That’s not an infrastructure problem, THIS is an infrastructure problem

US markets continued grinding higher overnight, most of the news was about the tax cuts.

Ray Dalio (who runs Bridgewater, one of the world’s largest macro funds) posted his thoughts on the tax cuts – largely echoing my thoughts from yesterday:

When we look at the tax plan holistically, it looks to me like it’s a short-term minor boost to the economy that will have some minor positive longer-term impacts, but by and large it doesn’t deal with the impediments that are holding back investment and productivity in the US economy, and it won’t have any notable effect on our biggest economic, social, and political issue, which is the conditions of the bottom 60% and the growing disparity with the top 40% (especially the growing disparity between the bottom 90% and the top 10%).

In the short term, the tax law changes and regulatory reductions will provide a very modest one-time boost to after-tax incomes that will be stimulative. How “good” the tax law changes are depends on one’s own perspective because some things will benefit and hurt some people more than others—but, net, it won’t be big. For example, it will typically move after-tax incomes by about 0.5% in total, which will be made up for by a nearly comparable increase in the budget deficit (which doesn’t come at no cost).

Ray then followed my line of thought on infrastructure, pointing out how this would be a much more effective stimulus than tax cuts. He showed the below chart (comments are mine) from the World Economic Forum:

The Wall Street Journal has a good series of charts showing the effect on taxes. The bottom chart surprised me… I knew the tax cuts were better for the richest but I hadn’t realised how quickly the poorest went to paying more tax.

There was little movement in markets overnight.

Exceptions were European markets (which were just reversing the prior day’s losses):

Industrial metals:

and the AUD which continues to lift higher:

We reduced our international weight last month, and its getting tempting to start adding to our international exposure again with the AUD higher.


I’m trying hard not to write about bitcoin, but I couldn’t help posting this chart:

I’m sure the people doing these searches know exactly what they are doing…

Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

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  1. I believe that California is the biggest state economy in the US ?

    They have an echo housing boom.

    No body makes money in shale oil, shale gas yes…….and of course their stealth build up of their military force projection capability ( which was needed after Mr Obama ran it down )

    This is just a slightly bigger re-run of the Ryan/Obama tax cuts. Lot of turnover of debt markets starting next year both private and public, all over.

    • State economies in the US are so disparate in their local regulatory and fiscal settings, on top of natural endowment and culture, that it is no more useful to constantly consider “USA” data than it is to consider “EU” data. Just as we actually want to know how Germany, France and Spain are doing, we really need to know how California, Texas and New York are doing. Actually there are around 5 broadly similar regions – East Coast, West Coast, South, Rust Belt Heartland and non-Rust Belt Heartland. If the “South” was a separate economy it would be the highest-performing large economy in the world, thanks to truly pro-growth, pro-productivity regulatory settings.

      • you are absolutely correct Phil. That’s why it’s my investment focus

        Can’t be too hard on MB readers on this point though – I’m constantly amazed at how ignorant norther eaters and west coast types are about the South

    • @nyleta

      ( which was needed after Mr Obama ran it down ) This is just a slightly bigger re-run of the Ryan/Obama tax cuts.

      Could you explain the above? and your argument

  2. ObligatoryNon-sequiturComment: Bitcoin Santa’s going to come down some people’s chimneys… good luck cleaning *that* up…

  3. Almost irrelevant compared to the lost decade and trillions in QE that could/should have been directed to rebuilding US infrastructure.

    Missed opportunity.

    • It’s sad. The incompetence is frightening. But not to worry as we are going to spend (waste) $200Billion on shiny new weapons.

  4. Hill Billy 55MEMBER

    When the investment gurus realise that the Emperor has no clothes, that the US debt mountain is unsustainable, these tax cuts will be seen as the black swan event of the “Recession we had to have”. China and Russia have been building an alternative to the US reserve currency and are just about there.

  5. @Damien Klassen

    Ray then followed my line of thought on infrastructure, pointing out how this would be a much more effective stimulus than tax cuts.

    1 How are tax cuts a stimulus in the US

    2 Didn’t you predict the AUD getting smashed?

    • Damien KlassenMEMBER

      1. Increasing government debt is stimulatory, and a decline in government debt is contractionary. Trump’s tax cuts will increase government debt
      2. Yep. Tax cuts haven’t started yet though! Even when they do start, the fall in the AUD is unlikely to be an overnight event – we are talking about a multi-year decline led by a stronger US economy (vs weaker Australian economy) and increasing interest rates in the US (vs steady or lower in Australia).

      • Fair enough on point 1 – i highly doubt the stimulus effect though, mostly accruing to the wealthy to are the biggest savers. It also lowers the chances of other more stimulatory policy such as infra spending happening due to debt levels, lets see what happens

        Point 2 – it seems the AUD seems to be more commodity and volatility sensitive than yield spread sensitive

        ANZ – “We know, with a high degree of confidence, that the AUD is determined by a combination of the level of the terms of trade (primarily driven by export prices), interest rate differentials and global beta (volatility),” they said.

        To illustrate their point, the two analysts argued that if the AUD was modelled exclusively against the yield spread, it could fall back into the mid-US60 cents range.

        But isolated against commodity prices, ANZ’s model suggests a fair value of around US85 cents.

  6. Trump puts his foot on the gas as the Western world hurtles towards its destiny: a debt-led implosion.

    Go long security companies as the social fall-out will be all-time ..