A Well-Made Play

By David Stockman  |  November 30, 2018

The story of Yoshitsune and the Thousand Cherry Trees was both simple and complicated. Simple in that things never change: people consistently jealous or secretive or brave-hearted. As for the rest, it all came down to a series of misunderstandings…

– David Sedaris, When You Are Engulfed in Flames (2008)

Prosecutor Mueller appears to have outwitted the Donald.

Now there’s a major surprise.

We are, still, talking about “process crimes,” as Senator Lindsey Graham described them.

Graham knows all about the consequences of “process crimes,” though. He was one of the “prosecutors” from the House of Representatives who argued impeachment charges against President Bill Clinton based on a lot of similarly sordid stuff back in 1999.

Well, “Russiagate” has its own John Dean – rather, Bubblevision’s politics outlets are framing Michael Cohen that way.

That’s even as the real John Dean is right there, on screen to relate his experience in Imperial Washington’s combat kabuki to what’s happening now.

Meanwhile, the Tweeter-in-Chief is in Buenos Aires for the G20 summit.

The great hope is that a scheduled meeting with Xi Jinping will result in a breakthrough sufficient to stop tariff escalation and prevent total trade war with China.

It is, after all, that time of year, when children make their gift-lists…

We can add this to the Donald’s and Wall Street’s great hope for a retreat from “normalization” by Federal Reserve Chairman Jerome Powell.

And then we’ll turn it over to a “ghost” from a Christmas of the very recent past…

The Christmas Eve Tax Cut of 2017 was a fiscal, economic, and political monstrosity. It’s the worst tax bill enacted since FDR’s soak-the-rich scheme in 1937 reignited the Great Depression.

It is true that, this time around, rather than soak America’s wealthy, the GOP’s bill pleasured its primary constituency with tax relief.

Owners of public equities, for example, bathed in an estimated $1.3 trillion shower of stock buybacks. That’s fueled by the cut in the corporate rate to 21%. They enjoyed massive dividend increases too.

Buyback explosion!

And there’s no MAGA about it.

Indeed, no baseball cap – red, white, and/or blue – is big enough to hold an acronym for “Make Wall Street Speculators, Corporate America Sycophants, and Me Even More Rich.”

Here’s (some of) the rest of the story…

  • Four million top-bracket “alternative minimum tax” payers were relieved of about $80 billion per year of Uncle Sam’s extractions.
  • Around 5,000 dead people per year, with estates above $20 million will get to leave more behind to their heirs.
  • Owners of real estate will be able to deduct another 20% of property income that isn’t already sheltered by depreciation and interest deductions.
  • And tax accountants and lawyers will become stinking rich helping America’s sole proprietorships (24 million), S-corporations (4 million), partnerships (3.5 million), and farms (1.8 million) convert their “ordinary income” into newly deductible “qualified business income.”

The common thread connecting FDR’s disaster and this one is that both represent exactly the wrong policy at exactly the wrong time.

The Christmas Eve Tax Cut of 2017 was, at best, a coup de grace that will finally help us, ultimately, see off this era of Bubble Finance.

At worst, it’ll smoother any semblance of prosperity as we’ve come to know it.

The bottom line is new borrowing over the next 10 years will cause the already monumental public debt to spiral out of control.

The Question of Timing

In 1981, when I was working for Ronald Reagan in the White House, Senator Howard Baker, the Republican Majority Leader, called the administration’s tax-cut legislation a “riverboat gamble.”

That first Reagan tax cut is a very model of fiscal rectitude compared to the Christmas Eve Tax Cut of 2017, emanating as it does from the modern GOP’s bogus theory that “tax cuts pay for themselves.”

They don’t.

But, again, it’s a matter of timing.

As far as the Fed is concerned, it’s “normalization” now, “normalization” tomorrow, “normalization” forever. That’s because the Fed is concerned with the Fed and the Fed’s power.

It’s a combination sure to lead to higher market interest rates. And that’s what people pay: not the “target federal funds range or rate.”

It’s all going to create volatility – the kinds of short-term fits of buying that generate thousand-point intraday swings. That can be frightening… for “buy and hold” investors.

I have a different approach. And its strategy and tactics are flexible enough for the Mother of All Yield Shocks.

Our “survive and thrive” plan includes specific asset types and allocations by percentage. But it’s built to suit your approach to the market.

The Stockman Letter is about protecting wealth and profiting opportunistically.

David Stockman's signature

Former White House Budget Director: 50% Crash Coming!

The horrible start to October has investors on high alert. This market bubble – inflated by the Fed’s low interest rates and Republican tax cuts – may have finally run its course.… Read More
David Stockman

David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street.MORE FROM AUTHOR