TRUMP: Why POTUS might be good for America (and the market)!

 

There are many things that are unsavory, ojectionable and wrong about Donald Trump. Or so we are told. But with the US stock market hitting new all time highs, US unemployment down to 3.7% which is the lowest since 1969, and significant wins against the world’s most dangerous terrorist organisation ..... I’m having some difficulty recalling what they were/are or supposed to be.

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Trump’s reduction in the US corporate tax rate from 35% to 21% clearly establishes his credentials as a right wing, business friendly and ‘small government’ advocate of the republican party.

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The right wing view is that corporations will put this saving into productive use to increase earnings, and consequently there will be a beneficial effect on employment, wages and productivity.

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The right wing view (often described nowdays as ‘neoliberalism’) also holds that depriving the state of these funds is a good thing. The rationale here is that government bodies are very inefficient users of capital. They are often overstaffed, under productive and have high levels of wastage as they are not subject to the discipline of a competitive market.

 

This cut in corporate tax immediately adds to the earnings of all profitable corporations. The impact of this may not yet be fully factored in to share prices due to the preoccupation of analysts with EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation of goodwill on acquisitions). Tax cuts therefore have no impact on EBITDA figures.

 

In the words of Warren Buffett; ‘People who use EBITDA are either trying to con you or con themselves. Interest and taxes are real costs’.

 

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