Some economic trends:
America borrows money to consume because we've lost our jobs to overseas manufacturing. Basically its happened because its more cost-effective for corporations to manufacture internationally and to then sell it here in the USA to Americans on credit. Importing countries have high sales taxes and low corporate taxes. In Europe the sales tax is called the Value Added Tax (VAT). As a result the Americans consume more, get less taxes and get less jobs than the Europeans. The solution IMHO is to great reduce corporate income taxes in the USA and to raise sales taxes here in the USA.
Suppose the following fictional example to illustrate:
euro/dollar are at parity
a company makes widgets at 10/unit in either the USA or Europe
it costs 1/unit to ship them across the sea
the wholesale price is 20/unit
the retail price is 30/unit
the company has no debt, rents all their facilities, etc.
On each continent the widget company produces 100 million widgets a year and wholesales 100 million a year by wholesale. There are no corporate/sales taxes. The end result is that they bring in 4B of revenue with 2B of profit.
Along come the social engineers to give them big government and to manipulate the way things are done. Assume that population growth pushes up demand by 20% to 120 Million per annum on each shore.
USA has a 35% corporate tax rate
Europe has a 20% corporate tax rate
USA has a 5% sales tax
Europe has a 20% VAT
Assume for tax calculation purposes that the producing country gets 3/unit in taxes on manufacturing labor/materials.
Assume that annual demand rises or falls by 10 million units for every 1.50/unit change in the retail price.
The retail price rises in Europe to 36/unit from 30/unit and sales fall from 120 million units per year to 80 million units. The retail price in the USA rises to 31.50/unit from 30/unit and sales fall from 120 million units per year to 110 million units. Production falls from 100 million to 95 million per year on each shore. The company spends $15M to ship 15 million units from Europe to the USA. The wholesale price remains the same. They make 1885M gross income and fairly split the gross profit with 942.5M on each shore. In the USA they pay 329.875M taxes. In Europe they pay 188.5M taxes. Their net income is now down from 2B to 1366.25M.
The next year under pressure from their investors they work out a plan to increase income. In the meantime the demand remains the same at 80M and 110M at the retail prices of 36.00/unit and 31.50/unit. They shut down their US production and make everything in Europe and move their headquarters to Europe. Their USA subsidiary is just a small entity for handling transactions on shipping to distributors and this entity works on a margin of paying the 1/unit shipping cost, 18.80/unit for the widgets, 0.10/unit for processing operations and 0.10/unit as gross profit.
The USA subsidiary gets 2.2B of revenue for 110M units sold at wholesale for 20/unit. Their gross profit is 11M and they pay 3.85M in USA corporate taxes which leaves them 7.15M in net income.
The Europe business gets 2068M revenue on the 110M units they ship to the USA at 18.80/unit and 1600M revenue on the 80M units they wholesale in Europe at 20.00/unit. They spend 1900M on producing 190M widgets. Their gross profit is 1768M. They must pay 353.6M in taxes. Their net income is 1414.4M.
Now their income is up 4% to 1421.55M from 1366.25M. The Europeans get more jobs, the shipping companies get more jobs, the European governments get more taxes, the American government gets less taxes and the Americans have fewer jobs.
Total tax receipts to the Europeans are 1403.6M - i.e. 570M on manufacturing, 353.6M on corporate taxes and 480M on VAT. The Americans get 168.85M - i.e. 0 for manufacturing, 3.85M for corporate income tax and 165M for sales tax.
Now suppose that the USA were to cut corporate taxes from 35% to 10% and raise the sales tax from 5% to 25%. Do the math and see what would happen to the corporate profits/losses.
The company would win, and so would the USA. And consumers would consume less in America and thus be less in debt and do a better job on being responsible with our global environment.
1. I get almost all my ideas for stocks from my CAPS favorites so I take the art of picking favorites to be very important. To be a CAPS favorite you generally must have more green thumb picks than red thumb picks, not appear to be just playing for points, appear to be seeking diversification, appear to show intelligence in making picks, stay active (i.e. recent picks within past 30 days) and a good chart growth that makes it seem like you'll do fine and that you are not just high-flying during up cycles or on some lucky picks. My own chart would disqualify me in being my own favorite so far as I prefer those who have balanced growth without major volatility in their total points. [more]
Here's my top 30 list right now for stocks. [more]
See http://caps.fool.com/ViewPlayer.aspx?t=01009128656934594928 for picks by luvb2b. This CAPS player is in the top 10 because of having a knack for picking contrarion picks that win and win time and time again. Why LCC now? Several other CAPS users have made plenty of points going bearish on LCC.
tasmithx (31.20 rating) made a bearish pick at 35.46 with the following pitch: Wage inflation and oil prices will murder cost controls and profits. [more]
I'm a bit annoyed by the weight that "accuracy" is given in CAPS. I think it should be approx. 10% (not 33%) in factoring a player's ranking. I'm also guessing that the 5%+ rule for closing out a pick and a minimum hold of a week rules are there because of this high weighting. If I was running CAPS I'd slowly phase in the lessering of "accuracy" as a factor each month by approx. 2% in order to not cause mass gyrations in the rankings. What really matters in stock picking is whether or not you can beat the S&P 500. If you can then its worth the time to try. If you can't then you might as well by some SPY. [more]