TL;DR

Trump’s proposed tax hike on foreign investors threatens a US stock market crash, jeopardizing millions of retirement savings. It’s a replay of past financial disasters, revealing the vulnerability of a system built on shaky foundations.

Story

John, a retiree relying on his US stock portfolio for income, is staring into the abyss. He’s not alone. A proposed tax hike, tucked within Trump’s ‘One Big, Beautiful Bill Act’, threatens to unravel the US market. This isn’t some far-off threat; it’s slated for July.

This ‘Section 899’ is a wrecking ball aimed at foreign investors. It dramatically increases US taxes on foreign entities’ profits from US sources—dividends, interest, royalties. Think of it as a sudden, massive tax increase targeting everyone who isn’t American. The proposal is to increase taxes by 5% every year for four years, eventually raising the tax rate from 15% to 35%.

The mechanics are simple but brutal: higher taxes mean less incentive for foreign investors. Foreign capital, which represents a whopping 18% of US stock value, is likely to flee. Imagine a dam breaking—a torrent of money rushing out. This isn’t a theoretical risk; a significant capital outflow could cause a domino effect.

How this affects John: The flood of selling will crash stock prices. John’s retirement savings, tied to these falling prices, will evaporate. His dreams of a peaceful retirement will be shattered. Millions of others will face similar fates.

This isn’t the first time we’ve seen this kind of market manipulation. Remember the 2008 financial crisis? It started with a similar crisis of confidence, built on shaky foundations. Then there’s Enron, a testament to how corporate greed can decimate investor confidence. This situation has a similar feel; it’s a house of cards waiting for a strong gust of wind.

Lessons:

• Diversify: Never put all your eggs in one basket.
• Be skeptical: Trust, but verify. Politicians’ promises are often hollow.
• Stay informed: Don’t be a passive investor; understand the risks involved.
• Understand leverage: Leverage can amplify gains, but it can also amplify losses. High leverage is dangerous.

Conclusion: The ‘One Big, Beautiful Bill’ might end up being one big, ugly collapse for many investors. John’s story, though fictionalized, embodies the real risks of relying on potentially volatile investments without having considered the underlying political and economic risks. The market is a complex system, and a single, seemingly minor policy change can create devastating consequences.

Advice

Diversify your portfolio, stay informed about political and economic risks, and avoid over-leveraging your investments.

Source

https://www.reddit.com/r/stocks/comments/1l3asmb/are_we_facing_a_stock_market_crash_in_july_trumps/