Blain: "Joke About His Weight And Porn Stars, But You've Got To Admit: Trump Is Changing Stuff"

Submitted by Bill Blain of Mint Partners

Flying Saucer Lands in Cupertino as Trump confirms he's a genius.

“Round the decay of that colossal wreck, boundless and base, the lone and level sands stretch far away...”

A thunderdous tweet twitters around the globe as Tax Reform causes a gigantic flying saucer to descend from the sky, and alight upon the small Californian town of Cupertino. Let joy be unconfined as the crew announce they will pay $40 bln in taxes, spend billions on contracts to local suppliers, and create thousands of jobs across America. Someone might be economical with the truth about his weight, height and (allegedly) porn stars, but you’ve got to admit, he’s changing stuff, he’s almost disruptive..…?

Is it good?

A more logical article on Bloomberg y’day asks the simple question: what happens when US corporates start to repatriate some of the $3.1 trillion they currently hold offshore? In truth, much of the cash is already there via complex structures. Cupertino’s Apple Park wasn’t built in a day. US companies will pay a 15% tax on repatriation, but many will opt to bring it home as “less liquid assets” (which could include bond holdings – just saying the Apple has a $150 bln credit portfolio) – which is a 8% tax hit.

Ultimately…is all that money going to be invested in new plant, factories, offices and jobs? I’ll admit whenever I’ve had a problem with an Apple product and sought help the service has been good – usually an interested, enthused and friendly Irish person sorting it out. But many of the support jobs that will be created by repatriated cash coming back to an America already close to full employment will be in call-centre service warehouses. Or in robotic delivery services.

Most of the cash will have to be (or remain) invested. As interest rates are set to inevitably rise (the 10-yr T-Bond at 2.60% this morning), its unlikely US companies will be putting new overseas cash into likely loss making bond funds. Neither is there any point in repaying any of their cheap outstanding debt early.

Apple is a case in point. After tax it will still have $230 bln to play with. Its said it will spend on US suppliers – great multiplier effect on the economy, but how much won’t still go offshore? My colleague Ara Levonian of BGC notes this morning; “whatever the wisful thinking of investment banks, Apple is unlikely to go shopping for Netflix and Tesla.” I’m not so sure – with all that money… but let’s assume there isn’t a feeding frenzy.

So what will they do with all that dosh? Simples! Buy-back even more of their own stock! The great “on-shoring” is going to be like QE on seriously strong steroids for the US stock market. And just like Steriod abuse – it’s never long-term healthy.

Short-term its brilliant! I’m long many of the largest repatriation names! What’s not to like about the value of stock going up? Every time I say stock buy backs are unimaginative and simply inflate the value of a stock, some smart-lipped Yank comes back with a comment: “and what is wrong with that… it makes me richer!” True – but does such financial asset inflation actually add anything? Stock ownership becomes more concentrated as prices rise. Less shares, but the company is worth the same so the outstanding shares are more valuable. You’ve got financial asset inflation, but the net sum value of the economy hasn’t changed…

And in terms of that 8% tax play on illiquid assets, the same Bloomberg notes points out cash rich US corporates are some of the largest corporate debt holders also. Apple owns more that $150 bln of corporate paper and 60 bln of govie debt! Apple, Microsoft, Alphabet and 5 others account for 66% of overseas cash held by S&P500 firms.

Meanwhile, on the other side of the pond, what is going wrong here in the UK. We’ve got yet another political crisis revolving around the collapse of Carillion, the stunned realisation of the pernicious effects of PPI managed projects (great piece in the FT this morning), and a mounting sense of the WTF is going on?

We’re waking up to a new reality about corporate Britain and it stinks. Ask the question how the management of some of the UK’s largest companies can behave with such utter reckless disregard for the consequences of their greed. We once thought companies extracting enormous dividends for owners, paying their managers enormously inflated salaries, leaving the pension pot empty, and treating workers as wage slaves was a solitary Philip Green type event. Nope! It seems to have become the standard business plan for a whole generation of morally bankrupt get-rich-whatever-the-damage lowlifes that have somehow floated to the surface of the corporate toilet!

The negative effects across the economy are immense. For every Carillion – dozens of major suppliers, hundreds of contractors and thousands of local business take hits forcing them closer to bankruptcy.

It’s not getting easier. A recent report from Begbies Traynor, the leading insolvency business says more than 500,000 UK business are in financial distress, a rise of 36% since last year. The firm quotes a whole number of issues including macro-economic pressures, rising inflation, stagnant real wages, the weak point, political uncertainty, tight credit conditions and rising cashflow and working capital deficits. Not easy. And even more difficult when a major firm appointed by government to manage projects hasn’t pay its invoices.

Someone needs shot. We have a little list. They never will be missed.

Finally, (and read this quietly lest someone report you for double-un-plus-good-think), I read yesterday about some MiFID teething problems… Naturally I hesitate to say anything as criticism of MiFID is executable thot-crime. I shouldn’t say anything as my brain is only normal sized, and you need the brain the size of a middling galaxy to fully comprehend the majesty, breadth and magnificence of MiFID.. Apparently, I can’t possibly understand it, but it would appear that the market data we’re on pain of painful death to report re every single price we post, request we respond to, cup of coffee we drink, trades we complete, etc, etc, might have gone missing in the processing process.

Something like “the MDP passing ARM data to ESMA to FIRDS” had a glitch. If you know what it means, please explain. Apparently its fixed – so no more excuses..