US Stock-market Bubble Is About To Burst

“Sen. Ron Johnson announced he is opposed to the tax bill Wednesday, making him the first member of the GOP to formally come out against the party’s plan, though the Wisconsin Republican said he was hopeful about being able to support a final version once changes are made.
 
Johnson issued a statement saying the current proposal in both chambers is imbalanced in favor of large corporations but he left open the door to supporting the bills if they are altered.”
 
See Republican Sen. Ron Johnson comes out against tax bill
It never ceases to amaze me how Trumpists shoot themselves in the feet with the rifle set to full-auto. Here they are with “control” of the executive branch, a good hold on the judicial branch and control of the legislative branch but they still can’t govern… They are like a pack of dogs fighting over a carcass and allowing the ravens to gobble things up.

  • Everyone agrees taxes are complex and could stand some simplification. Why not do that?
  • Conservatives want a balanced budget and a reduction in the national debt. Why not do that?
  • ObamaCare is not working perfectly. Why not fix it?
  • Everyone agrees the middle class and the poor are not getting a break. Why not fix that?

Instead, the Trumpists decide to give the wealthy a huge tax break permanently, ordinary people a short-term tax-break mostly but some will get an increase in taxes, and to reduce the increase in the debt they will cut out another leg from under ObamaCare causing still larger increases in premiums and loss of insurance which people need and appreciate.

Does anyone believe this monstrosity will become law? No D will support it. Many Rs will not support it. Moore may well cost Rs one more seat in the Senate… POP! That’s a tiny imitation of what the sound will be when investors realize this dog don’t hunt. Corporations won’t get a huge tax-break enabling them to buy back shares or raise dividends. Share prices will plummet. Trump can take the credit for that. He doesn’t care about deficits. He doesn’t care about the little people he persuaded to vote for him. He only cares about the wealthy and the tall and the white males… What will be the volume of wailing and gnashing of teeth when that truth dawns on people?

About Robert Pogson

I am a retired teacher in Canada. I taught in the subject areas where I have worked for almost forty years: maths, physics, chemistry and computers. I love hunting, fishing, picking berries and mushrooms, too.

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13 Responses to US Stock-market Bubble Is About To Burst

  1. Deaf Spy says:

    No, it’s not. One can grow sales simply by changing a message, without hiring a single new worker or building a single new plant…
    One only needs to invest in more plant and equipment and labour to replace attrition or to match anticipated/actual demand.

    Bwaha-ha-ha-ha!
    Somehow Robert believes that:
    1. Marketing is a joke, and pro-active sales don’t exist.
    2. Investments are investments only in plants, machines, equipment and perhaps workers that operate them. Everything else, like spending money on R&D and new services, is not an investment. Bwaha-ha-ha-ha!

    Tell us, Robert, are you sure you are not a Marxist?

    Sorry to tell you, but your idea of what investments are and how business grow have been refuted long ago, starting with Mises.

  2. Deaf Spy wrote, “Growing sales is an investment by itself!”

    No, it’s not. One can grow sales simply by changing a message, without hiring a single new worker or building a single new plant. Production facilities are somewhat elastic. One can vary the shifts and speed of operation to suit demand. One only needs to invest in more plant and equipment and labour to replace attrition or to match anticipated/actual demand. Again, lots of corporations are awash with cash and they are increasing investment only a tiny bit as they are happy with the situation. To spread joy to investors, they buy shares and increase dividends, not ramp up investment which investors see as a cost.

  3. Deaf Spy says:

    Investment does not equal growth in a business. One needs to grow sales together with investment.

    Of course it does, dear Robert. Growing sales is an investment by itself! If the current market can’t grow, you create seek new markets. Or you create new markets.

    See AT&T, for instance. Phone market in US is saturated. That is why AT&T invest to step into a new market by acquiring Time Warner. This may win, this may fail, but this is how you do it, Robert. See Coca-Cola, too.

    It is hilarious that I need to explain you simple truths like this.

  4. Grece says:

    In otherwords, it’s not worth much.

  5. Grece wrote, “List your portfolio Robert.”

    Nope. My portfolio is in small businesses which can be damaged by twits on the Internet.

  6. Deaf Spy wrote, “Investments are a key driver to growing a business. Failing to acknowledge this is simply economic ignorance.”

    OMG! Everyone in North America has a car. Logically, GM should double production next year. That’s investment. That will grow their business. NOT! Investment does not equal growth in a business. One needs to grow sales together with investment. Sometimes that’s just not possible. Wages are flat. Employment is slowly growing. Businesses can’t just ramp up production to make more money except by exportation which Trump is squashing. Businesses are awash with cash now. Why are they buying back shares and increasing dividends instead of investing it? Answer: to please shareholders. That’s the number one job of businesses. Growing is just the best way to do that but not the only way. They can also decrease costs by working people and machines harder and by buying from China.

  7. Deaf Spy says:

    Let’s see. In the past year, DJIA rose 24%. Meanwhile, GDP rose 3% and corporate profits rose 11%.

    The relation between stock market indexes and GDP is not so related. While Indexes move usually in the direction of GDP, they never move with the same pace. Simply because they measure different things. GDP is an illustration of the past, while Indexes are expectations of the future. Second, GDP takes into consideration too many additional factors, which are not relevant to stock markets.

    Businesses are in business to make money not spend it.

    Investments are a key driver to growing a business. Failing to acknowledge this is simply economic ignorance. Companies that focus on buying back shares are doomed to stagnation. Example: IBM. These who focus on dividends are threatened to lose these soon. Example: Seagate.

    You are clueless, Robert.

  8. Grece says:

    List your portfolio Robert.

  9. Grece wrote, “Robert you are a closet communist”.

    Grece must have a very elastic definition of the term. Sharing is noble but I’m no saint. I invest capital for profit and consider myself a capitalist. My investments next year could well make me more money than I earned in my whole life as a worker.

  10. Grece says:

    Robert you are a closet communist.

  11. Deaf Spy wrote, “The title implies the US stock market is currently a bubble. This is mostly peculiar. Why exactly that, Robert? Which are the factors that turn the US stock market today into a bubble?”

    Let’s see. In the past year, DJIA rose 24%. Meanwhile, GDP rose 3% and corporate profits rose 11%.

  12. Deaf Spy wrote, ” While buying back shares will raise the stock prices in short term, it is actually counter-productive in the long run. Winning companies use spare money to invest.”

    Many corporations are awash with cash now. They are buying back shares and raising dividends, not hiring new workers. Businesses are in business to make money not spend it. If it is better for the shareholders to own more expensive shares and/or to own a bigger slice of a company due to a reduction in issued shares, a company will buy back shares. If it is better for shareholders to get larger dividends instead of reduced margins companies will raise dividends. To the extent that shareholders are not young workers looking for work, the shareholders are the big winners when corporations get tax-cuts. That was the case with the Reagan tax-cuts. Businesses were more profitable but they did not invest the money and the deficits rose.

    “During Reagan’s presidency, the national debt grew from $997 billion to $2.85 trillion. This led to the U.S. moving from the world’s largest international creditor to the world’s largest debtor nation. Reagan described the new debt as the “greatest disappointment” of his presidency.
     
    The federal deficit as percentage of GDP rose from 3.8% of GDP in fiscal year 1982 to a peak of 5.9% of GDP in 1983, then fell to 2.7% GDP in 1989.”

    So, you can cling to a Trumpist/religious belief that tax-cuts will trickle down to the poor or you can face reality that government has to work for the people who elected them and not corporations.

  13. Deaf Spy says:

    Dear, dear… So many fallacies I can’t restrain myself from chipping in. I will focus on the paragons of illiteracy only. 🙂

    The title implies the US stock market is currently a bubble. This is mostly peculiar. Why exactly that, Robert? Which are the factors that turn the US stock market today into a bubble?

    Corporations won’t get a huge tax-break enabling them to buy back shares or raise dividends. Share prices will plummet.

    This is a real gem. You think that the only sensible thing for corporations to do with their spare money is buy back shares and raise dividends. While buying back shares will raise the stock prices in short term, it is actually counter-productive in the long run. Winning companies use spare money to invest.

    Then, we have companies that don’t pay dividends. For example, both Amazon and Google don’t pay dividends. That has exactly zero effect on the price of their shares, which is more than healthy in both cases.

    Robert, why don’t you blog about welding? Then your writings might be actually instructive and insightful.

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