Unsurprisingly, a lot of the stories we found interesting in our news feed this week had to do with the GOP tax bill, signed into law today. This law guarantees, at the very least, to really mess up quite a few accountants’ holiday break. Other than that observation, the best commentary I’ve read so far on the plan — courtesy of The Center for Capitalism and Society — is that there is no way to know what effect it will have on the economy. Even still, I’ve expressed my skepticism about huge tax cut to generate lasting growth or to solve structural economic issues, and I’m not alone. Ray Dalio, founder of the hedge fund Bridgewater Associates, also penned a skeptical article about the likely efficacy of the plan. I shouldn’t be too surprised though; Dalio often uses his platform to amplify the macro concerns that I express to only a chosen few. While upset about this tangle of hastily thrown-together unintended consequences on what has been the world’s largest economy, I’m not upset enough to pick up an opioid addiction or, parenthetically, to invest in Bitcoin.
Here is a curated list of important stories outside the main headlines that caught our attention this week.
Tax Bill Is Great for Accountants — Unless They Have Holiday Plans (NY Times, 5-minute read). Because this legislation was passed and signed into law during the second to last week of the year, all companies with a fiscal year ending in December are having to scramble to calculate what they will report in a few week’s time. I’ve said it once and I’ll say it again, this tax bill is a hastily thrown-together mess that will have large unintended consequences. And, to paraphrase Warren Buffett, there are no good surprises in life…
There’ll be plenty of lights on at this building over the weekend
“We can’t predict the effect of the tax bill on investment and growth” by Frydman and Phelps (The Center for Capitalism and Society, 5-minute read). As the GOP tax plan has rocketed through Congress, I’ve read arguments on both sides of the aisle for it. From the studies I’ve seen about Supply Side Economics and from the recent pathetic example of Kansas (NY Times coverage), I am inclined to favor those opposing the plan and warning of its effects. However, in drafting the analysis of the tax change on Union Pacific that we just published this week, I realized just how much uncertainty there was regarding the outcome of this plan for only a single company. Imagine how hard it is to figure out the effect of this plan on the entire economy. The authors of this article point out the uncomfortable truth, that with a change this large, it is indeed very difficult to understand what the effects will be.
Don’t ask these guys – they have no idea what the consequences will be
Hedge fund chief Dalio questions value of tax cuts (FT.com, 5-minute read). This article is not particularly about Ray Dalio’s comments regarding the GOP tax plan, but it is good nonetheless. There are some anecdotes about companies announcing big pay increases to employees or plans to spend jaw-dropping amounts on capital expenditures. The funny thing is that most of these companies had already been planning similar spending one way or the other. This is a perfect example of a disturbing trend for companies to try to boost the ego of the Persimmon in Chief in the hope of beneficial future treatment. While this type of game playing is often employed in failed states like Venezuela and Hussein-era Iraq, it is shocking to me that it seems to be happening in the U.S.
“The reforms to the structure of corporate taxes at the core of the bill will certainly make the US a more attractive environment to do business. But the impact of those changes is likely to be small relative to the improvement that could be achieved by investing more in things like infrastructure and education, which more directly boost productivity.”
Tell-tale Spreads Confirm Slowdown Ahead (Economic Cycle Research Institute, 5-minute read). Those of you who know ECRI know just how good their economic cycle forecasts have been. Well, ECRI’s spokesperson is starting to raise the warning now — just when the rest of the market is ebullient — that indications suggest we may be in for a cyclical slow-down. This is an interesting read and looks at some of the signals in the bond market that ECRI looks at with some foreboding.
I naturally trust people with the same haircut as me… ECRI’s COO, Lakshman Achuthan
US opioid crisis leads to drop in life expectancy (FT.com 5-minute read). According to statistics from the Center for Disease Control, overdose deaths increased in the US by 21% in 2006, leading to a reduction in the average life expectancy of a child born in the US of 78.6 years. Opioid deaths are concentrated in places you might expect — West Virginia, Ohio, and New Hampshire — and the opioid epidemic in creating a huge stress on public health systems in these states. In addition, a Princeton economist estimates that one-fifth of working-age people who have left the work force have done so due to opioid addiction. Reading this article, I started to wonder how the opioid ball got rolling…
One tragic image among thousands of the US opioid epidemic
The Secretive Family Making Billions From The Opioid Crisis (Esquire, 30-minute read). This is the backstory behind the development of OxyContin, the pain killer that started the opioid epidemic ball rolling, and has made one family, the Saklers, very wealthy indeed. OxyContin’s popularity — if such a term can be used — has been eclipsed in the US by even more powerful, dangerous drugs like Fentanyl. The Sacklers — whose privately-held company, Purdue Pharmaceuticals, was convicted of felony charges in 2007 related to the marketing of OxyContin — being good businesspeople, have started to look overseas for new business opportunities. The overseas marketing of OxyContin concerned certain members of Congress so much they sent a letter to the World Health Organization (LA Times reporting), warning of Purdue’s unethical practices and the stress it can generate on a country and its people.
That man makes El Chapo Guzman look like a bush league kid
Bitcoin tumbles 30% as rout gathers pace after risk warnings (FT.com, 5-minute read). Reading this news, I’m reminded of the lyrics to an old Jimmy Hendrix song: “Castles made of sand melt into the sea eventually.” Bitcoin hasn’t melted into the sea yet, but a few recent investors in the cryptocurrency did get pounded into the rocky shore this week.
The value has gone down a little bit