Trump Tax Plan to Allow Small Business to Expand


QUESTION: Hello. You mentioned that the tax cut will allow many companies to expand and hire more staff. At a WSJ forum, Gary Cohen asked a group of CEO’s if they would expand or hire more workers with the corporate tax cut and less than a dozen raised their hands. Some have commented that the savings will be used for stock buybacks and bigger bonuses instead. Which do you think will happen?

Thank you for your blog, it is very helpful.

JS

ANSWER: The businesses that Cohen put that question to were big public business. The big public businesses only employ about 38% of the private sector workforce while small businesses employ 53% of the workforce. Indeed, over 99% of employing organizations are small businesses and more than 95% of these businesses have fewer than 10 employees.

I have probably advised more of the biggest corporations in the world than anyone. The bigger the business grows, the more it becomes like government. The boards are taken over by lawyers, accountants, and political tokens. The original entrepreneurs are usually expelled from boards because they are far too innovative than corporate America.

I had a front-row seat in Radio Corporation of America, where I began my career in computer engineering (software & hardware). Most people are unaware that RCA was a leader in computers. The board of directors thought the computer would be like the radio, which made the company. Everyone during the Great Depression wanted a radio to listen to FDR’s Fireside Chats. Then, RCA had all the government contracts for World War II.

By the 1960s, RCA had the main-frames tied up. They had installed their machines around the world in government installations. They wanted me to go to the most remote outpost and the tour of duty was 1-year and one-day. Thule was top secret back then. The location was the frigid northwestern coast of Greenland and was the U.S. military’s most isolated base. This was the home to one of the Pentagon’s primary tools for keeping an eye out for intercontinental ballistic missile launches from Russia. I turned down the post and that ended my career in computers at RCA.

RCA sold its computer division to IBM and Univac. They kept the servicing contracts of these big installations. However, they thought the computer would decline in price like the radio into crystal sets so they believed they were being smart and sold what they thought was the peak. RCA is now just a subsidiary and no longer a leader in the computer sector. Oh, how the mighty fall.

Why do big companies buy small start-ups? Because the bigger the company becomes, the less innovation they possess. They have to go out and buy start-up to expand. All expansion of technology comes from the bottom moving up. It does not come in the other direction.

The big companies will bring back their cash and some will take-over small companies. Others will use the cash to buy back their stock. It is also like funds management. Give me $100 million and it is easy to produce 50%+ returns annually. Give me $10 billion, the sheer size cannot be traded efficiently as a small amount of money and performance will collapse to a normal level and sometimes 5-8%.

Small companies do the bulk of the hiring, while the big companies contract and impose all sorts of restrictions. The economic growth comes predominantly from small business – not big corporates. So the response Cohen got is absolutely normal. The big contract and the small are the entrepreneurs.

British Parliament Chaos as Tory Rebels Try to Stop BREXIT


The Tory Rebels in the UK Parliament joined forces with Labour and the Remain Camp to defeat BREXIT in reality. They claim that Parliament will now vote on the BREXIT deal, but in reality, they have created an open door for more uncertainty and economic chaos.

The Tory rebels were Mr. Grieve, Heidi Allen, Ken Clarke, Jonathan Djanogly, Stephen Hammond, Sir Oliver Heald, Nicky Morgan, Bob Neill, Antoinette Sandbach, Anna Soubry and Sarah Wollaston. Another Conservative MP, John Stevenson, abstained from voting in both lobbies. Meanwhile, two Labour MPs, Frank Field, and Kate Hoey voted with the government.

The amendment was authored by former attorney general Dominic Grieve and was championed by other pro-Remain campaigners. The fact that the Remain camp indeed remains delusional about the economics of the entire mess is beyond contemplation. This seriously calls into question why there is no qualification to be a politician. They are ignorant of the fact that the GDP of Britain peaked in 1973 and has declined ever since joining the EU. Are they just stupid or corrupt? Britain is disliked in Brussels and has lost just about every case to defend Britains in the EU Court. Yet these people are oblivious to reality.

Nicky Morgan revealed their true motives when he tweeted:

“Tonight Parliament took control of the EU Withdrawal process.”

These Rebels have seriously undermined the process and the Prime Minister. Granted, PM May does not know how to negotiate. Britain holds all the cards. It should go for a HARD BREXIT and watch Ireland and Brussels crawl. The Germans will be on the phone to Brussels calling them an idiot since Britain is Germany’s biggest market for their cars. Already German cars sales in Britain have dropped sharply and diesel cars have become almost not salable.


Meanwhile, the cash Pound closed last week at 13323 leaving it neutral to bearish on our yearly models for now. As we enter 2018, the resistance will fall to the 145 to 151 level. The Pound Sterling thus still remains in a vulnerable position against the dollar.

Looking at the Pound against the Euro, it closed last week at 88200. The Yearly Bearish Reversal rests at the 82800 level. Our pivot point for resistance in 2018 will be 88120. This makes this very interesting. A closing above that means the Euro can still rally to exceed the 2016 high of 94150. A closing beneath 88120 will be a sign of weakness for the Euro and BREXIT will still unfold.

Support will be at 78800 in 2018 and resistance will stand at the 93100 level and that appears to be very firm.

Trump Tax Reform & Charitable Donations


QUESTION:  Hi Marty,
I have been reading your blog daily for the last few years, as well as the archives. I just read your explanation of the difference between the house and senate versions of the tax cuts. The only thing that baffles me is not including charitable giving as a deduction. It seems to me that many people will stop giving what they can’t deduct. Then all these charitable organizations will then end up hat in hand pleading funds from the government. I would think it would be less expensive to the government keep charitable deductions than not.
ANSWER: Both plans keep the charitable deduction and the property tax deduction will be capped at $10,000. Your assumption that people donate simply because they get a tax deduction is wrong. All the donations of the famous millionaires like Rockefeller were before the income tax. I personally bought computers for everyone at the grade school I went to and put in the necessary educational software. I never took a deduction because something that big ends up only causing an audit.

I have never known anyone to donate large sums only because they get a deduction. Donations are typically made because you have a passion for something not because you get the deduction. Under that theory, nobody would care who you gave money to. Even when we sold my mother’s house, we donated most of the furniture and they give you a slip[ for a deduction, but it’s just not worth the hassle to use it.

The big donations that get written off are usually from estates.

Freedom of Religion under Attack by Australian Gov’t


OK, believe it or not, the Australian government wants sweeping changes in the Catholic Church and other organizations, including making celibacy voluntary for clergy, but the real kicker is that they want priests to report people who confess sins in church. Politicians no longer have respect for religion or the beliefs of people. To them, there is no God, only their power. This is getting really insane.

Taxing the Per Mile you Drive – Hunt for Taxes


There are a number of states now looking into imposing a tax on every mile you drive your car. The leader of the pack has been the West Coast.  I previously reported that California wanted to tax space shots per mile they flew into the sky. Then California wants to tax taxi drivers per mile they drive.  Oregon was looking into taxing per mile you drive. Illinois was looking at taxing motorists 1.5 cents per mile they drive.

Well, California is losing money as oil prices are down and people are shifting to electric cars more so there than perhaps anywhere else in the country. So what is the solution to needing more money? Of course, you guessed it, California now says what the heck, let’s just tax everybody per mile they drive and that will make up for the loss at the gas pump.

Bitcoin = Money, Commodity, or Shares?


QUESTION: I read your article on Bitcoin. I found it fascinating that defining what it is changes everything. You did not actually say what you thought it was, money, stock, or a commodity. Curious as to what you would classify Bitcoin as.

All the best

ANSWER: The definitions I presented are from the government perspective of taxation. They will naturally define it to be whatever produces the greatest tax for themselves.

Economically speaking, anything that can be exchanged to facilitate a barter transaction becomes a MEDIUM OF EXCHANGE. That really can be anything. It has been food, sheepskins, seashells, cattle, bronze, silver, gold, or a derivative of something as paper money began.

Pictured here is a bronze ingot of the Minoan society. It is bronze cast in the form of a sheepskin. This reflects the transition from sheepskin to the Bronze Age. Above is a Roman ingot with the picture of a bull, which also reflects that this was a transition for cattle that was money previously.

Cryptocurrency is the next transition from tangible items being used for money moving toward electronic. It is a Medium of Exchange and that makes it really a currency and not the object itself of desire. Money will always exist in different forms because humans are not all equal in motivation, only human rights and that depends if the government has something to gain then you have no rights at all at that moment.

The Practicality of Cryptocurrencies – Not Really Ready for Prime Time


Trying to actually use Bitcoin in the economy is anything but something that will replace any government currency. The transaction fees are outrageous typically 3 to 4 times that of a cash withdraw from an ATM. In this video, a journalist tries to actually use Bitcoin. The pizza ends up costing him $76.16 and the fee to use Bitcoin is $9.47.

To use Bitcoin, there are middlemen who are the equivalent of a foreign exchange broker. It can take hours to get a simple order in to buy a pizza.

From a practical viewpoint, cryptocurrencies are not quite ready for prime time. They are all hype and offering a futuristic vision of beating the governments, but the computing time it takes to actually use cryptocurrency and the complexities, demonstrate that what we are dealing with is by no means some instant success story that has beaten paper currency or a credit card, which is really also electronic money.

U.N. Ambassador Nikki Haley Outlines Evidence of Growing Threats From Iran…


In a stunning display of international transparency, U.N. Ambassador Nikki Haley presents actual, physical, incontrovertible and, yes, uncomfortable, evidence of Iranian weapons that have been used by proxy fighters against allied nations.  The presentation takes place at joint base Anacostia-Bolling in Washington, DC and consists of formerly classified intelligence gathering presented openly to the international community.

Ambassador Nikki Haley presents an assembly of actual Iranian missiles and weapons that have been fired against mid-east allies within the peace coalition.  After a brief speech outlining the material on display, Mrs. Haley takes questions from international media.

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[Transcript] It’s really important that you be here today, because we have a story to tell, and the story is a very important one. And it’s not just important for the United States, it’s important for the entire international community. As President Trump announced on October 13, the United States is taking a new approach to Iran by focusing on all of the regime’s destabilizing behavior. That means we are focused not just on the nuclear program.

We’re also taking a hard look at Iran’s ballistic missile program, its arms exports, and its support for terrorists, proxy fighters, and dictators.

Our new strategy was prompted by the undeniable fact that the Iranian regime’s behavior is growing worse. The nuclear deal has done nothing to moderate the regime’s conduct in other areas.

Aid from Iran’s Revolutionary Guard to dangerous militias and terror groups is increasing. Its ballistic missiles and advanced weapons are turning up in warzones across the region. It’s hard to find a conflict or a terrorist group in the Middle East that does not have Iran’s fingerprints all over it.

Four days ago, Iranian Foreign Minister Mohammad Zarif wrote an op-ed assuring the world that Iran has been misunderstood. He wrote, “Iran’s military capabilities comply with international law and are entirely defensive.”

Instead of stoking violence, Zarif promised that Iran and its partners, “labor to put out fires [while] the arsonists in our region grow more unhinged.”

But the United Nations just released a new report that tells the opposite story. It tells the story of Iran as the arsonist. The report shows the Tehran regime not putting out fires, but fanning the flames of conflict in the region.

This was the Secretary-General’s fourth report detailing Iranian compliance – or noncompliance – with UN Resolution 2231. That resolution places specific prohibitions on Iranian conduct.

In its strongest language yet, the Secretary-General’s report describes violation after violation of weapons transfers and ballistic missile activity.

The United States welcomes this report, as should every nation concerned about Iranian expansion. We are grateful for the depth of the UN’s inspection and analysis. Most telling, the report makes a convincing case that Iran is illegally providing the Houthi militants in Yemen with dangerous weapons. The report provides devastating evidence of missiles, conventional arms, and explosive boats of Iranian origin used by the rebels in Yemen – all of which violate UN resolutions.

The United States and our partners went to great lengths to support the UN investigations into Iranian violations by declassifying evidence so that the world could better be informed of the extent of Iran’s malign activities.

As you know, we do not often declassify this type of military equipment recovered from these attacks. But today we are taking an extraordinary step of presenting it here in an open setting. We did this for a single, urgent purpose: because the Iranian regime cannot be allowed to engage in its lawless behavior any longer. International peace and security depends on us working together against the Iranian regime’s hostile actions.

The fight against Iranian aggression is the world’s fight. The United States is acting today in the spirit of transparency and international cooperation that is necessary to defeat this threat.

In this warehouse is concrete evidence of illegal Iranian weapons proliferation, gathered from direct military attacks on our partners in the region.

Behind me is an example of one of these attacks. These are the recovered pieces of a missile fired by Houthi militants from Yemen into Saudi Arabia. The missile’s intended target was the civilian airport in Riyadh, through which tens of thousands of passengers travel each day.

I repeat: This missile was used to attack an international civilian airport in a G-20 country.

Just imagine if this missile had been launched at Dulles Airport or JFK, or the airports in Paris, London, or Berlin. That’s what we’re talking about here. That’s what Iran is actively supporting.

What is most revealing about this missile is what’s not here. This is a short-range ballistic missile. It is missing the large stabilizer fins that are typically present on these kinds of missiles.

The Iranian Qiam missile is the only known short range ballistic missile in the world that lacks such stabilizer fins and includes nine valves that you will see running along the length of the missile. Those valves are essentially Iranian missile fingerprints.

On your walk through, you will also see missile debris stamped with the logo of Shahid Bagheri Industries, an Iranian manufacturer.

Those are just two of the many pieces of evidence that tell us of this missile’s Iranian origins.

It was made in Iran, then sent to Houthi militants in Yemen. From there it was fired at a civilian airport, with the potential to kill hundreds of innocent civilians in Saudi Arabia.

You will see more than that. In this warehouse there is also material from an anti-tank guided missile. Such missiles have a range of over two miles and can destroy tanks, and even buildings. You will see material from an unmanned aerial vehicle, also known as a kamikaze drone, that can take out radar sites. You will see material from a SHARK-33 explosive boat. These are boats with a warhead inside them that explodes on impact. They can blow six feet wide holes in the hulls of ships.

All of these weapons include parts made in Iran, some by Iran’s government-run defense industry. All are proof that Iran is defying the international community. And not just one time. This evidence demonstrates a pattern of behavior in which Iran sows conflict and extremism in direct violation of UN Security Council resolutions.

In just a minute, Laura Seal from our Defense Department will walk you through the items gathered here and explain their connection to the Tehran regime. We welcome a thorough examination of this material, not just by the members of the press here today, but by the international community.

Several countries will be sending delegations here to view this material in the next few days. Some have already been here. We are inviting the entire UN Security Council to see it for themselves. And we are inviting all members of Congress to view it.

This evidence is part of what has led the U.S. intelligence community to conclude, unequivocally, that these weapons were supplied by the Iranian regime.

The evidence is undeniable. The weapons might as well have had “Made in Iran” stickers all over it.

The United States stands ready to share what we know to further the cause of peace. We ask our friends and our allies to do the same. Iran is determined to undermine the international consensus against its conduct.

We must speak with one voice in exposing the regime for what it is: a threat to the peace and security of the entire world. We call on all nations to join us in a united front resisting this global threat.  (read more)

Interstate Banking & Changes to the Federal Reserve


QUESTION: 

Hi Marty,

You say, “The one-size-fits-all policy of central banks with regard to interest rates pits East v West in both Canada and the United States. Farmers, oil producers, and miners are forced to pay higher interest rates when their economies are declining because of speculative booms in Toronto or New York.”

I can see how regional Central Banks could have supplied different stimulus in different regions back in the time of the Fed’s formation when the mediums of communication were not what they are today, but how would that work now. With the ability, today to borrow money electronically from where ever it is cheapest, wouldn’t people in the high-interest regions simply borrow in the regions where the money was cheapest defeating that strategy?

Regards,

F

ANSWER: About 70% of small business are routinely turned down for business loans. The small farmers, miners, and oil producers cannot simply borrow from the cheapest source. I myself always found banks calling me asking if wanted to borrow money when things were great and I never needed it. If you are watching your business model decline, nobody will lend to a ship taking on even a little water. There is a huge difference between a consumer loan on credit cards and a small business.

Consumers already pay interest rates set by a bank which are usually covering various regions. It is true, after the collapse of 9,000 banks with the Great Depression, thereafter banks were prohibited from Interstate Banking. Indeed, Interstate Banking allowing banks across state lines became widespread in the mid-1980s, when state legislatures passed legislation that allowed bank holding companies to acquire out-of-state banks on a reciprocal basis with other states. I had been on the board of a regional bank in the early 1980s. After Interstate Banking was allowed, a New York bank came down and put in a bid for Capital State Bank. It was sold and everyone cashed-in on their shares.

The main point is that there remain regional lending problems. The banks will lend to a market that is booming and will shun away from the regions in trouble. Today, a major bank in New York goes down and it impacts the entire country thanks to Interstate Banking.

So yes, you are correct – things are different today. The regional approach served the local economies. Even the S&L industry was regional and intended to serve the local economies. Today, the restructuring of the central banks eliminating and responsibility for regional disparities combined with Interstate Banking produces a completely different set of problems that will fuel the various separatist’s movements. In Europe, we see a huge disparity between the local economies of Southern Europe v Northern Europe and there too they are trying to impose the one-size-fits-all approach to central banking. Wherever we see economic disparities, we will see separatist movements

The Dow & Trump Tax Reform


The Trump Tax Reform reducing the corporate tax to 21% and taking effect January 1st, 2018 rather than being delayed until 2019, will be one of the biggest positive catalysts for US equities in decades. This is very interesting because it is now fundamentally validating what our computer has been projecting for highs going up to the 40,000 level on the Dow back in 2009.

Many of the domestic and institutional investors overseas are NOT in this market. They will now be forced to reposition their portfolios once the bill is passed. How to Trade a Vertical Market is absolutely critical at this point in time. This is by no means going to be easy.

We are already above the top of the Upward Channel and this will be 21,017.30. Our projections for 2017 stood at 25,648.40 and this rises to 28,045.71 for 2018. This is the next area of resistance. Once we push through that projection, the market will come back to test it. That will be the start of the slingshot upward.

The same model produced the projection at 195.97 for 1928. The year 1928 opened above the projection at 203.40, fell back to retest it dripping to 194.50, and then entered the slingshot running to 301.60 intraday and closed that year at 300.00. Keep in mind our project model gives us 25,648.40 so we are not yet through that level.

This is why I have always warned AGAINST fundamental analysis. The fundamentals ALWAYS unfold to validate what our computer forecasts to start with. Our forecast that BREXIT would win and Trump back in 2016 was possible ONLY because the computer was picking up the change in public sentiment which is driven by economics. The Trump Tax Reform is a reflection of the discontent underlying the economy. The Democrats will naturally vote in block against it because they simply like the higher taxes even if it produces fewer jobs and lower economic growth. They cannot change their color now.

NOBODY could have forecast this back in 2009. Barron’s though we were crazy back in 2011 forecasting the Dow was off to new record highs. Socrates can beat anyone, even me. So why will mainstream media not report our model’s success? Because it is not in the self-interest of themselves or government. Why interview people with opinions to fill their pages if all you have to do is try to figure out why the forecasts Socrates puts out will unfold on schedule? Don’t worry about it. Our big clients prefer that our forecasts are not on their front pages.

After the New Year, we will produce a special report on the US share market for 2018 with the turning point and price objectives for the year.