Browsing articles in "Weekly Market Update"

Tax Reform to the Forefront

Sep 29, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Fall officially started last Friday, but you could have fooled me!  The weather isn’t the only thing that is hot these days.  The markets remain steady despite the meltdown in Washington DC.  While we can count on mother nature to bring us cooler weather in the weeks ahead, it is not certain that cooler heads will prevail in our Capitol.

Let’s start with the first of two big stories that directly or indirectly affect everyone in this country.  This week the GOP struck out again with the repeal of Obamacare.  Majority Leader Mitch McConnell failed to garner the minimum 50 votes necessary for passage of the GOP bill.  Holdouts included Senators McCain (AZ), Collins (ME), and Murkowski (AK) who all faced strong opposition in their home states.  Not giving up hope, Senate Republicans are now promising to repeal the Affordable Care Act by January 2019 while President Trump has stated his intention to press forward and negotiate directly with Democrats on health care legislation.  Some progress is being made to shore up the federal Medicaid subsidies to insurance companies which should bring insurers back to some of the markets they previously abandoned.  In addition, there is talk President Trump could sign an executive order allowing people to buy health insurance across state lines (which is currently not legal).  Conceptually, this should constrain or even reduce premiums due to increased competition.

The second large story which you are undoubtedly aware is the proposed tax reform put forward by the GOP this week.  While it offers some details, it isn’t explicit enough to know its potential impact.  Many provisions are still being worked out behind closed doors and should be made available in the weeks ahead.  However, here’s what we know:

  • It doubles the standard deduction while getting rid of personal exemptions
  • It gets rid of most deductions except for mortgage interest and charitable contributions
  • It repeals the alternative minimum tax (AMT)
  • It reduces the tax on pass-through income to 25%
  • It repeals the estate tax
  • It reduces the current tax table from seven brackets to three (although income ranges are not known)

Surprisingly, early reports suggest it is Republicans that are not happy with the plan.  One of the larger deductions being phased out is state and local taxes which amount to a large hit for those in high tax states including, California, New York, New Jersey, and Illinois.

In company news, Target announced they plan on raising their minimum wage to $11 per hour in October from a current level of $10 per hour.  The retailer also committed to boosting its minimum hourly wage to $15 by the end of 2020.  This is another move in the direction of rising wages which not only set a precedent other retails may have to follow but may also spark inflation which has been stubbornly low despite the Federal Reserve’s best efforts.  In a more concerning bit of news, Citibank is bringing back collateralized debt obligations (CDOs) which nearly brought down the financial industry and our economy in 2008.  According to Bloomberg, the bank has spent the past two years hawking synthetic CDOs and promoting returns as high as 20% but feels things are safer this time around.  This time will be different.

In closing, if you were wondering what it would cost to buy an uncut diamond the size of a tennis ball, we found out this week.  After a year of negotiations, the British dealer Graff Diamonds agreed to buy the 1,109-carat Lesedi La Rona diamond for $47,777 per carat which works out to $53 million.  Laurence Graff said in a statement, “The stone will tell us a story, it will dictate how it wants to be cut, and we will take the utmost care to respect its exceptional properties.”  If only I could find a stone that talked like that!  Now you know.

September 30, 2017

Equifax: How to Protect Yourself

Sep 15, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Compared to recent weeks, this week was fairly quiet with little in the way of market-moving news.  President Trump crossed party lines to meet with leaders of the Democratic party in a show of goodwill, however, it is too soon to say if progress was made.  North Korea launched another missile over Japan, but this time the war of words was absent as if accepting Kim Jong Un’s belligerence as ineffectual.  And while Irma destroyed homes and property across Florida, the spirit of Americans coming together and persevering in the face of disaster was once again demonstrated for the world to see.  At the end of the day, it was a good week for the markets and the American people.

Among the biggest stories of the week was our national debt topping $20 trillion for the first time in the history of the nation.  While I said above that the week was good, this bit of news was perhaps a little sobering.  It was also the first time the U.S. debt exceeded Gross Domestic Product (GDP) which was estimated to be roughly $19.23 trillion in the second quarter of 2017.  This equates to $61,895 for every man, woman, and child or $167,299 per taxpayer.  It is important to remember this as both parties wrestle with tax reform in the coming weeks.  While it is unlikely Republicans will get the desired 15% corporate tax rate, it is also unlikely that the tax cuts will be deficit neutral.  If you are interested in just how the national debt breaks down, you can find information at the following link – US Debt Clock.

In other less pressing news, Apple had its annual iPhone event in Cupertino and revealed three new phones.  I won’t go into the details other than to say smartphone innovation is slowing.  While the features of the phones are tweaked, i.e. screen size and technology, their actual usefulness seems to have peaked.  What hasn’t peaked are the prices.  The latest iPhone X pushed through the $1,000 price point and set a new standard for what a high-end phone costs.  I question whether the latest innovation is worth the price and I wonder if there are others who feel the same.  When a phone, albeit a good phone, pushes up against the price of a laptop, one should wonder if the market is a little out of whack (to use a technical term).

Also out of whack is Equifax’s wholly unacceptable response to the data breach that exposed millions of people to identity theft.  As we learn more about what happened, it seems management was asleep at the wheel.  If you have a credit report, there’s a good chance that you’re one of the 143 million American consumers whose sensitive personal information was leaked.  These are steps to take to help protect your information from being misused. Visit Equifax’s website www.equifaxsecurity2017.com.

  • Find out if your information was exposed. Click on the “Potential Impact” tab and enter your last name and the last six digits of your Social Security number. Your Social Security number is sensitive information, so make sure you’re on a secure computer. The site will tell you if you’ve been affected by this breach.
  • Whether or not your information was exposed, U.S. consumers can get a year of free credit monitoring and other services. The site will give you a date when you can come back to enroll. Write down the date and come back to the site and click “Enroll” on that date. You have until November 21, 2017 to enroll.
  • Check your credit reports from Equifax, Experian, and TransUnion — for free — by visiting annualcreditreport.com Accounts or activity that you don’t recognize could indicate identity theft. Visit www.IdentityTheft.gov to find out what to do.
  • Consider placing a credit freeze on your files. A credit freeze makes it harder for someone to open a new account in your name. Keep in mind that a credit freeze won’t prevent a thief from making charges to your existing accounts.  Equifax is offering a free credit freeze while TransUnion and Experian charge $5-10.

Better safe than sorry.  Have a great weekend!

September 15, 2017

The Equifax Hack

Sep 8, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was another busy week with one hurricane behind us and another quickly approaching.  Our thoughts and prayers go out to those who lost so much in Houston.  For those in Florida, we pray the storm weakens before it hits and we urge those who can to evacuate if possible.  Since the news is adequately covering these storms, I’ll move on to the things this week that you may have missed.

In a somewhat unexpected move, President Trump struck a deal with Democratic congressional leaders on Wednesday to increase the debt limit and finance the government until mid-December.  In embracing the three-month deal, President Trump accepted a Democratic proposal that had been rejected earlier in the day by Speaker Paul Ryan.  After weeks of criticizing Republican leaders for failing to pass legislation, President Trump signaled he was willing to cross party lines to score a much-needed legislative victory.  It is unclear whether this collaboration with Democrats foreshadows a more sustained shift in strategy or amounts to a one-time pragmatic decision.  Either way, the government will remain in business at least through mid-December.

In other news, Federal Reserve Vice Chairman Stanley Fischer has resigned citing personal reasons.  His term as vice chair was set to expire next June but his appointment to Federal Reserve wasn’t set to expire until 2020.  The president now has the opportunity to appoint not just the next Fed chair, but the vice chair as well.  Interestingly, the front-runner to replace Janet Yellen atop the Fed, Gary Cohn is now unlikely to be nominated by the president thanks to Cohn’s criticism of Trump’s response to the Charlottesville violence last month.  Cohn, for now, remains the White House’s chief economic advisor.

Another story that broke late on Thursday is a massive data breach at one of the country’s largest credit bureaus.  Equifax announced a massive data leak that may have impacted 143 million U.S. consumers.  This number represents 44% of the U.S. population but is closer to 75% of those with a credit file.  Information that was accessed includes names, social security numbers, birth dates, addresses, and driver’s license numbers.  In an odd twist, three Equifax executives sold shares of the company in the days after the breach was discovered, but before it was reported.  The execs sold $1.8 million worth of stock, but insist they had no knowledge of the breach when they sold their shares.  In another twist, during the month of July, only 260 put options were traded on the stock.  However, on August 21st someone purchased 2,600 September puts with a strike price of $135.  This $156,000 investment is now worth more than $4 million thanks to the plunge in Equifax’s stock price.  It seems investigators will have their hands full.

Turning to France, I came upon a story that indicates just how quickly the things we take for granted can change.  This past July, France announced it would place a ban on the sale of gasoline and diesel cars by the year 2040 as an ambitious plan to meet its targets under the Paris climate accord.  This announcement came only days after Volvo said it would only make fully electric or hybrid cars from 2019 onwards.  This week France took it a step further.  France’s government drafted legislation to phase out all oil and gas exploration and production on its mainland and overseas territories by 2040, becoming the first country to do so.  This represents a seismic shift in just twenty years, demonstrating the speed at which the transformation of the energy and automobile industry is occurring.

In closing, I hope to amuse the wordsmiths among you.  I had a dispute with my wife this week over the spelling of a common phrase.  Is it Just Deserts or Just Desserts?  Even among those who have a solid grasp of the English language, it seems this phrase causes confusion.  These two terms, though only one letter apart and pronounced identically, have different etymologies.  The particular sense of desert that appears in just deserts derives from the Old French verb deserver meaning “to deserve,” and has been around since the 1200s.  Dessert with the double s derives from the French desservir meaning “to clear the table.”  So, the next time you’re talking about someone’s comeuppance make sure to use just deserts with one s.  As for who was right between my wife and me, I’ll never say.  Now you know.

September 8, 2017

Zestimate

Aug 25, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

With this week behind us, we’re one step closer to tax reform, normalized monetary policy, and world peace.  Well, maybe not the last part but certainly, we’ve moved past healthcare reform and are moving on to tax reform.  Beginning next week, we expect to hear the President’s plans for reforming and perhaps simplifying our complex tax system.  The markets were buffeted earlier in the week by news that there might be a government shutdown over funding of the President’s border wall initiative and then again later in the week when the President said the U.S. “probably” will terminate the North American Free Trade Agreement (NAFTA).  It’s a wonder the market isn’t a lot more volatile these days.

Let’s start with a bit of good news.  The leaders of both the House and the Senate confirmed that the United States will raise its debt ceiling.  “There is little chance, no chance we won’t raise the debt ceiling,” Senate Majority Leader Mitch McConnell said alongside Treasury Secretary Steven Mnuchin.  The Treasury Department has been employing cash-conservation measures since March when the previous suspension of the debt limit expired and the new ceiling was set at nearly $20 trillion dollars.  House leader Paul Ryan reaffirmed this statement later in the week after President Trump tweeted that Congress could have avoided a “mess” if Ryan and Mitch McConnell had taken his advice to link the debt ceiling and veteran’s funding measure.  Either way, it appears for now that this shouldn’t be an issue.

As for tax reform, we should start hearing about it this coming week.  “Starting next week, the president’s agenda and calendar are going to revolve around tax reform,” National Economic Council Director Gary Cohn said this week.  Early reports suggest significant progress is being made between Trump’s top aides and Republican leaders in shaping the overhaul.  The options on the table include capping the mortgage interest deduction for homeowners, scrapping people’s ability to deduct state and local taxes, eliminating businesses’ ability to deduct interest and allowing for the repatriation of corporate profits from overseas.  Before you get too worked up about what may be cut, note that there is contradictory information coming out as this remains a work in progress.  Despite rumors to the contrary, Mr. Cohn says the administration has no plans to end the charitable donation deduction, nor the tax benefit on retirement savings.

I occasionally mention stories that result from unintended consequences.  This week I came across a story that U.S. hospitals are facing soft admissions and don’t expect this to reverse anytime soon.  Reuters reported that headwinds from weak patient admissions will continue to affect hospital groups through 2018, driven by soaring out-of-pocket costs and uncertainty surrounding Obamacare.  High-deductible plans, which shift upfront costs to patients, have reduced demand for non-emergency surgeries.  Some of the largest hospital companies, including HCA and Tenet Healthcare have cut their outlooks and forward guidance.  Perhaps this is less of a flaw and more a feature since one aim of healthcare reform was to bring costs down.  However, I’m not sure this is exactly what they had in mind.

In other news, Zillow, the popular website homebuyers use to find their perfect home, won an important class-action lawsuit in Chicago that challenged the accuracy of its ‘Zestimate’ tool used for estimating U.S. home values.  Have you ever gone on there to find that your home is worth considerably less than you think?  Homeowners sued Zillow in May, complaining that its computer algorithm often undervalues homes, sometimes by hundreds of thousands of dollars, making them harder to sell and constituted illegal “appraisals.”  The judge, in dismissing the suit, agreed. “Zestimates are not false, misleading, or likely to confuse,” the ruling read. “The word ‘Zestimate — an obvious portmanteau of ‘Zillow’ and “estimate’ — itself indicates that Zestimates are merely an estimate of the market value of a property.”

In closing, I turn to a mystery that was recently uncovered.  Prosecutors in Bavaria have found documents showing thousands of Audi vehicles exported to China, Korea, and Japan may have the same vehicle identification number (VIN).  The discovery was made as investigators searched Audi corporate files for documents related to the dieselgate scandal.  A cars VIN number is supposed to be a unique, 17-digit identifier for every car and truck produced and cannot be reused for at least thirty years.  This allows for owners or potential buyers to track things like the cars ownership history or accident record.  One explanation is that imported Audis are especially prized in the Chinese market but have strict limits on the number that can be imported in any given year.  Some speculate assigning one VIN number to thousands of vehicles is one way to get around this regulation.  Now you know.

August 25, 2017

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