Financial News

[RockRaines]

The IRS doesnt even know how the new tax code works and I dont think it will be in place very long anyway. The real estate market is in hyperdrive and building is out of control. Once that crashes I believe we will be in another recession. And its probably a year or two away, so get money while its still cheap.

[Chisoxfn]

FWIW, I think the net result of the tax package will be the exact opposite, bringing a recession sooner. There is still some room for growth in the economy before full employment is reached, but the government dumping another $500 billion into the economy this year will make things heat up much more quickly. Basically all of the recent recessions have been triggered in part by the federal reserve overtightening once things actually begin to heat up enough to cause wage growth, so the net result of dumping in funds now through the tax cuts is going to be the Fed slamming harder on the breaks, and that is our recession trigger. So it will lead to more rapid growth in the short term, but it will also accelerate the next slowdown.

I don't disagree with anything you said as I think it is consistent, especially the macro statements to what I was implying (short-term win that won't necessarily correlate to longer term gain). I do believe it extends the current cycle (vs. nothing) but that doesn't mean long-term it is a good thing. I am not comparing it to how it would perform vs. alternative tax plans either. But if they get meaningful infrastructure bills in...it will just be another thing that adds to the shorter term gains (and I very much am a proponent on infrastructure spend as a whole as it is something we drastically need to do and figure out).

 

The key to all of my argument though is very much tied to infrastructure plans. Either way, I don't see the market blowing up in the next year. It very much could, but it isn't because it is massively overpriced. A blow up near term would be geopolitical in nature, imo.

[StrangeSox]

Trump's CFPB is dropping their investigation into Equifax.

[bmags]

The IRS doesnt even know how the new tax code works and I dont think it will be in place very long anyway. The real estate market is in hyperdrive and building is out of control. Once that crashes I believe we will be in another recession. And its probably a year or two away, so get money while its still cheap.

 

Building is nowhere near out of control. There are severe housing shortages in most major metropolitan areas. If anything big issue is the drop in productivity plus labor shortage in construction making it difficult to build efficiently.

[RockRaines]

Building is nowhere near out of control. There are severe housing shortages in most major metropolitan areas. If anything big issue is the drop in productivity plus labor shortage in construction making it difficult to build efficiently.

I disagree, there is more funding for project than there are people to build them, and in many cases projects that shouldnt have ever been funded.. The surplus is going to reach a head, especially in chicago early next year.

[bmags]

I disagree, there is more funding for project than there are people to build them, and in many cases projects that shouldnt have ever been funded.. The surplus is going to reach a head, especially in chicago early next year.

 

The surge in building was in response to a surge in rents in Chicago. Office vacancy went down to 30% while rents rose 24% over a 3 year period. To the extent that costs fall should be a good thing, cities shouldn't artificially inflate home prices by reducing demand, that just hurts consumers and reinforces the home as an active investment vehicle vs. a savings one.

 

And Chicago would be a special case because of declining population. Vegas, Denver, ATL, Raleigh would struggle to overbuild right now, where NYC/San Fran/Washington/Boston are strangled by new permit regulation.

 

If people were running around saying "housing is too cheap!" we might have a problem, but even if prices fall in chicago it's hard to see it as a national trend.

[Chisoxfn]

Prices in markets are up...but supply is not high. I can't comment on the Chicago market in particular, but in our market prices are up extensively but supply is at extremely low levels.

[iamshack]

Prices in markets are up...but supply is not high. I can't comment on the Chicago market in particular, but in our market prices are up extensively but supply is at extremely low levels.

Here in Vegas it has been on a steady rise since about 2013. It’s flattened out in the resale market but has continued to rise in the new build market.

[bmags]

Something I've struggled with, do markets freak out more at the prospect of over 2% inflation or how the Fed will react to going over 2% inflation?

[RockRaines]

Prices in markets are up...but supply is not high. I can't comment on the Chicago market in particular, but in our market prices are up extensively but supply is at extremely low levels.

IN reaction to that, building increased and thousands of new units will be released causing both demand and pricing to fall.

[Dam8610]

The IRS doesnt even know how the new tax code works and I dont think it will be in place very long anyway. The real estate market is in hyperdrive and building is out of control. Once that crashes I believe we will be in another recession. And its probably a year or two away, so get money while its still cheap.

 

The IRS didn't know how the tax code worked prior to the Tax Cuts and Jobs Act, they still don't know how it works, and they won't know how it works once that horrible law is replaced.

[RockRaines]

The IRS didn't know how the tax code worked prior to the Tax Cuts and Jobs Act, they still don't know how it works, and they won't know how it works once that horrible law is replaced.

My comment wasn’t an attack on the IRS. It’s a fact that they literally have no idea what’s in it. My accountant was outlining a lot of this to me which was pretty hilarious.

 

The loopholes have just begun to be discovered. I believe a lot of people are going to start their own "corporations" to funnel some money through to avoid the standard deduction.

Edited February 15, 2018 by RockRaines

[StrangeSox]

My brother-in-law is a CPA at one of the big accounting firms downtown. They were working crazy overtime between the passage of the bill in late December and 12/31 to basically rewrite the tax strategies for every client. My dad is on the corporate taxes side with the IRS, and it'll be a big headache over there once the audits roll around to the 2018 taxes, but that won't be for at least a couple of years.

 

I wouldn't expect this tax plan to go anywhere any time soon, though. Democrats won't have a shot to repeal it for at least 3 years, and even then large chunks are likely to stay in place. Especially on the business side.

[bmags]

IN reaction to that, building increased and thousands of new units will be released causing both demand and pricing to fall.

 

That's not a bubble though, that's responding to demand. We shouldn't manufacture housing shortages to boost up prices.

[RockRaines]

That's not a bubble though, that's responding to demand. We shouldn't manufacture housing shortages to boost up prices.

IMO its an overcorrection.

[Chisoxfn]

IMO its an overcorrection.

Again, I don't follow the Chicago real estate market, but I did a quick google and found a number of articles...this one happens to have charts and it hits on the same trend I've seen in my local (which is I believe pretty common across a lot of larger areas which have seen job growth, etc). and that is that the supply of properties is at all time lows. So you literally have no one putting homes on the market (from a historical sense) and therefor the only real supply is coming from builders (who even with the new builds/developments out there) you are at major lows.

 

It is what is driving the massive boom in higher-end apartments across most major urban areas (and why rents in many urban areas are skyrocketing). To be quite frank, in many areas, we aren't building near enough and because of that we are artificially propping up prices which I would argue is not necessarily a good thing (as I believe ownership is a good thing and you don't want affordability to be extremely low which it is in many areas).

 

http://www.chicagonow.com/getting-real/201...eps-sales-flat/

[southsider2k5]

What's everyone's take on gold right now? The dollar is looking very weak. If it continues to weaken in this high inflation environment the commodities seem like a nice play. Add in the possibility of the fed hiking rates and it looks pretty ripe. Pretty good buying opportunity this morning for the gold etfs.

 

Longer term with the massive issuing of debt, the inevitable collapse of bond prices because of it, and the fall of the dollar, I do like gold.

[southsider2k5]

ETFs are free falling right now. I don't have the tech analysis to know when to get in.

 

For my two cents, I would always stick with the top companies when it comes to using ETF's. There are more than a few ETF's who only track what they are tracking, and they do not hold any physical representations of what they are trying to track. Stick with the SP, IShares and Powershares products.

 

Second, if this is a longer term play, don't try too hard to pick a bottom to buy at. People who pick bottom's get s*** on their fingers.

[StrangeSox]

Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages

 

Almost 100 American corporations have trumpeted such plans in the past month. American companies have announced more than $178 billion in planned buybacks — the largest amount unveiled in a single quarter, according to Birinyi Associates, a market research firm.

 

Such purchases reduce a company’s total number of outstanding shares, giving each remaining share a slightly bigger piece of the profit pie.

 

Cisco said this month that in response to the tax package, it would bring back to the United States $67 billion of overseas cash, using $25 billion to finance additional share repurchases. Alphabet, the parent company of Google, authorized up to $8.6 billion in stock purchases. PepsiCo announced a fresh $15 billion in planned buybacks. Chip gear maker Applied Materials disclosed plans for a $6 billion program to buy shares. Late last month, home improvement retailer Lowe’s unveiled plans for $5 billion in purchases.

 

Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price.

 

But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans.

[joejoedairy]

Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages

 

Shocking turn of events

[Chisoxfn]

Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages

It is what I said earlier...the way a company has to manage its book value and equity is you essentially invest in the growth of your business or you return to shareholders via buybacks / dividends. You clearly prioritize growth first, but when you can't grow, you need to leverage the other avenues. Additionally, if you can't grow and hit your target bogies, you than leverage buyback / dividends for the rest. One of the primary goals of a public Company CEO/CFO is to be as capital efficient as possible which is what this means.

 

So for companies who had a day one impact resulting from tax reform (i.e., positive net income and thus book value growth as they remeasured their balance sheet), you really have one of two options...buyback or find additional growth. Finding additional growth isn't something you can just "magically" do.

 

I will also point out...all of those numbers are day 1 impacts and are not actually forwarding looking impacts. For companies who had a big windfall or component, no one could possibly put that all back in the business and generate returns commensurate with shareholders expectations (so no one should be surprised this is happening). The real question is will future growth increase and thus the benefits of tax reform will mean less buybacks and more investments in future growth (meaning you than are ramping up employees, etc). Data isn't available on that because the trends are going to come out over time. In general, I anticipate that outside of those manufacturing specific areas that were very incentivized, you'll see a lot of the benefits competed away (which indirectly flow back to consumers via lower pricing).

[StrangeSox]

It is what I said earlier...the way a company has to manage its book value and equity is you essentially invest in the growth of your business or you return to shareholders via buybacks / dividends. You clearly prioritize growth first, but when you can't grow, you need to leverage the other avenues. Additionally, if you can't grow and hit your target bogies, you than leverage buyback / dividends for the rest. One of the primary goals of a public Company CEO/CFO is to be as capital efficient as possible which is what this means.

 

So for companies who had a day one impact resulting from tax reform (i.e., positive net income and thus book value growth as they remeasured their balance sheet), you really have one of two options...buyback or find additional growth. Finding additional growth isn't something you can just "magically" do.

 

I will also point out...all of those numbers are day 1 impacts and are not actually forwarding looking impacts. For companies who had a big windfall or component, no one could possibly put that all back in the business and generate returns commensurate with shareholders expectations (so no one should be surprised this is happening). The real question is will future growth increase and thus the benefits of tax reform will mean less buybacks and more investments in future growth (meaning you than are ramping up employees, etc). Data isn't available on that because the trends are going to come out over time. In general, I anticipate that outside of those manufacturing specific areas that were very incentivized, you'll see a lot of the benefits competed away (which indirectly flow back to consumers via lower pricing).

 

Right, which is pretty much what was expected here. The corporate tax cut was a giant windfall to shareholders which disproportionately benefits the wealthy and won't really do too much for everyone else (maybe we'll see lower prices in some areas down the road, but if your goal was "help people who aren't wealthy," there's a heck of a lot more efficient ways to do that that don't exacerbate wealth inequality). Companies weren't cash-starved with investment and expansion opportunities, so the idea that we needed a big tax cut stimulus to spur the economy never made much sense.

 

e: You weren't making those arguments, but that's how it was being sold to the public.

Edited February 28, 2018 by StrangeSox

[Chisoxfn]

LOL, was there some stipulation that all the money was going into wages? A good company has what 15-40% (I am guessing) of their expenses going to payroll depending the industry. It's ridiculous to think all of their savings would go to wages.

 

Also, plenty of companies are buying back their own shares and paying out dividends. Which improves the value of shares and the value of peoples 401Ks.

 

People just hate that it's Trump's plan. There is definitely some issues with the personal tax plan plan but this is needed no the corporate said. If they're going to raise interest rates and pull the essentially free money off the table it's good that corporations have a boost on the bottom line with the debt situation getting scarier.

Depends on the industry...in financial services you are probably talking about 60-75% of the costs being "people" costs.

[Chisoxfn]

Right, which is pretty much what was expected here. The corporate tax cut was a giant windfall to shareholders which disproportionately benefits the wealthy and won't really do too much for everyone else (maybe we'll see lower prices in some areas down the road, but if your goal was "help people who aren't wealthy," there's a heck of a lot more efficient ways to do that that don't exacerbate wealth inequality). Companies weren't cash-starved with investment and expansion opportunities, so the idea that we needed a big tax cut stimulus to spur the economy never made much sense.

 

e: You weren't making those arguments, but that's how it was being sold to the public.

I think you are missing out on one of my points. The day 1 impacts were basically remeasuring historical deferred tax liabilities (positive if a company had big DTL's) or deferred tax assets (negative impact if a company had big DTA's) and of course repatriation taxes. The real meat of tax reform was the forward revised Corporate tax rate/structure and various incentives built into that program (very sector specific). The only major day 1 event was repatriation taxes (so giving an incentive for gigantic companies with big off-shore earnings to actually allow those earnings to flow back in). The repatriation aspect of the bill is very positive to me and that was a cost as companies are going to make this payment to enable them to onshore assets and be (which had to be off-shored to stay away from our bloated Corporate taxes).

[StrangeSox]

It disproportionately affects people who plan and save. Those people are disproportionately rich. You don't have to have billions of dollars to save.

 

It was sold as a "middle class" tax plan and as a way to boost investment from companies to help the working and middle class. To the extent it does those things, it does them very inefficiently and rewards the wealthy much more.

 

Maybe you agree with that from a policy perspective, but that's not how it was sold to the public.