Donald Trump has dominated news with his Twitter antics that make him almost unbearable with his messed up opinions. Unfortunately Trump's Twitter is so bad it overshadows all the good he is doing for the economy. For each good thing has brought a bad thing. Trump has changed the Fed Chairman, imposed trade tariffs and lowered the corporate tax rate which have improved the economy but caused so issues along the way.
The change of the Federal Reserve Chairman from Jane Yellen to Jerome Powell was unnecessary as Yellen was doing a good job with gradual rate increases. Powell came in with an agenda to strengthen the US Dollar with increasing the Fed Funds Rate as many times as possible. The dollar was excessively weak and has strengthened. While our currency has improved, other economies of the world have struggled. Turkey's failure should not affect the US economy, but the opposite is not true. Turkey will continue having problems as we increase our rates. An increase in rates will increase our problems as well.
An increase in interest rates will ultimately trickle back to everyone in the United States in more than one form. Raising interest rates affect loans businesses need for improvement and growth. When businesses have problems with money they cut back on employees. The effect is compounded when the mortgage interest rates increase to the point where people stop buying bigger homes because they can only afford the high prices smaller homes. When people stop buying the large homes, builders stop build over prices multi-family housing for rental and sales. The increases in rates and homes is compounded by the increasing cost of materials due to tariffs. Did someone say inflation?
Inflation appears inevitable as we have more people working, interest rates are rising and tariffs are increasing the cost of materials regardless of where they come from. Really the tariffs are imposed to raise the cost of materials we import so they are above the higher cost of domestic materials. Should US materials cost more when Trump has reduced the corporate tax?
Donald Trump passed the most comprehensive tax reform that the US has ever had. By lowering the domestic tax, companies have less to pay domestically which means higher profits and reduction of the need to export production to import the final products. This should be the end result although all that it has been used for this year has been tfor companies to waste money by buying back stock. Buying back stock reduces the amount of stock supply on the market which should increase the price of the stock as demand increases. That sounds like more inflation which is not the intended purpose.
The intended purpose of the tax reform was to help companies keep jobs in the United States with more production in the United States. By having more money available should mean more employment and higher paying jobs. There is the problem. While the profits increase for companies, they don't pay their employees that much more. It was nice to see some huge companies pay incentives to employees earlier this year, but this trend will not live long.
What does appear to be building strength is inflation. Inflation kills returns when related to interest rates and the best hedge for inflation is investment in company stock. That circles us back to the desire to buy stock when there is less available for us to buy. Now that all of this is in place, I will break down the effects of the tax reform on the market in the next blog,
An increase in interest rates will ultimately trickle back to everyone in the United States in more than one form. Raising interest rates affect loans businesses need for improvement and growth. When businesses have problems with money they cut back on employees. The effect is compounded when the mortgage interest rates increase to the point where people stop buying bigger homes because they can only afford the high prices smaller homes. When people stop buying the large homes, builders stop build over prices multi-family housing for rental and sales. The increases in rates and homes is compounded by the increasing cost of materials due to tariffs. Did someone say inflation?
Inflation appears inevitable as we have more people working, interest rates are rising and tariffs are increasing the cost of materials regardless of where they come from. Really the tariffs are imposed to raise the cost of materials we import so they are above the higher cost of domestic materials. Should US materials cost more when Trump has reduced the corporate tax?
Donald Trump passed the most comprehensive tax reform that the US has ever had. By lowering the domestic tax, companies have less to pay domestically which means higher profits and reduction of the need to export production to import the final products. This should be the end result although all that it has been used for this year has been tfor companies to waste money by buying back stock. Buying back stock reduces the amount of stock supply on the market which should increase the price of the stock as demand increases. That sounds like more inflation which is not the intended purpose.
The intended purpose of the tax reform was to help companies keep jobs in the United States with more production in the United States. By having more money available should mean more employment and higher paying jobs. There is the problem. While the profits increase for companies, they don't pay their employees that much more. It was nice to see some huge companies pay incentives to employees earlier this year, but this trend will not live long.
What does appear to be building strength is inflation. Inflation kills returns when related to interest rates and the best hedge for inflation is investment in company stock. That circles us back to the desire to buy stock when there is less available for us to buy. Now that all of this is in place, I will break down the effects of the tax reform on the market in the next blog,
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