Notes From Underground

CNBC promoted its interview with Gary Cohn for a couple of days so the head of the White House Economic Council could not have been caught off guard by any questions from the interviewers. Cohn was giving the recent unemployment data a positive spin, but that’s part of his job description. MY PROBLEM WITH COHN’S INTERVIEW WAS HIS PUSH TO CUT CORPORATE TAX RATES AS AN ANSWER TO FLAT WAGE GROWTH. His analysis that lower tax rates equals higher wages is preposterous and reflects the thought process of a Wall Street account executive. In response to David Faber’s query about the tax cut benefiting middle class workers COHN replied: “How does it not benefit the worker?” Cohn answers his own question by building the straw man argument: Any repatriation of foreign profits would boost equity prices as would any cut in domestic corporate taxes. For who owns most of the equity in the world today (another Straw Man by Cohn)? We know the biggest pool of owned equity are the pension funds, especially the public pension funds (fire, police, teachers municipal workers], “… thus we are helping Americans by delivering returns back to them.”

Really? If this argument held water THEN WHY ARE PUBLIC PENSIONS SO SEVERELY UNDERFUNDED WHEN U.S.EQUITY PRICES ARE AT ALL TIME HIGHS? Also, any gain in corporate profitability has a higher propensity of going to management then workers. During the last 50 years the gap between CEO and worker pay has exploded from 30 times to well over 300 times so it’s doubtful that tax cuts will make it to the worker in any direct way. It is a sham presented by Cohn in an effort to find a rationale for pushing the corporate tax cut. Invoking the public pensions when private sector workers bearing the brunt of stagnant wages strains COHN‘s credibility.

A question I would pose back to Cohn is this: Who greases the Wall Street Money machine? My thesis is that the Wall Street money management teams have fed on the corpses of pension funds charging, oversized fees for under-performance. Cohn’s thesis is PONZI in nature. Let equity value increases salve the wounds of the growing income inequality. Fed Chair, oh my.

***I want to return to the Santelli/Harris interview from February 1, 2016. It was a Monday morning and over the weekend the big guns of the global macro world had synchronized interviews above a coming 30 percent depreciation of the Chinese YUAN. Soros, Einhorn, Tepper and Kyle Bass posited that the debt situation in China was going to result in a large downward move in the Chinese currency. The YUAN closed at 6.5784/U.S. dollar on February 1, 2016, and did depreciate 5 percent during the next 12 months. On Friday, the YUAN closed stronger at 6.5691 for the first time since the Santelli /Harris interview. In that interview with Rick I opined that gold and bonds were better plays because if the YUAN actually devalued as much as the four horsemen of the global macro world posited, then DEFLATION would be foisted upon the world. I bring this up because BOND yields are 20 basis points higher (based on futures prices) as the YUAN has rallied and GOLD is 18% higher. The important point is that there is a shift in asset classes taking place and the YUAN is unchanged over the period.

Tags: Chinese Yuan, deflation, Gary Cohn, unemployment data

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