tax cuts | Billionaire's Portfolio

Playing Field Might Be Leveling For Silicon Valley Giants

December 15, 9:00 pm EST

Last week we had the merger of Fox and Disney, and the repeal of the Net Neutrality rule. And the tax bill continues to inch toward the finish line.

That said, this would typically be the time of year when markets go quiet as money managers close the books on the year, decision makers at companies go on holiday and politicians do the same.

But that wasn’t the case last year, as President-elect Trump was holding meetings in Trump towers and telegraphing policy changes. And it may not be the case this year, as the tax plan may be approved before year end. The final votes are said to come next week, and the bill is tracking to be on the President’s desk by Christmas.

With that, and with the lack of market liquidity into the year end, we may get a further melt-up in last trading days of the year.

Yesterday we talked about the other side of the Net Neutrality story that doesn’t get much acknowledgement in the press. In short, the tech giants that have emerged over the past decade, to dominate, have done so because of regulatory favor. This favor has decimated industries and has dangerously consolidated power into the hands of few. The repeal of this rule is turning that regulatory tide.

It looks like the playing field might be leveling. That means a higher cost of doing business may be coming for Silicon Valley, with fewer advantages and more competition from the old-economy brands that have been investing to compete online. That means potentially slower earnings growth for the big internet giants, for those that are making money, and an even more uncertain future for those that aren’t (e.g. Tesla).

With this in mind, at the moment Amazon is valued at twice the size of Walmart. Uber is valued at almost 40 times the size of Hertz. And Tesla, which has lost $2.5 billion over the past five years is valued the same as General Motors, which has made $43 billion over the same period.

Next year could be the year these valuation anomalies correct.

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Trump Will End The Year With Two Big Wins

December 2, 2017, 4:00 pm EST

It looks like we’ll get tax cuts approved before year end! And that will give us two of the four pillars of Trumponomics underway in the first year of the new administration.

What a difference four months makes.

Remember, we entered the year with prospects of a big corporate tax cut, a huge infrastructure spend, deregulation and incentives to bring trillions of U.S. corporate money home.

By this summer, the ability to execute on these policies, given the political gridlock and mudslinging, was beginning to look questionable.

The game changer was the hurricanes.

In my note on August 29th, I said: “I think it’s fair to say the optimism toward the President, the administration and Washington policy making has been waning with the lack of policy execution. And from the optics of it all, sentiment couldn’t go much lower. But in markets, turning points (bottoms and tops) in the prevailing trend are often triggered by a catalyst (big trend changes, by some sort of intervention).

With that, the hurricane will likely have little negative impact on overall growth, but it may do something positive for policy making (maybe a turning point).

Given the mess of the political landscape, and an economy that remains vulnerable and in need of fiscal stimulus and structural reform, the crisis in Texas might serve as a needed catalyst: 1) to offer an opportunity for Trump to show leadership in a time of crisis, an opportunity to earn support and approval, and 2) to engage support for rebuilding, not just in Texas but throughout the U.S. (i.e. the much needed economic catalyst of infrastructure spend)…

National crises tend to be unifying. And in the face of national crisis, the barriers to get government spending going get broken down.

So, as we discussed last week, it may be the hurricanes that become the excuse for lawmakers to stamp more spending projects which can ultimately become that big infrastructure spend. And the easing of social tensions and political gridlock on policy making would all be highly positive for the global economic outlook.”

Of course that was followed by the big hurricane in Florida, and then in Puerto Rico. All told, the damages are north of $250 billion.

Congress has approved, to this point, about $60 billion in aid for hurricanes and wildfires (as far as I can track). And that number will likely go much higher — well into nine figure territory (probably more like a quarter of a trillion dollars). For Katrina, the ultimate federal aid disbursed was $120 billion.

On that momentum the first tranche of aid passed back in September, Trump went right to tax cuts. Three months later, and tax cuts are coming.

So, quickly, the policy execution pendulum has swung. This should pop growth nicely next year (and in Q4), which we desperately need to break out of the post-crisis rut of weak demand, slow growth and low inflation.

What about the $20 trillion debt load the media loves to talk about? It’s a big number. So is the size of our economy – about $19 trillion. Sovereign debt isn’t about the absolute number. It’s about the size of debt relative to the size of the economy. With that, it’s about our ability to service that debt at sustainable interest rates. The choice of austerity in this environment, where the economy is fragile and growth has been sluggish for the better part of ten years, would send the U.S. economy back into recession (as it did in Europe). And the outlook for re-emerging would be grim. That would make our debt/gdp far inferior to current levels — and our ability to service the debt, far inferior.

On the other hand, with fiscal stimulus underway, don’t underestimate the value of confidence in the outlook (“animal spirits) to drive economic growth higher than the number crunchers in Washington can imagine (the same one’s that couldn’t project the credit bubble, and didn’t project the sluggish 10 years that have followed).