Why I am concerned about Trump

Some points to ponder for those who base their election choices mainly on how much their taxes will go up or down…

If (and I am hoping it is a very big “IF”) Mr. Trump becomes the President of the US, he is very likely to build roads, bridges, airports, big buildings and of course that beautiful tall wall. There is going to be some big time investment in public infrastructure. Where is he going to get the money for all of this? He cannot raise taxes or at least the expectation is that he won’t raise taxes like the Democrats would. Then where is the money going to come from?

The only other viable option is to issue bonds left, right and center. Given that there is a healthy demand for US bonds, it wouldn’t be surprising if he makes the most of it or even goes beyond making the most of it. It is very likely that the country will be buried in an untenable amount of debt.

While you and I may enjoy potentially lower taxes in the next year or two, during that period of lower taxes, the country is likely to end up in a bankruptcy and collapse. And when that happens, only his extended family and friends who are in the construction business would stand to benefit as their coffers would get a good chunk of the borrowed money for building those bridges, buildings and walls.

This scenario doesn’t seem that hypothetical when you look at Trump’s ego and instinct driven business track record. For instance,

  1. Trump borrowed $675MM to finance the $1B Atlantic City casino construction. The Trump Taj Mahal, in spite of being the highest grossing casino in Atlantic City, in spite of buzzing with activity, went bankrupt in just one year after it was opened in 1990.

  1. For the Plaza Hotel, another ego/instinct driven purchase that ended in a bankruptcy in ‘92, Trump actually borrowed $550MM when the purchase price was only $390MM.

  1. Twelve years later, after the two bankruptcies in 1991 & 1992, Trump got bigger and bolder and borrowed in billions instead of millions. In 2004, after loading Trump hotels and casino resorts with $1.8B debt, ran THCR (Trump Hotels & Casino Resorts) into bankruptcy.

  1. One year after that, THCR reemerged as TER (Trump Entertainment Resorts) after bondholders forgave $500MM debt as part of other restructuring measures such as selling some of the properties. But then the same story repeats. TER once again went bankrupt in 2009. It was saddled with roughly $1.8B in debt while the market cap in 2009 was $7.3MM! The debt was nearly 250 times the market cap. How does anyone get here, in this situation? Again and again and again...and again?!

While his businesses repeatedly suffered his magic touch, his personal fortunes and lifestyle never showed a dent. So perhaps there is a reason why he claims these bankruptcies are actually “not failures but successes”.

There are many stories on Trump’s bankruptcies. Most of them are colored by his personality, personal claims and catch phrases. Here is one that is mainly based on facts and figures - By the Numbers: Donald Trump’s $4.7Billion in Bankruptcies. Another recent one that hints at his debt proposal and ends with Trump saying, "I love debt. I love playing with it".

So next time you are tempted or swayed by lower taxes, please do consider the bigger picture.

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