“TINA” Goes Global

Green Shoots

The present environment appears to suggest that consumer loans have taken a jump, and so has money supply data. Jason is encouraged by both new orders that have been stronger and the slower supply of deliveries, which suggest that manufacturing activity has picked up recently. In helping to restore confidence in the financial markets, it is important that volatility settle down.

He believes that the re-pricing of oil happened so quickly that consumers have not been able to discount it into their spending plans. There is additional concern that these prices may be transitory, and according to the permanent income hypothesis, it is tough for consumers to permanently increase their spending. Additionally, Jason notes that people are starting to spend on experiences—going out to restaurants or travel—rather than goods and durable products that require longer-term confidence.

What to Make of General Electric Deal

Activist investors are hesitant to repatriate cash due to punitive corporate taxes. One exception to the rule is General Electric (GE), which decided to repatriate $36 billion in cash held overseas¹. This is an exception, not a rule.

One interpretation of the GE repatriation is that the company will ultimately invest the money in the U.S. However, Jason notes that this view might be too optimistic. The market today appears to be rewarding immediate use of cash, such as share repurchase and M&A, while capital expenditure (capex) is less rewarded. His team believes that GE also has some of the best tax lobbyists in Washington and that the mere fact it has chosen to repatriate and pay taxes indicates that corporate tax reform is dead for the next two years or more.

Read the Conversations with Professor Siegel Series here.

¹GE announced its decision to repatriate $36 billion on 4/10/15.