Yesterday we brought you the first part of an interview with Sean Boyd, the president and CEO of Agnico Eagle Mines, where he discussed why he thinks the gold industry will have its best performance in decades when companies start reporting their third-quarter results in a few weeks.
Today we bring you the second part of the interview with Boyd. In it, he explains why this gold bull market will be different than 12 years ago. He also mentioned what companies can do to win investor trust.
With gold prices climbing, Boyd was asked about the supply side of the equation. Demand for gold is clearly exploding. He says with the significant amount of time it takes to get a gold mine into operation, nobody can provide more supply no matter what price gold climbs to.
“That’s the nice thing about the supply and demand equation right now. Even at $2000, the industry is not positioned for a meaningful supply response. They wouldn’t be even positioned at $2500. These projects take a long time to get built. They cost a lot of money to get built. There’s way too many mining companies and not enough high-quality opportunities.”
What Makes This Gold Bull Market Different
With prices moving higher, everyone is expecting margins to increase as well. That was expected to happen 12 years ago but didn’t pan out. Boyd said this gold bull market isn’t like the last one for two reasons.
“There is still a lingering doubt out there among investors: will this be a repeat of 12 years ago? Will the industry fail to deliver the margins we were expecting them to deliver? We argue the industry will deliver the margins,” said Boyd.
“There are two principal differences between today and 12 years ago. One, we have nowhere near the input price pressure we were facing as an industry, and we were facing that pressure because all resource-based industries were booming. Drawing on supplies, drawing on contractors, etc. We don’t have that. And going forward we have a reserve base that has been priced conservatively for the last 7, 8, 10 years and we didn’t have that 12 years ago. We had a reserve base that was massively diluted with a rising gold price being used in the price assumptions prior to that significant run in gold prices.”
On Paying Dividends
A third way to alleviate investor’s fears is to show discipline, said Boyd. The best way to show discipline, he said, is to pay a dividend.
“The best way they can act like they’re disciplined is pay meaningful dividends. And we’ve paid one for 37 years, we’ve increased it every year for the last 6 years while we are in the middle of our biggest cap-ex program in our 60-plus year history. It’s time for companies to demonstrate the confidence they have in their business, the confidence they have in the gold price, and pay more dividends. That will go a long way to alleviate the fears that some investors have that we are going to see a repeat of what we saw a dozen years ago or so.”
Report: Biden’s Economic Plans Would Mean 5 Million US Jobs Lost, 10% GDP Drop
A Joe Biden presidency would destroy millions of jobs and derail the economic recovery from the coronavirus pandemic. This is according to a new report from the Hoover Institute at Stanford University.
The report says that based on the economic plans laid out by Biden, nearly 5 million Americans would lose their full-time job. Meanwhile, the country’s gross domestic product, the measure of its economic output, would drop by nearly 10% over the next decade.
These losses would trickle down to the average household. The median household income will fall by $6,500 per year by 2030, according to the report.
Derailing Economic Recovery?
The authors of the report lay out a laundry list of changes. These changes include reversing some of President Trump’s 2017 Tax Cuts And Jobs Act, a tax increase on corporations and high-income households and pass through entities, reversing much of the regulatory reform of the past three years as well as setting new environmental standards, and create or expand subsidies for health insurance and renewable energy.
When it comes to renewable energy, the report says that the proposal to cut our nation’s reliance on fossil fuels is “ambitious” and would require cutting electrical use back to levels not seen since 1979.
“These plans are ambitious. Unless people drive a lot less, the electrification of all, or even most, passenger vehicles would increase the per capita demand for electric power by about 25 percent at the same time that more than 70 percent of the baseline supply (i.e., electricity generated from fossil fuels) would be taken off line and another 11 percent (nuclear) would not expand. To put just the 25 percent in perspective: that is the amount of the cumulative increase in electricity generation per person since 1979, which is a period when nuclear and natural gas generation tripled.”
Taxing Wealthy Americans
To pay for most of these “ambitious” plans, Biden has already said he would significantly raise taxes on wealthy Americans. They, he says, include anyone who earns more than $400,000 per year, through higher taxes, an increase in the payroll tax that funds Social Security, and fewer tax deductions. He also plans on raising the corporate tax rate.
The Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania’s Wharton School, says nearly 80% of Biden’s proposed tax increases would affect the top 1% of earners in the United States. It will primarily do so through raising the top individual income tax bracket to 39.6% from 37% for those earning more than $400,000 annually.
That means an annual tax increase of nearly $300,000 for households in the top 1%, according to the Tax Policy Center, who say even middle-class families will see a tax increase under Biden’s plan.
Corporations would feel the pinch as Biden said he would raise the corporate tax rate from 21% to 28% on “day one.”
During an interview in September, Biden said, “I’d make the changes on the corporate taxes on day one. And the reason I’d make the changes to corporate taxes, it can raise $1.3 trillion if they just started paying 28% instead of 21%. What are they doing? They’re not hiring more people.”
Rickards: Stocks Headed Lower, Fed Still Can’t Create Inflation
Jim Rickards, an economist and author of “Currency Wars” recently gave his outlook on the stock market. He also shared why he thinks the Fed can’t seem to create inflation despite printing trillions of dollars.
When asked about the stock market, Rickards said it is completely detached from the economy, believes it will fall even further, and revealed why he calls the S&P 500 the “S&P 6.”
“I recommend lightening up on equities, I think equities have a lot further to fall. There’s been a spectacular rally from March 23 to September 2, we had the shortest bear market and the fastest return to a bull market in history, but it doesn’t mean that this is over with. I call the S&P 500 the “S&P 6” because it really is only 6 companies that are dragging along the other 494 because it’s a cap-weighted index. When you look at Amazon, Apple, Microsoft, Netflix, Facebook and Google – or Alphabet – those six stocks are almost 40% of the weight of the index. So when they go up the index goes up,” said Rickards.
He added, “By the way, the six stocks I mentioned, they are the least affected by the pandemic. So my point is the stock market is completely detached from the economy. It used to be that the stock market was kind of a proxy for the economy, not exactly but to some extent. That’s not true anymore. Those six stocks and others like it, some of the tech names, they’re in a world of their own. The economy is in very bad shape and will remain so.”
No Inflation Soon?
Rickards said anyone who thinks we will have inflation due to the trillions of dollars being printed by the Federal Reserve hasn’t been paying attention to the last 11 years. He said if we didn’t see inflation from all the money printing after the Great Recession, we won’t see it now.
“The idea that money printing causes inflation is just not true. Everyone believes it’s true; the monetarists, the Milton Friedman followers, the Austrian economists, even the neo-Keynesians say “yeah, you print a lot of money you get inflation.” It’s not true. And just for empirical evidence, I don’t say things like this without backing them up, between 2008 and 2014 when they ended QE3 at the time, the Fed expanded its balance sheet by almost $3 trillion, and we never had inflation, serious inflation. You know, 1-1.5%, but we never had serious inflation.”
Wanting V.S. Getting
He said the Fed has tried to reach their target of 2% inflation for eleven years. They were only with only a smattering of success. So Rickards said that saying you want inflation and actually getting it are two different things.
“The whole time, the Fed had a target, eleven years if you want to go all the to the end of expansion in 2019, technically February 2020, eleven years and the Fed never hit their target of 2%, for a couple of months, yes, but not on a sustained basis and certainly nothing above that. So I say it’s a sad day when the Fed wants inflation and can’t get it. And they do want it.”
He said their new monetary policy of targeting 2% will likely be just as unsuccessful as the previous eleven years.
“So now they’ve come up with a new monetary policy, they’ve sort of given up on the money printing thing. They say they’re going to just let the economy run hot, we’re not going to worry about money supply as much, we’re basically going to let unemployment drop, and let inflation go, if it goes above 2% we’re going to let it stay there for a while. So the below 2% and the above 2% kind of average 2%, and that’s new. Here’s the problem. You can say it, you can take a vote and make it your policy, it doesn’t mean you can make it happen. They failed for eleven years, why do they think they can succeed now?”
Biden’s Tax Plan Rates Can Reach 62% in Some States
Democrat candidate Joe Biden’s tax plan rates can reach 62% in some states. California, New Jersey, and New York City taxpayers with incomes of $400,000 a year are facing huge tax rates. Combining state and local statutory income taxes, they could be on the hook for 60% or more. Currently, the highest earners in California and New York City pay about 40%. If Biden wins, they will have to prepare for effective state and federal tax rates of around 53%.
The $400,000 dividing line
Under the Democrats’ plan, Americans earning less than $400,000 would get tax cuts on average. Biden spared low and medium-income earners from increased tax rates. He also proposed increasing tax credits for these income brackets.
Jared Walczak of the Tax Foundation said that those earning over 400k will get the squeeze. Californians face combined state and federal rates of 62.6% under the Biden plan. In New Jersey, high earners face 60% while New Yorkers can go up to 58.2%. For New York City’s top income dwellers, the combined city, state, and federal income tax rate would be over 62%.
In reality, few taxpayers pay the full statutory rates. This does not include deductions, credits, offsets, loopholes, and other sources of income. While the top statutory rate is 37%, the effective rate is actually 26.8%. Biden’s camp clarified that effective rates, not statutory, are what’s important.
Under Biden’s plan, the effective tax rate for the top 1% would increase from 26.8% to 39.8%. This is according to research done by the Tax Policy Center. That means top earners in California and New York City would pay state and federal tax rates of around 53%. Today, they pay around 40% that they pay as effective rates.
Also, if the Democrats win the Senate, they can remove the $10,000 cap on state and local tax deductions. The combined state and local tax rates for top earners could be even lower.
Official Tax Rates Are Higher
Despite the adjustments, the official combined rates would remain at around 60%. These rates will be the highest since 1990 and exceed Obama administration rates.
The main source of the increase in Biden’s plan is the top marginal tax rate hike, from 37% to 39.6%. The other driver is the added payroll tax of 12.4% for those making more than $400,000 a year. Employees and employers will split this tax. All in all, Biden’s tax plan would feature the highest federal rate of 49.338%.
Jared Walczak of the Tax Foundation said that rates could increase further. He said that since employers usually pass on taxes to employees. As such, the combined rate would be higher. This would amount to over 65% in California, 62.9% in New Jersey, and 64.7% in New York. But, some states are deliberating whether to raise state taxes on high earners as well. Local legislators want tax increases to fund billions in budget gaps.
Walczak noted that “These rates would be the highest in about 3½ decades. He added that they are “imposed on a broader tax base than was in place previously.”
Biden’s Campaign Promise: Raise Taxes on the Rich
The American Enterprise Institute (AEI) estimated Biden’s tax plans can raise $2.8 trillion. This covers the period between 2021 through 2030. A separate study from the Urban-Brookings Tax Policy Center (TPC) says it’s closer to $2.4 trillion.
Biden wants high earners to fund stimulus activity for recovery efforts. His opponent, incumbent President Donald Trump doesn’t want increases. He warned that any increase can derail economic recovery and scare companies.
Other proposals from the Democrat target corporations. This includes increasing corporate tax rates from 21% to 28%. Biden has also proposed increasing taxes U.S. corporations pay on foreign earnings. He also wants mega-companies to pay a minimum of 15% on corporate income taxes. The basis will come from financial statements.
Voters will have the final word. The passage of these proposals will take more than Biden winning over Trump. It will also need Democrat majorities in both Congress and Senate. At present, the Senate looks to maintain its Republican majority. Even if Dems manage to get the majority, expect the margins to be razor-thin.
Watch this as CNBC’s Squawk Box tells how Joe Biden’s tax plan could lead to a combined rate of 62% for high earners:
Do you agree with Biden’s tax the rich proposals? Let us know what you think about his measures should he win the elections. Share your thoughts and ideas on where taxes should go in the comments section below.
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