From my office window, I can see where the city has set up a carousel as part of its holiday celebration — it goes well with the 100-foot Christmas tree.
Watching the spangled, white horses frozen mid-prance as they travel in endless revolutions, I can’t help but think that we are stuck in the same loop, and that’s not good for our economy.
You see, Cisco Systems’ CEO, Chuck Robbins, commented on CNBC this week that if the company were to repatriate the billions it’s currently holding overseas, there would be a flood into dividends, buybacks, and mergers and acquisitions activity.
Chuck didn’t talk about grand expansion plans, reinvesting in his employees or buying new equipment — all things that would greatly benefit the American economy.
He talked about dividends and buybacks — avenues that put money in the pockets of the 1% and Wall Street savvy. Not the American middle class that keeps the economy growing quarter after quarter.
A Tax Holiday
It’s the same grumbling we’ve seen for years. Washington complains that companies are hoarding more than $2.5 trillion overseas.
Companies complain the corporate tax rate is too high — and at 35%, it’s among the highest of developed countries.
So, Washington creates a tax holiday and the money flows back in.
But it doesn’t go to creating new jobs or reinvesting in the company. It flows directly into dividends and share buyback programs.
We’ve been on this carousel before. In 2004, the government cut the tax rate to 5.25% as part of a tax holiday to lure money back into the U.S. And it worked. In 2005, $300 billion was moved back into the U.S. compared to previous annual averages of $60 billion.
But those new funds didn’t save jobs or expand the economy. For example, Ford Motor repatriated $850 million and slashed 10,000 U.S. jobs that year. Pfizer brought in $37 billion and cut 10,000 jobs.
I don’t expect a new tax holiday to prove any different. Jeff Opdyke showed earlier this year how companies increased spending on dividends and buybacks through the first half of 2016 — even spending more than they were actually earning.
The American economy — and in many ways the Western economy — is in trouble, but don’t look for that insane stash of overseas corporate cash to keep us from falling off that cliff.
The Time for Hard Assets
As both Jeff and Ted Bauman have explained, it’s important to take steps now to diversify your wealth into hard assets that will not only survive the dark times ahead but continue to grow in value.
And if you’re interested in attaining your own little piece of great American history, I suggest you take a look at the Dreweatts & Bloomsbury (a subsidiary of Stanley Gibbons) auction on December 15. This auction contains historical documents signed by George Washington, Abraham Lincoln and John F. Kennedy. In addition, there is a stunning collection of books and photo plates by Edward Sheriff Curtis on Native Americans. For details on the auction, click here.
And if you haven’t begun the process of adding hard assets to your portfolio, please consider contacting Stanley Gibbons to let them help you build a portfolio that will grow even when the global economy is struggling.
It’s time to get off this not-so-merry-go-round.
Sr. Managing Editor, Sovereign Investor Daily