Mommy Where Does Capital Come From ?

TGIF readers, we’re another week closer to Christmas and time for our weekly shoot-the-shit topic. We’ve been hoping to steer clear of politics but the importance of this 2016 election to our industry and country is undeniable, and we’ve never seen more baloney dispensed to voters than in this year’s election.

At the very top of the bull pile is the Clinton  campaign, calling it remarkable is a colossal understatement!

Forgetting Benghazi, E-mails servers, Mishandling of Classified Information, Clinton Foundation, Russian Reset and Influence Peddling questions we’d like to give you our view of the Clinton “economic” plan.

  1. She wants to see firearm manufacturers sued out of existence in civil courts “a la Newtown Families.” The Newtown lawsuit names Bushmaster (Remington ), as well as Camfour, a firearms distributor, and Riverview Gun Sales, the defendants. The argument made by the plaintiffs is based on the concept of negligent entrustment, which means that if a party manufactures a product that can cause the death of another, and it is subsequently used by a third party to kill someone, the manufacturer is liable.  So, Mrs. Clinton wants to see a $50 billion  industry employing 288,000 people sued out of existence. If elected, she will achieve that goal through court appointees and regulations.
  2. She wants to see the fossil fuel industry disappear and replaced by renewable energy sources like wind and solar. Domestically, her approach would increase the price of a kilowatt hour exponentially. The United States has the resources to be a global competitor in the energy sector. Her position would shut that opportunity down; along with the jobs and add to GDP. Now, imagine a developing nation without a source of inexpensive energy to grow an economy – a petri dish for terrorism. Under Mrs. Clinton’s plan, the cost of energy will skyrocket, but because energy is essential to life, it is a price inelastic commodity. Heating and cooling your home or business would quadruple which has the net effect of a huge tax destroying discretionary spending, consumer consumption and business investment.
  3. We’ve arrived at the finishing touches of her plan, taxing the rich. Which brings us to our shoot-the-shit topic. Readers, the wealthy are the source of capital, not the government. The wealthy do not stash their money in a mattress, they use it to make more money. Penalizing the wealthy through aggressive taxation means they have less to invest in the market or invest in business creation.
    1. There is a well accepted and understood principal in economics that capital is allocated where it receives the highest return for a given risk level. The situation we face in our economy is that government regulations and business taxes have driven returns from business lower making business creation riskier and less profitable than alternative investments. In addition to virtually zero interest rates since 2009, this is the reason why we see huge amounts of capital moving into the stock market and driving the market to historical highs. The problem with this condition is that current market price levels are not supported by the real economy, so long term price support is absent. If you want to see why the market is at historical highs in an economy that has been under performing for years, take a look at what margin debt has done since 2009. This was during a period when consumers and small businesses could not get loans and lines of credit. So, the market is feeding on itself – not healthy and not good. You didn’t read this here but we feel the market is over priced by about 2,700 points – one hell of a bubble. Low interest rates, draconian business regulations and taxation are directly responsible for this condition. Mrs. Clinton wants to regulate even more and destroy sectors of the economy
    2. Aggressive taxation of the rich transfers capital from the financial markets and business creation to the government who is notoriously inefficient.
  4. Here’s what we think should be done. Start by eliminating excessive government regulations, many of which are overlapping, and add to the size of government, then reduce business taxes. Doing so will reduce the cost of doing business, reduce risk and increase returns on investment leading to business creation. Next, put the stock market under a microscope and encourage investing not speculation by increasing the holding period for long term treatment of capital gains from 12 months to 24 months; investors holding for more than 24 months their capital gains are tax free, irrespective of investor tax bracket. Tax all short term capital gains, meaning investments held for less than our suggested 24 months, at the current 35% rate regardless of investor tax bracket.  Also increase margin account requirements so portfolios can’t be highly leveraged.

The net effect of these actions is to cool down the stock market, which when combined with the elimination of burdensome regulations and punitive business taxes will increase business creation adding jobs and output to the economy.

In closing, my question to you is, does the Clinton Camp have a viable solution for the U.S. economy? We don’t think so, DO YOU?

We hope we’ve given you food for thought but in case we haven’t, remember that all shoot-the-shit rules apply. Have a great weekend! Enjoy some quality time with your buds and family.

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