Tag Archives: politics

Domestic Political Considerations

American Political Environment
Reference: Icahn [1]

In light of the upcoming presidential elections, I will begin to aggregate key ideas policy makers should consider in 2016. Below includes considerations per Icahn and a few thoughts I’ve with respect to each bullet:

  • Domestic economy must reduce its dependency on low interest rates
  • The Fed should raise rates because the risks of malinvestment in numerous asset classes have risen
  • Overseas income should be repatriated and used to expand physical plant
  • There is too much “financial engineering” and not enough capital expenditures
  • U.S. corporate-tax regulation needs restructuring

The aforementioned include key elements of structural reform and give rise to important questions vis a vis the U.S. corporate environment: what is the best means by which to facilitate a U.S.-friendly corporate tax and operating environment?

Per his point on U.S. dollar repatriation – I do not necessarily agree as U.S. entities will yield greater returns on capital in developing and emerging environments. Our economy is a service-based one; capital expenditures should not be seen in terms of returning jobs to the U.S. By capitalizing on investment abroad, multinational corporations can tap large industrializing economies experiencing improvements to standards of living, higher incomes, and generally – a larger market for future potential products.

While an increase in rates may negatively impact emerging markets in the short term, market volatility has increased to unsustainable levels with respect to U.S. economic data and how the market perceives the Fed will digest this data. Nearing 30 recently, the VIX index reveals investor apprehension associated with the guessing game subject to the hand of Yellen. I feel that a soft increase in rates in the short term will instill market confidence and enable firms to re-align their investment decisions in accordance with capital allocation methods most beneficial to the firm in the long term, rather than making decisions on the basis of the simple availability of money. A clear indication of the effect of this low-interest rate environment can be seen through the popularity of REIT and MLP spinoffs as of late: firms are capitalizing on locking in low-interest financing in the face of limited alternative investment opportunities.

I’ve limited background on U.S. corporate tax structure, but am eager to dive in to future developments.


[1] Ritholtz Blog: Carl Icahn: Key Ideas for America