that seem to be 100% reactionary to the market decline, and 0% based in what's really going on in the US. Link to comment Share on other sites More sharing options... Viking Posted December 22, 2018 Share Posted December 22, 2018 I personally find this whole thing to be hilarious. It's gotten so out of hand, and it's turned a lot of otherwise sensible people into clueless idiots. The stories and headlines, the emotional crap, the complete reversals in sentiment. Oh goodness. It's like everyone sits around bitching about valuations and begging for a pullbacks and then they get the most no brainer one possible and they don't know what to do with themselves...and these are just the people who call themselves investors! -Nothing changes but a .25% rate hike. So what? -The economy is still strong, but indeed shows potential signs of slowing a bit, so what? -The Fed has ALREADY basically said they fucked up and will cater to the market, if you read between the lines. These guys were out giving interviews and trying to say the right things A DAY AFTER they raised rates and saw the reaction! -The market turns the screws on Trump, I guarantee you we get a China deal next year; he needs good news. -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! -I've spoken to probably a half dozen CEO's and CFO's over the past two weeks, and maybe it's just particular to the companies Im invested in, but NONE have seen any reason to be have a different outlook or expectation that you had 6 months ago. Overall I think we just had a convergence of kind of one off events that tripped people out and caused contagious panic. First real year of widespread tax loss selling, no Santa rally on WS, massive fund liquidations and wind downs, minor softness in numbers plus super duper scary headlines and fear mongering. Fear that the Fed is going to crush the economy. People are just running with the crowds right now and have convinced themselves of something that doesn't exist. A stupid but true reality is once people started seeing turbulence, many likely just dumped shit and figured they'll pick back up after the holidays-on the institutional side there is definitely a lot of this type of stuff. I will be buying next week because I believe once the big boys get back from holiday in January things should get back on track. This downturn if anything has just given well run companies the opportunity to suck up A TON of their own shares and spring load next years numbers. Which in any case shouldn't be bad, especially at these new valuations. For example. I will be adding to MSG. If you can get to $5B on the Knicks, and add back the cash, you currently have a NEGATIVE EV! And then still have billions in other assets. There's plenty of others like this now. How does any of the shit all the pundits are "concerned" about all of a sudden effect my investments? It doesn't.... As such, I'm a buyer all the way down, screw the naysayers. There were people calling another 20% downside in the S&P when it hit 675 during the crisis. We are no where near a crisis, despite all the crazy things people are now saying that seem to be 100% reactionary to the market decline, and 0% based in what's really going on in the US. Agreed. Right now Mr. Market is very pessimistic. Why? Not really sure. The stock market's ability to predict the future is less than stellar. The bond market, with 10 year US yields at 2.79%, does not look overly fussed (and I think the bond market is a much better predictor than the stock market of what may be going on in the general economy). Perhaps the ending and reversing of QE is having a much, much bigger impact on financial assets (especially the stock market) than most understand or recognize. Perhaps the current sell off in stocks has little to do with trade wars or slowing economies. Link to comment Share on other sites More sharing options... Gregmal Posted December 22, 2018 Share Posted December 22, 2018 I personally find this whole thing to be hilarious. It's gotten so out of hand, and it's turned a lot of otherwise sensible people into clueless idiots. The stories and headlines, the emotional crap, the complete reversals in sentiment. Oh goodness. It's like everyone sits around bitching about valuations and begging for a pullbacks and then they get the most no brainer one possible and they don't know what to do with themselves...and these are just the people who call themselves investors! -Nothing changes but a .25% rate hike. So what? -The economy is still strong, but indeed shows potential signs of slowing a bit, so what? -The Fed has ALREADY basically said they fucked up and will cater to the market, if you read between the lines. These guys were out giving interviews and trying to say the right things A DAY AFTER they raised rates and saw the reaction! -The market turns the screws on Trump, I guarantee you we get a China deal next year; he needs good news. -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! -I've spoken to probably a half dozen CEO's and CFO's over the past two weeks, and maybe it's just particular to the companies Im invested in, but NONE have seen any reason to be have a different outlook or expectation that you had 6 months ago. Overall I think we just had a convergence of kind of one off events that tripped people out and caused contagious panic. First real year of widespread tax loss selling, no Santa rally on WS, massive fund liquidations and wind downs, minor softness in numbers plus super duper scary headlines and fear mongering. Fear that the Fed is going to crush the economy. People are just running with the crowds right now and have convinced themselves of something that doesn't exist. A stupid but true reality is once people started seeing turbulence, many likely just dumped shit and figured they'll pick back up after the holidays-on the institutional side there is definitely a lot of this type of stuff. I will be buying next week because I believe once the big boys get back from holiday in January things should get back on track. This downturn if anything has just given well run companies the opportunity to suck up A TON of their own shares and spring load next years numbers. Which in any case shouldn't be bad, especially at these new valuations. For example. I will be adding to MSG. If you can get to $5B on the Knicks, and add back the cash, you currently have a NEGATIVE EV! And then still have billions in other assets. There's plenty of others like this now. How does any of the shit all the pundits are "concerned" about all of a sudden effect my investments? It doesn't.... As such, I'm a buyer all the way down, screw the naysayers. There were people calling another 20% downside in the S&P when it hit 675 during the crisis. We are no where near a crisis, despite all the crazy things people are now saying that seem to be 100% reactionary to the market decline, and 0% based in what's really going on in the US. Agreed. Right now Mr. Market is very pessimistic. Why? Not really sure. The stock market's ability to predict the future is less than stellar. The bond market, with 10 year US yields at 2.79%, does not look overly fussed (and I think the bond market is a much better predictor than the stock market of what may be going on in the general economy). Perhaps the ending and reversing of QE is having a much, much bigger impact on financial assets (especially the stock market) than most understand or recognize. Perhaps the current sell off in stocks has little to do with trade wars or slowing economies. I actually think the biggest catalyst for the current sell off the fact that nobody really has a good explanation for it. Fear of the unknown and also don't underestimated the significance of the time of year. No not Christmas but month 3 of the quarter. I highly doubt this continues with S&P components popping earnings out every other day. It's just a weird convergence of events and news flow IMO. Nothing more. Link to comment Share on other sites More sharing options... maybe4less Posted December 22, 2018 Share Posted December 22, 2018 -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! I don't disagree with your bullishness, but tax cuts are definitely a one time boost to growth. The rate of change is more important than the level and we aren't getting a tax cut every year. Link to comment Share on other sites More sharing options... nkp007 Posted December 22, 2018 Share Posted December 22, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? Link to comment Share on other sites More sharing options... maybe4less Posted December 22, 2018 Share Posted December 22, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? As long as those tax rates stay in place, yes the increased value is "permanent." However, I'm talking about GDP growth. Cutting taxes gives a boost to GDP growth (not GDP level) that is transitory. Link to comment Share on other sites More sharing options... Gregmal Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? As long as those tax rates stay in place, yes the increased value is "permanent." However, I'm talking about GDP growth. Cutting taxes gives a boost to GDP growth (not GDP level) that is transitory. Which I agree in macro terms is important, but when I look at specific portfolio companies, it really isn't. If I own FRP, and their income consists of lease revenue, interest income, and cash from the rock pits... let's say all of this stays the same, just to keep things simple. At 22% tax rate the company is now significantly more valuable, even with the same figures as last year, when paying 35%. You can look at different figures, but simplistically, you should be throwing a multiple onto that incremental income, and the value of the company should be higher. The markets right now in a lot of cases are saying the opposite. People have essentially fabricated the recession narrative out of nothing, and what I'm saying is that even if it were true(to the extent that is reasonable, ie not a crisis) it doesn't in many, many instances, with a lot of companies, support lower equity prices. Link to comment Share on other sites More sharing options... LC Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? Yes and this is reflected in a one-time change in NPV. Link to comment Share on other sites More sharing options... Cigarbutt Posted December 23, 2018 Share Posted December 23, 2018 1-I guess I see things total opposite to you cigarbut except for the bit where you caution for caution in the face of an unknowable future. But as for your little economic history I would reply simply that I would much prefer to have lived through and looked for work in 1973-1983 compared to 1929-1937 and I would much prefer 2007-2009 to 1973-1983. In each case the recessions were significantly milder and the recoveries more potent compared to the size of the decline being dealt with. 2-Why not look to the mid 19th century and the pax britannica if you want a better idea of how growth rates and interest rates can moderate and debt capacity increase? I think it’s possible that the current American peace with higher levels of prosperity, lower population growth, the internet, and greater peacefulness should have a good chance of carrying more debt for longer and at lower rates than the British empire. 1-Collecting data is different from interpretation and application but the Federal Reserve does provide useful tools so that one can factually verify assumptions: https://www.minneapolisfed.org/publications/special-studies/recession-in-perspective IMO, it could be cause and effect or simple association but greater involvement by the central banks has been linked to worsening downturns and weaker recoveries. These days, a 0.25% announcement is considered a major event. We're OK as long as strong fundamentals are maintained but some cans that are kicked down the road by centrally-planned unconventional tools may simply keep getting larger and, at some point, this may be reflected in many portfolios. 2-Contrary to what you seem to write and others seem to imply, IMO the major factor behind the relay between Pax Britannica and Pax Americana was not because of pervasive involvement by central banks managing the economy but because there was an environment conducive to enduring real productivity growth. At least, that's what a guy, who seemed to know how nations become and stay prosperous, used to say in 1969. http://scienzepolitiche.unical.it/bacheca/archivio/materiale/2467/PDF-Books%20for%20Mr%20Pisula/David%20Landes-The%20unbound%20Prometheus-Cambridge%20University%20Press%20(1969).pdf If I understand correctly, Mr. Druckenmiller says that political and monetary forces are distorting the markets and that's always the case to some degree. It just seems that the some of the distortion has reached certain thresholds with potential spill-over effects in individual holdings. This is not a problem if the buy and hold definition has been properly framed. Link to comment Share on other sites More sharing options... maybe4less Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? As long as those tax rates stay in place, yes the increased value is "permanent." However, I'm talking about GDP growth. Cutting taxes gives a boost to GDP growth (not GDP level) that is transitory. Which I agree in macro terms is important, but when I look at specific portfolio companies, it really isn't. If I own FRP, and their income consists of lease revenue, interest income, and cash from the rock pits... let's say all of this stays the same, just to keep things simple. At 22% tax rate the company is now significantly more valuable, even with the same figures as last year, when paying 35%. You can look at different figures, but simplistically, you should be throwing a multiple onto that incremental income, and the value of the company should be higher. The markets right now in a lot of cases are saying the opposite. People have essentially fabricated the recession narrative out of nothing, and what I'm saying is that even if it were true(to the extent that is reasonable, ie not a crisis) it doesn't in many, many instances, with a lot of companies, support lower equity prices. I don't disagree with you. I was making a different point about why the Fed might be in danger of making a policy mistake. Link to comment Share on other sites More sharing options... maxthetrade Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? I depends of how much of the tax cut will get competed away, which depends on industry, market position etc. I expect that most of it will get competed away in commodity businesses. Regulated businesses and those which already enjoyed very low tax rates won't profit very much either. So in aggregate IV certainly has not increased by 20%. Link to comment Share on other sites More sharing options... Spekulatius Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? I depends of how much of the tax cut will get competed away, which depends on industry, market position etc. I expect that most of it will get competed away in commodity businesses. Regulated businesses and those which already enjoyed very low tax rates won't profit very much either. So in aggregate IV certainly has not increased by 20%. The tax rate for many business was already way below the nominal tax rate befor the tax cut. When have you seen the last multiples national pay 36% tax rate? I GE’s tax rate was in the low 29% range before the tax cut even.nSame with tech companies. Domestic companies like insurers, and banks that don’t have that many opportunity to hide taxes benefited the most. Link to comment Share on other sites More sharing options... SHDL Posted December 23, 2018 Share Posted December 23, 2018 I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. This is correct - so obviously correct, in fact, that I would be absolutely shocked if the Fed got this wrong... Link to comment Share on other sites More sharing options... maybe4less Posted December 23, 2018 Share Posted December 23, 2018 I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. This is correct - so obviously correct, in fact, that I would be absolutely shocked if the Fed got this wrong... Yeah, fair enough. As others have posted the Fed seems to have done a very good job through the crisis and since. However, I think this is the market's concern as evidenced by the flat/inverted short-end of the curve (i.e., that they will have to reverse some of the planned rate hikes in the near-term). I can see the point too. The Fed is being fairly aggressive despite the short-term nature of the stimulus, so why not pause a bit and see how the economy develops? However, I'm not smart enough to say which is right, let alone that the Fed is definitely making a mistake. Link to comment Share on other sites More sharing options... SHDL Posted December 23, 2018 Share Posted December 23, 2018 I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. This is correct - so obviously correct, in fact, that I would be absolutely shocked if the Fed got this wrong... Yeah, fair enough. As others have posted the Fed seems to have done a very good job through the crisis and since. However, I think this is the market's concern as evidenced by the flat/inverted short-end of the curve (i.e., that they will have to reverse some of the planned rate hikes in the near-term). I can see the point too. The Fed is being fairly aggressive despite the short-term nature of the stimulus, so why not pause a bit and see how the economy develops? However, I'm not smart enough to say which is right, let alone that the Fed is definitely making a mistake. Just to be clear, when I said “obviously correct” I meant that as a compliment. I do agree with you on the other points. Link to comment Share on other sites More sharing options... NeverLoseMoney Posted December 23, 2018 Share Posted December 23, 2018 Just dropping this in here. Apparently the big banks are fine: and https://www.bloomberg.com/news/articles/2018-12-23/mnuchin-called-top-u-s-bank-executives-about-market-stability Never say your banks are fine if they are fine. Link to comment Share on other sites More sharing options... Prev 1 2 3 4 5 6 7 Next Page 4 of 7 Create an account or sign in to comment You need to be a member in order to leave a comment Create an account Sign up for a new account in our community. It's easy! Register a new account Sign in Already have an account? Sign in here. Sign In Now Share More sharing options... Followers 0 Go to topic listing
Gregmal Posted December 22, 2018 Share Posted December 22, 2018 I personally find this whole thing to be hilarious. It's gotten so out of hand, and it's turned a lot of otherwise sensible people into clueless idiots. The stories and headlines, the emotional crap, the complete reversals in sentiment. Oh goodness. It's like everyone sits around bitching about valuations and begging for a pullbacks and then they get the most no brainer one possible and they don't know what to do with themselves...and these are just the people who call themselves investors! -Nothing changes but a .25% rate hike. So what? -The economy is still strong, but indeed shows potential signs of slowing a bit, so what? -The Fed has ALREADY basically said they fucked up and will cater to the market, if you read between the lines. These guys were out giving interviews and trying to say the right things A DAY AFTER they raised rates and saw the reaction! -The market turns the screws on Trump, I guarantee you we get a China deal next year; he needs good news. -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! -I've spoken to probably a half dozen CEO's and CFO's over the past two weeks, and maybe it's just particular to the companies Im invested in, but NONE have seen any reason to be have a different outlook or expectation that you had 6 months ago. Overall I think we just had a convergence of kind of one off events that tripped people out and caused contagious panic. First real year of widespread tax loss selling, no Santa rally on WS, massive fund liquidations and wind downs, minor softness in numbers plus super duper scary headlines and fear mongering. Fear that the Fed is going to crush the economy. People are just running with the crowds right now and have convinced themselves of something that doesn't exist. A stupid but true reality is once people started seeing turbulence, many likely just dumped shit and figured they'll pick back up after the holidays-on the institutional side there is definitely a lot of this type of stuff. I will be buying next week because I believe once the big boys get back from holiday in January things should get back on track. This downturn if anything has just given well run companies the opportunity to suck up A TON of their own shares and spring load next years numbers. Which in any case shouldn't be bad, especially at these new valuations. For example. I will be adding to MSG. If you can get to $5B on the Knicks, and add back the cash, you currently have a NEGATIVE EV! And then still have billions in other assets. There's plenty of others like this now. How does any of the shit all the pundits are "concerned" about all of a sudden effect my investments? It doesn't.... As such, I'm a buyer all the way down, screw the naysayers. There were people calling another 20% downside in the S&P when it hit 675 during the crisis. We are no where near a crisis, despite all the crazy things people are now saying that seem to be 100% reactionary to the market decline, and 0% based in what's really going on in the US. Link to comment Share on other sites More sharing options...
Viking Posted December 22, 2018 Share Posted December 22, 2018 I personally find this whole thing to be hilarious. It's gotten so out of hand, and it's turned a lot of otherwise sensible people into clueless idiots. The stories and headlines, the emotional crap, the complete reversals in sentiment. Oh goodness. It's like everyone sits around bitching about valuations and begging for a pullbacks and then they get the most no brainer one possible and they don't know what to do with themselves...and these are just the people who call themselves investors! -Nothing changes but a .25% rate hike. So what? -The economy is still strong, but indeed shows potential signs of slowing a bit, so what? -The Fed has ALREADY basically said they fucked up and will cater to the market, if you read between the lines. These guys were out giving interviews and trying to say the right things A DAY AFTER they raised rates and saw the reaction! -The market turns the screws on Trump, I guarantee you we get a China deal next year; he needs good news. -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! -I've spoken to probably a half dozen CEO's and CFO's over the past two weeks, and maybe it's just particular to the companies Im invested in, but NONE have seen any reason to be have a different outlook or expectation that you had 6 months ago. Overall I think we just had a convergence of kind of one off events that tripped people out and caused contagious panic. First real year of widespread tax loss selling, no Santa rally on WS, massive fund liquidations and wind downs, minor softness in numbers plus super duper scary headlines and fear mongering. Fear that the Fed is going to crush the economy. People are just running with the crowds right now and have convinced themselves of something that doesn't exist. A stupid but true reality is once people started seeing turbulence, many likely just dumped shit and figured they'll pick back up after the holidays-on the institutional side there is definitely a lot of this type of stuff. I will be buying next week because I believe once the big boys get back from holiday in January things should get back on track. This downturn if anything has just given well run companies the opportunity to suck up A TON of their own shares and spring load next years numbers. Which in any case shouldn't be bad, especially at these new valuations. For example. I will be adding to MSG. If you can get to $5B on the Knicks, and add back the cash, you currently have a NEGATIVE EV! And then still have billions in other assets. There's plenty of others like this now. How does any of the shit all the pundits are "concerned" about all of a sudden effect my investments? It doesn't.... As such, I'm a buyer all the way down, screw the naysayers. There were people calling another 20% downside in the S&P when it hit 675 during the crisis. We are no where near a crisis, despite all the crazy things people are now saying that seem to be 100% reactionary to the market decline, and 0% based in what's really going on in the US. Agreed. Right now Mr. Market is very pessimistic. Why? Not really sure. The stock market's ability to predict the future is less than stellar. The bond market, with 10 year US yields at 2.79%, does not look overly fussed (and I think the bond market is a much better predictor than the stock market of what may be going on in the general economy). Perhaps the ending and reversing of QE is having a much, much bigger impact on financial assets (especially the stock market) than most understand or recognize. Perhaps the current sell off in stocks has little to do with trade wars or slowing economies. Link to comment Share on other sites More sharing options...
Gregmal Posted December 22, 2018 Share Posted December 22, 2018 I personally find this whole thing to be hilarious. It's gotten so out of hand, and it's turned a lot of otherwise sensible people into clueless idiots. The stories and headlines, the emotional crap, the complete reversals in sentiment. Oh goodness. It's like everyone sits around bitching about valuations and begging for a pullbacks and then they get the most no brainer one possible and they don't know what to do with themselves...and these are just the people who call themselves investors! -Nothing changes but a .25% rate hike. So what? -The economy is still strong, but indeed shows potential signs of slowing a bit, so what? -The Fed has ALREADY basically said they fucked up and will cater to the market, if you read between the lines. These guys were out giving interviews and trying to say the right things A DAY AFTER they raised rates and saw the reaction! -The market turns the screws on Trump, I guarantee you we get a China deal next year; he needs good news. -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! -I've spoken to probably a half dozen CEO's and CFO's over the past two weeks, and maybe it's just particular to the companies Im invested in, but NONE have seen any reason to be have a different outlook or expectation that you had 6 months ago. Overall I think we just had a convergence of kind of one off events that tripped people out and caused contagious panic. First real year of widespread tax loss selling, no Santa rally on WS, massive fund liquidations and wind downs, minor softness in numbers plus super duper scary headlines and fear mongering. Fear that the Fed is going to crush the economy. People are just running with the crowds right now and have convinced themselves of something that doesn't exist. A stupid but true reality is once people started seeing turbulence, many likely just dumped shit and figured they'll pick back up after the holidays-on the institutional side there is definitely a lot of this type of stuff. I will be buying next week because I believe once the big boys get back from holiday in January things should get back on track. This downturn if anything has just given well run companies the opportunity to suck up A TON of their own shares and spring load next years numbers. Which in any case shouldn't be bad, especially at these new valuations. For example. I will be adding to MSG. If you can get to $5B on the Knicks, and add back the cash, you currently have a NEGATIVE EV! And then still have billions in other assets. There's plenty of others like this now. How does any of the shit all the pundits are "concerned" about all of a sudden effect my investments? It doesn't.... As such, I'm a buyer all the way down, screw the naysayers. There were people calling another 20% downside in the S&P when it hit 675 during the crisis. We are no where near a crisis, despite all the crazy things people are now saying that seem to be 100% reactionary to the market decline, and 0% based in what's really going on in the US. Agreed. Right now Mr. Market is very pessimistic. Why? Not really sure. The stock market's ability to predict the future is less than stellar. The bond market, with 10 year US yields at 2.79%, does not look overly fussed (and I think the bond market is a much better predictor than the stock market of what may be going on in the general economy). Perhaps the ending and reversing of QE is having a much, much bigger impact on financial assets (especially the stock market) than most understand or recognize. Perhaps the current sell off in stocks has little to do with trade wars or slowing economies. I actually think the biggest catalyst for the current sell off the fact that nobody really has a good explanation for it. Fear of the unknown and also don't underestimated the significance of the time of year. No not Christmas but month 3 of the quarter. I highly doubt this continues with S&P components popping earnings out every other day. It's just a weird convergence of events and news flow IMO. Nothing more. Link to comment Share on other sites More sharing options...
maybe4less Posted December 22, 2018 Share Posted December 22, 2018 -The biggest farce I see is people saying "one time boost from tax cuts". WTF do people come up with this stuff? The tax rates don't go back up next year! How in the world is it a "one time boost" when in perpetuity companies will be keeping 40% more of their profits? And oh yea, the "boost" we saw this year? Where, S&P has responded to this increase in corporate profitability by posting -10%! I don't disagree with your bullishness, but tax cuts are definitely a one time boost to growth. The rate of change is more important than the level and we aren't getting a tax cut every year. Link to comment Share on other sites More sharing options...
nkp007 Posted December 22, 2018 Share Posted December 22, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? Link to comment Share on other sites More sharing options...
maybe4less Posted December 22, 2018 Share Posted December 22, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? As long as those tax rates stay in place, yes the increased value is "permanent." However, I'm talking about GDP growth. Cutting taxes gives a boost to GDP growth (not GDP level) that is transitory. Link to comment Share on other sites More sharing options...
Gregmal Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? As long as those tax rates stay in place, yes the increased value is "permanent." However, I'm talking about GDP growth. Cutting taxes gives a boost to GDP growth (not GDP level) that is transitory. Which I agree in macro terms is important, but when I look at specific portfolio companies, it really isn't. If I own FRP, and their income consists of lease revenue, interest income, and cash from the rock pits... let's say all of this stays the same, just to keep things simple. At 22% tax rate the company is now significantly more valuable, even with the same figures as last year, when paying 35%. You can look at different figures, but simplistically, you should be throwing a multiple onto that incremental income, and the value of the company should be higher. The markets right now in a lot of cases are saying the opposite. People have essentially fabricated the recession narrative out of nothing, and what I'm saying is that even if it were true(to the extent that is reasonable, ie not a crisis) it doesn't in many, many instances, with a lot of companies, support lower equity prices. Link to comment Share on other sites More sharing options...
LC Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? Yes and this is reflected in a one-time change in NPV. Link to comment Share on other sites More sharing options...
Cigarbutt Posted December 23, 2018 Share Posted December 23, 2018 1-I guess I see things total opposite to you cigarbut except for the bit where you caution for caution in the face of an unknowable future. But as for your little economic history I would reply simply that I would much prefer to have lived through and looked for work in 1973-1983 compared to 1929-1937 and I would much prefer 2007-2009 to 1973-1983. In each case the recessions were significantly milder and the recoveries more potent compared to the size of the decline being dealt with. 2-Why not look to the mid 19th century and the pax britannica if you want a better idea of how growth rates and interest rates can moderate and debt capacity increase? I think it’s possible that the current American peace with higher levels of prosperity, lower population growth, the internet, and greater peacefulness should have a good chance of carrying more debt for longer and at lower rates than the British empire. 1-Collecting data is different from interpretation and application but the Federal Reserve does provide useful tools so that one can factually verify assumptions: https://www.minneapolisfed.org/publications/special-studies/recession-in-perspective IMO, it could be cause and effect or simple association but greater involvement by the central banks has been linked to worsening downturns and weaker recoveries. These days, a 0.25% announcement is considered a major event. We're OK as long as strong fundamentals are maintained but some cans that are kicked down the road by centrally-planned unconventional tools may simply keep getting larger and, at some point, this may be reflected in many portfolios. 2-Contrary to what you seem to write and others seem to imply, IMO the major factor behind the relay between Pax Britannica and Pax Americana was not because of pervasive involvement by central banks managing the economy but because there was an environment conducive to enduring real productivity growth. At least, that's what a guy, who seemed to know how nations become and stay prosperous, used to say in 1969. http://scienzepolitiche.unical.it/bacheca/archivio/materiale/2467/PDF-Books%20for%20Mr%20Pisula/David%20Landes-The%20unbound%20Prometheus-Cambridge%20University%20Press%20(1969).pdf If I understand correctly, Mr. Druckenmiller says that political and monetary forces are distorting the markets and that's always the case to some degree. It just seems that the some of the distortion has reached certain thresholds with potential spill-over effects in individual holdings. This is not a problem if the buy and hold definition has been properly framed. Link to comment Share on other sites More sharing options...
maybe4less Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? As long as those tax rates stay in place, yes the increased value is "permanent." However, I'm talking about GDP growth. Cutting taxes gives a boost to GDP growth (not GDP level) that is transitory. Which I agree in macro terms is important, but when I look at specific portfolio companies, it really isn't. If I own FRP, and their income consists of lease revenue, interest income, and cash from the rock pits... let's say all of this stays the same, just to keep things simple. At 22% tax rate the company is now significantly more valuable, even with the same figures as last year, when paying 35%. You can look at different figures, but simplistically, you should be throwing a multiple onto that incremental income, and the value of the company should be higher. The markets right now in a lot of cases are saying the opposite. People have essentially fabricated the recession narrative out of nothing, and what I'm saying is that even if it were true(to the extent that is reasonable, ie not a crisis) it doesn't in many, many instances, with a lot of companies, support lower equity prices. I don't disagree with you. I was making a different point about why the Fed might be in danger of making a policy mistake. Link to comment Share on other sites More sharing options...
maxthetrade Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? I depends of how much of the tax cut will get competed away, which depends on industry, market position etc. I expect that most of it will get competed away in commodity businesses. Regulated businesses and those which already enjoyed very low tax rates won't profit very much either. So in aggregate IV certainly has not increased by 20%. Link to comment Share on other sites More sharing options...
Spekulatius Posted December 23, 2018 Share Posted December 23, 2018 Isn't the intrinsic value of profitable American businesses permanently higher with lower tax rates? Like 20% higher? I depends of how much of the tax cut will get competed away, which depends on industry, market position etc. I expect that most of it will get competed away in commodity businesses. Regulated businesses and those which already enjoyed very low tax rates won't profit very much either. So in aggregate IV certainly has not increased by 20%. The tax rate for many business was already way below the nominal tax rate befor the tax cut. When have you seen the last multiples national pay 36% tax rate? I GE’s tax rate was in the low 29% range before the tax cut even.nSame with tech companies. Domestic companies like insurers, and banks that don’t have that many opportunity to hide taxes benefited the most. Link to comment Share on other sites More sharing options...
SHDL Posted December 23, 2018 Share Posted December 23, 2018 I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. This is correct - so obviously correct, in fact, that I would be absolutely shocked if the Fed got this wrong... Link to comment Share on other sites More sharing options...
maybe4less Posted December 23, 2018 Share Posted December 23, 2018 I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. This is correct - so obviously correct, in fact, that I would be absolutely shocked if the Fed got this wrong... Yeah, fair enough. As others have posted the Fed seems to have done a very good job through the crisis and since. However, I think this is the market's concern as evidenced by the flat/inverted short-end of the curve (i.e., that they will have to reverse some of the planned rate hikes in the near-term). I can see the point too. The Fed is being fairly aggressive despite the short-term nature of the stimulus, so why not pause a bit and see how the economy develops? However, I'm not smart enough to say which is right, let alone that the Fed is definitely making a mistake. Link to comment Share on other sites More sharing options...
SHDL Posted December 23, 2018 Share Posted December 23, 2018 I would add that it seems tax reform is one time stimulus that has juiced growth this year, such that some of the headline strength this year may prove ephemeral. This is correct - so obviously correct, in fact, that I would be absolutely shocked if the Fed got this wrong... Yeah, fair enough. As others have posted the Fed seems to have done a very good job through the crisis and since. However, I think this is the market's concern as evidenced by the flat/inverted short-end of the curve (i.e., that they will have to reverse some of the planned rate hikes in the near-term). I can see the point too. The Fed is being fairly aggressive despite the short-term nature of the stimulus, so why not pause a bit and see how the economy develops? However, I'm not smart enough to say which is right, let alone that the Fed is definitely making a mistake. Just to be clear, when I said “obviously correct” I meant that as a compliment. I do agree with you on the other points. Link to comment Share on other sites More sharing options...
NeverLoseMoney Posted December 23, 2018 Share Posted December 23, 2018 Just dropping this in here. Apparently the big banks are fine: and https://www.bloomberg.com/news/articles/2018-12-23/mnuchin-called-top-u-s-bank-executives-about-market-stability Never say your banks are fine if they are fine. Link to comment Share on other sites More sharing options...
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