The Truth About Tax Cuts
One of the key points that I have been harping on over the last year is simple: The recent tax cuts were destined to go into financial engineering to leverage earnings per share, not into new productive capacity that would create future jobs and earnings…
Why else do you think that Lacy Hunt’s acid test for productive investment – money velocity – keeps sinking despite the so-called recovery?
Couldn’t be clearer than this chart from Stockman’s presentation.
Just Look at the Data
When the tax cuts hit in the first quarter of 2018, real capital investment was at 8.5% growth. It not only went down, it plummeted to negative 1% just five quarters later in Q1 2019…
They could have at least faked a little investment for a year to make Trump look good!
Stockman, Hunt, and I all warned about this before it happened .
Companies do not need extra capacity. They already over-invested in the bubble boom that peaked in 2007. This recovery has been the weakest on record. In fact, from the top in 2007, the cumulative growth in GDP 11 years later has been a mere 19%, less than the horrific 1929-40 Great Depression at 20% – and we still have the worst ahead of us when this totally artificial bubble finally bursts.
And it went right where we all said it would go – the same place it already had been going, just faster with such a boost for no logical economic reason.
Dividends just kept drifting up as usual. But stock buybacks accelerated more dramatically since the beginning of 2018, and so did mergers and acquisitions – re-arranging the assets.
Why would anyone do anything else as zero interest rate policies and endless money printing gives incentives to do so easily and cheaply. Building plants and stores and warehouses is hard work. Buying back your own stock is just pushing a button …
And this is supposed to turn out okay?
The content of our articles is based on what we’ve learned as financial journalists. We do not offer personalized investment advice: you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Delray Publishing LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers.
Recommended Content
Editors’ Picks
EUR/USD eases below 1.0850 on renewed USD strength
EUR/USD stays under pressure and trades in the red below 1.0850 in the European session. Although the ZEW survey for Germany and the Eurozone showed a noticeable improvement in economic sentiment, broad USD strength doesn't allow the pair to gain traction.
GBP/USD drops below 1.2700 on notable US Dollar demand
GBP/USD is extending the downside below 1.2700 in the European trading hours on Tuesday. The ongoing bullish momentum in the US Dollar, despite sluggish US Treasury bond yields, undermines the pair. Mid-tier US housing data are coming up next.
Gold price struggles to lure buyers, holds steady above one-week low ahead of FOMC meeting
Gold price ticks lower amid reduced Fed rate cut bets, elevated US bond yields and stronger USD. Geopolitical tensions could lend some support to the safe-haven XAU/USD and help limit losses.
Why is the crypto market crashing?
The two most important contribution to the ongoing bull market is the meteoric rise in Bitcoin due to the ETF approval and the sudden interest spike in Solana ecosystem. But the recent move suggests that the upward momentum is dissipating and a correction looms.
Canada CPI Preview: Inflation pickup could scale back bets on early interest-rate cut
The Canadian Consumer Price Index is expected to have risen by 3.1% YoY in February. The BoC shows no rush to lower its interest rate. The Canadian Dollar maintains its multi-day lows against the US Dollar around 1.3540.