Stocks Surge At The Open On Report Trump "Making Strides" On Tax Reform

Tyler Durden's picture

Stocks have blasted off out of the gate, with the Dow up 100 points and the S&P rising over 0.5%, and the VIX getting clobbered following an early morning report from Politico that "Trump’s top aides and congressional leaders have made significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July that stoked fears about their ability to deliver on one of the GOP’s top priorities."

With Trump tax (and any other reform), having recently been left for dead, even a modest sign that Trump's fiscal reform may be getting traction is enough to awake the animal spirits, and that's precisely what Politico has achieved. The report also adds that "there is broad consensus, according to five sources familiar with the behind-the-scenes talks, on some of the best ways to pay for cutting both the individual and corporate tax rates."

Among the options listed are:

  • capping the mortgage interest deduction for homeowners;
  • scrapping people's ability to deduct state and local taxes;
  • eliminating businesses' ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities.

As several desks have pointed out, if this report is accurate, tax reform - now that Bannon is gone - may once again be on the table. Furthermore, while there will likely be disagreement about the final draft, the fact that there is "consensus" among top players, means it could eventually morph into an actual law, boosting corporate earnings - i.e., the very reason why stocks soared in the days after Trump's election. And while Trump's Obamacare repeal debacle exposed the deep divisions within the GOP, tax reform is expected to be a less controversial issue, and now that Trump appears to be taking a more centrist approach, any new approaches to Congress may result not only in new highs, but mark the first major legislative victory of the Trump presidency.

Then again, it can all be wiped away as soon as tonight, when Trump will deliver a speech to his "base", in which he may promptly burn any of the goodwill he created with capital markets following his far more conventional Afghanistan speech last night.

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cheka's picture

where's the import tariff?  tariff or continue to be bled out by nyc

chicken_goose's picture

The DOW already surged 4000pts since November on "Trump Tax Reform", how much more can they really squeeze out of this nonsensical market? It's going to reverse and reverse hard sooner or later...

John Law Lives's picture

The "Trump Bump" explanation for the surge in the "markets" is ad-hoc reasoning (imo).

MFL5591's picture

This is a goddamn joke, I am so tired of these lies and games by this group in DC.  What the fuck kind of game is this?  Cannot reform healthcare but he is going to revise taxes with no help from the congress?  When does the lie end?

NugginFuts's picture

The lie ends when the revolution begins.

LawsofPhysics's picture

"It's going to reverse and reverse hard sooner or later..."

 

Why?  Unlike any other time in history, there is absolutely no mechanism for true price discovery as ALL the world's central bankers and financiers are working together!!!

The level of the FRAUD/THEFT and subsequent moral hazard is on a scale the world has never experienced.

 

chicken_goose's picture

Because no matter how much control these central bankers think they have, they're not omniscient. Capital markets are a complex dynamic system with chaotic elements, they cannot be fully controlled. The combined arrogance of these central bankers will be their downfall.

NEOSERF's picture

Agree, it is less able to be foretold or managed than the weather...may be a North Korean strike, a Yosemite Volcano or a butterfly in China, but something is going to take 40% out of this...once the forced selling starts with the ETFs and no ability by the Fed to lower rates, the next one will be unstoppable.

lester1's picture

There will never be another crash again due to the Federal Reserve and other central banks buying stocks !!

John Law Lives's picture

If you have proof the Fed is buying stocks (directly or through a proxy), please provide it or kindly quit stating this as a fact.

Inzidious's picture

Hrmm. The Swiss national bank owns like tons of Apple stock? While this isn't direct evidence of US fed involvement, I feel like the onus of proof is on them to show there isn't a tit for tat arrangement..

.. Which really isn't possible (to prove). So without a direct ban of all known central bank (including foreign) purchases of us equities this is a moot point.

We're basically a global Weimar(spelling?) at this point. Who knows what'll happen when the cards fall. All I know is I've checked out. I'll be a criminal before I ever wage slave again.

AlphaSeraph's picture

Thought experiement. So the SNB has a huge amount of Apple stock on it's books (and 65 billion $ in equities). It decided to print more swiss francs alongside the ECB and it's Euroflation policy - so to mitigate exposure and to protect it's citizens (snark) it buys lots of equities. 

Is it not possible that the central bankers all don't give a shit about each other and will SELL in a panic the moment they think a market collapse is game on? He who panics first, panics best. "Hey look Swiss citizens, I sold near/at the top! you can trust me!!". You can extend this to any central banker in the world. 

I have the distinct feeling they could panic sell just like anyone else. 

It's the govt bond bubble they will do everything in their power to protect, equties will be sacrificed in a heartbeart if it means extending the bond bubble another few years. Of course that means printing even more and destroying the currency...but hey ZHers already know this. 

lester1's picture

Tax reform is dead without a border adjustment tax as a source of  revenue!! There's no way in hell they can drop the corporate rate to 15% without blowing a giant hole in the federal budget. Where is that money going to come from? Is the Federal Reserve going to have to do another quantitative easing and go on a treasury buying binge? Imagine what that will do to inflation.

 

No way Tea Party Republicans will go along with blowing a giant hole in the budget for tax reform.

tmosley's picture

Getting rid of the subsidy to high tax states will probably come close.

It is absolutely INSANE to allow a write off for state and local taxes. Its a DIRECT subsidy to incompetents.

LawsofPhysics's picture

No "money" you say?  LMFAO!!!

The bankers and financiers have been gifting THEMSELVES all the money they want WITHOUT RISK and WITHOUT any real collateral requires thanks to BAILOUTS and ZIRP!!!!!!!

I wonder why CONgress isn't talking about this or a full audit of The Fed!!!!!!!!!!

Simple, all of the fuckers are BOUGHT you dumb fuck.

Inflation in the real world for real shit that matters (rent, utilities, food, healthcare, education) is already out of control.

Wake the fuck up moron.

In the meantime...

"Full Faith and Credit"

BandGap's picture

I call bullshit. Even my household knows that when we have less coming in we have to curb spending.

And they have to re-align social security and medicare. It would be nice if CA or Illinoink's pensions would flat out implode, too. Do people realize that some of these state's pension programs allow these people NOT to pay social security? We need all of this rolled into one giant shitball and trimmed to something workable. This piecemeal bullshit is death by a thousand cuts.

And then there is the defense budget welfare system........

Give Me Some Truth's picture

The state pensions are now all pretty much funded by state governments, which have to borrow money to make the retirees' payments. The key is that someone buys the bonds these states issue. But, you know, "someone" always does (See Illinois. Puerto Rico. Greece, etc.) 

And the pension funds do benefit from a rising stock market. As long as this happens, state governments don't have to contribute quite as much to pensioners. So: Let's make sure the market is always rising.

Summing up: Stocks are still a no-risk investment. Too many people and organizations and governments must have the stock market rising. Finding "someone" to buy any bonds (debt) is certainly no problem at all.

The players do have to keep gold and silver from launching. Such a signal could and would jeopardize the entire system. But capping monetary metals is by now the easiest thing they do. They still have to do it, but it's easier than ever.

Panafrican Funktron Robot's picture

"There's no way in hell they can drop the corporate rate to 15% without blowing a giant hole in the federal budget. Where is that money going to come from?"

Who gives a shit if the GDP rises higher than the increase in the deficit?  Corporate tax rate should be zero.

Seasmoke's picture

Who believes this bullshit any more ?????

holgerdanske's picture

Nobody!

This is the reservebank buying stocks. What happens when they own it all. They will sell it to themselves again.

The system is finished. The house of cards will come down. But when, that is the question.

 

On thing for sure. When it happens, it will go like the untouched building in 9/11, who are they going to pin it on this time?

We live in interesting times!

Bay of Pigs's picture

That's a good question. Nobody around here, that's for sure.

Well, maybe tmosley.

tmosley's picture

How does it feel to live inside a terrifying hallucination at all times?

Bay of Pigs's picture

We'll just have to wait and see what Congress accomplishes on tax reform won't we?

Don't get your hopes up.

Juggernaut x2's picture

Tax reform, but not for the serfs

coast1's picture

seems to me that the suggetions noted in this article, hurt the middle class and gives more money to federal government...Am I missing something here?

Juggernaut x2's picture

The government doesn't give 2 shits about the privately employed middle class- the only middle class that counts to the government is the one funded by taxes- cops, firefighters,  teachers, etc

oak's picture

who is buying?

FreeShitter's picture

It must never stop...

Give Me Some Truth's picture

Re: "It must never stop ..."

Si. The. Printing. Press. MUST. Be. Protected.

(No "should" "if possible," "all things be equal this maybe should happen ..." No, it MUST be protected. Understand this and you understand everything about government and banking and laws and regulation and economics.)

Give Me Some Truth's picture

Re: Who is buying?

Answer: "Someone."

I have my suspicions they are even using real money at this point. Just creating digits in some account.

holgerdanske's picture

Real money, what is that?

Never seen it! Heard about it, for sure, but never seen it.

Dead as the dodo.

 

spastic_colon's picture

no way in hell that reform gets done in 2017 let alone 2018........this will be the new rallying cry for the markets....."they're" just trying to avoid a red month.

lester1's picture

This isn't 1980, or even 2001. The national debt is simply too high now to do another tax cut without some new form of Revenue coming in. Cutting entitlements is political suicide so that will never happen. There is basically no money to finance a another tax cut. That reality has not set in yet to the idiots on Wall Street.

Give Me Some Truth's picture

Re: Can't "fund" a tax cut

Yes, "they" can. The government does not need a dollar coming in for every dollar going out. They just print what they need (actually credit digits in a computer somewhere). The government can clearly "print" as much money as it needs. They've been doing this forever already. They are doing it more now, but nobody (that matters) cares, or will do anything to stop this. Tea Party, Smee Party. Freedom Caucus, Smeedom Caucus. 

awarebulldog's picture

If this cycle follows that 1987 chart Tyler keeps showing then this jump in stocks needed to happen before it falls off the cliff.  Will be interesting to see how it ends up.

Osmium's picture

If it doesn't play out like the 1987 chart they keep showing, you will never see that chart posted here again and they will never mention it again.

Give Me Some Truth's picture

Looks to me my taxes are going to go up. I benefit from the mortage deduction and the deduction for state income taxes.

Now I'm sure corporations and banks will benefit somehow. They are writing the "reforms."

Anyway, I'll make this prediction:

Talk - just talk - that "tax reform" MAY be a go, plus averting or ending the "debt ceiling crisis" will be enough to put stocks into a higher orbit, and knock gold and silver down a few more pegs.

WolfgangCire's picture

washington always agrees on one thing - to cut taxes on the filthy rich.

small axe's picture

don't forget the incredible opportunies for MIC with Trump extending America's longest war into our Forever War (us against the rest of the planet). Profit galore

NEOSERF's picture

Europe and Japan have shown the way...we have another 200% of GDP to float bonds so let's get to it and float another $30T in bonds and maybe we can have rates as low as Italy too...really, the fiscal responsibility cow left the barn 25 years ago so just send every taxpayer a $30K check every year and make sure they aren't out protesting....works in Saudi Arabia

oak's picture

with trump's tax reform, is there anyone brave enough to estimate what the deficit would be at the end of his first term? even without tax reform, what it would be?

Give Me Some Truth's picture

Re: Deficit at end of Trump's first term ...

I don't know what it will be, except this: It will be a lot higher than they are saying it will be now. And even this figure will probably be made up. The real deficit and debt has to be a lot more than the published figure. 

Whatever the government says, it's a lie.

  Question everything.

mily's picture

As usual they bought the dip and made some shit up why afterwards, past several months have clearly been final stages of this bull market, it will probably last a while until big guys sell to retail bagholders 

btw vxx puts bitches!

Give Me Some Truth's picture

Re: Made some shit up ...

Yep. The Offical Reason Giver Has Spoken and The press has sent said reason out into the world. 

Catullus's picture

The republicans got their war extension. So now they can make progress on tax reform. That's how this works

Full Court Lugenpresse's picture

Note that the ultra-cap stocks leading the markets higher pay very little tax anyways. Companies like Apple are notorious for the degree to which they keep profits overseas to dodge US tax. Lowering corporate tax rates could be a boon for small caps, but it does very little for the FAANG's of the world, yet those are the stocks this bubble is built on.

libertyanyday's picture

Congress no longer works for the republic..............they will do some minimal busy work, allowing a shifting of 1 or 2 percent.......nothing even close to what trump has asked for.........congress works for no one but itself..........and the electorate is too stoopid to vote in changer...........dictator by 2026

TabakLover's picture

Trump aides:

1. Buy SPY calls

2. Call Politico.