Your Weekly Update: Taxing Viagra Sold to Venetians...

If you've been following along, you know that I remain outside the camps that see an imminent China collapse, an imminent U.S. recession greater than the last one (I don't see an imminent one at all actually), or an imminent round of hyperinflation with gold soaring to, say, $5,000 the ounce. If you've been following along the campaign trail, and if you buy into your chosen one's economic prognostications, then I would be your bleary-eyed optimist who can't see the forest through the trees. Hmm....

Before you glance through the charts below, allow me to throw a bone to any of you who see the world through the eyes of THE ONE you hope to lead the "free" world going forward. While the odds of a 2016 economic disaster (barring an unforeseeable exogenous shock) remain low, the odds of a robust economic surge remain low as well. I believe that that, among other things, would take a long-overdue round of big time capital investment on the part of America's great companies. But, alas, when America's great companies are accused of hoarding offshore profits (which of course they are), when they are seeing proposed policies that if enacted would threaten their ability to compete on the global stage, and when they are, to wrap it up, being soundly vilified by the wannabe leaders of the country they call home, umm.... NO!, they're not in the mood to let go and expand---at least not in the presently less-friendly U.S..

A word on tax inversions:

There's this deafening chorus of haters (whose conductors sit atop Capitol Hill, as well as the campaign stump) who see a U.S. company, say a Pfizer, moving its shingle to, say, Dublin, as engaging in an act of sheer---and punishable---treachery. I suspect many of you agree. Passionately!

Well, let's look at that:

What would have actually happened had Washington not abruptly changed the rules and kept Pfizer from doing the deal with Allergen?

1. Would Pfizer's huge stable of medicines have been made less available to U.S. citizens?


2. Would Pfizer pay less U.S. tax going forward?

Of course you know that the answer to the first question is "no". And if you think beyond what you're being fed by the media and the politician, you might conclude that they'd not only be as available, but potentially even cheaper, and ultimately better---if indeed Pfizer's move to Dublin proved as profitable as such a bold maneuver would have to be. Hmm...

As for #2, I suspect you'd say "yes". And you'd be right, but maybe not to the extent you might think you'd be right. From what I gather, had the deal not been blocked, Pfizer's effective tax rate in the U.S. would've been slashed from 25% to "as low as" 17%. And, trust me, thems big numbers! But  you might have thought that Pfizer would've been dodging the IRS altogether. That it'd be paying Ireland's 12.5% tax rate on all of its profits and be done with it. Not hardly!

In fact, every net (after it exploited every benefit [there'd also be an interest tax deduction for payments to its affiliates abroad]) dime Pfizer would've made in the U.S. would still be taxed in the U.S.. It's the profits it earns on Viagra sales to Venetians that wouldn't be taxed if it decided to invest some or all of those spoils back here, its previous home---which, by the way, boasts the still largest economy on the planet---a very nice place to invest if it weren't so damned expensive!

That's right, the issue is what's called repatriation: Among developed countries, "capitalist" America ironically hits its companies by far the hardest when they make money outside its borders and invest the money back home. That sounds really bad, wrong even, doesn't it? Now be honest!!

So, be careful what you ask for:

Let's say, hypothetically, Pfizer inverts and sends a few execs---who it trusts wouldn't be spending all of their time sampling at the Guinness Storehouse---to Dublin, saves some serious money on the income it typically deploys in the U.S., and sees a monster barrier disappear that kept it from deploying yet more of its income in the U.S.. Well, I'll leave the rest---the potential investment, job growth and, yes, economic stimulus!..., as well as the increased tax revenue from Pfizer generated by its expanded U.S. operations (oh and don't forget that the contractors and employees would pay taxes on the money they earn from Pfizer's ventures)---to your imagination.

Moving on:

Here are a few of my up to date economic charts, with a brief characterization (and color coding) of each (yes, there are a few red flags [to keep a close eye on!] but the overall trend remains expansionary):     click each chart, then, after a second, click again to enlarge....

Retail sales --- brick and mortar struggling:



Online retail sales --- remaining strong:



Auto sales --- off their highs:



Household net worth --- wonderful:



Mortgage new purchase apps --- uptrend:



Housing starts --- uptrend:



Housing permits --- uptrend:



Consumer confidence --- good:



Homebuilder optimism --- net positive (above 50):



Weekly jobless claims --- very very good:



Bank Credit --- uptrend:



Inventory to sales ratio --- too high:



Corporate financing gap --- too large (not supportive of capital investment):



Commercial and Industrial Loans --- strong (is supportive of capital investment):



Commercial paper issuance --- improving:



Commercial paper rates --- very low:



ISM Services and Manufacturing Surveys --- services holding above 50, manufacturing looking up:



Small Business Optimism --- waning:



Small business hiring plans --- recently deteriorating (but still overall uptrend):



Small business investment plans --- uptrending:



Headline Inflation --- presently subdued:



Core Inflation --- creeping:



Yield curve --- no recession signs:



High yield spread --- improving:




Chicago Fed Financial Conditions Index --- very low recession risk:



St. Louis Fed Stress Index --- low stress in the system:



KC Fed Stress Index --- high, but recently reduced, stress in the system:



Cleveland Fed Stress Index --- high stress in the system:



Index of Leading Economic Indicators --- relatively low recession risk:



Industrial materials prices --- recent
uptrend:



Be back in a bit with a look at the stock market charts.