David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Forget the Border Levy. Here's the Really Big GOP Tax Idea

    This article by Noah Smith for Bloomberg may be of interest to subscribers. Here is a section:

    Currently, when companies borrow money, a large portion of the interest they pay on those loans is tax-deductible. The House plan would eliminate that deduction. Like the border adjustment, this change was proposed by Berkeley economist Alan Auerbach in a famous 2010 paper, “A Modern Corporate Tax.”

    How would companies finance themselves if interest payments weren’t tax deductible? They would take on less debt and issue more stock. That would require some big adjustments, but in the long term it would probably be a good thing for the stability of the economy.


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    Extend and Pretend

    I found this interview with Yanis Varoufakis on Bloomberg interesting not least for the advice he offers to the UK. Here is a partial transcript:

    For former Finance Minister Yanis Varoufakis, the lesson for May is “beware of what I call the euro zone run around.” He predicts British officials will receive conflicting messages from Berlin to Brussels, and that a lot of time will be spent discussing how to structure the negotiations rather than issues such as a free trade deal.

    Varoufakis proposes the U.K. should file Article 50 and then immediately ask to join the European Economic Area, which allows access to the single market in return for free movement of people and some budget contributions. That would give Britain stability and time to assess how to properly engage with the EU, which is “really not interested in a mutually advantageous deal,” he said.

    George Papaconstantinou, who ran Greece’s finance ministry from 2009 to 2011, is more optimistic.
    While he anticipates the EU will adopt a “very hard bargaining” position and seek to safeguard the bloc by refusing to grant too many concessions, he sees Merkel as a political realist.

    “She does look at the end of the day for decisions which are win-win,” he says. “There is an element of realism which the U.K. can hope for.”


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    Million dollar baby! Infant Reliance Jio set to give peers many sleepless nights

    This article by Swati Verma for the Economic Times may be of interest to subscribers. Here is a section:

    The telecom arm of Reliance IndustriesBSE -0.01 %, which debuted in September last year, has already set a benchmark by hitting a subscriber base of 100 million in record 170 days. And with aggressive plans in place, it looks set to raise the bar, giving sleepless nights to the incumbents. 

    The company is heavily banking on building significant data capacity and triggering price elasticity for data demand. 

    At Jio’s first analyst meet last week, the company management indicated that currently about 1b GB/month data is getting consumed on Jio and it will have the capacity to offer about 4b GB data per month by the end of FY17. According to the management, it should be able to cater to 60 per cent of estimated data demand at 6b GB per month by FY21. 


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    Let Us Have a Reforming Budget at Last

    A number of measures have already been announced to come into effect this year, including a 2 percentage-point increase in the insurance premium tax and a cut in corporation tax. The Chancellor may well modify some of these measures.

    He will surely concede some form of compensation for firms severely hit by the resetting of business rates. But, above all, he must keep current government spending under a very tight rein to allow the Government room for manoeuvre later.

    Mind you, all this is going to seem pretty thin gruel. Could we please have some more? In particular, as I said last year, it would be good to have, if not a vision (and “Spreadsheet Phil” apparently doesn’t do “the vision thing”) then at least a glimpse of how the tax system is going to develop.

    In fact, very few Chancellors find themselves able to embrace radical reform of the tax system. Usually, they are too busy grappling with the Government’s deficit to have either the resources or the time.

    This is true now, and whatever energy is left is fully absorbed in preparing Britain for Brexit. Yet reform is badly needed. In so many ways, our current tax system is both irrational and inimical to economic growth.

    Perhaps we can forgive Mr Hammond his first, and last, boring March Budget. But there should not be any more like it. Tax reform and making the most of Brexit are not alternatives. Indeed, as Britain faces its future outside the EU in a turbulent and risky world, one of the best things that a Chancellor can do is to ensure that the tax system does the most to attract and retain businesses in Britain, and encourages new business formation, innovation, investment and work.

    Mr Hammond will not make progress towards these objectives by doing next to nothing, whichever month is graced with his inactivity.

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    Email of the day 1:

    On the subject of time: 

    “Time is the most valuable coin in your life.  You and you alone will determine how that coin will be spent.  Be careful that you do not let other people spend it for you.”

    Carl Sandburg

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    Email of the day 2

    On crude oil:


    Dear David,

    I can’t see why in terms of fundamental oil itself, but the chart looks really like it’s going to shoot up, don’t you think?

    Its got that look about it. And from what I’ve seen with oil over the years, sometimes, fundamentals are irrelevant.


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    Permain Shale Boom in Texas Is Devastating for OPEC

    The Opec oil cartel is waking up to an unpleasant surprise. Shale output from the Permian Basin in Texas is expanding faster than the world thought humanly possible.

    The scale threatens to neutralise output cuts agreed by Saudi Arabia and a Russian-led bloc last November, and ultimately threatens to break their strategic lockhold on the global crude market for a generation.

    "People just don't seem to realise how big the Permian is. It will eventually pass the Ghawar field in Saudi Arabia, and that is the biggest in the world," said Scott Sheffield, founder of Pioneer Natural Resources and acclaimed 'King of the Permian'.

    "We think it could produce 8-10m barrels a day (b/d) within ten years. We're telling our investors that Pioneer could reach one million," he said. Roughly 70pc of this would be crude oil, and the rest in gas and liquids.


    The beauty of the Permian rock is that it has up to twelve layers "stacked" on top of each other down to a depth of 12,000 ft, offering multiple seams and perfectly suited to horizontal drilling.

    The reservoirs are not cursed by saltwater zones. They hold 75pc oil, compared to 40-50pc in other fracking regions. A nexus of pipelines is already in place. Pioneer can send crude to the Gulf coast for $2.50 a barrel in transport costs.


    There is no longer any question that US shale has profoundly disrupted the global oil markets. Saudi Arabia's campaign to break the fracking industry has been a costly war of attrition, depleting a quarter trillion dollars of the Kingdom's foreign exchange reserves without halting the juggernaut.

    OPEC members face a Permian headwind that may cap crude prices far below levels needed to balance their budgets. In the end, the 40pc collapse in worldwide oil and gas investment over the last two years will lead to a supply crunch. But oil bulls betting on a return to $80 may have to be patient.

    Mr Sheffield said the strategic blunder made by the Saudis was to let prices rise so high for so long in the great China boom. It gave US shale the window to reach critical mass and critical technology.

     "It was the $100 oil environment for four years that allowed us to do what we did. It they had kept oil down at $70 to $75, it would have been a helluva a lot slower," he said.

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