Week in Review: Sunday Oct. 2, 2022
Tax Cuts nor Tax Increases will be Good
British September 2022 tax cuts vs American December 2017 Tax cuts: Is it better to cut taxes during economic prosperity or during economic recessions. Many of the smart many is pushing the narrative to look at the FED Quantitative Easing causative factor to the high expectations of a recession. All Because of recent Oct. 2021/Feb. 2022 where interest rates climbed and we heard Jerome Powell leveraging the buzzword of transitory to describe inflation. But these experts failure to understand what the December 2017 tax cuts did to wage inflation and the ultimate predicament we are in today. Relevance: Keep a cursory eye out for U.S. top trading partners and their respective government’s monetary policies on taxes.
United States trading partners: U.S. GDP $20.89 trillion
Canada: Jack Mintz: Trudeau vs. Poilievre: Handouts vs. tax cuts
China: China's hefty tax rebates batter COVID-hit local governments
Property crunch and virus policy heap pressure amid severe structural imbalance
Japan: Kishida orders stimulus as analysts warn of overspending
Germany: German FinMin pitches $10B tax cuts to ease inflation pain
The most significant; The most important this week among economic activities is not what world banks have done around the world in simultaneous fashion by raising interest rates but the zag that is British tax cut policies that runs counter to bringing world inflation under control. How will other developed economy governments be responding?
The Mostly Forgotten Tax Increases of 1982-1993
WINTER IS COMING! {in my best English accent} either taxes are raised=bad cut to citizen purchasing power or taxes are cut=bad contributions to inflation particularly wage in. Forward looking below is a timeline of upcoming American tax changes.
Competitive Advantage thru CEO Compensation or Employee Experience Spend
I want to liken this inquiry to sort of a perfunctory version of Philip Fisher 2.0 regarding leadership and worker experience scuttlebutt. Watching CEO pay gap versus average employee compensation has become in our mind as a competitive disadvantage. Of course this is mere hypothecation on our part. Adding cursory internet skimming found us to be wrong (but with an inquisitive asterisk for us to come back to)
Given the research was lead by Sha Zhao, an assistant professor of accounting (it takes one accounting major to know another accounting major’s thinking), we were captivated by this but found the study was put against a shorter term worker productivity company performance measurement versus per share intrinsic value increase measurement. A notion that higher CEO pay disparity reflected a more successful business led to the question: What is the threshold that this conclusion no longer becomes valid? Should CEOs pay disparity worsen to a 80 to 1 gap? or 90 to 1 or maybe 99 to 1? Of course none this should not be the case.
I would say that money compensation is the driving force for employee experience. Like receiving a living wage to at least be in the lower middle class is most employees’ aspirations at the lowest of levels. But in search of employees that naturally create a high productivity culture that sits in the minds of clients, customers and corporate purchasing agents. We believe is a sustainable competitive advantage in and of itself but remains a challenge to the current operating models CEOs and business schools are a accustomed. This institutional imperative employee model over at the MIT Sloan school seems to be under research.
Work complexity refers to how hard it is to get work done in your organization. We found that companies that had invested in both technology and processes were able to reduce work complexity. These companies provisioned tools and advocated practices to connect employees with ideas and each other and to reduce friction around non-value creating tasks.
Behavioral norms refers to the pervasiveness of expectations around how people work in your organization. In our research, three behavioral norms emerged as critical for building business value: collaboration, creativity, and empowerment. These behavioral norms made it easier for employees to contribute to new ideas, regardless of where the ideas originated in the organization; to share new ideas for both customer- and employee-facing initiatives; and to curate their own ways of working to meet individual and collective needs.
But from a practical standpoint, two paragraphs won’t do this topic any justice looking forward as to how investment returns benefit by closing CEO to Worker pay disparities. We can turn to Warren Buffett and the people he chooses to run his subsidiary companies. Tracy Britt Cool and Brian Humphrey now over at Kanbrick comes to mind.
The most interesting part of their Kanbrick 2022 letter is their discussion of capital allocation. They have 3 broad based buckets. And it is the 3rd that gave me the simple Eureka! moment.
Because of the concentration many have placed on CEO compensation, we believe in kind with Kanbrick that cash spent prior to look-through earnings / Buffett Owner Earnings / free cash flow is the “most overlooked area” in capital allocation decisions. As Tracy and Brian put it, “…this bucket offers an opportunity to empower people across the organization to make better decisions by embracing principles like acting like an owner or using simple decision guides…” Our two Genius’ own words:
Weekly Investment Research Insights
How are dealer financing affecting Carvana and KMX 0.00%↑ ? CVNA 0.00%↑ has a unique grasp of the car dealership financing market
PG&E PCG 0.00%↑ non-nuclear assets split off
This split off is interesting as a special situation but not much value here it seems after reading further.