John Paulson: "We'll see a crash" under Harris tax plans
John Paulson: "We'll see a crash" under Harris tax plans
'If Harris Wins, moving more to cash, staying in Gold"
Intro:
Friday September 13th, John Paulson joined CNBC for a 6 minute interview discussing markets, Gold, and how to position under a Harris or Trump presidency. First, here are a couple choice quotes
On Harris’ Tax plan
Paulson: I think if they implement those policies, we'll see a crash in the markets.
Sara Eisen (doubtingly): A crash…
Paulson: Yes, of course.
Comment: He’s right. They tried this in the 1970s. Capitalism shrugged, pulled its money out of stocks, put it in cash and Gold, and stagflation ensued.
On Gold:
I think the major reason why gold is rising is generally a global lack of—or having less confidence in paper currencies, particularly among central banks.
Comment: He started saying this in earnest 2021 before tehBRICS plan was obvious to most
On his portfolio under Harris:
I would move more to cash if Harris was elected, and I'd stay invested in gold.
Comment: He’d add to gold if she won.
The Interview
Interview Portion Transcribed:
Can you have a repeat performance?
Well, the economy's done pretty well since the financial crisis. The stock market's up materially and the bond market has been rather complacent. We haven't had any severe disruption, so it's been a good time for investing.
What about bubbles, people are wondering if there are bubbles in places like—there's a lot of hype in AI, hype in crypto. Do you spot any?
There could be. We did have a bubble in government debt when rates were—we had negative interest rates. But that's—that bubble is deflated. Most rates are positive. As rates have come down, those bubbles in the credit markets have receded.
You were talking about the deficit earlier and it's clearly a problem, but doesn't feel like we've reached any sort of tipping point where the market has deemed it a problem. Do you think that's coming?
It's always difficult to guess where that tipping point is, but I do think it's coming.
You do, if things continue on this trajectory?
Yeah. Before we had large deficits, but the Fed was buying Treasuries, so now the Fed is no longer easing, so all the money to buy Treasuries has to come from the private sector. And as our financing costs continue at record levels, that could at some point put pressure on the financial markets.
Are you betting against U.S. Treasuries?
No. Because that time has not come. It very much depends on what happens, who's elected, and what policies are adopted. If we continue to run high deficits, if we have higher taxes, let's give an example.
Under Trump's plan is to extend the tax cuts that he did previously, and that would provide stability, corporate rate would stay at 21%. Capital gains would stay where it is.
The Biden/Harris want to raise the corporate tax rate from 21% to 28%. They want to raise capital gains from 20% to 39%. And then they want to—they want to add a tax on unrealized capital gains of 25%. I think if they implement those policies, we'll see a crash in the markets.
A crash?
Yes, of course. If now people pay 20% tax becomes 40%, it's going to have—
[Interrupting] they would need Congress to be able to do that. That's a big wild card.
The thing is the tax—the Trump tax cuts expire automatically, so all the rates go back to what they were previously. So it would be quite draconian. You know, we'd see a fall in the markets and that would impact growth.
I was going to ask sort of what—how your investments might change or what it would look like if Harris won versus Trump. So, you think there's a clear distinction?
Yeah. I would move more to cash if Harris was elected, and I'd stay invested in gold.
You love gold. You've loved gold for a long time, big investor in a lot of gold companies. Have you been increasing exposure, staying—what's your conviction level? We have some investments in gold companies. Those are doing well, with a rise in the gold price.
We have some derivative positions in gold. I think the major reason why gold is rising is generally a global lack of—or having less confidence in paper currencies, particularly among central banks. So, they're shifting their reserves away from paper currencies into gold, and that's causing demand to rise and that's causing the price of gold to rise.
And you think that will continue?
I think so, yes.
How much should people—how much should people be in gold at this point?
Well, I can't really advise what people should do, but I always think a 10% allocation to gold would be prudent? Would be a reasonable thing. Yeah.
What about the cycle? I think of you also as a distressed investor. There hasn't been that much distress, or at least as much as people thought when the Fed would be raising interest rates. Are there opportunities out there right now in that world?
I think the interest rate—the spread of noninvestment grade over Treasuries is still pretty tight, so, that shows confidence in the future. So, generally, you know, I think the economy looks good. Rates are coming down. Treasury yields have come down. The economy's growing. Earnings are doing well. The stock market is at or near an all-time high. So, it really makes a difference, you know, what happens in the election.
If the Biden/Harris team does come in and they were to implement what's on their platform, which is a tax on unrealized gain, that's going to cause massive selling of homes, of stocks, of companies, of art, and that could result in a—you know, put us immediately into a recession. So, hopefully if they are elected, they won't pursue that, but I wouldn't put it beyond them.
I was going to ask you if you think we are going to see a real distress cycle this time around. But I guess your answer is, it depends on what happens with the election.
It depends what happens. I think if Trump's elected, that that would be very positive for the markets and economy. I would expect the stock market to continue to rise. I think inflation will come down. I think interest rates will come down. I think earnings will grow. I think the economy will grow more. It would be a very robust four years.
Well, he—he has lauded your ability to make money and his friendship with you and even mentioned you as a possibility as Treasury Secretary. Is that something you guys are having conversations about?
I would say I'm willing to help in any way I can. The most important thing right now is the outcome of the elections. Once that's determined, we can see what role I can play in the future.
John Paulson, thank you very much
Related:
"If the Biden/Harris team does come in and they were to implement what's on their platform, which is a tax on unrealized gain, that's going to cause massive selling of homes, of stocks, of companies, of art, and that could result in a—you know, put us immediately into a recession. So, hopefully if they are elected, they won't pursue that, but I wouldn't put it beyond them."
If they do implement this, it will only be on ultra-wealth at first. Kamala's nose in the tent. If they begin to lower the threshold of income to which it applies (which is likely given historically that governments and tax always tend to spread), then it depends on how low. These days, I'd think they'd eventually go for it all.
Thoughts on raising Capital Gains taxes. (Realized and Unrealized)
At the onset, it is an out and out money grab. But going forward, is it a plan to divert investment from private enterprise and into Non-Taxable gvt bonds, given they have a tempting yield?
If so, then we end up with a true Centralized economy with the Gvt allocating capital as it sees fit?