Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Tax Cuts

A reduction in taxes is a tax cut. Tax cuts reduce the government’s revenue while simultaneously increasing the wealth of the segment of the population that saw its taxes lowered. A tax cut is instituted by governments as a way to stimulate economic growth during economic downturns. A tax cut can be temporary, in order to weather an economic downturn, or it can be permanent, to increase the wealth of the society as a whole.

Central Banks Pile into Gold on Price Drop

By for Profit Confidential

gold bullionI’ve been writing about China’s desire to own more gold bullion in order to back its currency, the yuan.

Naturally, if you were China and you wanted to buy gold bullion, you wouldn’t advertise it to the world or the gold bullion price would rise in anticipation of the purchases. The People’s Bank of China would perform the operation quietly.

The Bank of International Settlements (BIS) is an institution created by the central banks around the world. The BIS essentially is a bank for all of the world’s central banks. Its aim is to foster financial and monetary stability globally.

When Ben Bernanke spoke on February 29,2012, inferring that a third round of quantitative easing (QE3) was not likely, the price of gold bullion dropped over $100.00 an ounce that day. On that particular day of trading, over 1.4 times what central banks bought all of last year in gold bullion was traded!

Actually, physical gold bullion was not traded. It was mostly paper contracts. There are really two markets in gold bullion. The paper contracts that trade gold on exchanges and the investors who buy and take delivery of physical gold bullion.

It has been confirmed that, when the price dropped on February 29, the BIS stepped in and bought four to six tons of actual gold bullion worth roughly $250-$300 million. It’s certain that this purchase was made on behalf of a central bank, where physical gold bullion was delivered; however, we don’t know the identity of that central bank.

An educated guess would be the People’s Bank of China, but many of the emerging economies’ central banks … Read More

Higher Corporate Taxes Have Put
America in an Unfavorable Corner

By for Profit Confidential

The U.S. is first…in taxes.

The U.S. is perceived as the country that is home to the most competitive companies in the world with the largest corporate profits.

This perception rests on the assumption that the U.S. creates the best foundation to foster companies and so produce tremendous growth and corporate profits.

In the last few decades, other countries have created better education systems and have reduced tax rates and instituted tax cuts in order to imitate the U.S. and to foster the growth of companies that can compete and outdo American companies.

Well, as of this coming April, Japan is going to cut its corporate tax rate to 36.8%, leaving the U.S.—after factoring in federal and state taxes—at 39.2%; the highest level of corporate taxes in the world. This is 10%-15% above the world’s average!

Of course, having the world’s highest tax rates doesn’t inspire corporations to want to remain here or return here from overseas, as it affects corporate profits.

The other major issue that has been a hot political topic is those American corporations that have corporate profits overseas, but that don’t return those corporate profits to American shores, because they would be taxed immediately—at the highest corporate tax rates in the world.

The fact of those corporate profits remaining overseas means that jobs and investments occur in those countries at the expense of the U.S.

Republicans, in 2012’s election campaign, are aiming for tax cuts on those overseas corporate profits, in a bid to get that money invested back here in the U.S. The Republicans are aiming to lower the corporate tax rate to 25% from … Read More

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