Well, Secretary of the Treasury Mnuchin didn’t actually say it this way. The above title was the work of a headline writer at CNBC. And, as usual ,was designed to reel you into their web with the negative and the sensational. What he did say was, “There is no question that the rally in the stock market has based into it reasonably high expectations of us getting tax cuts and tax reform done … So, I think to the extent we get the tax deal done, the stock market will go up higher. But, there is no question in my mind, If we don’t get it done, you’re going to see a reversal of a significant amount of these gains.” Here is a link to the complete CNBC story. Please note the very thoughtful and muted response “Mad Money” host, Jim Cramer, gives to the secretary’s comments. I totally agree … IT IS NOT ABOUT TAX CUTS (POSSIBLY REFORM) — IT IS ABOUT LOW INTEREST RATES, LOW INFLATION, EARNINGS GROWTH, A GOBAL SYNCHRONIZED ECONOMIC RECOVERY AND MASSIVE DEREGULATION (FOR GOOD OR FOR WORSE, THE TRUMP ADMINISTRATION’s ONLY CONTRIBUTION). All of these fundamentals should continue without any tax reform and in the face of continuing government dysfunction (the inability to get anything done).
Mr. Mnuchin, Have you no shame?
Maybe Secretary Mnuchin actually believes what he said in the video/podcast referenced above. I find it hard to believe, judging from his background as a sophisticated hedge fund manager, that he embraces this concept wholeheartedly. I take a more sinister view of his comments. I view them as a veiled threat to all who own stocks, Democrats and Republicans … get behind this bill (in whatever form it finally takes) or it will hit you in the pocketbook! This very much reminds me of the employers we heard about before the 2012 and 2016 presidential elections who told their employees if a certain candidate won, they would have to let some people go. Of course, in both of those elections, each party had candidates that lost in what their loyalists found to be surprising defeats. The world hobbled on. The economy did just fine. Most people kept their jobs. Regardless, Mr. Mnuchin seems to have no problem making statements in pursuit of a political goal that raises fear and uncertainty in the investor community. Mr. Mnuchin has no shame!
Bring in the reinforcements!
The Cavalry, namely Randall Forsyth and Barron’s Magazine, weighed in this weekend (10/21/17) on the Mnuchin premise that a potential tax cut/reform has been a big factor in the market’s up move since the election — “What’s Really Driving This Stock Market Higher” (you need a subscription to view). According to Forsyth, “Spurring the overall market’s advance was optimism on two fronts: tax reform and Federal reserve policy.” Did we mention low interest rates (old news) –oh yes. On this front the Street seems to be okay with the recent flotation of the name of Fed Governor, Jerome Powell, termed in Forsyth’s article as a “Yellen clone.”
What is interesting is that Forsyth, who usually rings in negatively about everything, appears in the article to be moderately positive about some sort of change in tax policy. Who knows, maybe he’s right this time around. Whatever the final resolution, regardless of the media and political noise surrounding the subject of taxes, my opinion was, and continues to be, that it will not dramatically effect the market.
Tax break or market tank or no big deal — what’s your take?
P.S. Judging by the number of hits I received on my last post, “Black Monday 2.0: The Next Machine-Driven Meltdown” (only 560 on SeekingAlpha), bad news may not be selling as well any more. The best ever was on “I went to cash today”, 6700 (Feb 2016). This may be a sign that people are getting more confident, a potential negative omen in the short-run.
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