Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Showing posts with label Jerome Powell. Show all posts
Showing posts with label Jerome Powell. Show all posts

Tuesday, November 28, 2017

Tax Gimmicks

Financial Review

Tax Gimmicks 


DOW + 255 = 23,836
SPX + 25 = 2627
NAS + 33 = 6912
RUT + 23 = 1536
10 Y + .01 = 2.34%
OIL – .36 = 57.75
GOLD – .60 = 1294.40

Cryptocurrency

  • Number of Currencies: 916
  • Total Market Cap: $318,106,894,241
  • 24H Volume: $16,102,299,246

Top Cryptocurrencies

  Name Symbol Price USD Market Cap Vol. Total Vol. % Price BTC Chg. % 1D Chg. % 7D
  Bitcoin BTC 10,028.0 $170.97B $6.71B 41.70% 1 +1.31% +25.73%
  Ethereum ETH 476.79 $46.48B $1.43B 8.89% 0.0480758 +2.41% +33.12%
  Bitcoin Cash BCH 1,465.90 $25.65B $1.25B 7.74% 0.151402 -1.06% +28.52%
  Ripple XRP 0.26999 $11.22B $712.82M 4.43% 0.00002883 -3.54% +23.99%
  Litecoin LTC 98.780 $5.50B $507.40M 3.15% 0.0100979 +4.54% +44.48%
  Bitcoin Gold BTG 314.88 $5.33B $104.80M 0.65% 0.0317219 -4.41% +24.48%
  Dash DASH 619.01 $4.94B $157.58M 0.98% 0.0635303 +1.06% +26.26%
  IOTA MIOTA 1.41960 $4.02B $450.84M 2.80% 0.00014381 -2.29% +59.65%
  Cardano ADA 0.139936 $3.63B $283.76M 1.76% 0.0000139 +184.73% +390.74%
  Ethereum Classic ETC 29.5348 $3.11B $1.42B 8.81% 0.00315962 -6.06% +77.49%

Record highs for the Dow, the S&P, Nasdaq, and Russell.

The big push to record highs came in the final 2 hours of trade as the Senate Budget Committee passed the tax-cut bill. The Tax Cuts and Jobs Act now moves to the full Senate for debate and a possible vote as early as Thursday.

The 12-11 party-line vote came after Republican leaders addressed objections raised by GOP committee members who threatened to block it. Just one GOP senator on the panel would have had the power to block the bill given the majority’s one-vote margin in committee.

GOP committee member Bob Corker of Tennessee said he reached an agreement with Senate tax writers on a broad outline for a revenue trigger provision that he and other GOP senators are seeking. He has sought a “backstop” that would create automatic tax increases if the tax bill doesn’t spur strong economic growth as Republicans have promised.

Senator Ron Johnson, a Wisconsin Republican, pushed to change the way pass-through businesses would be treated by increasing a proposed 17.4 percent deduction for pass-through business income to at least 20 percent. Johnson would pay for the heftier tax break by eliminating the corporate deduction for state and local taxes. Senator Lisa Murkowski of Alaska was swayed by a provision that opens the Arctic National Wildlife Refuge to oil drilling.

Here’s the problem with the compromises required to push the bill out of committee. By making the plan more generous to the wealthy by doing more for pass-throughs, this would also add to the deficit – which would then trigger the tax increases.

The tax hike trigger is supposed to appease Republican deficit hawks – notably, Senators Corker and Flake. But looking beyond the quick patch, they still must sell the plan to the public, which thinks the whole idea is a big giveaway for corporations. To win over middle-class voters, they offer a short-term tax cut – and because they know that the tax cuts will bust the deficit, the individual tax cuts will expire in 2025 and taxes on the middle class will go up.

The whole point of back-loading the losses on to the middle class later is to prevent the permanent corporate tax cuts from ballooning the long-term deficit. As of now, how this tax hike trigger would work, and whose taxes would go up, are unspecified. Three guesses….

For all of this to go through, consider the most likely way it would happen: The deficit hawks would have to accept a plan that on paper does balloon the deficit in the short term, based on triggers that allow them to claim tax hikes will kick in if growth doesn’t offset that. (Either these triggers remain unspecified, or Republicans will be declaring that some specific groups may be hit with tax hikes later.)

Meanwhile, to make conservatives happy, the plan would have to include still more benefits for the rich under the guise of mainly helping small businesses.

It looks like a few senators managed to add a few gimmicks to justify letting those who have argued that they don’t believe in increasing the deficit to vote for a bill which does exactly that. More broadly, the lesson is that it’s hard to take an inherently flawed concept like a large regressive tax cut enacted at a time of low unemployment, rising interest rates, and high debt, and then tack on extra provisions that make it workable.

The best solution is for Congress to manage the budget in a responsible way, enacting stimulus if the economy is in recession but aiming for deficit-neutral tax reform. But GOP senators are also facing intense pressure to “get to yes” on the bill rather than leaving town without a signature 2017 legislative accomplishment, so the old trigger idea is making a comeback despite significant conceptual flaws. Sometimes discretion is the better part of valor.

Republican leaders conceded that they have yet to round up the votes needed for passage in the Senate, where they hold a narrow 52-48 majority. Best estimates are that there are 8 Republican senators that could kill the tax plan; two of them are from Arizona. As the tax fight played out, a new battle opened on another front as Democrats canceled a White House meeting with Trump to discuss spending, immigration and other issues after Trump said on Twitter that he did not think a deal was likely. Lawmakers must renew government funding before it expires on Dec. 8 or risk a shutdown.

Earlier in the day came word North Korea fired an intercontinental ballistic missile for the first time in four months. The missile flew east for about 53 minutes before landing off the north of Honshu, Japan’s largest island, nearly 600 miles from the launch site. The missile was fired high into the air, reaching a maximum altitude of around 2,800 miles, in an arc like the North’s two previous intercontinental ballistic missiles, or ICBMs, which were launched in July.

The distance traveled appeared to be significantly greater than that of the two previous ICBMs. It is estimated the missile has a range of about 8,000 miles, able to reach Washington or any other part of the continental United States – although they would probably have to develop their missiles even more before they could reliably deliver nuclear armed weapons such distance. Washington is applying what it calls “maximum pressure and sanctions” to stop North Korea from reaching the stage where it would be able to deliver a nuclear warhead on its ICBMs.

Jerome Powell, Trump’s pick to be chairman of the Federal Reserve, told senators at his confirmation hearing today that he believes some bank regulations can be rolled back — something the administration and Wall Street favor. But he stressed that he will protect the central bank’s political independence, calling it vital for the Fed’s role.

Powell also strongly hinted in his appearance before the Senate Banking Committee that the Fed would hike rates again in December. Powell said he believed that the Dodd-Frank Act, passed in the wake of the 2008 financial crisis, the law had imposed unnecessary burdens on small banks. But the law had succeeded in making the financial system stronger, including ensuring that no major institution now is too big to fail. Which is a little strange because loose regulation didn’t prevent the meltdown in 2008 and the big banks are even bigger now.

The National Retail Federation reports more than 174 million U.S. shoppers made purchases over Thanksgiving weekend and Cyber Monday, beating the industry group’s expectations and signaling a strong start to the holiday quarter. The NRF, which had estimated about 164 million shoppers, attributed the even stronger turnout to better technology and discounting, low unemployment, rising consumer confidence and good weather across the country.

Shoppers on average spent $335.47 over the five-day period, with older millennials spending the most at $419.52 each. Online shopping rose sharply this year, with Cyber Monday becoming the largest online sales day in history at $6.6 billion. Sales on Thanksgiving and Black Friday also topped prior years and e-commerce leader Amazon.com said it broke sales records this weekend.

Not just Amazon, many traditional brick and mortar retailers also bulked up their online operations. The NRF said retailers’ investments in technology had paid off, noting that internet-only shoppers totaled more than 58 million during the 5-day period, over 64 million shopped both online and in stores, and about 51 million spent only in brick-and-mortar stores.

Bitcoin hit an all-time high above $10,000 in some smaller exchanges and digital currency indexes, but remained just below that milestone in major trading platforms such as Luxembourg-based BitStamp and U.S.-based GDAX. Still, bitcoin has gained more than 900 percent so far this year.

The Arby’s Restaurant Group is buying Buffalo Wild Wings, paying $157 in cash for each of the 15.51 million outstanding shares. The total value of the agreement swells to around $2.9 billion after Wild Wings’ debt is included.

Arby’s is controlled by the private equity firm the Roark Capital Group, which says it will be taking Buffalo Wild Wings private and continue to operate it as an independent brand. Shareholders of the chicken wing and sports bar chain will need to approve the deal before it’s finalized. Buffalo Wild Wings has more than 1,250 locations in 10 countries; Arby’s has more than 3,300 restaurants in seven countries.

Monday, November 27, 2017

Black Cyber-ish

Financial Review

Black Cyber-ish


DOW + 22 = 23,580
SPX – 1 = 2601
NAS – 10 = 6878
RUT – 5 = 1513
10 Y – .01 = 2.33%
OIL – 1.08 = 57.87
GOLD + 6.10 = 1295.00

Cryptocurrency

  • Number of Currencies: 919
  • Total Market Cap: $304,635,688,163
  • 24H Volume: $12,910,150,130

Top Cryptocurrencies

  Name Symbol Price USD Market Cap Vol. Total Vol. % Price BTC Chg. % 1D Chg. % 7D
  Bitcoin BTC 9,647.3 $162.88B $5.45B 41.99% 1 -0.84% +20.29%
  Ethereum ETH 474.73 $46.05B $1.38B 10.66% 0.0494524 +0.24% +31.65%
  Bitcoin Cash BCH 1,566.80 $27.07B $1.33B 10.26% 0.16585 -1.20% +35.24%
  Ripple XRP 0.25200 $10.06B $247.07M 1.90% 0.00002685 +1.69% +9.48%
  Bitcoin Gold BTG 353.60 $5.90B $111.60M 0.86% 0.0364681 -2.25% +48.94%
  Litecoin LTC 90.800 $4.90B $424.45M 3.27% 0.00935105 -0.61% +27.25%
  Dash DASH 615.61 $4.83B $133.23M 1.03% 0.0646084 -1.34% +34.34%
  IOTA MIOTA 1.16350 $3.22B $218.03M 1.68% 0.0001195 +12.10% +24.59%
  Ethereum Classic ETC 27.9180 $2.90B $963.35M 7.43% 0.00305606 +13.03% +63.22%
  Monero XMR 171.40 $2.68B $97.71M 0.75% 0.0179119 -0.91% +26.46%

Happy Cyber Monday.

Online shoppers in the U.S. are expected to spend about $6.6 billion today, up from $5.6 billion one year ago. Thanksgiving and Black Friday, when shoppers spent $7.9 billion and bought more on their mobile devices than last year, had also generated record online sales.

That brightened the overall outlook for traditional retailers that have expanded beyond brick-and-mortar outlets into e-commerce. The availability of deals and promotions throughout November hurt shopper traffic at stores. If you don’t find a great deal today, be patient – look for deeper discounts to be offered later in December.

Online sales at Wal-Mart grew 50 percent year-over-year in the most recent quarter. It now accounts for 3.6 percent of total U.S. online sales in the 12 months to October 2017, up from a 2.8 percent share a year ago. Even with this progress, Wal-Mart has a long way to go. Amazon’s share of the U.S. e-commerce market stands at 43.5 percent. About half of U.S. households are estimated to have Amazon Prime subscriptions.

GlobalData’s preliminary tracking figures have already predicted total Black Friday sales to have risen the most since 2011. The National Retail Federation (NRF), the industry’s trade group, is calling for an increase as much as 4 percent, with those results set to be released Tuesday afternoon.

After several years of growth, Small Business Saturday saw a dip in both foot traffic and overall dollars spent. The American Express-sponsored shopping holiday saw 108 million shoppers spend $12.9 billion on Nov. 25 at independently owned businesses. That is down from $15 billion in 2016.

Increasingly, the idea of one single day of shopping has been replaced by a month of holiday shopping. It’s no longer Black Friday. It’s now Black November. As retailers increasingly spread sales and discounts throughout the month, November has become a shopping extravaganza.

Online sales from November 1 through 22 totaled almost $30.4 billion this year, accounting for nearly 18% year-over-year growth, according to Adobe Analytics. In fact, every day in November so far has seen over $1 billion in online sales, creating a new paradigm for shoppers and retailers. Black Friday sales events are starting earlier and earlier in November every year as retailers try to get the jump on one another.

The Census Bureau reports sales of new single-family houses in October 2017 were at a seasonally adjusted annual rate of 685,000 – that’s a 10-year high. This is 6.2 percent above the revised September rate of 645,000 and is 18.7 percent above the October 2016 estimate.

Inventories are tight: it would take 4.9 months to sell all existing inventory – that’s down from 5.2 months’ supply of homes in September. The median sales price of new houses sold in October 2017 was $312,800. The average sales price was $400,200. New-home sales, tabulated when contracts get signed, account for about 10 percent of the market.

Congress is back in session for the next 3 weeks, with a busy schedule. Tomorrow, we’ll hear the Senate confirmation hearing for Jerome Powell, Trump’s nominee to head the Federal Reserve. We’ll get to hear Powell’s ideas on monetary policy, banking regulation and his general approach to run one of the most important institutions in the world.

Confirmation hearings are often unpredictable. While Powell could face some scrutiny, particularly from Republicans who don’t care for the central bank to begin with, and Democrats who want a tighter rein on Wall Street, Powell’s confirmation is all but assured.

Wednesday morning, current Fed Chair Janet Yellen delivers her final Humphrey Hawkins testimony on the economy, before the Joint Economic Committee.

Today, Dallas Fed President Robert Kaplan delivered an especially hawkish speech. Kaplan said he is “cognizant of financial imbalances” present in the current economy and suggested that the unemployment rate may be starting to extend too far beyond its natural level.

Specifically, Kaplan noted: stock market capitalization is about 135% of GDP, the highest since 1999-2000 just before the technology bubble burst; Commercial real estate prices and the valuation of debt both appearing “notably extended”; Historically low stock market volatility, which Kaplan described as “extraordinarily unusual”; Margin debt at record-high levels and Kaplan warned, “In the event of a sell-off, high levels of margin debt can encourage additional selling, which could, in turn, lead to a more rapid tightening of financial conditions”; and US government debt at about 75 per cent of GDP – a level Kaplan calls “unlikely to be sustainable”.

The big news on Capitol Hill continues to be the tax reform legislation, which might see a final Senate vote this week if they can muster the votes. With several senators not yet committed to supporting the $1.5 trillion tax plan, the week is expected to be punctuated by behind-the-scenes arm-twisting and deal-making as Republican leaders work to find enough votes to pass the bill along party lines.

At least a half-dozen senators have raised concerns about the bill, including its potential to add to the federal deficit and a provision that would eliminate the Affordable Care Act requirement that most Americans have health insurance or pay a penalty. The talks could result in substantial changes to the bill before it reaches the Senate floor, or, more likely, in amendments that the full Senate would vote on.

Any bill that passes the Senate is likely to differ in significant ways from the House-passed version, and Republican leaders in both chambers have said repeatedly that such differences will be worked out in a formal conference committee.

Recent national polls show the plan fails to garner the support of a majority of Americans; several polls show a majority actually opposing it. According to a new analysis from the Tax Policy Center, the Senate bill gives more than 60% of its benefits to the top 1% of taxpayers. Those in the top 0.1% of incomes are set to get 40% of all cuts.

The ongoing brouhaha over who is the rightful interim leader of the Consumer Financial Protection Bureau spilled over into Monday morning, as the two people separately tasked with leading the independent agency sent dueling emails asserting their authority.

In the first email to staffers this morning Leandra English — whom the departing director, Richard Cordray, named the acting director on Friday — called herself “acting director” and expressed gratitude to her CFPB colleagues “for your service.” That was followed up by a memo from Mick Mulvaney, the director of the Office of Management and Budget who was tapped by Trump to serve as acting director of the agency shortly after Cordray announced English, his chief of staff, as his interim successor.

Mulvaney’s memo told staffers to disregard the memo from acting director English. Then English filed a lawsuit in federal court seeking a temporary restraining order to prevent Mulvaney from fulfilling Trump’s appointment. Either English or Mulvaney will serve as acting director until the Senate can confirm a permanent nominee.

Media company Meredith Corp said on Sunday it will buy Time Inc, the publisher of People, Sports Illustrated and Fortune magazines, in a $1.84 billion all-cash deal backed by conservative billionaire brothers Charles and David Koch.

The state of Maryland passed a ban on “assault” weapons after the 2012 mass shooting at a Newtown, Conn., elementary school. A district judge had cast doubt on the constitutionality of the law. But the full U.S. Court of Appeals for the 4th Circuit in Richmond upheld the ban in a 10-to-4 vote.

That court went further than other appellate courts that have reviewed similar laws, stating that “assault weapons and large-capacity magazines are not protected by the Second Amendment.” That court went further than other appellate courts that have reviewed similar laws, stating that “assault weapons and large-capacity magazines are not protected by the Second Amendment.”

The majority opinion refers to the banned firearms as “weapons of war” that the court says are most useful in the military. Attorneys general in 21 states asked the Supreme Court to hear the Maryland case, and the National Rifle Association and other gun rights groups had joined the effort.  Today, the U.S. Supreme Court declined to hear the case, meaning the Maryland ban on assault weapons stands.

In the past year, bitcoins have generated transaction fees of nearly $219 million. And at $9,600 a piece, the total value of all bitcoins — their market cap — now tops $160 billion. That gives bitcoins the equivalent of a trailing P/E ratio of 708. Bitcoin now has a bigger market cap than General Electric, or Disney.

Bitcoin has increased nearly tenfold in price so far, this year. The digital currency has surged 50 percent in November alone. Bitcoin’s price has been helped in recent months by the announcement that the world’s biggest derivatives exchange operator CME Group would start offering bitcoin futures. The company said last week the futures would launch by the end of the year though no precise date had been set.

If you still don’t understand the underlying premise of bitcoin, you are not alone. There is no inherent value, just a transaction that happens based upon blockchain. Blockchain creates a quick, permanent and secure record of transactions, eliminating the need for a third party such as a bank.

Banks and other large corporations are testing how blockchain can help improve everything from supply chain management to global payments. The blockchain technology is very real but bitcoins are pure speculation that has now grown into a bubble. Not a huge bubble but big enough to pain.

Thursday, November 02, 2017

Tax Act

Financial Review

Tax Act


DOW + 81 = 23,516 (Record)
SPX + 0.49 = 2579
NAS – 1 = 6714
RUT + 3 = 1496
10 Y – .03 = 2.35%
OIL + .44 = 54.74
GOLD + 1.20 = 1276.50

Cryptocurrency

  • Number of Currencies: 892
  • Total Market Cap: $191,672,109,146
  • 24H Volume: $9,072,848,016

Top Cryptocurrencies

  Name Symbol Price USD Market Cap Vol. Total Vol. % Price BTC Chg. % 1D Chg. % 7D
  Bitcoin BTC 6,992.9 $117.05B $4.53B 49.87% 1 -0.37% +18.98%
  Ethereum ETH 288.43 $27.72B $881.65M 9.71% 0.0416318 +1.11% -2.36%
  Bitcoin Cash BCH 573.29 $9.85B $1.61B 17.70% 0.0843124 +0.36% +71.86%
  Ripple XRP 0.20855 $8.36B $334.13M 3.68% 0.0000311 +3.76% +6.63%
  Litecoin LTC 54.830 $2.96B $215.29M 2.37% 0.00790139 +0.88% -0.90%
  Dash DASH 270.00 $2.07B $72.19M 0.80% 0.0387367 +3.54% -5.29%
  BitConnect BCC 261.128 $1.92B $23.56M 0.26% 0.037444 +2.62% +20.44%
  NEO NEO 25.500 $1.64B $71.40M 0.79% 0.00362421 +4.04% -10.88%
  NEM XEM 0.17564 $1.57B $8.84M 0.10% 0.000025 +6.17% -12.27%
  Monero XMR 84.15 $1.29B $46.96M 0.52% 0.0121217 +1.49% -4.02%

Record high close for the Dow Industrial Average. It was just a couple of weeks ago that the Dow crossed over 23,000 and today we top 23,500. Gains in Boeing, 3M, and Goldman Sachs helped push the Dow higher, while losses for Facebook and Tesla weighed on the S&P and Nasdaq.

Two big events today: the new tax cut plan was revealed, and Jerome Powell was nominated to be the next Federal Reserve Chairman.

Taxes first.

This is the first time Republicans have described their tax plan, the Tax Cuts and Jobs Act, in enough detail that it can actually be debated, scored by the Congressional Budget Office so its cost and effects on the rich and poor are known, and voted upon by the House and Senate. The Tax Act is over 400 pages long.  (here is the full text for your reading pleasure.)

The legislation seeks to dramatically cut taxes on corporations and consolidate benefits like personal exemptions, the standard deduction, and the child credit for individuals. It would eliminate the alternative minimum tax and estate tax, and pare back certain individual deductions. It would also offer a new low tax rate for owners of “pass-through” businesses like LLCs and partnerships, whose income from their businesses is taxed as personal income.

The bill in its current form would almost certainly give disproportionate benefits to wealthy Americans, who tend to benefit from corporate tax cuts more than non-wealthy Americans and who could likely exploit the pass-through rate by setting up dummy corporations. People earning between $400,000 and $1 million would face a significantly lower top income tax rate.

But the bill will almost certainly not remain in its current form. As written, it is almost guaranteed to increase the budget deficit by trillions over 10 years, and quite possibly keep increasing the deficit after 10 years are up.

That’s a big problem: Under Senate rules, some legislation can pass with only 51 votes only if it doesn’t increase the long-run deficit. So, the current draft of the legislation would probably need 60 votes instead, meaning significant Democratic support, which Republican leaders haven’t been even trying to court. They need legislation that can pass with 51 votes, and for that, they need the bill to not raise the long-run deficit.

That means the bill needs to change — either the cuts need to get smaller or Republican leaders need to find new ways to raise money, or both. But the bill in its current form at least suggests what GOP leaders want to do.

The new tax reform bill would significantly change individual income tax brackets:
The seven current individual income tax brackets would be consolidated to four: 12 percent (up from the current bottom rate of 10 percent), 25 percent, 35 percent, and 39.6 percent.

12%: Applies to incomes up to $45,000 for an individual and $90,000 for a married couple.
25%: Applies to incomes up to $200,000 for and individual and $260,000 for couples.
35%: Applies to incomes up to $500,000 for an individual and $1 million for couples.

Keeping the 39.6 percent top rate is a huge change from past Republican plans, which have focused heavily on cutting the maximum rate the richest households pay. However, the plan significantly reduces how many people pay the top rate: The threshold for the last bracket would increase from $470,700 for married couples today to $1 million.

The 35 percent rate would cover some affluent households currently paying a marginal rate of 33 percent, potentially raising their taxes; and the 12 percent bracket would extend into the income range currently covered by the 25 percent bracket, lowering taxes for many middle- and upper-middle-class households.

The thresholds for brackets will be adjusted according to chained CPI, a slower-growing measure of inflation than normal CPI, which is used currently; this change raises revenue over time by gradually pushing more and more people into higher tax brackets.

Performance pay and commissions above $1 million would no longer be deductible for the purposes of corporate taxes.

The standard deduction is increased, personal exemptions are eliminated, and the child tax credit is mildly boosted.

The standard deduction will be raised to $24,000 for couples and $12,000 for individuals, a near doubling from current levels.

The child tax credit, currently $1,000, will grow to $1,600, and a new $300 credit for parents and other non-child dependents in the house (the $300 credit expires after five years). The child credit would start to phase out at $230,000 in earnings for married couples, as opposed to $110,000 under current law.

The personal exemption (currently offering households $4,050 per person in deductions) is eliminated, replaced in theory by the higher child credit and standard deduction.

The mortgage interest deduction is unchanged for current homeowners, but for all future mortgages, the benefit would be capped at a home value of $500,000, down from $1 million under current law. The real estate industry will scream bloody murder.

The deduction for state and local income and sales taxes would be eliminated. Several states will scream bloody murder.

The deduction for state and local property taxes would be capped at $10,000, somewhat curtailing the current tax break.

The medical expense deduction would be repealed. Seniors will scream bloody murder. Also, interest deductions on student loan debt would be repealed. Deductions for moving/relocation expenses would be eliminated. Also alimony payment deductions eliminated.

Most major tax breaks for individuals — the charitable deduction, retirement incentives like 401(k) and IRA provisions, the tax exclusion for employer-provided health care, the earned income tax credit, and the child and dependent care tax credit — would remain unchanged.

The corporate income tax rate will be lowered from 35 percent to 20 percent. The corporate tax will be “territorial”: Foreign income by US companies will be tax-free. All untaxed income currently held overseas will immediately be taxed at a fixed rate: 12 percent for money held in liquid assets like stocks and bonds, 5 percent for intangibles like buildings and factories.

Despite the tax being “territorial” in principle, there will be a 10 percent “minimum tax” imposed on profits above a certain threshold from foreign subsidiaries of US companies in the future, to prevent companies from moving income abroad to avoid taxes. Additionally, any money that multinational corporations move from the US abroad will be subject to a new 20 percent tax.

Instead of having companies “depreciate” investments by deducting them over several years, companies could immediately expense all their investments. This benefit expires after five years, presumably to save money, which dampens any positive effect it has on economic growth.

Companies paying the corporate income tax would face a limit on how much debt they can deduct from their taxable income, a significant change for highly leveraged companies like banks. They could only deduct interest worth up to 30 percent of earnings before interest/taxes/depreciation/amortization. But real estate firms would be exempt from that limit.

Two big existing credits for corporations — the research and development tax credit and the low-income housing credit — won’t be repealed. But a deduction for domestic manufacturing is gone.

“Pass-through” companies like LLCs, partnerships, sole proprietorships, and S corporations, would get a huge number of tax cuts too: Taxes on pass-through income would be capped at the 25 percent bracket rather than the top individual rate. Pass-through companies would still be able to deduct interest on loans in full, unlike C-corporations. The 25 percent bracket creates a huge loophole for rich people, who could incorporate as sole proprietorships and “contract” with their employers so their income is pass-through income rather than wages.

To partially control that, the law would assume that 100 percent of earnings from professional services firms, like law firms and accounting firms, is wages, not pass-through income. For other businesses, people actively involved in the business as more than passive investors would see 70 percent of their income classified as wages and taxed normally, and 30 percent taxed at the pass-through rate.

Also, the alternative minimum tax is repealed. The exemption for the estate and gift tax is doubled to $11 million and is then gradually abolished.

And a brand-new 1.4 percent tax on university endowment income is added.

The bill still must be scored and analyzed, first by outside groups like the Tax Policy Center and the right-leaning Tax Foundation, and then by the Congressional Budget Office and the Joint Committee on Taxation. Right now, the math seems to show big, unworkable deficits; remember that bill will eventually be called due. What’s likely, then, is that this is an opening entry designed to pass the House and then be worked over, and shrunk in scale, in the Senate.

The legislation will face a lot of pressure to expand or protect certain cuts. Mortgage lenders and housing builders will push against limiting the mortgage interest deduction, blue-state Republicans will fight the limit on property tax deductions, and just about every business will fight for as much as they can get in corporate tax cuts and pass-through cuts (the fact that lobbying firms are organized as pass-throughs might mean trouble for the rule eliminating pass-through privileges for law firms).

Social conservatives and anti-poverty campaigners will fight for a bigger child tax credit, available to more poor families. Seniors will fight for medical expense deductions.
All that makes the bill more expensive, and harder to pass in the Senate.

Elsewhere, as expected, Trump nominated Jerome Powell to run the Federal Reserve once current Chair Janet Yellen’s term expires in February. Powell is currently a Fed governor, a moderate, he voted right in line with Yellen but is even less enthusiastic about regulation.

Tomorrow is a job’s report Friday. Look for a big rebound from the 33,000 jobs lost in September.

Stocks Mostly Flat as New Fed Chief Announced

Charles Schwab: On the Market
Posted: 11/2/2017 4:15 PM EDT

Stocks Mostly Flat as New Fed Chief Announced
 
U.S. stocks finished the regular trading session mostly unchanged amid some favorable reports on weekly jobless claims and preliminary Q3 productivity and as President Trump announced Jerome Powell is expected to succeed Janet Yellen as the next Federal Reserve Chair. The markets also grappled with the details of this morning's release of the House's tax reform proposal. Treasury yields and the U.S. dollar were lower, while gold and crude oil prices traded slightly higher. In earnings news, Facebook and Tesla were under pressure after announcing their quarterly results following yesterday's closing bell.

The Dow Jones Industrial Average (DJIA) rose 81 points (0.3%) to 23,516, the S&P 500 Index was nearly unchanged at 2,580, and the Nasdaq Composite decreased 2 points to 6,715. In moderately heavy volume, 910 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.24 to $54.54 per barrel and wholesale gasoline added $0.03 to $1.77 per gallon. Elsewhere, the Bloomberg gold spot price gained $1.52 to $1,276.18 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 94.69.

Facebook Inc. (FB $178) reported Q3 earnings-per-share (EPS) of $1.59, versus the $1.28 FactSet estimate, as revenues rose 47.0% year-over-year (y/y) to $10.3 billion, topping the projected $9.9 billion. Daily and monthly active users were roughly in line with expectations, but its higher-than-expected outlook for capital expenditures and security investments was well above forecasts, and the company said this will impact profitability. Shares traded lower.

Tesla Inc. (TSLA $298) posted a Q3 loss of $3.70, or $2.92 per share ex-items, versus the expected $2.31 per share shortfall, with revenues rising 29.9% y/y to $3.0 billion, compared to the forecasted $2.9 billion. The company lowered its production target for its Model 3 due to constraints at its battery manufacturing facility. Shares finished sharply lower.

Yum Brands Inc. (YUM $79) announced Q3 EPS of $1.18, or $0.68 ex-items, versus the forecasted $0.67, as revenues declined 5.0% y/y to $1.4 billion, roughly in line with expectations. Q3 same-store sales grew 3.0% y/y, compared to the estimated 1.9% increase. The parent of Taco Bell, KFC and Pizza Hut maintained its full-year guidance. Shares rallied.

Kraft Heinz Co. (KHC $77) reported Q3 EPS of $0.77, or $0.83 ex-items, compared to the expected $0.82, as revenues grew 0.7% y/y to $6.3 billion, mostly in line with expectations. The company's organic sales growth slightly missed forecasts as sales declined more than expected in North America, overshadowing solid growth in the rest of the world. Shares were lower.

Jobless claims decline unexpectedly, Q3 productivity jumps

Weekly initial jobless claims (chart) decreased by 5,000 to 229,000 last week, below the Bloomberg forecast of an increase to 235,000, with the prior week’s figure being revised higher by 1,000 to 234,000. The four-week moving average fell by 7,250 to 232,500, while continuing claims dropped 15,000 to 1,884,000, south of estimates of 1,894,000.

Preliminary Q3 nonfarm productivity (chart) rose 3.0% on an annualized basis, versus expectations of a 2.6% gain, following the unrevised 1.5% increase seen in Q2. Unit labor costs gained 0.5%, above the forecast calling for a 0.4% gain. Unit labor costs were revised higher to a rise of 0.3% in Q2.

Today's employment data precedes tomorrow's fully-loaded economic docket, headlined by the October nonfarm payroll report, which is expected to show job growth of 310,000, rebounding from September's hurricane-impacted 33,000 decline. Private sector employment is projected to rise by 301,000 after falling 40,000 the month prior. The unemployment rate is forecasted to remain at 4.2% and average hourly earnings are estimated to rise 0.2% month-over-month after, building on September's 0.5% gain, and be up 2.7% y/y. Also, the September trade deficit is expected to widen to $43.2 billion, and September factory orders are projected to match August's 1.2% m/m rise, while the ISM non-Manufacturing Index and Markit's Services PMI Index are estimated to show growth remained solid.

Economic growth remains steady and a relatively new bright spot may be emerging as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her article, Takin Care of Business: Several Important Kickers for a Strong Capex Cycle. Liz Ann also points out that tax reform—if we get it—would be an additional kicker, and the House's bill released today is garnering heavy scrutiny. Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend and Vice President of Trading and Derivatives, Randy Frederick, discuss in the video, Where Does Tax Reform Stand?.

Friday's reports are not likely to sway already elevated expectations of a December Fed rate hike, which was reinforced by the Central Bank's monetary policy decision yesterday, but could impact the outlook for the frequency of rate hikes next year. We expected two-to-three rate hikes in 2018, meaning the market's expectations may have to rise to meet the Fed's as Liz Ann notes in her analysis of yesterday's decision titled, Fed Stands Pat in November; Gets Ready to Go in December.

Also, the markets are grappling with today's expected pick of Fed Governor Jay Powell as the next Chairman of the Central Bank by President Donald Trump, along with the release of the House tax reform bill and the Bank of England's decision to raise rates as expected.

For analysis of the Fed and President Donald Trump's pick for the next Chairman check out our article, Fed Chairman: Why Trump's Choice Matters. President Trump's expected pick of Fed Governor Jay Powell as the next Fed Chairman today is also fostering uncertainty and Schwab's Chief Fixed Income Strategist Kathy Jones and Randy Frederick discuss in the video, Should a Change in Fed Leadership Matter to Investors?.

Treasuries finished higher, with the yield on the 2-year note flat at 1.61%, while the yields on the 10-year note and the 30-year bond declined 3 basis points to 2.35% and 2.83%, respectively. Treasury yields and the U.S. dollar dipped amid the aforementioned fiscal and monetary policy uncertainties, as well as the Bank of England's decision to raise rates today.

Europe mixed, pound falls despite BoE rate hike, Asia mostly lower amid earnings

European equity markets finished mixed, with the markets grappling with the details of the U.S. tax reform bill that was released today, while digesting the expected rate hike by the Bank of England (BoE), which included a more dovish forecast for further increases. The British pound fell on the BoE's decision and outlook to help the U.K. markets move higher. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers analysis of the changed global monetary policy landscape in his article, How the Shift by Central Banks May Affect the Stock Market. The markets also awaited the Fed leadership announcement in the U.S., while losses for financials were limited by a rally in shares of Credit Suisse Group AG (CS $16) on the heels of the company's sharp increase in profits. Markit reported that eurozone manufacturing output continued to depict solid growth. The euro traded higher versus the U.S. dollar and bond yields were lower.

Stocks in Asia finished mostly lower on some mixed earnings data in the region, while the markets digested yesterday's unchanged Fed monetary policy decision. Also, caution appeared to set in ahead of the Bank of England's monetary policy decision, as well as the release of the House's tax reform bill and President Trump's pick for the next head of the Fed in the U.S. Japanese equities gained ground. Australian securities dipped with financials seeing some pressure, while shares trading in mainland China and Hong Kong also declined. Stocks trading in South Korea and India finished lower. For analysis of the global market rally, see Schwab's Liz Ann Sonders' and Randy Frederick's video, Tracking Sentiment: Are Investors Too Optimistic About Stocks?.

The international economic docket for tomorrow will yield reads on the services sector from China, India, Australia and the U.K., with Australia also expected to report retail sales.

Tuesday, October 31, 2017

Opening Salvo

Financial Review

Opening Salvo


DOW – 85 = 23,348
SPX – 9 = 2571
NAS – 11 = 6690
RUT – 21 = 1487
10 Y – .06 = 2.37%
OIL + .22 = 54.12
GOLD + 2.80 = 1277.00

Cryptocurrency

  • Number of Currencies: 885
  • Total Market Cap: $178,391,795,510
  • 24H Volume: $3,327,521,130

Top Cryptocurrencies

  Name Symbol Price USD Market Cap Vol. Total Vol. % Price BTC Chg. % 1D Chg. % 7D
  Bitcoin BTC 6,122.1 $101.99B $1.63B 49.12% 1 -0.13% +7.48%
  Ethereum ETH 307.99 $29.46B $309.75M 9.31% 0.0504066 +0.32% +0.34%
  Ripple XRP 0.20140 $7.81B $30.98M 0.93% 0.00003311 -0.29% -1.85%
  Bitcoin Cash BCH 447.47 $7.55B $476.38M 14.32% 0.0736137 +0.42% +36.61%
  Litecoin LTC 56.140 $3.02B $90.39M 2.72% 0.00919394 -0.12% -2.68%
  Dash DASH 282.00 $2.16B $39.11M 1.18% 0.0461344 -1.50% -4.50%
  NEO NEO 28.940 $1.87B $31.60M 0.95% 0.00469823 +0.50% -6.48%
  NEM XEM 0.19904 $1.79B $3.74M 0.11% 0.00003251 -1.10% -5.39%
  BitConnect BCC 228.053 $1.67B $21.31M 0.64% 0.0372403 +0.41% +16.19%
  Monero XMR 87.79 $1.35B $26.19M 0.79% 0.0143796 -1.24% -1.31%

Paul Manafort, the former campaign chairman for the Trump campaign, and Manafort’s former business associate Rick Gates surrendered to federal authorities this morning, part of what appeared to be the first charges in a special counsel investigation.

Manafort and Gates were indicted on 12 counts, including false statements to the government, failing to register as a foreign agent, money laundering, failing to report foreign income, and conspiracy against the United States. Their indictment describes a conspiracy to evade taxes and launder at least $75 million of foreign income into the United States from offshore accounts.

Manafort and Gates appeared in the Federal District Court in Washington and pleaded not guilty to all charges; they were released to house arrest. The indictment of Manafort and Gates makes no mention of Trump or election meddling, but the 31-page indictment essentially alleged that the president’s onetime top lieutenant was secretly a highly paid agent for pro-Russian foreign interests.

Manafort has expected charges since this summer, when F.B.I. agents raided his home and prosecutors warned him that they planned to indict him. That speculation intensified late Friday when it was reported that Mueller’s team had an indictment, which remained sealed over the weekend.

Meanwhile, former Trump foreign policy adviser George Papadopoulos, admitted making a false statement to FBI investigators who asked about his contacts with a foreigner who claimed to have high-level Russian connections. The agreement was unsealed Monday. Papadopoulos was arrested in July and entered a guilty plea about 3 weeks ago, and reportedly has been providing information and evidence to investigators for several months.

Papadopoulos’s indictment doesn’t directly prove collusion on its own, but it undermines the Trump White House’s claims of ignorance on behalf of the president and his inner circle. Documents released today said that several senior campaign officials knew about, and encouraged some of Papadopoulos’s interactions with the Russians.

It is widely believed that Mueller is hoping to pressure Manafort into providing information about the central subject of his investigation. As part of the pressure Mueller and his team will seek to seize various properties or any other assets Manafort may have. This gives Manafort an additional incentive to cooperate as part of a plea deal.

And while there is always a presumption of innocence, the reality is that federal prosecutors have a more than 98% conviction rate on cases that go to trial; and it is a safe bet that Mueller’s team has an iron clad case this time. The only serious question is whether Manafort and/or Gates turn evidence or spend the rest of their lives in prison and die penniless.

The threat of long prison sentences allows investigators to extract plea deals from potential witnesses, which can then be used to bring charges against more significant targets. This is also not the end of the Mueller investigation, it is still in the early stages, with a strong probability of more indictments to come.

On Wall Street, investors digested the new of the indictments and the conviction and largely moved on to the issue of tax cuts. According to a report by Bloomberg, lawmakers who are drafting the House’s tax-reform plan are discussing gradually phasing in a corporate tax-rate cut that would bring the corporate rate down to 20 percent in 2022.

The phase-in proposal would reduce the rate from its current 35 percent rate by three percentage points a year starting in 2018. If adopted, it would delay some of the economic effects Trump and his advisers have sought to emphasize from their tax cuts. The White House denied it supports a phased-in tax cut.

GOP tax writers are looking for ways to limit their bill’s net revenue loss to $1.5 trillion to satisfy the parameters of the budget resolution that the House and Senate have adopted. The Ways and Means panel plans to release the text of a bill on Wednesday, ending a secretive drafting process. And then lawmakers will have to operate at a break-neck pace to get a bill passed before the end of the year.

Meanwhile, the National Association of Home Builders has said that it cannot support the proposal in what appears to be its current form after Republicans said they wouldn’t accept the idea of replacing deductions for mortgage interest and property taxes with a new tax credit.

Several states have complained about the proposal to eliminate deductions for state and local taxes. And there are even reports of some Republicans who still claim to be deficit hawks. In short, tax cuts could be difficult.

We are in a market that has just been on an absolute low-volatility, steady climb for quite a while, so you don’t need much of a reason for it to take a periodic step back, particularly a small step back. The thing about stock traders is that they have no patience. They want it all and they want it now.

The potential for a phase-in period for corporate tax cuts has implications beyond the stock market. The Dollar Index fell the most in almost three weeks, while yields on benchmark 10-year Treasuries notes dropped. In both cases, the thinking is that phased-in corporate tax cuts would have less of a positive impact on the economy than if the reductions came all at once.

Trump is expected to nominate Jerome Powell as the next chair of the Federal Reserve. The White House intends to announce the Fed chair selection on Thursday. If confirmed by the Senate, Powell would begin serving as chair in February, replacing Janet Yellen. Powell is widely viewed as a safe pick who is unlikely to make any dramatic changes to Fed’s handling of the economy.

Unlike some of the other candidates Trump considered, Powell has been supportive of Yellen’s policy of slowly raising interest rates, which have been at historic lows for nearly a decade as the Fed looked to help the economy recover from a massive recession. Powell has served as a Fed governor, a top leadership role within the central bank, since 2012.

Powell’s ideology may diverge from Yellen on a key issue for Republicans: the stringency of financial regulations. Yellen has largely maintained support for the regulations put in place after the crisis, saying that they have made the economy stronger and cautioning that any changes should be “modest.” Powell, for his part, has seemed a bit more skeptical when it comes to those regulations, noting that some are perhaps too onerous and need to be pared back.

Another option that’s been floated is Kevin Warsh, a professor at Stanford and a Wall Street veteran who also worked for the Fed under George W. Bush. Finally, there’s Jonathan Taylor, an economist who is also a professor at Stanford, and Warsh’s mentor.

There are seven seats on the Federal Reserve’s Board of Governors—the group of people who make the most consequential decisions about American monetary policy. The Federal Reserve will likely be completely different within the next year.

The Commerce Department said consumer spending jumped 1.0 percent last month the biggest one-month gain in more than 8 years. The increase, which also included a boost from higher household spending on utilities, was the largest since August 2009. The Commerce Department said September data reflected the effects of Hurricanes Harvey and Irma, but said it could not quantify the total impact of the storms on consumer spending and personal income.

Consumer spending in September was buoyed by purchases of motor vehicles, probably as drivers in Texas and Florida replaced automobiles that were destroyed when Harvey and Irma slammed the states in late August and early September. Spending on long-lasting goods like autos surged 3.2 percent last month. Outlays on services rose 0.5 percent.

The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, edged up 0.1 percent in September. The so-called core PCE has now increased by 0.1 percent for five straight months.

The core PCE increased 1.3 percent in the 12 months through September after a similar gain in August. The core PCE has undershot the Fed’s 2 percent target for nearly 5-1/2 years. When adjusted for inflation, consumer spending increased 0.6 percent in September after slipping 0.1 percent in August.

Personal income rose 0.4 percent last month after increasing 0.2 percent in August. Wages advanced 0.4 percent. Savings fell to $441 billion in September from $521 billion in the prior month.

Homes are sitting on the market for the shortest time in 30 years, according to an annual report on home-buyers and sellers published today by the National Association of Realtors. The typical home spent just three weeks on the market

Spain’s state prosecutor accused sacked Catalan leader Carles Puigdemont of rebellion and sedition, as the former regional president traveled to Belgium with other members of his ousted administration and hired a lawyer there. The Oct. 1 vote in for Catalonian secession has triggered Spain’s biggest crisis in decades.

On Friday, Spanish Prime Minister Mariano Rajoy sacked Catalonia’s secessionist government and called a snap regional election for Dec. 21, and said the central government would take direct control.

The Ibex 35 Index of equities surged 2.44 percent to close at its highest level since mid-August. Yields on Spanish 10-year government bonds dropped 9 basis points to 1.495 percent, matching their lowest levels since mid-August. Geopolitical turmoil in the world these days seems to have a very short shelf life.

Facebook, Apple, Starbucks, and Tesla are just a few of the companies reporting earnings this week, and expectations are high for positive surprises. Which probably means anything less than great won’t be good.