 Good day fellow investors! Now there is a lot of talk about the change in corporate taxes and how that will be a benefit to the markets. In this video we will discuss the two main corporate tax changes and how could those changes affect the stock market. The two main changes are that corporate tax will be lowered to 20% from 35% and that there is a possible tax holiday for global cash repatriation. Now the first thing is okay US corporate tax change from 35 to 20. That is always a good thing. Lower taxes increases the competitiveness of a country because it attracts more business. When you look where you're going to put your headquarters or you're thinking of leaving the US to go to Ireland less companies are going to do that because the tax difference is now much lower and much better for those companies that are still in the US. So from a really long-term perspective this is good for business. Now we have to see how will that impact stocks. First don't expect a big impact on earnings because 42% of SAP 500 revenue doesn't come from the US so that improvement in earnings will come only on the 58% revenue that is made in the US. So going deeper in the tax payments for 2016 65% of corporate tax payments were made to Washington and total payments to Washington were 160 billion in 2016 for the SAP 500 companies. Payments abroad were 86.5 billion assuming a 35% tax rate even if it is lower than that as some reads that make approximately 3.1% of the SAP 500 don't pay taxes. The total pre-tax US profit from my calculation for SAP corporations in the US is 458 billion. If we put a 20% tax rate on those 458 billion let's assume the earnings grow so we come to 500 billion they have to pay 100 billion in place of the current 175 billion. So corporate profits if we say they are now 1 trillion they will now increase by 75 billion which is a 7.5% increase let's see how will that affect SAP 500 valuations. The current PE of the SAP 500 is 25 we add the 75 billion to the trillion in profits and we get to price earnings ratio of 23.25. Okay it is much better than 25 but the difference isn't that big so there won't be an immediate great effect from a lower corporate tax in the long term that will as I said increase competitiveness which is good for businesses in general especially as global taxes are much lower however the US doesn't have the value added tax which makes things a little bit different nevertheless the more competitive you are the better. Now the second change and this is a one-off change but this really could have an impact and that's a tax repatriation holiday. If US companies bring back their cash from abroad their profits from abroad they have to pay US corporate tax on it now 35% later maybe 20 but perhaps that can be lower to 5 to 10% which makes it attractive for the companies to bring them home to repatriate their cash. Now Donald Trump says that US companies have somewhere between 3 trillion and 5 trillion abroad then if I look at the SAP 500 and Moody's they say 2.5 trillion but then if you listen to Goldman and JP Morgan they say that the cash that could be repatriated is about 1 trillion because the rest is used in operations around the world so if companies bring back 1 trillion that is 4% of the SAP 500 market capitalization and now many think it will help the economy it won't there is plenty of liquidity in the US market the only thing that 1 trillion will be used are buybacks dividends mergers and acquisitions so it will push stock prices of the companies that have the cash even higher so we have to look what which are the companies that have the cash abroad and those companies will benefit the most from all those tax changes before seeing which companies will benefit 2004 there was again a tax holiday which lowered the repatriation tax from 45% to 5% but the companies that benefited the most from that repatriation tax holiday they cut 20 000 jobs between 2004 and 2007 pre-crisis they spent less on research and development and they increased their buybacks so it will have a positive impact on stock prices but don't expect a positive effect on the economy because there is plenty of liquidity as I said and money is not a problem the US economy doesn't need that trillion there is plenty of money let's see the companies that have the most cash abroad apple Cisco systems Pepsi will also benefit Microsoft has a huge stash of cash abroad google general electric has also some cash abroad and then there are other companies like caterpillar proctor and gamble which will probably retreat and bring back some cash especially general electric to revive their business and their stock prices especially so if you'll take a look at this chart here from Bloomberg here you can see okay these are the companies that will benefit and there is potential benefit so always look at this repatriation tax as a buffer okay it can happen it might not happen but if it happens what will happen how much money does my company have around the world and how can that affect the stock market look at the available cash and compare it to the market capitalization the higher is the percentage of available cash that can impact the capitalization to dividends and through buybacks the higher will be the benefit for the stock price however as I say always that's only a one-off event and I will conclude with something very interesting by saying that it is not good for you and from most people that stock prices increase it's only good if you are a seller if you are selling now if you're retired now high stock prices are good for you however if you are 20 30 40 50 years you're old you are still accumulating your wealth so it would be much better that with your money with your hard-earned money you buy more stocks with higher earnings with higher dividends because over time those dividends reinvested will create more wealth and the goal of investing is to create more wealth over the very long term you want to be wealthy when you are 60 70 if you're now 20 and yes you made 50 percent on your stocks in the last two years you might feel good but if you are reinvesting constantly adding to that position you're just now paying more more and more for the same thing so a crash a stock market crash would be beneficial for 90 percent of the population that is investing in the stock market so again there are always pros and cons to anything that happens any text change anything because nothing in economics is free there is no free lunch in economics if you add to one part you have to deduct it from somewhere else so that is how the economy works there are many other things that can be improved to make an economy grow and only when all those things are improving at once the benefit will be felt for the very long term these changes are only short term cosmetics that won't have a very positive effect in the very very long term and that's where you want to win not now in the short term it isn't that important thank you for watching i'm looking forward to your comments as this is a very interesting topic and i'll see you in the next video