Friday, December 22, 2017

Idle Chatter Regarding The Tax Bill -- December 22, 2017

Not-ready-for-prime-time e-mail to a reader yesterday:
Know who is going to make a killing on the new tax plan?

Warren Buffett.

This is where he excels.

When something this big shakes up the global investment market, he (and Munger and the rest of his team) will be scouring the new tax bill with regard to the companies they have on their "buy" list.
My hunch is that Warren Buffett will jump in sooner than later but due to the "rules," he won't disclose/we won't know until six months have passed. But my hunch is he is calling CEOs around the US asking how the tax bill will affect them.

But this is just like candy in a candy shop for Warren Buffett. Wow, he's going to have fun reading over the Christmas break.

I'll post this later; I hope Becky Quick reads the blog; and then gets the idea to interview Warren sooner than later.
By the way, Jim Cramer had an interesting "take" on the question that everyone has been asking: has the recent run-up / rally in the stock market these past few months been due to the GOP tax bill? Have the gains that the market has made in the past few weeks been due to the anticipation that the tax bill would be passed? In other words, have the implications of the tax bill already been "baked into" the market?

Jim Cramer noted that the current US rally has paralleled the global market rally. He did not use the phrase "global synchronization rally," but he could have. And then he noted: the rest of the world did not just pass a huge tax cut bill.

If Cramer is correct, the effect the tax cut will have on investments is yet to be seen in the US market.

By the way, in a PBS interview available on YouTube Warren Buffett answered very clearly and very succinctly that 2% growth in the GDP is just fine for the US; the current US generation and the next generation and the next generation will all do very well with 2% growth. He feels very, very strongly that tax reform will not move the needle, it will do nothing for GDP growth. He says that 3% will occasionally happen but it won't be sustained in the US for any significant period of time -- he did not specify the time frame but it sounds like he would be surprised if the US would see a full year of 3% GDP growth. He was perfectly content with 2% growth in GDP.

I am sure his shareholders would not be content with 2% growth year-over-year. LOL.

But getting back to Cramer: I can see arguments to Cramer's observations, but on the other hand, I don't think the market has yet even begun to think what the tax bill will mean for publicly heald corporations. Imagine: their effective tax rate drops from 23% to 9% literally overnight. Imagine if your own income tax dropped by more than half. Wow.


A reader questioned Cramer's view. I agreed.  I replied in an e-mail:
You are so correct .... that's what I was thinking when I put this in the post: "I can see arguments to Cramer's observations, ...."
I wonder if Cramer would have had a better argument by looking at GDP in US vs GDP in EU. GDP in US has had a real run this year in the US and not due to tax bill yet.
Meanwhile, EU GDP has done quite poorly over the past same year, I believe:

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