Radio Show Notes: US GDP/ H Harvey and No Tax Reform
- US GDP sharp revision upwards – we can also discuss the impact of Hurricane Harvey
- US GDP’s sharp upward revision
- Consumption, non-residential fixed investment revised up, with corporate pre-tax earnings rising by a healthy 7% over the year
- This indicates that our Economic Clock® keeps ticking away nicely: stronger monetary growth begets an excess demand for goods, particularly in Americans’ spending on wireless phone services, used cars and energy
- But expect growth to start losing some of its momentum:
- The Fed very well could use this strong upward growth revision as a rationalisation for raising interest rates at its next meeting `19th – 20th September, right in line with what the Economic Clock® tells us.
- This precautionary move might come despite that conclusion from second quarter’s GDP that the Fed’s preferred price index rose at an un-revised 0.9%, matching the weakest gain since 2010. We can thank globalisation and technology for this inflation-free growth…
- Also, expect Hurricane Harvey to exert a major dampening effect on the overall economy.
- Impact of Hurricane Harvey
- This is just like a traffic jam, things slow temporarily only to resume their course later on
- Parallels are Hurricane Katrina in New Orleans, and
- World War II rebuilding of Europe
- What is the Texan and Lousianan economy’s “traffic jams” consist of for now?
- No private investment
- No public investment
- No private consumption
- No exports or imports on account of clogged roads
- A huge build-up of inventories
- Lots of government expenditure, esp in the social arena of having to feed/ rescue the poor victims
- However, watch this economic traffic jam get unstuck with vengeance once reconstruction begins!
- The biggest beneficiaries will be
- Private investment, aka reconstruction of homes
- Public investment: rebuilding infrastructure like roads, bridges, utilities facilities (energy, sanitation)
- Private consumption: lots of shopping to replace home furnishings, clothes and the like
- Resumption of oil exports
- Reduction in inventories, which got stuck in the mud of the flood
- US tax reform – Donald Trump has set out his requirements in a speech
- His four principles for tax reform
- A KISS tax code
- He simply cannot get rid of all the loopholes; vested interests are alive and kicking in America’s “moneyocracy”
- Lowering the tax rate
- He is trying to emulate what my friend, Arthur Laffer, set out to do with supply-side economics the 1980s: reduce taxes and thus leave more money in the pockets of consumers to spend with, and in the pockets of corporates to invest with
- But most experts reckon that he can cut the corporate tax rate only to 25% - not to his cherished 15%
- I doubt that this war – monger even has the wriggle room to cut personal and corporate tax rates: Trump is picking fights in
- Latin America
- Russia (the Ukraine)
- Tax relief for middle class families
- But this won’t lead to higher spending: households have to save more than ever for their pensions, esp. in light of – in effect – zero interest rates on deposits
- Repatriating trillions of dollars parked by corporates overseas
- The market myth is that America’s multinationals have a total of USD 1 trillion stashed-away overseas
- Triple that number per year and you are in the ball park!
- In my last book, Trade Myths, I analyse the HUGE influence of America’s very successful multinationals on her visible trade balance.
- Backed by statisticians from America’s marvellous Bureau of Economic Analysis, I calculate at America’s successful multinationals generate annual trade surpluses of over at least USD 2.7 trillion per year!
- America’s multinationals keep these monies abroad in order to avoid US tax AND in order to invest overseas.
- But I doubt that the very Congress - which Trump has antagonised - suddenly will co-operate...
- Markets including USD which is on worst monthly losing streak in 14 years
- The dollar
- All reserve currencies weaken. So with Sterling and the dollar
- The dollar has been sliding since kick-off back in the early seventies, when major currencies began floating,
- In 1973, the Japanese had to spend 400 yen for a dollar, whilst
- In 1973, the Swiss had to spend four Swiss francs in order to buy a dollar
- now, the Japanese need spend only about 100 yen a dollar, and the
- Swiss need spend only about 1 Swiss Franc in order to buy a dollar
- Currently, the dollar has been felled by Trump’s terrible leadership
- US stocks are subdued because of
- The negative short term economic impact of Hurricane Harvey,
- Sexier markets elsewhere, e.g. Europe, Japan and Hong Kong,
- Worries about the antics of North Korea’s Kim vs America’s Trump, and
- US bond yields keep tanking very much because government bonds are seen to be a safe haven in times of heightening war tensions with N Korea.
DISCLAIMER: THIS BLOG DOES NOT PROVIDE INVESTMENT ADVICE
The information, including but not limited to, text, graphics, images and other material contained on this blog are for informational purposes only and do not necessarily reflect the views or Enzio von Pfeil. The purpose of this blog is to promote broader understanding, knowledge and awareness of various financial and economic topics. It is not intended to be a substitute for regulated professional investment advice. Always seek the advice of your a regulated investment advisor with any questions you may have regarding your specific investment needs or concerns.
Enzio von Pfeil does not recommend or endorse any strategies or ideas mentioned in this blog. Reliance on any information appearing in this blog is solely at your own risk.
IT IS IMPORTANT THAT YOU READ, UNDERSTAND, AND AGREE TO BE BOUND BY THESE TERMS WHEN VIEWING, READING OR OBSERVING ANY INFORMATION, DATA OR ANY OTHER FORM OF COMMUNICATION ON THIS BLOG:
Any information provided to you by us, including any promotional material such as photographs, written descriptions, any plans or models, any income estimates or projections (“Information”) have been provided to us by other sources and although we aim to perform due diligence on all information we provide to our Blog subscribers, the Information is provided for general purposes only, we cannot guarantee the accuracy of the Information and we do not make any representations, either express or implied, as to the accuracy as to the Information. We recommend that our Blog subscribers undertake their own due diligence in relation to the asset they are considering purchasing, including seeking independent legal and financial advice in relation to their own financial objectives and personal circumstances, prior to signing any agreement or contract with any third parties.
No representation or warranty is given as to the accuracy, likelihood of achievement or reasonableness of any figures, forecasts, prospects or returns (if any) contained in the message. Such figures, forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies. The assumptions and parameters used by www.enziovonpfeil.com (evp.com) are not the only ones that might reasonably have been selected and therefore evp.com does not guarantee the sequence, accuracy, completeness or timeliness of the information provided herein. None of evp.com, its members or any of their employees or directors shall be held liable, in any way, for any claims, mistakes, errors or otherwise arising out of or in connection with the content of any form of communication, documentation included in the Blog, via e-mail or any other form of communication.
You are reminded that the content is for personal use and general information only. Under no circumstances is the content intended for and hence the content should not be regarded as an offer or solicitation or recommendation to dispose/sell, an offer or solicitation or recommendation to subscribe in, nor an offer or solicitation or recommendation to buy/acquire and under no circumstances should the content be constituted as provision of any recommendation or investment advice on any securities, investment products, investment arrangements and any other form of investments or legal, tax or other professional advice and therefore should not be relied upon in that regard for making any decision. Unless specifically stated, neither the information nor any opinion contained herein constitutes as an advertisement, an invitation, a solicitation, a recommendation or advice to buy or sell any products, services, securities, futures, options, other financial instruments or provide any investment advice or service by evp.com.
Unless stated otherwise, any opinions or views expressed in this communication may not represent those of evp.com. Opinions or views expressed in this communication may differ from those of other departments or third parties, including any opinions or views expressed in any research issued by evp.com.
Any e-mail and any accompanying attachments are not encrypted and cannot be guaranteed to be secure, complete or error-free as electronic communications may be intercepted, corrupted, lost, destroyed, delayed or incomplete, and/or may contain viruses. EvP.com, therefore, does not accept any liability for any interception, corruption, loss, destruction, incompleteness, viruses, errors, omissions or delays in relation to this electronic communication. If verification is required please request a hard-copy version. Electronic communications carried within the evp.com system may be monitored. Any communication or message in email form or otherwise may contain confidential information. Any use, dissemination, distribution or reproduction of the relevant information outside the original recipients of any messages is strictly prohibited. If you receive a message by mistake, please notify the sender by reply email immediately and permanently delete the emails and its contents. Unless otherwise stated, any communication provided is solely for information purposes only.