31 replies to this topic

[csw2002]

csw,

 

Every financial projection is "hypothetical" until it happens. Otherwise it would be called facts. Yes the S&P earnings estimates are "hypothetical" until it happens. The tax benefit is also a rough estimate. You guys are missing the point. No matter what basline number you choose to use, there is going to be a adiition to the earnings estimate. If you don't beleive that, then we are wasting time debating on that. 

 

And i did not say P/E estimates are a good indicator of future S&P price. I merely pointed out what the S&P price would look like, when the P/E reaches overbought territory. The market can choose to stall here and collapse - nobody knows. That's crystal balling. But then just look at some of the major bull market tops and see what P/E values were acheived before the collapse started.

NAV, you asked me to believe Thompson's estimate when he himself didn't by qualifying the numbers with lots of caveats. I agree that tax cuts would add to earning and reduce price earning multiples ceteris paribus - but the world doesn't function with all else being equal. Hence my point that the benefit is likely to be far less than the full impact of tax rate reduction from 35% to 20%.

[csw2002]

Link to the 90 year history of PE Ratios - notice that many times markets have turned before PE turned down historically - because earnings were dropping faster than prices.

 

http://www.macrotren...-earnings-chart

[opinionated]

Looks like we are setting up one hell of a sell the fact event here?

[csw2002]

Considering that SP500 constituents generate more than 50% revenue overseas and many (such AAPL and Alphabet) have avoided paying taxes on the overseas income, the real impact of x percentage drop in tax rates will be less than x% as modelled by Thompson. What is more, the whole idea of trickle down economics (i.e., reduced taxation pays for itself through stimulating economic activities resulting in bigger tax bases) has long been debunked by empirical data. The real impact again will be less than what remaining tax is actually paid on US profit by the SP500 constituents.

[csw2002]

What is amazing is that in the tax plan, there is no real attempt to address tax inversion. In every major OECD jurisdictions, domestic tax is liable for companies domiciled within the jurisdiction on income derived inside and outside of the territory, with tax credits accrued for overseas tax already paid. Europe, UK, Oceania, Japan and South Korea all use this rule to ensure no tax leakages. IRS tax individuals on foreign and domestic income, why not on the corporations? I am sure EU would happily co-operate. Lowering tax rates without addressing tax inversion is most baffling.

[Data]

Most of the multinationals pay much lower taxes than the rate Trump is proposing.   The tax rate they report to the public is based on tax liability, not actual taxes paid.   Since many of them have set up shell companies in Ireland and other tax havens to indefinitely defer payment on their US tax liability, the effective tax rate is around 12 percent with some companies much lower.

 

The P/E is a useless number in the aggregate and usually misleading for individual cases.   Much of the operating costs are shed from the EPS reporting.  The notoriety of the use of pro forma EPS or as-reported EPS to inflate earnings was heavily discussed in the 90's and 00's.  It's now called core operating EPS or something else.

 

The figure for the effective corporate tax rate comes from the GAO, not some stupid bull or bear web site.

 

http://money.cnn.com...-rate/index.htm

Edited by Data, 22 October 2017 - 09:39 AM.

[robo]

I think we should wait and see what Tax Plan passes, and then have this same discussion.

 

I remain long GDXJ.....

 

Good trading next week and enjoy the rest of the weekend.

 

[salam]

Sell the fact....or tank when the tax plan is not approved once lawmakers realise the federal govt will go bankrupt...

Beware the ides of March. The GOP will be the first to remove Trump once they have no more use for him.

Meanwhile... let’s all ride the upswing with tight stops

[Data]

Considering that SP500 constituents generate more than 50% revenue overseas and many (such AAPL and Alphabet) have avoided paying taxes on the overseas income, the real impact of x percentage drop in tax rates will be less than x% as modelled by Thompson. What is more, the whole idea of trickle down economics (i.e., reduced taxation pays for itself through stimulating economic activities resulting in bigger tax bases) has long been debunked by empirical data. The real impact again will be less than what remaining tax is actually paid on US profit by the SP500 constituents.

 

The tech companies set up offshore headquarters domciled in a tax haven and then transfer intellectual property rights into the subsidiary so that US-based operations pay licensing fees to that subsidiary.  It is a variation on the transfer pricing scheme to get around taxation.

 

The important thing this week is that the ECB will decide on an exit from QE.  It will reduce the net flow by 20-40 billion euros per month.  The overall money printing by central banks will still cover net borrowing by US, Japan, and Europe.

Edited by Data, 22 October 2017 - 10:35 AM.

[robo]

Edited by robo, 22 October 2017 - 10:32 AM.