Invest in Ireland ahead of the Biden-Harris Presidency?

A signature campaign promise of the Biden-Harris campaign is to raise the U.S. federal corporate tax rate to 28 percent or 31 percent on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market.” (Tax Foundation) When we add in state corporate tax rates, the typical U.S. company might be hit with roughly 36 percent in taxes. Compare this to 12.5 percent in Ireland or 19 percent for a London-based company.

The Trump tax law changes of late 2017 took a lot of the wind out of the Irish inversion sails. If high corporate tax rates are restored by President Harris, though, it will again make the best economic sense for corporations to be headquartered in Ireland, the UK, or other comparatively low-tax location. Ireland has the lowest rate in the EU and everyone there speaks English (sort of). Can investors profit from a Biden-Harris election win, therefore, by buying Irish assets? Since U.S. law discourages sham inversions, the actual senior management jobs should migrate to Ireland. This should help Irish real estate, banks, insurance, etc. Under a Biden-Harris administration, an enterprise with management in Ireland and an operating subsidiary in the U.S. should have higher net profits than one in which everything is in the U.S.

Separately, how is Ireland doing with coronaplague? After more than seven months of shutdown, they’ve now entered “Level 5” double secret shutdown. Note that essentially everything is closed except for schools. Primary schools are unmasked. Once students enter secondary school they must don the hijab of the Church of Shutdown. Universities are open. Adult education is open, which includes flight schools (yay!). I was discussing this on WhatsApp with an Irish friend and I said “This is the mirror image of Massachusetts. Here almost everything is open except for the schools. And when we had almost everything closed, it was the marijuana and liquor stores that were deemed essential and kept open. Maybe this is all that we need to know to understand the difference between Irish and Massachusetts values.”

The WHO dashboard shows that Ireland, in its island redoubt, has suffered a little more than half the COVID-19 death rate compared to the U.S. or the U.K.

Ireland was already ahead of the U.S. in PISA scores (2018 snapshot). With the U.S. in the midst of what might be a multi-year education shutdown while Irish schools and universities are operating more or less normally (see Trinity College Dublin’s plan), is that another good reason to shift investment to Ireland?

What the Irish might call a sunny day, May 2019, on the Giant’s Causeway (taxed by the U.K., which is a great thing if you’re an entrepreneur!)

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Investment Idea: Short snow tires

People buy snow tires because they are forced to drive in the snow, right? Workers have to get to work. College students have to get to school.

In a cower-in-place Nation of Shutdown, however, we don’t have to go anywhere on a typical day. We can stay home when the weather is nice, when the weather is mediocre, and when the weather is nasty. We can stay home, in short, nearly all of the time.

What is the value of snow tires to a worker when the office is no longer a destination?

This gives rise to my latest brilliant investment idea… short snow tires! Who in their right mind would purchase this product in 2020?

Bonus: Mindy the Crippler using her built-in snow tires…

Related:

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Tesla short pays off today: stock down to $500

My investment advice is almost as good as Nobel laureate Paul Krugman’s. On February 8, I implied that Tesla stock was overvalued. It was trading at around $700 then. Today it is only about $500. Now I can start an expensive subscription investment newsletter!

More seriously…. In a mostly static world where the average person has a car that will last another 15-50 years (depending on what travel and business restrictions his/her/zir/their state governor decides to order), how is this company worth $400 billion? Is it the incredible lameness of Tesla’s competitors? (Do any of them have Dog Mode yet? That was an obvious idea in 2003. Tesla introduced it in 2019.)

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COVID-19 kills the malls

Some of our recent helicopter flying has been with a photographer tasked with getting pictures of shopping malls in the context of highways, cities, etc. What are these for? “Everything is for sale now,” he said. “They’re all going bankrupt.”

Is it actually too late for these spaces? If schools need more square footage to do in-person learning, why not rent the vast department stores to local school districts? Because the schools aren’t actually willing to pay? In Shanghai, a typical mall might have half the space devoted to after-school programs for children, e.g., dance or English-language instruction. Perhaps that can’t work in the U.S. because at any time a governor can make it illegal to operate the after-school program.

Readers: What else can be done with these spaces? If retail and most other forms of gathering are outlawed, what is the value of a lot of climate-controlled space?

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Isaac Newton, investor

“Investors Have Been Making the Same Mistake for 300 Years” (The Atlantic) is an interesting article by Thomas Levenson, teacher of science writing at MIT.

Excerpts:

Already [in 1720] a wealthy man, Newton was usually a cautious investor. As the year began, much of his money was tucked away in various kinds of government bonds—reliable, uneventful investments that delivered a regular stream of income. He did own shares in a few of the larger companies on the exchange, including South Sea, but he had never been a rapid or eager market trader.

That had changed in the past few months, though, as he bought and sold into the rising market seemingly in the hopes of turning a comfortable fortune into an enormous one. By August, he’d unloaded most of his bonds, converting them and other assets into South Sea shares. Now he contemplated selling the rest of his bonds to buy still more shares.

He did sell nearly all of them. It was a disastrous choice. Within three weeks, the market turned. By Christmas, it had utterly collapsed. Newton’s losses reached millions of dollars in 21st-century money.

Even someone smart enough to steal credit for being the first to invent calculus was not smart enough to resist the Vegas-style appeal of the stock market.

I recommend this article, a rare break in the continuous stream of Trump-hatred from the Atlantic (owned by someone smart enough to have sex with a rich guy, thus illustrating a much more reliable path to wealth than trying to beat the S&P 500).

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Covid paranoia will lead to inflation

Franklin Templeton manages about $700 billion in assets. What does their Chief Investment Officer for Fixed Income think Covid-19 will lead to? Inflation!

An article by Sonal Desai:

Americans still misperceive the risks of death from COVID-19 for different age cohorts—to a shocking extent;

The misperception is greater for those who identify as Democrats, and for those who rely more on social media for information; partisanship and misinformation, to misquote Thomas Dolby, are blinding us from science; and

We find a sizable “safety premium” that could become a significant driver of inflation as the recovery gets underway.

How can a virus drive inflation? I think that her argument is that Americans with money will spend like crazy to protect themselves from the virus, e.g., buying first class airline seats or choosing airlines with blocked middle seats. Meanwhile there will be contraction in supply. We’ve already seen this in real estate. The rich are spending even more for country estates and for fixing up country estates. It is impossible to get a contractor because they’re already hired and the additional workers they might want to hire are relaxing on $600/week (but maybe that will change soon?).

These misperceptions are destroying our economy:

This misinformation has a very concrete adverse impact. Our study results show that those who overstate deaths among young people are more cautious about making purchases, more reluctant to travel, and favor keeping businesses and schools shut.

I.e., the Swedes who gave the finger to the virus are likely to do relatively better than Americans (but we stole a bigger piece of land from the Native Americans than they did, so we might still be richer).

What does the cower-in-place nation look like, emotionally?

How did the misperceptions arise? Facebook Shutdown and Mask Karens: “People who get their information predominantly from social media have the most erroneous and distorted perception of risk.” Traditional media was also responsible, says Desai:

Fear and anger are the most reliable drivers of engagement; scary tales of young victims of the pandemic, intimating that we are all at risk of dying, quickly go viral; so do stories that blame everything on your political adversaries. Both social and traditional media have been churning out both types of narratives in order to generate more clicks and increase their audience.

Stories that emphasize the dangers of the pandemic to all age cohorts and tie the risk to the Administration’s handling of the crisis likely tend to resonate much more with Democrats than Republicans. This might be a contributing factor to why, in our survey results, Democrats tend to overestimate the risk of dying from COVID-19 for different age cohorts to a greater extent than Republicans do.

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Coronavestment Ideas? Is the market like Wile E. Coyote?

At least with the only people who matter, the most popular TV show in our household is Wile E. Coyote and the Road Runner.

Rule #1: the Road Runner cannot harm the coyote.

A big topic of discussion among friends is how the stock market can be so far out of sync with their perception of the health of the real economy. Is the market, like Wile E. Coyote, already doomed, but it won’t actually fall until someone looks down?

From a Harvard MBA friend, forwarding some content from a discussion group among investment bankers:

This is the standard “bull trap” rally. We saw this in 2007-2009 crash. It took 17 months from top to bottom and along the way there were multiple rallies lasting up to 8 weeks. The end result was a 58% drop in the S&P-500. 58% from January would bring the S&P-500 to around 1500.

The market was already way overvalued whether by Shiller’s CAPE, Buffett’s indicator, price-sales – all were in nose-bleed territory.

The 1929 crash lasted over 3 years with big rallies every few months. 80% of workers do NOT work for S&P-500 cos. They will be sleeping in their cars, defaulting on mortgages, etc., etc. Treasuries will look awfully good compared to stocks.

She also sent “Stock Market Collapse An Avalanche Waiting to Happen” from April 5, which relies on more recent data.

My response to her was that investors are not betting on the health of the U.S. economy, but rather on the tendency for U.S. politicians, of both parties, to want to stay in office. Their reelection would be at risk if the stock market goes down in nominal terms. Maybe a share of the S&P 500 will buy less in terms of Shanghai hotel stays or African safaris or beachfront property on Nantucket (i.e., indexed for inflation in the goods and services that people with money actually spend significant money on). But even the Democrats can’t afford to have the S&P 500 be lower than it was in 2016. The government did not have the tools and willingness to intervene in markets back in the 1930s that it does today.

She responded that her company is cutting pay, that she sees all of the small businesses that her big company supplies going under (being acquired for pennies by bigger competitors and/or simply disappearing), and that everything looks like a full-scale Depression. I reminded her that she is biased by being part of the private/market portion of the economy, which is only about half of the U.S. economy, the other half being direct government spending or government-regulated and taxpayer-subsidized (e.g., health care).

Readers: (1) Who is right? Her Harvard MBA friends who say the market will collapse to match the collapsed U.S. economy, or me who says that the government will rig the market until the numbers look good? (2) what is worth buying right now?

Turning our attention to what is worth buying right now… my friend’s MBA husband (example of assortative mating that exacerbates income inequality; the working class can bust into this, though, with a bit of creativity in states such as Massachusetts) wanted to find some airline stocks to buy. A mutual friend said that the credit default swap rates on airlines showed that investors expected a substantial probability of bankruptcy within five years (and remember that bondholders are ahead of shareholders; “[CDS rates] were around 20% in early April, which implies a 20-25% default probability per year for the next five years”). I personally hate airlines as an investment because if they do well, the union workers will take the profits, but if there is a downturn, the only way to get out of the union contract is a bankruptcy that wipes out the shareholders.

How about private prison companies? With millions of Americans currently on unemployment and not all of them eligible to transition to a lifetime of welfare, there are going to be a lot of residents of the U.S. with no way to get money other than stealing. The U.S. also has millions of inflexible alimony and child support orders (see “Litigation, Alimony, and Child Support in the U.S. Economy”) that can’t be modified without what might be years of court procedures and $100,000+ in legal fees. If the defendant in a family court lawsuit is ordered to pay money and doesn’t have it, the standard American solution is prison (because the defendant has violated a court order to pay) and additional debt to the plaintiff continues to accrue while the defendant is imprisoned. When the economy was basically stable, and the typical defendant was likely to keep earning whatever had been earned previously, roughly 1 in 7 child support defendants were eventually imprisoned. That number has to go up, which should increase demand for prison cells.

(See “What to do if you’re struggling to pay child support or alimony during the coronavirus crisis”:

Those obligations are calculated based on your income and assets at the time the amount is determined, and the agreement can stretch for many years. And typically, unless there’s been a material change in your income, it can be hard to alter.

Additionally, with many court systems either shut down or running in a limited capacity, getting immediate relief from a judge’s ruling could be challenging, depending on where in the country you’re located.

“The court will look not only at your income stream but also your assets,” said Shaknes. “If you’re sitting on a $2 million brokerage account, even if it had been at $3 million, you’re not getting relief.”

If you have filed for unemployment, be aware that those benefits are considered income — meaning not only is it subject to certain taxation, it counts toward your ability to pay. In some states, depending on how your support payments are typically paid, they may automatically come out of your unemployment benefits, Shaknes said.

Meanwhile, during the financial crisis of 2008-2009, courts were not that forgiving when it came to requests for support modifications, Shaknes said.

“A lot of people who suffered job losses or severe income reductions tried to get their obligations reduced and were not successful,” Shaknes said. “We kept hearing ‘go get another job.’”

)

How about Silicon Valley firms? I am negative on those due to the “sell on good news” philosophy. The “good news” of mass home imprisonment of Americans has already occurred, so Netflix, Amazon, Zoom, et al. should already have gotten whatever boost they’re going to get.

Although I generally dislike commodities on the theory that nearly all previous arguments about scarcity and price bumps have proven to be wrong in the long run (example), what about copper? If we want to make a plague-proof country, don’t we need to coat almost all surfaces with copper?

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Move to avoid estate tax before coronavirus kills us?

Now that the grim reaper seems to be among us, is it time to move away from the 12 states that assess estate taxes? Massachusetts, for example, deprives heirs of 10-16 percent of the value of their inheritance, for estates valued at over $1 million (i.e., for anyone who dies while owning a decent apartment or house in the Boston area). The highest state tax rate is reached even for those whose estates aren’t worth enough to be taxed at all by the Federales.

What about income tax? A lot of us will have to work from home for the next two years. Why not do this from the Ritz Dorado Beach in Puerto Rico and cut income tax to 4 percent via Act 22? Puerto Rico seems to have eliminated its estate and gift taxes in 2017 so even if 183 days per year of heat and humidity don’t protect you from coronavirus your savings will be protected.

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Investing in the time of plague?

Thought experiment: What stocks will go up in response to the coronavirus plague?

One idea: Comcast and similar cable TV stocks. If people are stuck at home they won’t mind paying for premium channels and will be less likely to cut the cord.

Second idea: airlines and hotel stocks. “Buy on bad news” is the theory here.

Readers: better ideas?

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Self-made rich bastards: don’t leave all your money to charity

One self-made moderately rich friend (lawyer/entrepreneur) related that he’d told his daughters that their expenses would be paid through college, but after that they were on their own. He and his (nurse) wife would be spending all of the money that they’d earned on luxury consumption, extra leisure time, etc. They expected their daughters to achieve comparable levels of success to what the parents had achieved.

Another self-made rich guy (specialist physician/health care business executive that the plaintiffs of Massachusetts neglected to mine out) said that he was going to leave all of his money to a charitable foundation that he’d set up and was passionate about. “My daughter is 28, lives in an apartment with her boyfriend, and says that she doesn’t want to have children or own a house or car.”

To the doctor, I wrote the following:

Pew talks about the trend toward later births, but constant total fertility (i.e., American women have the same number of kids as before, but later in their lives). If your daughter does have kids, she will need an inheritance!

Due to population growth, it costs a minimum of $1 million to live in a decent neighborhood anywhere in the U.S. and surely this price will rise as the population trends toward 400 million (via immigration, if not high fertility). Young people today are extremely unlikely to have the kind of success that you and I had. I was Class of ’82 at MIT. 50% of applicants got in. When I was growing up, any dentist who worked full time could afford a house on the beach near a big city (e.g., Cape Cod if he or she lived in MA). Now the lot alone would be $3 million. Hardly anyone in crowded societies, e.g., Europe or China, can afford a comfortable lifestyle without a big input from parents.

See this nytimes article. Young folks today are living in what were garages to hold the cars of people our age.

His response:

I was also admitted to MIT in 1980 and it didn’t seem that difficult to get in. I bought my first house in 1984 and always had career possibilities that exceeded the cost of living. It’s definitely a different world.

Readers: What do you think? Is it reasonable to tell children “You have to make it on your own because I did”? A friend who is active in the MIT alumni organization told me that he learned that the current average applicant to MIT is as qualified as the average admitted student for his class (1999). If not, how much money should one leave a child in order to put them in the same relative position in U.S. society that those of us born in the 1960s have enjoyed?

(Separately, if you do leave children money, make sure that it is in a discretionary trust that is difficult for a child support or alimony predator to attack. Otherwise, there is at least a 50 percent chance that the money put aside for your children will end up in the hands of a plaintiff stranger.)

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