E Market Briefing For Wednesday, Dec. 13

Illusive tax reconciliations are unlikely to be any sort of panacea for the nervous money managers of Wall Street; but are essential for the markets; merely to have them hold together (not necessarily advance much) after the event. There is however a bigger risk - two of them, actually.

With a presumption that FIFO will not be a required for Capital Gains, that takes us to the next issue. That's a concern (leaked if valid by Goldman in the final moments of today's trading session) that Corporate tax rates, cut purportedly to the 21% level (fine); won't be effective until 2019 (not fine).

I've previously opined that if they mix this up, and generate the really small individual tax cuts to 2018 and delay corporate cuts to 2019; the market's not going to be pleased. That may not be the case; but that's the worry we saw expressed in the day's final moments; even though we thought stocks would do no better than up-and-then-on-hold ahead of tomorrow's Fed rate decision.

That rate decision is expected to be 25 bp higher on the Funs rate; and we suspect the market is ready to absorb that with some momentary shuffling. If however the Fed moves 50 bp higher, that's likely a different story; so it's likely to invite some volatility. Prepare for 'trench warfare' especially if that happens.

Bottom line: for the moment that's really where things stand and we won't elaborate much tonight (in harmony with our pledge to shorten most of the evening reports unless there's a significant topic to discuss).

There's also continued discussion that this is not a really effective tax plan; but I think we all already grasped that it was fiddling with what we had with rate changes; and not genuine reform or simplification as many hoped for.

Various studies have shown that revenue losses are going to overwhelm a slew of purported savings measures; and that might be partially 'why' (if so for that matter) the story of a delay in corporate cuts to 2019 is circulating.

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Moon Kil Woong 2 years ago Contributor's comment

The market should be careful counting eggs before they hatch. That said, the stock market is doing just fine without much happening. I'm not sure if this deal falls apart how bad it will be for the market. The simple fact is, as things are today, a growing asset bubble is favored and encouraged. When this ends it will most likely end badly, that will be the time we need real reform. I don't see the tax proposal lessening the damage or likelihood of a cyclical downturn (it will happen eventually), but i do see it making the budget worse for dealing with it in the future.

Gene Inger 2 years ago Author's comment

We outlined our expectations for 2018's start in the full report. TalkMarkets is a good service; but is NOT allowed to quote us in-full. Please visit www.ingerletter.com and join us as a regular Daily Briefing member. Happy Holidays.. Gene Inger