A lifelong friend of mine, Paul, called me. Among other things, we discussed his IRA and the stock market. Paul is a longtime liberal Democrat. His father was a career government employee in the State Department. Lifelong. Deep state. Paul hates Trump.
I asked Paul how his IRA is doing. He said he couldn’t believe how much it has grown since the election of Trump: 22 percent (more market growth after an election than for any other president in history).
Then I asked Paul if he thinks his portfolio is inflated or not. Paul said that he thinks it is inflated after discussions with his financial adviser at Schwab. His adviser pointed out that average P/E ratios (price-to-earnings) in his portfolio are about 23 when the historical average is about 18. So that means that Paul’s portfolio could be inflated about 30 percent. His adviser wants him to move to bonds. Stupid. Bonds will suffer as the Fed increases interest rates.
Then I asked Paul how much the P/E ratios would be if Trump gets his tax reductions for corporations passed. After more discussion, our combined estimate was that they would decrease to 16. That means that if the Trump tax cuts for corporations is implemented, then his portfolio is undervalued by 10 percent to reach the historical average P/E ratio of 18.
Paul got it. If the Trump corporate tax plan is not implemented, then his IRA could fall 30 percent. If it is implemented, then it will grow at least another 10 percent, not including economic and business growth. And bonds are not an option. Cash would be better than bonds.
Our next conversation was about what else would happen if the Trump tax cuts are implemented. Would $5 trillion of corporate money outside the U.S. come home? Would more manufacturers return to America? Paul agreed that good things would happen, which means that P/E ratios would then be understated even more and that his portfolio would grow much more than another 10 percent, probably more like 10 percent per year for the next five years.
If the pre-tax deductions for head of household and spouse and dependents are increased as much as Trump wants, then what happens? More money in the hands of middle-class Americans. No marriage tax penalties. More marriages. More childbirth for those who can afford children. A younger population. Lower average health-care costs. More consumption. Higher GDP growth. More corporate profits. More taxes collected. More Social Security revenues collected. Higher stock values. More value in retirement accounts.
And if deductions for state and local taxes and mortgage interest are eliminated from federal taxes, then what happens? The rich pay more in taxes. People pay more attention to state and local taxes and get them lowered. Lots of good stuff that helps the economy and helps limit the growth of state, local and federal governments.
Paul got it. While he wouldn’t say that he now supports Trump, he is now supporting the Trump tax plan. He wants his IRA to continue to grow. He wants the economy to continue to grow more than the measly 1.5 percent average per year, as it did under Obama. He wants more state, local and federal government accountability to “we the people.”
Lots of Americans are learning quickly … big league. They are getting educated. Go Trump. Make America great again.
Next, Paul and I are going to discuss 1) why eliminating the trade deficit will help the economy and his portfolio even more; 2) how reducing immigration will increase wages for Americans; and 3) how increasing the birthrate will help the economy and the future of America.
Made in the USA (products and children). Higher pay for U.S. workers. Nationalism. Higher stock values. No more globalist agenda at the expense of working Americans. And an end to supporting Third World countries through the trade deficit as a tax on Americans.
If Paul is an example, Americans truly are getting educated.
