GOP’s dollar shave club

QUOTE OF THE DAY

This is a once-in-a-generation opportunity, and I guess it’s probably something I could say that I’m very good at.”

President Trump on the GOP’s tax framework. We’ve got the details below.

Market Snapshot

The Dow broke its four-day losing streak after the GOP released its tax framework.
Saudi Arabia issued $12.5 billion worth of government bonds.
The dollar hit a five-week high.
Gold dropped to its lowest level in a month after Yellen defended rate increases.

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GOP’s Dollar Shave Club

GOP leaders released a basic framework for the first big tax overhaul in the U.S. since 1986. And as they strap on their helmets and elbow pads for a fight through Congress, we dove headfirst into the plan.

Simplifying personal income taxes

The number of brackets will decrease from seven to three: 12%, 25%, and 35% (though there’s an option for a fourth for the one-percenters). Which rate will you pay? Impossible to tell, since they haven’t released the cutoffs.

Extreme Makeover: Corporate Tax Edition

President Trump was pushing for a 15% rate…that’s not going to happen. BUT under this plan, it will drop to 20% from the highest rate in the developed world, 35%.

That would definitely put the U.S. more in line with other countries (where the average is 22.5%). Not too long ago, we explained how most developed nations had slashed corporate taxes in recent years…the peer pressure seems to be working.

And for all you cash stashers in the Cayman Islands and elsewhere ($2.5 trillion in total), you’ll be glad to know that corporations can repatriate cash back to the U.S. at a discount. The plan also proposes reducing rates on profits earned outside the country.

What’s the market got to say?

In the 11 months since Trump’s election, it seemed that markets surged in anticipation of the administration passing a corporate tax cut. That is, these changes were believed to be priced in.

But that may not be the case. Read this carefully: according to Goldman Sachs, stocks of the 50 companies in the S&P with the highest effective tax rate underperformed the 50 companies with the lowest effective tax rate by 11 percent. Basically, companies that had the most to gain under a tax cut haven’t gotten love from investors.

And the market may have been right to discount Congress’ effectiveness. After all, the plan is a nine-page framework that’s shorter than your 4th grade book report….and even shorter on details.

All Aboard

Germany and France are putting their rough past behind them: Siemens (+1.20%) (Germany) is merging its rail business with locomotive producer Alstom (France) to form one united (and very large) European rail company. Mi scusi?

Siemens will be the conductor, taking a majority stake in the newly-formed company that expects to post $18 billion in annual sales. It’ll also exploit synergies in R&D and manufacturing to save more than $550 million over four years.

And every penny counts, now more than ever. Across the world, large industrial companies are linking up in the face of intense Chinese competition. First it was steel (ThyssenKrupp and Tata Steel, remember?). Now it’s rail. This new European giant plans to take on the largest train supplier in the world, China’s CRRC, that’s making other rail companies look like Thomas the Tank Engine.

The leaders of both companies claim the deal is all business, no politics. But…we’re thinking it’s both.

WEF Smackdown

“Ten years on from the global financial crisis (and nine years into a U.S. expansion), economies remain at risk.”

No, not our favorite quote…but an important one from the World Economic Forum (WEF). Every year, WEF gathers for its Global Competitiveness Report. Think of it as a stat sheet, ranking 137 economies around the world on 12 factors including quality of institutions, education, infrastructure, and innovation. This year, Switzerland, the U.S., and Singapore took the podium (in that order). But there was a darker underlying message.

Put simply, global financial infrastructure is “ill prepared for the next wave of innovation and automation.” Economies like China and India have propped up their balance sheets with bad business loans, doing their best impressions of the 2007 mortgage bubble.

The thing is, if banks were “too big to fail” back then, what about now? The world’s 30 largest banks now hold $43 trillion in assets versus the $30 trillion they held in 2006.

Ford Gets a Lyft

Ford (+0.17%) and Lyft are vying to become the next great duo in autonomous driving—think Ernie and Bert, Jordan and Rodman, Trump and Twitter.

The two will manufacture self-driving vehicles for Lyft’s ride-hailing biz. And it shouldn’t come as a shock. Lyft has been on cruise-control trying to hone this technology. It’s partnered with Waymo and two smaller startups (Drive and NuTonomy), while beginning to develop its own in-house solutions.

So why all the intermingling? Consider what both parties stand to gain:

As Lyft and Uber head towards profitability, they’ll look to cut drivers out of the equation. That’s why they need partnerships with self-driving tech companies and car manufacturers.
The Fords of the world can make the cars, but they don’t have the distribution Lyft and Uber offer. If they want to be the first ones on the road, they need to work arm-in-arm with ride-hailers.

Expect more partnerships to come.

What Else Is Happening…

DirecTV is offering Sunday NFL Ticket refunds to customers offended by the protests.
Uber is closing its failing U.S. car-leasing business.
The U.S. slapped a big 219% tariff on Bombardier’s (-7.49%) new jet.
Amazon (+1.31%) released a smaller Echo for $99 along with a list of new Echo products.

Economic Calendar

Monday Earnings: No Events

Economic Events: Chicago Fed National Activity Index (-), Dallas Fed Mfg Survey (+)

Tuesday Earnings: Nike (+)

Economic Events: Case Shiller HPI (+), New Home Sales (-), Consumer Confidence (-), Richmond Fed Mfg Index (+)

Wednesday Earnings: No Events

Economic Events: Durable Goods Orders (+), Pending Home Sales (-), Petroleum Status (+)

Thursday Earnings: Accenture, McCormick, Rite Aid

Economic Events: GDP, International Trade in Goods, Jobless Claims

Friday Earnings: No Events

Economic Events: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

The Backburner

Checkmate

It’s a question we get all the time: what do some of Wall St.’s biggest names do in their spare time?

Well, we did some digging…and it’s not binge Fuller House. They play chess with a guy named Lev Alburt, a world Grandmaster and three-peat winner of the U.S. chess championship.

Now, what lessons can a 72-year-old chess Grandmaster impart on Wall St. bigwigs?

Evidently, a whole lot. Chess and trading both involve game theory, brinksmanship, and the ability to weigh risk-reward. Experts need to make “quick decisions in by definition uncertain circumstances,” says Alburt.

In fact, chess’ connection with finance is a lot stronger than you might think. A few years back, Bill Ackman joined hundreds at the Sohn Investment Conference to watch world #1 Magnus Carlsen defeat three opponents…blindfolded (it cost $5,000). And some of the most well-known investors (like George Soros and Peter Thiel) are very, very good at the game: they’ll dismantle your measly Sicilian Defense with a vigorous Yugoslav Attack.

So if you have ambitions in finance, you might want to start with chess.

The Breakroom

Question of the Day

A regular clock has an hour and a minute hand. At midnight the hands are exactly aligned. When is the next time they will exactly overlap? How many times a day will they overlap?

Rank by Market Cap

IBM, Visa, ExxonMobil, Coca-Cola.

Stat of the Day

941%–The increased search volume for Pennywise clown costumes on Pinterest over the last year. We’re guessing it’s because of the new movie, IT. Expect far too many creepy clowns knocking at your door on Halloween this year.