Saturday, November 20, 2010

Exclusive Interview with Ken Fisher Part 6 - How Tax Changes Will Affect the Market

Ken Fisher is a money manager, and on the list of the Forbes 400 Richest Americans. He is also a Forbes columnist, where he recently recommended several income stocks, such as Sims Metal Management (SMS), Net Servicos de Comunicacao (NETC), and PetroChina (PTR). His latest book, Debunkery: Learn It, Do It, and Profit from It-Seeing Through Wall Street's Money-Killing Myths was just published. He is also author of several other books, including The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!) and How to Smell a Rat: The Five Signs of Financial Fraud

Ken Fisher Interview Part 6
Please note: Interview took place on Wednesday, October 27, 2010

In regards to Congress, in your book, you do show the analysis of a change in parties and how it can affect the market, but have you done research on Congressional changes from one party to another?

Those don't matter much. What matters is do they have power to pass or not.

It's really not whether the Republicans are better or the Democrats are better. When you move from one party has got the power to nobody's got the power, the market likes it better.

Let me put it this way. Markets really don't like political change. They don't like having legislation. It doesn't matter if it's legislation that the Democrats would prefer or legislation that the Republicans would prefer.

So if you take the time period like the 1994 midterms with the Republican revolution, that worked really well because the Republicans didn't have big margins when they won, in 1994. They had a big election to get there but they didn't have big margins, and then they had a Democratic president who could veto. So not much got done after that.

This time we'll have the same thing. Almost certainly, the Republicans will take the House of Representatives. (ed. note: interview took place Oct. 27) The Democrats won't have any margin and won't be able to pass anything, and the Republicans will pick up steam, and while its very unlikely they will take control of the Senate, with one House in one party and another house in another party, it's like what Ronald Reagan had in 1983.

Now Bunk Number 36, I think most investors, obviously incorrectly, fear higher taxes. This is the one about stocks love lower taxes.

We kind of talked about this before. Those fears are already priced into the markets.

This can be done one of two ways. The one people are worried about now is the sun-setting of the so-called Bush tax cuts. Everybody knows that's fair and have had a lot of time to react to it.

Let's step back for a minute. The United States is part of the world is important, but it's not the only part of the world, and of the United States, more money than not isn't taxable than is. Most of the money that's taxable doesn't get sold anyway, like Bill Gates owning shares in Microsoft or me owning Fisher Investments. It's not like a stock that you're going to turn around and sell right away. And then the people that are taxable investors, if you think about it now after what we've been through in the last few years, not that many of them have a lot of capital gains to take. If they wanted to take them and realize the gains, they have had all this time to do it before the tax change occurs. So it's not like they didn't have lots of lead time.

So you can say, who in their right mind if they've got a thousand shares of stock X at a big capital gain, and they want the lower rate, who in their right mind is holding off until after the change. The selling's all done in the here and now. The odds are that the market doesn't have a problem with that moving forward.

There's this part that I find amazing, which is the arrogance of presuming that an investor sees something that pretty much every other investor ought to be able to see, and from that, you continue to see that it’s a smart economic decision. That might be true outside of the world's capital markets but the whole role of capital markets makes that impossible.

End of Part 6

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn't give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns, including high dividend stocks, are available in the form of a free Excel list at

Part 1 of this interview is available HERE.

Part 2 of this interview is available HERE.

Part 3 of this interview is available HERE.

Part 4 of this interview is available HERE.

Part 5 of this interview is available HERE.

By Fred Fuld at

Disclosure: Interviewer doesn't own any of the stocks mentioned in this interview series at the time the articles were written.

Copyright 2010. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

No comments: