In a week that included a one-day 257-point surge for the Dow, record Black Friday spending, and a legal challenge to Apple’s “monopoly” continuing its march to the Supreme Court, Buck once again brings on Extreme Value editor Dan Ferris to make sense of things.
In the wake of Elon Musk’s own admission that Tesla “almost died this year,” Dan breaks down the latest numbers: as it produces 1,000 Model 3 sedans a week in Q3 and keeps bleeding cash, his position on Tesla “has never changed.”
Later on, they’re joined by this week’s guest. Mattie Duppler is the Founder and President of Forward Strategies, a strategic consulting firm. She also serves as the Senior Fellow for Fiscal Policy at the National Taxpayers Union, a nonpartisan advocacy group focused on budget and tax issues and sits on the board of the Center for a Free Economy.
In layman’s terms, she breaks down what it really means for businesses not to have to shoulder immense paperwork for their deductions, and how the resulting savings – and flurry of capital investment – circle back to the American worker.
Founder and President of Forward Strategies
NOTES AND LINKS
To see more of Mattie Duppler work – Click Here
To See more of Dan Ferris’ latest work in Extreme Value - Click here
4:17: Buck asks Dan about the monopoly lawsuit Apple Inc. v Pepper that’s now making its way to the Supreme Court. “If this goes against Apple… how bad is it for the stock price?” Dan gives a run-down of what’s happened when other big companies became tagged as illegal monopolies.
7:49: Amid a report that Tesla is “bleeding money like crazy” and Elon Musk’s own admission that the company “almost died this year,” Buck asks Dan what’s next for the company. Dan reveals why his position on Tesla has never changed since Day 1.
11:01: In the wake of GM’s decision to slash thousands of jobs and close several plants, Dan reveals why GM has been, for a long while, “sort of a silly business,” with “shades of GE.”
15:24: Now that Ohio’s state government has announced it will accept Bitcoin for tax payments, Dan breaks down the hazards of accepting payments in a currency that fluctuates by thousands of dollars in value a month. “Legally, I don’t see this working out.”
18:09: As Britain’s government closes in on the besieged WikiLeaks founder and one-time Stansberry Investor Hour guest Julian Assange, Dan grimly predicts that his days are numbered. “I don’t think he’s ever going to see the light of day again.”
29:56: Buck introduces this week’s podcast guest, Mattie Duppler, the Founder and President of Forward Strategies, a strategic consulting firm. She also serves as the Senior Fellow for Fiscal Policy at the National Taxpayers Union, a nonpartisan advocacy group focused on budget and tax issues and sits on the board of the Center for a Free Economy.
31:10: Buck asks Mattie – whose observations he notes are almost guaranteed to send liberals into a tizzy – what the changes to the tax code have really done for the markets and the economy this year.
35:30: Mattie explains why the revised tax code is built to level the playing field between big and small businesses. “Capital is the lifeblood of the economy… one of the biggest reasons we saw slow economic growth was a lack of capital investments, businesses hanging on to the money they had.”
37:55: Mattie predicts that the swelling earnings and loftier stock prices are just getting started as the revised tax code takes effect. “I think it’s going to take still several quarters for businesses to fully institutionalize and make decisions based on this tax code.”
51:06: Buck reaches into the mailbag with a question from Pete H, who asks Buck and Dan about the various levels of risk with selling options – isn’t it true that there’s hardly any risk at all in selling covered calls? Dan games out the two possible outcomes from selling a covered call.
Announcer: Broadcasting from Baltimore, Maryland and New York City, you're listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episode of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here are the hosts of your show, Buck Sexton and Porter Stansberry.
Buck Sexton: All right, everybody. Welcome to the Stansberry Investor Hour. We have missed you oh so much. I’m syndicated radio host Buck Sexton. I’ve got cohost with me this week _____ last week, _____ what it will be next week, Mr. Dan Ferris is the editor of Extreme Value, the man who knows how to find some value. What’s up, Mr. Dan?
Dan Ferris: All kinds of good things are up. I love the holidays, man, lots of fun.
Buck Sexton: What was the highlight of your Thanksgiving either vacation or just meal? You can take it either way.
Dan Ferris: Well, we did something a little different. We didn’t have turkey and stuffing and all that. My wife makes what I believe is probably the world’s greatest spaghetti and meatballs that’s so good when you have it, you’ll be like, “Oh my god, this is incredible” and that’s what we had. So, that was the highlight, and we got lots of extra sauce leftover, so I’m looking forward to that, too.
Buck Sexton: Spaghetti and meatballs, huh?
Dan Ferris: I know. It’s like, really? People say, “Really?” And I say, “Yes, really, trust me.”
Buck Sexton: I’m a big fan of meatballs, though. Usually they use bread and I have to find non-glutenous binding agents for my meatballs, but I actually made meatballs a week or so ago. I put cayenne pepper in, which I will tell people is not a good idea. I thought maybe I’d make a spicy meatball. It was not a good idea.
Well, let’s tell people about some things that will actually help them in life other than don’t go rogue on your recipes, and let’s start with Apple. Obviously big news about Apple this week with, well, whether or not the app store is a monopoly, but Dan, what do you take from all of this?
Dan Ferris: Yeah, it’s a big deal. Somebody asked me if it’s sort of similar to Microsoft and Windows all over again, and I think it’s a little more serious because the app store is kind of the future. If we all admit that one day Apple is gonna have a lot more trouble selling iPhones and raising the prices and so forth, or coming up with new blockbuster products which it hasn’t really done, then the future is services like the app store, and the app store is really an important one. And that revenue in that part of the business has been growing pretty well.
So, if all of a sudden you have to – if they all of a sudden have to let other app stores break into the ecosystem, it’s a massive change for Apple because that’s their thing is to keep everything all – everybody kind of locked out, and to keep everything all of a piece. It’s a closed system. It’s not open like the rest of the computing world. So, this is a potentially extremely big deal. I mean, I’m no lawyer, but it could go either way. I could see it going either way, but we know how the wind blows with these things.
We don’t like monopolies in America and we haven’t liked them for a long time. That’s what the original Tea Party was about. It wasn’t about taxes, it was about a monopoly. The British government gave the tea monopoly and the colonies to the East India Company, shutting out all of the colonial businesses that would’ve imported and sold tea, and they got PO’d and dumped the tea in the harbor. So, there could be a really huge groundswell behind this saying, okay, we love Apple, but we hate this monopoly.
Buck Sexton: How much of an impact would it have, by the way, if this went – it’s Apple Inc. v. Pepper, right? This is gonna go before the Justice of the Supreme Court. So, if this goes against Apple, does it – how bad is it for the company? How bad is it for the stock price quite honestly?
Dan Ferris: Well again here, Buck, legal matters are so complicated. You never know what the ultimate remedy will be. So, we don’t know what the remedy will be, but we’ve seen other sort of monopolistic type situations, Windows being one of them and having to offer other browsers or operating systems and things. So, I don’t know. What would be the upshot? When you get your Apple phone you could be required to have other app stores available.
Right now, you gotta jailbreak the phone and void the warranty if you wanna buy an app on your iPhone from someone other than the Apple app store. Legally they could say, “Well, you can’t do all that anymore” and see, that jailbreaking of the phone, that really is serious for Apple. Like I said, it’s a closed system. That’s like Steve Jobs’ initial vision just about from day one. When he was in the garage with Wozniak inventing the personal computer as we know it today, it was a closed system. So, this has the potential to really change that, and they’re gonna hear it on Monday. They say we expect a decision by June or something. I’m sure a lot of people will be on the edge of their seats, man, waiting for this one.
Buck Sexton: I just think it’s funny when I hear on TV the different ways that people tell me that the Apple stock is going up, the Apple stock is going down. They say all the iPhones that have been bought have been bought, and other people say, “Oh no, they’re gonna do all these other.” Do you have a particular view on the direction of the company overall? Is Apple something that you would invest in now, or is it too late down the road?
Dan Ferris: You know, I’m not gonna give you the ultimate answer right now because we have to address that in the next update that we’re sending out to Extreme Value readers. So, that information is kind of for them only first before it’s for anybody else, but yeah, you’re right.
Buck Sexton: So, this is a teaser then.
Dan Ferris: Yeah, a bit of a teaser, but it’s gonna be an important decision for us and we’re looking at it very carefully. We’ll probably actually make the decision today or tomorrow and you’ll read about it. We’ve been talking about it. We’ve been talking about this endlessly in fact for quite a while, and you can read it in Extreme Value later this week.
Buck Sexton: Now this is gonna make me miss Porter, ‘cause you know, we miss him all the time of course while he’s on sabbatical, but he is very funny when he talks about Tesla, of all the companies that a Porter rant, you know it’s gonna be good. When he goes off on Tesla and Elon Musk it is quite a show. This week The Street was reporting that Tesla is bleeding money like crazy, but it almost died earlier this year.
That’s according to Elon Musk himself. They’re producing 1,000 Model 3 Sedans a week in the third quarter, and people are starting to say, “Maybe this whole thing isn’t gonna work out the way it’s planned.” What do you think about all this?
Dan Ferris: My view on this company has never changed. In fact, I think I was on Fox Business with Melissa Frances three or four or – years ago talking about Tesla and Apple, in fact. It’s a terrible business. Making cars is a terrible business, and starting a brand-new giant car company is a terrible business. It’s extraordinarily risky, and none of that has changed, and him telling us, “Yeah, bleeding money like crazy.” Well, we all knew that. We can read the financials.
We know what’s happening. None of this is a surprise. “Tesla almost dying earlier this year” says Musk, that is a statement for the faithful. That’s a statement for people who really don’t get how crappy a business idea this is, and the inevitable, it’s gonna wind up like DeLorean on a bigger scale.
Buck Sexton: Which people really only remember because of Back to the Future.
Dan Ferris: That’s right. There will be an old Tesla in a future film like that, right? With Michael J. Fox’s kid or something.
Buck Sexton: The kids of the future will say, “What’s that cool car?” “Oh, that’s a Tesla. It’s a collector’s item now.” So, speaking of cars, perfect transition here, rough news from General Motors this week, at least if you’re somebody who happens to be affected by this. The auto maker plans to cut production at a bunch of its factories. It’s going to reduce its salaried workforce by 15 percent, more than 14,000 employees are gonna get cut, and they’re doing this restructuring.
It’s gonna cost up to $3.8 billion. UAW is freaking out. People are saying that it’s partially because of the tariffs that cost $1 billion in extra steel costs to this company, but then others are saying that, well, also, people don’t wanna buy GM cars quite as much as the company needs them to. Dan, where do you come down on all this?
Dan Ferris: Again, it’s an extraordinarily capital intensive, extraordinarily competitive, truly global business. I mean, if you can buy a two- or three-year-old Toyota or Honda and just have it run for years and years until the wheels fall off and never have to spend too terribly much maintaining it. On average I’m sure we’ve got plenty of people who say, “Oh, I had one of these cars, it was terrible.”
But on average, every mechanic I’ve ever talked to just says, “Oh, no, just buy a two- or three-year-old Honda or Toyota and it’ll run for a long time and it won’t cost you that much.” So, they’ve been fighting that battle forever. This is like, all this stuff is always way overdue, the restructuring, $3.8 billion worth. GM is almost a silly business. There’s shades of actually GE. General Motors, General Electric, general crap.
Buck Sexton: You know, if we were to go back in time, look, the Obama administration when they were running for reelection for 2012, the slogan that most people remember is “General Motors is alive and Bin Laden is dead.” It’s worth taking a step back and saying, hold on a second, GM was saved from doing a normal bankruptcy proceeding really because of the politics, right? And there was some stuff that happened there that people seem to forget.
If memory serves, they essentially broke confidence, broke contract with the bondholders in order to give a better situation to the unions when they were doing the restructuring. Bruce Ratner who was – I think it’s Bruce Ratner, it was definitely a guy named Ratner who was a private equity guy. He was involved in that restructuring, and it just feels like there was a lot of stuff that was done here, Dan, that was more driven by politics than what’s best for the – well, forget what’s best for the company, what’s the market actually saying.
Dan Ferris: Yeah. I mean, I don’t even know if I have anything to add to that except the sense of outrage that all decent human beings had at the time when the bondholders got screwed in favor of the unions. It wasn’t a big surprise politically.
Buck Sexton: That was a purely political move, right? That’s fair to say?
Dan Ferris: Oh yeah, more than fair. It was clearly political. I routinely tell people, “Oh, it doesn’t matter who’s in the White House. It doesn’t matter.” But I don’t know that you’d see the current guy letting something like that happen. That was an Obama administration move all over.
Yeah, I mean, to say that the suggestion of course here underlying what you’re telling me, Buck, is that the company has been propped up in various ways, and that’s true, and they just can’t compete as well. I mean, I don’t wanna buy a GM car, do you? I don’t know anybody who really wants to buy one.
Buck Sexton: No.
Dan Ferris: That’s right. I actually hear more people telling me they might like to own a Tesla than own GM. I think they’re crazy, too, but you know.
Buck Sexton: Yeah, I guess this is not really surprising to folks. I did see that the – one of the critiques you hear about General Motors is that people don’t wanna buy them. They wanna buy hybrids, they wanna buy SUVs, they want electric cars, they want autonomous cars, and that’s certainly not what the primary GM line has been churning out for years now.
Dan Ferris: Right, and they wanna buy less of everything. If you look at just the U.S. auto sales numbers it’s like a million or so less than a year ago, seasonally adjusted on an annual rate.
Buck Sexton: You look at these cars, by the way, the Sonic, the Cruise, the Malibu, the Impala, nobody I know wants any of these cars.
Dan Ferris: Yeah. I might like to have a 1964 Impala, but I wouldn’t want a new one.
Buck Sexton: Yeah. It’s amazing when you actually look at their line. It’s not surprising at all that they’re having some of these – and that was some of them. You’ve also got the Buick, the Verano, the Lacrosse, Buick Cascada. None of those – I guess Cadillac for a while was doing pretty well. There was kind of a rebrand of Cadillac, but those other car brands, Buick and GM, those are not cars that you see people wanting to drive. Maybe the restructuring here is not just – yeah, it’s painful for people, but it seems like it’s necessary, ‘cause selling products people don’t want, unless you’re in the government it’s a bad idea.
Dan Ferris: Right. When the whole industry is selling a million less units than a year ago.
Buck Sexton: Yeah. Speaking of government, Ohio to accept Bitcoin for tax payments. I did not see this one coming. Currently the IRS says any use of Bitcoin is like selling a security, so capital gains are owed on any increase in those values, but you have to pay capital gains if you use Bitcoin to pay your taxes, right? Isn’t that what we would assume here, and are you surprised that Bitcoin is being accepted by any U.S. government authority of any kind for payment of anything?
Dan Ferris: Well, sure. We have legal tender laws. How are they gonna get away with this? I don’t know. Again, legally I don’t see this working out. I see the federal government stepping in and saying, “You’re not allowed to do this. We have dollars in this country and that’s all we have and we don’t have anything else.” The Ohio Revenue Service or whatever it’s called accepting Bitcoin just sounds ridiculous to me. I even wonder, you look at this story and you’re like, is this real? This won’t last. I don’t know what Ohio thinks it is doing, but it’s not gonna last.
Buck Sexton: Then from my side of things here the big story today is from The Guardian, that left-wing British paper that says that Paul Manafort who we all remember as the relatively short-timer campaign manager for the Trump campaign, Manafort according to The Guardian held secret talks with Julian Assange in the Ecuadorian Embassy. So, this would be someone from the Trump campaign while they were working for the Trump campaign having a surreptitious meeting with the founder and head of Wiki Leaks, who by the way, early on in my Investor Hour tenure, Porter and I interviewed this guy.
I just remember thinking now my IP address and all of my digital communications are gonna be monitored for the foreseeable future. But we did talk to Assange. Porter is very favorable toward at least Assange’s mission. I mean, I can’t say what he thinks of him personally, and here we go, this guy is back in the news.
By the way, there’s also this report from a week ago, maybe two weeks ago, that the U.S. has a sealed federal indictment for Assange. So, we got Manafort heading to prison. Today Mueller says that Manafort violated the plea deal. Assange maybe met with Manafort. Assange may be facing charges. The Mueller probe could be wrapping up any day now. What do you think, Dan? It’s a crazy time.
Dan Ferris: It is a crazy time, and I think that poor guy is gonna die in the Ecuadorian embassy and probably sooner rather than later. I don’t think he’s ever gonna see the light of day again, and I hope he will go down in history as a hero, but you know, it’s funny, I don’t see enough of him reported that way. It’s odd.
Buck Sexton: Depends on when you ask people and what you’re asking them about. He was very unpopular on the right with the Chelsea Manning enabled release of documents about the Iraq war and Afghanistan war, and then though he was very unpopular with the left because of the release of the emails from the DNC server and Podesta’s email account, which all it really did was tell people what we already knew, which was that within the democratic establishment there was a real effort to elevate Hillary at Bernie Sanders’s expense.
We kinda knew that, but it made it very clear that that is what happened. People were very upset on that side of it. The thing about transparency is everybody thinks they want it until they get it.
Dan Ferris: Well put. Well said, Buck.
Buck Sexton: Hey Dan, oil; something we all need, something that people have been talking about more lately, one because of price fluctuations, also because of, hey, why are we so nice to Saudi Arabia still? We don’t need them as much as we used to. What is happening with oil right now? Is it on the rebound? Do we have any sense of what the real trajectory is gonna be in the market?
Dan Ferris: That’s a price prediction and I generally don’t do price predictions, but oil is not terribly – I’m not saying oil is easy to trade, but it’s not terribly difficult to figure out. You started off saying this is something we all need, oil, something we all need, and because of that, it’s not scarce. There’s plenty of it in the world, and the idea of oil shortages caused by anything but politics is a little bit silly, and of course we find that out every year and especially over the past decade with what’s happened in the United States with fracking. We find that out every year because there’s more and more and more and more of the stuff. Just every couple year we get these supply shocks and the price plummets.
We’re just not used to this. It doesn’t jive with what a lot of people think is the case which is, well, we must always be running out of it, right? The truth is, we’re always looking to produce more and more of it because we use it. There may indeed be a finite amount of it in the earth, but we are getting nowhere near tapping – we’re nowhere near the end of the oil supply.
Buck Sexton: Yeah. We have not reached peak oil.
Dan Ferris: Not even close. So, it is a commodity, and that means that a lot of the – oil is the same. It’s fungible pretty much. Good light crude oil is good light crude oil all over the world, so there’s nothing special about it. It’s not a product like an iPhone or anything.
Buck Sexton: There was a great piece in the New York Times earlier this week, very, very long piece about a different kind of oil, about palm oil. Given all the discussion that’s underway right now with people who want to assign blame or responsibility or whatever for the fires that have happened in California, a lot of people say it’s climate change, other people say that it has more to do with forestry management and general environmental policy in the state of California. I don’t know if you saw it, Dan, this story about palm oil was fascinating. The summary, the quick version of it is so back in around 2006-2007 the Bush administration with environmentalists and a lot of people supporting this idea had this huge push for biofuels.
This is gonna be less carbon intensive for the atmosphere, people who believe in catastrophic climate change worry about obviously CO2 emissions. I’m not one of those people, but nonetheless, this is something that is out there and a lot of folks are talking about. So, the idea was we need more biofuel usage. The problem with biofuel usage in this country was we already have a lot of arable land that’s assigned for other things.
It’s gonna be a whole lot cheaper if we essentially outsource this biofuel production to somewhere else. Guess who steps in? Indonesia. Indonesia all of a sudden says, “We have a lot of places where we could plant this stuff.”
So, they just clear cut their rainforests. Clear cut rainforests, which I know for anyone who’s an environmentalist you start cutting down all the rainforests and they completely freak out, and they started having all this production of palm oil. They look like palm trees that you’d see in Florida or wherever, but they produce this oil. It’s used in biofuels. Long story short, and it was a long story in terms of what the New York Times wrote, this is disastrous from the perspective of CO2 emissions.
The only reason that this even happened was because of U.S. policy that subsidized this and pushed for this and said we have to do this, and so the government got involved in this and as a result of all the clear-cutting of these trees, essentially the eradication of huge swaths of rainforest in Indonesia, you have a much greater overall release of CO2 in the air. My understanding is that the soil itself releases, when you cut down trees, the soil itself releases more CO2. There’s all these complicated scientific processes people are talking about, but biofuels in the last ten years have been worse for the environment than if we had never done this at all.
Dan Ferris: Yeah. Makes perfect sense to me. You mean the government got involved and they made it worse? Gosh.
Buck Sexton: Completely screwed the whole thing up. But what’s interesting to me also is there’s such a lack of humility that comes from these kinds of processes. There’s a really interesting book. You might actually like this one. It’s not like a fun beach read, but it’s called Seeing like a State and it goes through how a government organization, well, first starts with quantifying. To organize you have to quantify, and that’s why measurement of people and a census and measurement of property, and this is how governments think of how the – the basis of governing is you have to know what’s there, who’s there, and what you’re dealing with.
And it goes through how in history there have been all these different attempts to using what seems sound from a scientific perspective, what seems like the smart, rational approach to things once you have quantified it from a top-down governance view is disastrous when actually implementing. One of the examples that they go through, and there’s a whole bunch of them throughout the book, one of them is German forestry science in the 19th century.
Now, I know this doesn’t sound very exciting, but hold on. German forestry had the – the idea was this was gonna be the way. This is before GMO, before genetically modified crops and all of that, that to get a much higher yield and much more efficient growth of food which is a big deal at a time when people – there still are famines. People don’t think about this really anymore, but if you could much more efficiently grow plants, grow food.
So, what they did was they said, okay, to get the greatest yield for lumber, for timber in this area, let’s line up and have all the trees essentially spaced out exactly the same way in a row. We’ll know how many trees, we’ll know how much we can plant in that area, we’ll have exactly the same way of trying to – I don’t know much about how you grow trees and let them grow, but essentially it was all gonna be very mechanized by the people that were doing it.
It was gonna be very much a regimented approach, treat it all the same, line them up, and what they found out from a few decades of doing this was this was horrifyingly bad because by only having one species of tree, having it perfectly spaced out, having them lined up in this way, they were much less resilient in the face of disease. They were much less resilient in the face of – when there were fires. Pestilence would come along and wipe them all out.
What you find out is that you need what they call local improvisation. You need people that are actually involved in something, watching it, dealing with it to make decisions. You can’t just say, “Here is the strategy: execute” and then just let it go forward and assume that because you had smart people coming up with it in the first place, that’s the best approach. I don’t know if that sounds at all like seeing like a _____ _____, but it’s supposed to be kind of a metaphor, obviously. It’s supposed to be a way to approach life as well.
Dan Ferris: Au contraire, Buck. I can’t wait to get my hands on that book, absolutely. Thank you.
Buck Sexton: It’s really good. It’s really interesting. For people who are interested in why is it that governments when they have the smartest people involved in something, and when they’re actually using the data still go horribly wrong, it’s really an exploration of all of that. So, anyway, like I said, it won’t blow anyone’s pants off, but it’s definitely got some really worthwhile and interesting stories and studies about modernization. It takes you through collectivization in Russia. It takes you through urban planning in Brazil, the great leap forward in China.
Those are all instances of this is a smart way to approach. I mean, imagine if you ran a company like this, Dan. You’re a guy who looks at long-term value. That’s what you do. That is your expertise. If somebody said, “We’re launching a company” and they just provided the blueprint for what the future was, and they said, “Okay, we’re done with the whole management part, now just go do. No meetings, no quarterly reports, nothing. Just go do. We’ve got the smartest people. This is the perfect plan.” It would be a disaster, right?
Dan Ferris: Right. You know, it’s funny you should mention this. I saw an interview with George Gilder recently where he was talking about much the same thing in relation to sort of big top-down government projects. Eventually there’s a redistribution, right? We’ve solved all the problems. We know the technology. Now all we have to do is make everything efficient and redistribute. But when you’re focused on that, you stop innovating, and then you wind up with societies like Soviet Russia.
Jim Rogers drove through there and saw huge hulks of military and other technology just kind of rotting by the side of the road. So, yeah, it’s funny you should mention this. I’ve been thinking about it. I’m gonna chew this book up. I can’t wait to get my hands on it. Thank you.
Buck Sexton: James Scott is the author. It’s from Yale University Press, Seeing Like a State. We can talk about it. I think you’ll like this one. I’ve actually talked about it many times on the radio, so I’m looking forward to hearing from you when you’ve checked it out.
Mattie Duppler is with us now. Miss Mattie Duppler, it is always such a pleasure to have you on.
Mattie Duppler: Thanks, Buck.
Buck Sexton: Let me give you the proper introduction that you deserve. Mattie Duppler is the founder and president of Forward Strategies, a strategic consulting firm. She also serves as the senior fellow for fiscal policy at the National Taxpayers Union, a nonpartisan advocacy group focused on budget and tax issues, and sits on the board of the Center for a Free Economy. Mattie’s analysis of fiscal issues is considered influential in federal lawmaking.
She is a former Hill leadership staffer, has served as a national spokesperson for one of Washington’s top tax lobbyists, and designed and built nationally recognized advocacy organizations. Please welcome to the Stansberry Investor Hour the one and only Miss Mattie Duppler. Hey, Mattie, how you doing?
Mattie Duppler: I’m great, Buck. Thanks for that lovely introduction.
Buck Sexton: That’s how we roll. I gotta ask you, we’re going into the end of the year here. It’s always fun too because you get progressive libs all in a tizzy when you talk about what taxes actually are, what the tax policy is, ‘cause so few people go beyond the first or second sentence of, “It’s all for the rich” or whatever it may be. You actually dig into the details on this stuff. What have the changes in the tax code done for the economy and therefore also for the markets this year?
Mattie Duppler: Right, well, especially in these last couple of months of 2018 it has been quite a ride for the United States economy, and that is due in part to the massive changes we saw at the end of last year. What’s today, November? So, we’re looking at 13 months ago that Donald Trump signed into law the Tax Cut and Jobs Act, which was the first major rewrite of the federal tax code in the better part of a generation in 31 years.
So, there were a lot of changes that happened that Americans are just now beginning to experience, because remember, you don’t pay your taxes until the following year on the previous year’s income. So, that means that when folks were paying their taxes in April of this year, they weren’t paying those taxes under the new tax law yet. The code has just kicked into practice.
And frankly right now we’re looking at a slew of technical corrections coming out of both the House and the Senate but also the IRS as we continue to kind of fix and tweak some of the new provisions in the tax law, but also one of the oldest traditions in Washington DC is the holiday tradition of path extenders. There’s still a number of provisions in the code that are expiring that need to be confronted by Congress before the end of the year.
So, there’s still a lot of changes to come, even though we’ve seen this massive rewrite that happened in the end of 2017. But by and large what we saw in 2017 was a shift away from some of the pervasive barriers in the code. By that I mean decreasing of course the amount of income taxes that the average American is paying, but also really removing some of the barriers to growth that businesses have been experiencing in the United States by reducing the corporate tax rate but also creating incentives in the code and making those incentives more permanent and more durable so businesses can plan accordingly has created an investment environment that has simply not existed in the United States and has put American businesses at a disadvantage not only in the last couple of years when we’ve been digging out of this recession, but for the last several decades.
Buck Sexton: Now how much have we seen? Is there data to support – this is one of the big stories you hear, Larry Kudlow and others who are speaking on behalf of the administration when it comes to the economy will often bring this up, that this has been great for small businesses. How so and what can you point to, to bolster that beyond just obviously – a lot of people are saying this. Just walk me through how does that actually really work in practice? What does it mean now for these companies that have this lower rate at the corporate level?
Mattie Duppler: Well, remember that small business is a little bit of a misnomer here in the United States. What actually is a better way to characterize businesses is those that are corporations and then businesses that are run by individuals who pay taxes for those businesses on the individual side of the code. And for those businesses not only do they benefit from reductions in the individual tax rates, but they also benefit from a new deduction that businesses are able to take specifically for their business income, and this was a huge step forward when it comes to the political tensions that prevented past reform from getting done in the past.
For the last several decades, we have had that tension between corporations and “small business owners” wherein whenever there was a proposal out there to reduce taxes for one, the other camp was always left out of the equation. So, that of course created a politically inhospitable environment where you couldn’t get any tax reform done. So, what happened this year was through negotiation between the House and the Senate, taxpayers came up with this idea that we will not only drop the corporate tax rate down to 21 percent, which was a huge rate cut and allowed corporations to actually start to be competitive worldwide given that the OECD average for corporate tax rates is 26 percent, getting our 15 percent reduction was extremely crucial in allowing American businesses to compete globally.
But then of course making sure that small businesses who are competing with those corporate businesses were remaining whole as well. So, they get to take a 20 percent deduction on their business income as a result of that, and that works out to allow those business owners who have the complexities of filing their taxes on the individual side to account for the business behavior that corporations get to use different parts of the code just by virtue of them being a corporation.
So, you look at the data. There’s been a lot of talk about what that means for investment. Capital is the lifeblood of an economy, and that has been one of the difficulties over the past decade or so. What we saw and why we saw so little economic growth and all the resulting characteristics from that is because we didn’t see any capital investment. Businesses were holding onto what money they had, not simply because they weren’t making a profit. After the recession was over, companies started to make a little bit of money again, which was obviously great news, but they couldn’t do anything with it.
Capital that is dead capital, might as well be no capital at all. So, what the tax code did, what the tax rewrite did, was allowed businesses to use that money to invest it back here in the United States by reducing the barriers that existed prior to the tax rewrite. So, that included allowing businesses to write off the cost of those investments initially in the first year. One of the pervasive headaches for business owners is how the old code treated investments, and it essentially required business owners to try to infer from IRS rulings about the differences between the investments they were making and why when they bought a pencil it was different from buying a pad of paper, and then deduct that cost of that business expense over the course of several years.
Now businesses don’t have to go through all of that heavy paperwork. They’re able to deduct that business in the first year and realize that investment when it happens, which is crucial for financial planning, for the ability of capital to go further in that year that it’s made, and what we have seen in turn especially in this last quarter is an investment in American workers, and this has been the big talking point when the bill was passed last year. What does it mean for the American worker? How are workers going to benefit from increasing business investment here in the United States?
That’s why doing that corporate tax rate was so crucial to get that down to a competitive rate so American businesses could _____ domiciles here and could make business decisions here. So, what we saw in the last quarter was earnings pick up meaningfully for the first time that year. Now, it is my perception that I think the administration overstated a little bit how quickly this was going to happen. Remember, businesses, economies, they can’t turn on a dime. They need to be able to plan accordingly.
And because especially American businesses have been a part of this culture where they have not had certainty and the ability to make long-term investment decisions for so long, I think it’s going to take still several quarters for businesses to fully institutionalize and make decisions according to this new tax code. So, last quarter we saw a 3.3 percent increase in average wages for workers, which is the first time that we saw that number tick up above what the inflation rate is. So, what that means is the workers actually get to feel richer.
They actually get to see their paycheck go a little bit further, and that in my perspective is one of the most important metrics to watch. When you talk about public policy that allows businesses to invest and be competitive here in the United States, you need to look at what it does for the downstream effect on workers, because ultimately that’s where you see the best dividend when it comes to liberalizing the way we treat capital in this economy.
Dan Ferris: When I look at the wage increase, I see it from a totally different perspective. I think it’s great that people make more money and have more money to spend, but we were talking about GM earlier and I just feel like nobody wants to hear this. This is gonna sound awful. Just prepare yourselves, okay? But labor is an expense. Ideally you would kinda not like to have to pay more for it, and to pay more for it and make it worth paying more for it, it sounds like you’re telling me that there are just massively new and better and I would assume higher margin opportunities in the United States that kind of maybe didn’t exist before this enormous once-a-generation change. Is that what I’m hearing?
Mattie Duppler: Well, two things. One, when you look at GM, GM has essentially been in a taxpayer-sponsored conservatorship for the last decade. They haven’t been permitted to make decisions that are actually in keeping with their own economic realities because of the bailout that the Obama administration illegally executed in 2009, and then the recurring financial strain, I guess we should say financial circumstances that resulted from that.
So, GM, what it’s doing now is doing what every business should do in a robust economic climate. It should realign its own investment practices, resources, and capitalize on its margins in a way that is most effective for its business. So, that’s what it’s doing. It’s a recognition of the reality that the auto industry is changing prolifically in the United States. People aren’t buying American-made sedans anymore. That doesn’t mean that Americans aren’t driving sedans. It means they’re buying American-made trucks and SUVs and bigger cars.
So, when I look at what’s happening with GM, I think it’s a really great example of the way businesses need to adapt to changes in public policy but also need to be able to communicate exactly what their needs are and what their forecasts are for the future. I am someone who is extremely long on autos. I think that they are going to be the next frontier of investment simply because of these pressures being born out. But you’re right, in the short-term the narrative usually is labor is getting too expensive, jobs are being lost, the bottom is falling out.
I don’t see that being the story with GM or with autos more broadly simply because I think the economy is changing in a way in which these businesses are now equipped to adapt in a way that they weren’t earlier, and certainly public policy contributes to that, the fact that these businesses are able to now pivot when it comes to a change in their consumer demands is so crucial for them to be able to survive. The next frontier for autos is not going to be trying to get Americans to buy American sedans anymore.
That ship has sailed. It’s going to be an AV. It’s going to be a new technology. I mean, these automobile companies are no longer just infrastructure. They are now _____ companies, and that requires a lot of money and a lot of investment, and as long as businesses are able to pivot to shed costs where they don’t need them to make those investments, in the long-term they’re gonna be a solid bet, but the public policy needs to be there to support it.
Dan Ferris: Yeah, but you know, I hear you. No one would be more adamant than me in saying GE needed to do this probably long before this, but I don’t know. I’m not crazy about that company. I think they have kind of a cancer. The culture is screwed up from decades of being – as you called it – a taxpayer-sponsored conservatorship in much the same way that GE’s corporate culture is cancerous from decades of playing accounting games with earnings. But I hear you.
Mattie Duppler: Yeah. I think that’s potentially true, but I think that you just look – I’m looking at the capacity for opportunity here, and I think that right now we are living at a time where dynamism in industry has never been more rewarded. The story has been told over and over and over again about how Amazon almost cratered, and now it’s the comeback story. You heard the interview earlier this week with Elon Musk kind of saying the same thing about Tesla, and that’s not to say anything about those companies themselves.
It’s to say that I think right now maybe not quite the market yet, but I do think that the public policy sentiment is such that we want to allow these businesses to grow in a way that skates to where the puck is going. So, when I look at something like a GM, I look at some of these more traditional companies that need to make a pivot in order to survive. I’m a little bit more optimistic that they’ll be able to do so because that has become some of the larger business culture.
To be a business to compete with your contemporaries in these spaces you have to be able to aim for the moon. Now, whether or not you can land there is certainly a different question, but I certainly think that has become more of the psyche for corporate leadership, and now they just need to execute.
Dan Ferris: At this point we’re quibbling. I don’t think GM has an aim-for-the-moon culture, but who knows? Maybe there is somebody who could take over that company and turn it around. But you made an interesting statement, Mattie. You said dynamism in industry has never been more rewarded, and then you mentioned Amazon, but isn’t the conventional wisdom at least, and I might even agree with some of it, companies like Amazon, the really dynamic ones that have grown a lot lately, Amazon, Google, even Facebook, and Apple which is going up against the Supreme Court on Monday.
People look at these as parts of an oligopoly or a monopoly, and they kind of don’t think that’s very good for capitalism, and they don’t think that’s very good for an economy. But you’re referring to them as evidence of dynamism. Am I hearing you right?
Mattie Duppler: You are hearing me right, and I think that along with that comes a risk you assume as a first mover. I certainly think that all of the tech names that you mentioned fall into that category. The difficulty that I have with some of the criticisms, and they are fully I think – I think these criticisms need to be heard and I think they need to be adjudicated fully, but I also think that we need to be aware of the way that our ecosystem has changed as a result of these businesses and what they have contributed.
I work in politics here in DC, so we talk a lot about Facebook and Twitter and what the appropriate roles are for them when it comes to monitoring their platforms and securing those platforms against not just bots and malfeasant behavior, but also what are the limits of the speeds that they should have on those platforms? Those are really difficult conversations to have, but I think it’s important to remember that without these platforms we would never be exposed to the amount of thought, to the amount of free speech, to the new public square that has been created by these companies.
We are in a completely new ecosystem, which again this refers back to my thoughts on dynamism itself. Now we live in this world where we are exposed to so much diversity of thought that we otherwise never would be exposed to. So, of course along with that comes a lot of complexity that public policymakers are going to be grappling with for years to come. I don’t think there’s an immediate answer on a lot of these issues, but I do think it is for the better.
If not for any other reason, I think it’s better that the entire world is exposed to the tension that is created by the First Amendment here in the United States than to not be exposed to it, than to not have to contemplate how difficult but also rewarding the security of free speech is. I really see that as a net public good through the world over, and I think that hopefully our public policymakers can respond in a way that is responsible and measured as these problems arise that comes from having freedom.
Dan Ferris: Couldn’t agree more. In fact, I’ve said for years now that I think civilization started when the first guy instead of bludgeoning his neighbor over the head with a club, he called him a son of a bitch and that was the beginning of civilization. I agree with you.
Mattie Duppler: I love that. I think that’s fantastic.
Dan Ferris: It’s funny though because when we think of Facebook and Google for example, lately the narrative has turned away from free speech and toward their apparent censorship of said speech.
Buck Sexton: They just banned a friend of mine actually, and he has turned into a national news story. Jesse Kelly who is a fellow radio host and he’s a former marine veteran, he got summarily banned, lost all 70,000 or 80,000 of his Twitter followers in one fell swoop. So, this is a real thing that is happening now.
Mattie Duppler: I certainly agree with you, and this is something that I think also those of us as participants on these platforms have to be aware of the fact that these platforms are tools. We do not own any of our data. We do not own any of our audiences. And that’s particularly difficult for people who have now built businesses and personas dependent upon these platforms to give them that audience.
But you need to be aware that when you are using these tools you do not own the rights to any of them, and that audience of course can be summarily wiped away as you said, Buck, but I still believe that that constitutes a greater good than trying to – some suggestions have been to dismantle some of these companies, to break them down into smaller pieces. I think at the end of the day we have democratized speech in a way that has created a freer and better society, and we should be mindful of that benefit as we talk about ways to deal with some of these much stickier problems when it comes to adjudication of these platforms.
Buck Sexton: Well, Mattie, we really appreciate you joining us this week. Do you have one more for her, Dan? I was gonna get to the mailbag.
Dan Ferris: Oh, no, I think I was just going to agree with all that. I love the messiness of it and the fact that on one hand people talk about free speech, on the other talk about censorship. In our culture now of course, some other group, however small, is offended every other day, and someone is apologizing every other day. I agree with Mattie’s view on this. It makes sense to me that that’s the way it is. That’s just the way it is and that’s the way it probably ought to be.
Buck Sexton: All right. I’ll sign on for that, too. Mattie, where can people go to keep up with your latest, All Things Duppler?
Mattie Duppler: Well, speaking of these platforms, I’m on Twitter and I’m a pretty big tweeter @MDUPPLER on Twitter. My website is MattieDuppler.com, and then all of the work that I do on fiscal policy is featured at NTU.org. That’s National Taxpayers Union where we are the oldest taxpayer advocate group in the nation, so a lot of great resources there especially as you go into the end of the year and you’re thinking about your tax planning for next year.
Dan Ferris: Hey, Buck, you know what? I bet people listening to this probably don’t know that the National Taxpayers Union was founded by one of the original folks who wrote for Stansberry’s parent company, a guy named James Dale Davidson, and in fact, I got into this business in the late 90s after reading his stuff and liking what he – he used to write about the Clintons and all kinds of stuff, and he founded the National Taxpayers Union. I’m agog that it’s – back then it was like oh, sure, National Taxpayers Union, like that’s gonna take off. I’m glad to see we have bright people like Mattie in it, and it’s grown into a real thing, for goodness sakes.
Mattie Duppler: Yeah, and next year, NTU will be celebrating its 50th anniversary. So, we have seen a lot of changes in tax law over the years, some good, some bad, some neither here nor there, but we’ve been there for all of it, so we’ll be celebrating our 50th anniversary next year.
Dan Ferris: Wow.
Buck Sexton: All right. Thank you so much, Mattie. Great to talk to you.
Mattie Duppler: Thanks, you guys.
Buck Sexton: So, let’s get to the mailbag. [email protected] if you want to send us an email, that’s the best place to do it. We read them all, even the ones that give us the sads. Let’s get to it. Email for this week, I’m just gonna do one ‘cause we’re kind of running short on time here. “Buck and Dan, you mentioned that selling options is very risky. You can end up owing your broker a great deal of money.
Is it not true that the greatest risk comes from selling uncovered options, e.g. uncovered calls? Is it not sure that selling covered calls would entail a great deal less risk? Paid-up subscriber, loyal listener, Pete H.” Dan, this is your territory.
Dan Ferris: Sure. So, if it goes against you, you get the stock called away from you. Absolutely that is true. I was actually talking more about put selling, and the call selling we were talking about was in the natural gas market. So, little different, but I’m glad that you asked the question so that we could clarify that. But yes, you are correct, Pete.
Buck Sexton: All right, so Pete is correct. That’s gonna be it then for this episode of The Investor Hour. Hope everybody has finally come out of their turkey-induced food coma and looking forward to more holidays coming up here soon. InvestorHour.com. Dan, what have you got coming up, by the way on Extreme Value?
Dan Ferris: Well, we’re just putting out an update. We do a monthly update and we kind of delayed it for the holiday and we’re gonna do it this weekend. It comes out this Friday instead of last Friday. We’ve got some thinking to do about Apple, and I know people are concerned about it and we’re gonna address it this Friday.
Buck Sexton: All right. Mr. Dan Ferris, thank you for your expertise, my man. I’ll talk to you next week.
Dan Ferris: Okay, Buck.
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