Tuesday, July 29, 2014

Shorting the Future

An interesting criticism has arisen out of the takeover market. A drug company called Valeant that grows by buying others, is trying to buy Allergan, a drug company that grows by developing new drugs.  It’s plan is to boost short-term earnings by  chopping two-thirds out of R&D. So engineering its structure--and cutting R&D--will improve earnings, and probably increase the stock price, but discourage innovation and long term development.
Now this criticism, from a money manager, seems surprised but steel corporations made money for years through depreciating and explicitly not repairing steel facilities because the repairs and upgrades were more expensive and the benefits less than the simple tax write-offs.
Tax distortions are not errors, they are bought and paid for by business and enacted by greedy idiots who do not have our long term financial health in mind.

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