January 22, 2021

Capitalism is Vulgar, But it Works

 During the brief time I lived abroad I first heard capitalism referred to as vulgar and in my research and analysis, I’ve not found this to be untrue. But I also point out that the number of positives that have impacted global financial heath far outweigh the negatives. And thanks to the pandemic,, those negatives, income and participation disparities, are being addressed by domestic companies and it’s not typical virtue signaling. Companies we own, such as Salesforce (CRM) and Nvidia (NVDA), and other tech companies, separate from the more familiar names, have adapted changes to traditional shareholder advantages into stakeholder advantages. Where the pandemic came in, driving the surge in unemployment, the need to see employees as stakeholders, equal to shareholders, has gained relevance. In my opinion, the mere need to finance these and other hopes, justifies the need for capitalism to continue. 

The same logic can be applied to the concerns regarding the talk of higher taxes. Much of the prevailing concerns however are focused on the individual taxpayer. Customarily, tax increases on individuals are accompanied by existing and possibly increasing deductions in other areas, touching on mortgage ownership, charitable endeavors, student debt and the growing use of Qualified (IRA, 401K, SEP) Plans. Taking discretionary capital out of hands of individuals does in fact impact consumer spending by definition, but in my opinion, the American consumer is committed to consuming, so watch for increases in debt accumulation as an offset. The area of increasing the corporate tax rate is a bit trickier. Before tax rates were lowered in 2017 the primary importance of that change was to repatriate the mass of capital that was kept out of the US in favor of more tax favorable countries. The narrative however was that the corporate tax break was a bonanza for the executive elite, their shareholders and to buy back stock. The number of companies that operated in this manner are the vulgar ones, the larger community of companies, mostly technology companies, opted to use the capital to further advance the wider spread changes in corporate and board strategies that gained speed of implementation with the pandemic, and in my opinion, isn’t going away. This is where the focus should be when congress meets to debate increasing the corporate tax rate.

In the meantime, the markets are showing their usual indifference for now, primarily in older Tech, which this week saw the first flock of fresh buying since last September. Apple (AAPL) and Alphabet (GOOGL) and Amazon (AMZN) all saw a strong pickup in buying very likely on the back of more favorable attitudes coming out of Washington. Although they still have Europe to worry about, for now our maintaining of the current weightings of the investments is enough to easily keep up with the broad indexes. 

Not my customary weekly comment, but in my opinion, the economy is on its way to better times, and capitalism will take us there. And with a new army in Washington bringing a lot of big ideas with them, I mention this because the biggest challenges are currently the constant rhetorical attacks by each party and the blindness within each party believing their perspective of the above issues are the correct ones. Call it their own brand of vulgarity and it might start to make sense to listen more to more promising leadership and be less distracted by those pandering for attention. 

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