Hey There Income Hunters,
This is exactly why I got in my car on Sept. 1, 2020, and drove 17 hours to balmy Tampa, Fla. (And, no, I wasn’t on the business end of a manhunt — or following Tom Brady.)
I wasn’t sure when this catalyzing event would happen — but I knew it was inevitable …
Then New York Times headlines blared on Thursday:
- BIDEN TO PROPOSE CAPITAL GAINS TAX AS HIGH AS 43.4% FOR WEALTHY
- PROPOSAL WOULD MEAN 52.22% TOTAL CAPITAL GAIN LEVY IN NY STATE
- TOP RATE WOULD BE PAID BY THOSE MAKING MORE THAN $1 MILLION
I saw the news come across while presenting during the Option Pit Round Robin (and if you missed the full day of mentoring sessions then catch the replay here).
As striking as the headlines were, I have been waiting for them and would have been a seller of SPDR S&P ETF (Ticker: SPY) — if I hadn’t been teaching — because these taxes have the power to beat a market to its knees.
Let’s think it through …
I get that we must narrow the wealth gap — totally agree with that, in fact. However, simultaneously causing a meltdown in the market causes everyone to lose …
Simply destroying wealth helps no one.
Let’s take a look at the last time we had a meaningful tax hike and what happened to the markets. It can help us know what to expect next.
Read My Lips … No New Taxes
In the mid-1980s, Ronald Regan cut the top marginal tax rate from 50% to 28%. Then, in 1990, the late George H.W. Bush reneged on his promise to not raise taxes …
Once it was known, investors rushed for the exits and the stock market had a quick 20% dro.p
We may see a similar scenario here — and it may be by design. More on that below …
This May Be “Their” Plan … The 1-2 punch
OK, as I was writing this, it hit me — this may exactly be “their” plan!
- Slow the economy and even cause a scare with tax hikes.
- Launch Modern Monetary Theory (MMT) and create a special purpose vehicle so the Fed and Treasury can cut out the banks, monetize the debt and funnel the money to the poor.
This is pretty slick if you think about it …
You could actually create real growth and narrow the wealth gap — plus calm down social unrest!
I think I’ll run for President!
Well, maybe not.
Bring It Home
We are going to see so many shenanigans in the next few quarters. It certainly makes it more difficult to trade the markets …
This is when technicals and a quick trigger finger based on headlines can help.
Trade quickly and get out. And, of course, fade the spikes in volatility knowing the Fed will have your back.
Remember: it’is not over until the Fed says it’s over. But if you ever hear a T-word — meaning taper or tighten — about to come out of Federal Reserve Chairman Jerome “J-Pow” Powell’s mouth … hit the SELL button!
And please sell some for me since I missed the trade today while teaching. Gracias — and may you always …
Live and Trade With Passion My Friends,