Month: April 2017

The Washington Post is out with a few more leaks today, this time purporting that Trump is set to impose two liberal wet dreams on the people, VAT and carbon taxes.

Washpo said the administration is trying to find ways to raise revenues, in order to provide the people with the tax cuts they promised. Moreover, they painted this in a light that Trump and his team are trying to extend olive branches to the batshit democrats, by way of onerous taxes on the American people, to meet them ‘halfway’ in an attempt to find common ground.

A carbon tax would target the emissions of carbon dioxide and other greenhouses gases in the burning of gasoline, coal and other fossil fuels. Many Democrats support the creation of a carbon tax as a way to address climate change, but they couldn’t even reach an agreement on the issue when they had control of Congress and the White House during the early years of the Obama administration.

I call 100% bullshit on this fake news.

A man who eschewed global warming as nothing more than a Chinese scheme to deindustrialize America does not simply agree to carbon taxes as a meana to an end.

The VAT tax, or ‘value-added tax’ is used in other countries of lesser qualities. It serves as a national sales tax, targeting fuckheads to enjoy to spend all of their money at the mall. Critics argue it target the weak and the poor. It does.

Here is how Washpo described their unnamed sources feeding them this nonsense.

Administration officials stressed that no final decision has been made and they are reviewing different alternatives. Two officials and a third person confirmed the consideration of the value-added tax, while one official and the third person confirmed the consideration of the carbon tax. The carbon tax idea is very controversial within the administration, and some officials strongly oppose it, one person said.

“Two officials and a third person” said Trump was considering a VAT tax, but ‘some officials’ strongly opposed the carbon tax. Therefore, the Washington Post felt it necessary to lie to the American people by suggesting Trump was considering a carbon tax, in order to create resentment amongst his base.

There is a 0% chance that Trump will impose a carbon tax. Write it down.

All of this talk of taxes has reignited the discussion of a ‘border adjustment tax’, which is having a ruinous effect on the shares of retail stocks. Shares of $JCP are leading the way lower by 6.5%, followed by losses in $M, $KSS, $EXPR, $JWN and so many others. It is a bloodbath in retail today.

The problem for retailers, aside from the blackhole that is Amazon, is two fold, amidst today’s news of Trump’s tax ideas.

By enacting a VAT tax, the price of goods will rise, effectively reducing the volume of goods sold and of course profits. The border adjustment tax would cause the price of goods to rise dramatically for retailers, depending on the tax rate, which again would directly affect their bottom line.

Clearly, the party at the ‘made in China’ punchbowl might be coming to an end — ushering in a new era of American austerity and shift away from consumerism.

Are we capable of such a switch after decades of targeted ads brainwashing us into believing we ‘needed’ that latest gadget?

Probably not.

Content originally published at iBankCoin.com

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If former National Security Advisor Susan Rice though she could get away from the current furore over the Trump “unmasking” scandal with just one MSNBC interview in which Andrea Mitchell did not even ask her why she lied two weeks ago to PBS, she will be disappointed as moments ago Dow Jones reported that the House Intelligence Panel has asked Susan Rice to testify, supposedly under oath.

• HOUSE INTELLIGENCE PANEL ASKS SUSAN RICE TO TESTIFY, DJ SAYS

The next question on everyone’s lips: will she plead the Fifth?

As a reminder, earlier in the day, the MSNBC anchor asked Susan Rice if she would testify before congress as Rand Paul requested, Rice responded by changing the subject to Russia.

“Rand Paul is suggesting that you be subpoenaed to testify. Would you be willing to go to Capitol Hill?” Mitchell asked.

“You know, Andrea, let’s, let’s… see what comes,” she said. “Umm, I’m not going, ahh, you know, sit here and prejudge, but what I will say is that the investigations that are underway as to the Russian involvement in our electoral process are very important and they’re very serious. Every American ought to have an interest in those investigations going wherever the evidence indicates they should.”

Asked if she would testify, Susan Rice freezes, stammers, then changes subject to Russia. http://pic.twitter.com/wj2TQ9saeU

— Chris Menahan (@infolibnews) April 4, 2017

Her decision may have been made for her.

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Continuous, aggressive innovation has been a key component of America’s success since its founding over 200 years ago.  As such, the country’s taxing authorities have historically gone to great lengths to encourage innovation through tax incentives, public private partnerships, etc.  That is, until now.

In a rather stunning Quartz interview a few weeks back, Bill Gates, who ironically made his fortune from innovation, proposed that automation should be taxed rather than incentivized.

Robots are taking human jobs. But Bill Gates believes that governments should tax companies’ use of them, as a way to at least temporarily slow the spread of automation and to fund other types of employment. It’s a striking position from the world’s richest man and a self-described techno-optimist who co-founded Microsoft, one of the leading players in artificial-intelligence technology.

 

In a recent interview with Quartz, Gates said that a robot tax could finance jobs taking care of elderly people or working with kids in schools, for which needs are unmet and to which humans are particularly well suited. He argues that governments must oversee such programs rather than relying on businesses, in order to redirect the jobs to help people with lower incomes. The idea is not totally theoretical: EU lawmakers considered a proposal to tax robot owners to pay for training for workers who lose their jobs, though on Feb. 16 the legislators ultimately rejected it.

 

“You ought to be willing to raise the tax level and even slow down the speed” of automation, Gates argues.

And while we would have thought that taxing innovation would seem like a kooky idea to pretty much anyone other than maybe a couple of eccentric billionaires and Bernie Sanders, San Francisco city manager Jane Kim seems to be completely sold on the idea.  Per Fast Company:

Kim says she read Gates’s interview and wondered if a robot tax might help the city deal with inequality. “We need to think about investments in our society that don’t exacerbate the wealth and income gaps that we already see today,” she tells Fast Company. “We don’t want to become a third-world country where there’s a big divide between the very rich and very poor.” San Francisco has one of the biggest income gaps in the country, according to figures from the Brookings Institution.

 

Kim, who represents areas like Union Square, the Tenderloin, and Civic Center, is setting up a working group to consider how an automation tax might work. She hopes it will include representatives from the tech community, academia, and unions, and that it can work through some of the practical questions. These include how much revenue the city stands to lose from lost payroll taxes due to automation, and what industries might be most affected. “It’s not only going to be manufacturing and truck drivers. It’s also going to be restaurants, hotel workers, and health care, which form a strong base of employment in the city,” she says. The tax would be paid by companies adopting robots over workers, not by robot-makers.

 

Kim sees revenue raised from the tax going toward education. She notes that an increasing number of jobs require a college degree, meaning that the tax could have a role in making college more affordable (the city is already taxing high-end real estate to pay for free tuition). Like Gates, she also favors exploring ways to slow the automation wave, allowing government and business to put in policies that help people transition. “It may be that government needs to play a role in regulating automation over time, so we can absorb job displacement at a rate that’s more sustainable for our country,” she says.

 

Most of all, Kim–possibly the first public official in America to publicly support a robot tax–is keen to experiment. “We are the center of the tech world here in San Francisco. There is a broad concern about automation and job displacement in the future,” she says. “We want to be the first to put ideas out there, so they can be explored. Then we want others to follow.”

 

Of course, implementing such a tax is more complicated than the starry-eyed, snowflake city manager might think…but the fact that it’s even getting traction is still quite concerning.

Many economists are skeptical about the workability of an automation tax, not least because it’s hard to define exactly what harmful automation is. If McDonald’s replaces a server with a robot, it’s clear that a worker has lost a job to a machine. But if an office puts in an answering machine, it may be that the worker is just doing something else than answering phones all day. Automation could have positive effects, for instance allowing people to avoid dangerous work, or to retrain and move up the wage scale.

 

These concerns were enough to derail a robot tax proposal put forward by some European lawmakers this year. But, a report from the European Parliament did suggest other radical ideas, including requiring companies to report robot adoption, and the concept of “electronic personhood” where robots would have some of the rights and responsibilities of human beings.

Perhaps Bill Gates and Jane Kim have suddenly forgotten that American companies compete in an international marketplace?  Or, perhaps they’re convinced that China will simply ‘pinky swear’ to not take advantage of America’s festering, misinformed, liberal policies.

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Authored by Lance Roberts via RealInvestmentAdvice.com,

As the first quarter of 2017 closes, April begins the last leg of the markets “seasonally strong” period of the year, which is where the idea of “Sell In May And Go Away” comes from. And, of course, every year, there is always a litany of articles written about why it is such a bad idea, you need to just “buy and hold”, blah…blah…blah.

Yes, there are years where the markets rise during the summer months, but more importantly, it is those years that don’t which cause the most damage. Last year, selling in May, saved investors the emotional trauma of the Brexit plunge in June and the pre-election angst in November.

Importantly, “selling in May” does not necessarily mean “going all to cash,” so can we please stop using extremes to try and prove a point. “Selling In May,” at least in my world, is the process of reducing risk during a period time where historical returns have tended to be poor. Take a look at the chart below which shows a $10,000 investment into markets during the “Seasonally Strong” vs. “Seasonally Weak” periods. Did you really miss anything by skipping the summer months?

 During this past weekend’s 2017 Economic and Investment Summit, Greg Morris, author of “Investing With The Trend” made a salient comment about “Sell In May & Go Away.”

“Let’s assume the statistics suggest that 75% of the time ‘Selling In May’ is a profitable strategy. As an investor, those are odds worth banking on. 

However, as soon as you try it, the strategy doesn’t work. In fact, it doesn’t work over the following three years. So, as an investor, you quit the strategy because it doesn’t work. Right?

Wrong? You just experienced some of the 25% of the time the strategy doesn’t work and with each year the strategy fails to work, the odds increase of a profitable return in the subsequent year.” 

The statistics are undeniable. Reducing risk in the summer months has benefited investors more often than not. However, given the focus of commentators, journalist and Wall Street to create action, the long-term benefit is lost to the short-term headline. 

Let me paraphrase Greg’s conclusion:

“The two biggest keys to winning the long-term investment game are patience and discipline.“

Unfortunately, patience and discipline are extremely rare commodities for individual investors today.

Which brings me to margin debt.

Margin Debt Hits Record, Nothing To Worry About?

Just recently, there was a Twitter flurry of discussion regarding the recent surge in margin debt to an all-time record. As noted by the WSJ:

“Rising levels of margin debt are generally considered to be a measure of investor confidence. Investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against.

 

But a steady chug higher to record levels can indicate that investors are losing sight of market risks and betting that stocks can only go up. Margin debt has a history of peaking right before financial collapses like the ones in 2000 and 2007.”

But many suggest that high levels of margin debt, in and of itself, is relatively meaningless.

However, as I will explain, I both agree, and disagree.

First, some context, as shown in the chart below, on a quarterly basis, the market is currently more overbought than at just about any other point in history. The vertical red lines denote the bear markets that occur from these levels. Importantly, note the current conditions HAVE NEVER lasted indefinitely. 

Besides the markets being more extended, bullish and overvalued than at virtually any other point in history, they are currently more levered as well. The NYSE released its latest margin debt figures for February which shows investors piled on leverage pushing levels to all-time highs.

It is worth noting that when net credit balances have plunged very negative levels it has been the “fuel” for a major mean reverting event at some point in the future.

As I stated above, I both agree and disagree with the statement that margin debt levels are simply a function of market activity and have no bearing on the outcome of the market.

By itself, margin debt is inert.

Investors can leverage their existing portfolios and increase buying power to participate in rising markets. While “this time could certainly be different,” the reality is that leverage of this magnitude is “gasoline waiting on a match.”

When an event eventually occurs, it creates a rush to liquidate holdings. The subsequent decline in prices eventually reaches a point which triggers an initial round of margin calls. Since margin debt is a function of the value of the underlying “collateral,” the forced sale of assets will reduce the value of the collateral further triggering further margin calls. Those margin calls will trigger more selling forcing more margin calls, so forth and so on.

Notice in the chart below that margin debt reduction begins innocently enough before accelerating sharply to the downside. This time will likely be no different.

Last week, Jonathan Tepper (@jtepper2) asked about margin debt as a percent of the economy.

The idea is that since the stock market should be somewhat reflective of underlying economic activity, then the correlation between the markets, leverage, and economic growth should provide some clues as to future outcomes. Unfortunately, it does.

Jonathan also took it from an interesting perspective as well considering disposable personal incomes. To wit:

For all those that hate margin debt charts. Enjoy. Not a timing tool, but looks at margin debt vs real economy as denominator. http://pic.twitter.com/DW35bGgZz9

— Jonathan Tepper (@jtepper2) April 2, 2017

Margin debt to market capitalization also provides some interesting insights.

Spikes in the margin debt to market capitalization ratio have been historically consistent with short-term market peaks and the beginning of major corrections. Currently, the recent spike higher has led to some stagnation in the market and will be worth watching as we head into the seasonally weak summer months.

Here is the important point. It is not the rising level of debt that is the problem, it is the decline which marks peaks in both market and economic expansions.

A Technical Take

Now, my friend Greg Morris absolutely hates it when people apply technical analysis to economic data. However, I hope he will grant me a consideration here because I think it is a fruitful exercise. 

The following three charts examine margin debt as it relates to the financial markets by utilizing the 12-month moving average, relative strength, and stochastic analysis. Unlike a stock price chart, we are using the technical analysis, in this case, to understand how aggressively investors are leverage up portfolios as a sign of excessive exuberance, or capitulatory buying.  

The first is the 12-month moving average of margin debt. When margin debt has fallen below the 12-month moving average, it has been indicative of market corrections. The blue highlights are where margin debt did dip below its 12-month average which corresponded with trouble in the markets. Currently, with margin debt levels well above the average, it was not surprising to see the markets move higher in February. However, given the recent struggles in March, it would suggest some correction in leverage has occurred. But currently, the trend in margin debt remain positive suggest the bullish backdrop for investors remains supportive for the remainder of the seasonally strong period. 

The next chart is a Stochastic Oscillator of margin debt. The vertical red bars highlight when the oscillator has declined below 50 on a scale of 0 to 100. As with margin debt itself, it is not the increase of the oscillator that is important but rather the decline. When the oscillator falls BELOW 50, and approaches ZERO, is when the markets have either been in short-term corrections or full blown reversions. As of February, the oscillator had recovered from its pre-election correction and is once again approaching 100. This suggests, the current bull market remain intact for now and could remain throughout the remainder of the seasonally strong period. However, be on the lookout for summer weakness from a timing standpoint. 

The relative strength index of margin debt is also another way to look at how fast investors are leveraging up portfolios. As discussed above, when margin debt is rising strongly, so are the markets. Conversely, when market participants become worried about the markets and begin to unwind leverage, which requires selling, that markets have historically run into trouble.

It is when margin debt’s RSI has exceeded 80, and begins to decline, which has generally been indicative of short-term corrections and major market declines. RSI peaked above 80 prior to the election and declined as the markets ran into trouble over the concerns of a “Trump Election.” However, that negativity quickly reversed election night as the “Trump Trade” got underway and fueled a resurgence of buying exuberance with investors levering up their portfolios once again.

With RSI now climbing back towards 80, as with the stochastic indicator above, it suggests the current bullish trend remains intact most likely for the remainder of the seasonally strong period. However, there have been periods where the market reversed with the RSI at levels lower than 80, so don’t get complacent.

Since the markets remain near all-time highs, does this mean the indicator is flawed and should not be paid attention to? Hardly. What it does suggest is that much like the late 90’s, exuberance is pressing stocks higher even as many of the underlying technical and fundamental indicators suggest this should not be the case.

Conclusion

These different measures of margin debt all suggest that investors should be cautious of the markets currently.  While the bullish trend currently remains intact, and will likely remain so for the remainder of the seasonally strong period, it doesn’t mean investors should become overly complacent. Risks of a more substantial correction have risen due to a deterioration in economic data, fundamental data and the length of time itself.

Currently, margin debt is still rising as the “fear of missing out” on potential upside in the market is trumping longer-term logic of risk management and portfolio controls. However, this has always been the case with investors historically as the chase for returns leads to “buying tops” and “selling bottoms.” This time will very likely turn out similarly.

As I stated, the important thing to remember about margin debt is that alone it is inert and poses no real danger to the market. However, when combined with the correct catalyst, it will act as an accelerant to a market correction when forced liquidations fuel additional selling.

Few investors have survived the corrections that in hindsight were deemed “obvious.” However, in the short-term, these dangers remain dismissed as the markets continue to climb a “wall of worry.” 

But that is a climb that does not last forever.

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It appears Trump just can’t please anyone these days. It would stand to reason that if Trump was indeed failing domestically, as so many of his recent polls where Trump’s recent approval ratings continue to tumble would suggest, then at least America’s enemies would be delighted with Trump as head of the US.

However, that appears not to be case, and not only with the country which has caused the Trump administration so many headaches, Russia – recall last week Putin spokesman Peskov blamed the current administration for relations that are “worse than the cold war”- but also with America’s sworn enemy in the middle east, the Islamic State (ignoring for a minute Hillary Clinton’s leaked email that ISIS was created by Saudi Arabia and Qatar, as well as the Pentagon report according to which the US “created ISIS as a tool” to overthrow Assad).

Today, in the first official remarks by the Islamic State referring to President Donald Trump since he took office, spokesman Abi al-Hassan al-Muhajer said that the United States was drowning and is “being run by an idiot”, according to Reuters.

“America you have drowned and there is no savior, and you have become prey for the soldiers of the caliphate in every part of the earth, you are bankrupt and the signs of your demise are evident to every eye.”

“… There is no more evidence than the fact that you are being run by an idiot who does not know what Syria or Iraq or Islam is,” al-Muhajer said in a recording released on Tuesday on messaging network Telegram.

“Die of spite America, die of spite, a nation where both young and old are racing to die in the name of God will not be defeated,” al-Muhajer said.

While Obama had previously been the object of much theatrical anger by the Islamic State, this is the first instance of ISIS slamming Trump, whose approval rating in Raqqa appears to be sinking as fast as in the US.

It was not clear what prompted the Islamic State’s outburst: Trump has made defeating Islamic State a priority of his presidency, and is examining ways to accelerate the U.S.-led coalition campaign that U.S. and Iraqi officials say has so far been largely successful in uprooting Islamic State militants in Iraq and Syria, although for now Trump’s threats have been mostly confined to the realm of jawboning.

Perhaps a better question is whether like the CIA and FBI recently became every progressive’s best friend after turning on Trump, so the Islamic State will suddenly find new admirers among the liberal and progressive community in the US, which may have found its latest ideological peer.

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While Jamie Dimon tried to maintain his traditionally optimistic outlook in his annual letter to shareholders, there was a distinct undertone of pessimism in the latest 45 page letter released earlier today, in which he writes that while the U.S. is “truly an exceptional country,” probably stronger than ever before, he cautions that “something is wrong – and it’s holding us back.”

Here are the highlights from the gloomy passage reposted below in its entirety.

Dimon’s letter notes that the economy has been growing much more slowly in last decade or two than in the 50 years before then, with real median household incomes in 2015 2.5% lower than they were in 1999 and the percentage of middle class households shrinking, yet not even someone as intelligent as Dimon can bring himself to fully admit that much if not all of it has to do with America’s relentless debt binge, and the gargantuan debt load accumulated and carried by Americans, whether in the form of personal, student, auto debt, be it corporate debt which is at a record high, or, naturally, the sovereign debt which is on the distrubing side of 100% as a percentage of GDP.

Among other things, Dimon observes:

• Over last 16 years, U.S. has spent trillions on wars when it could have been investing that money productively.
• Since 2010, when the government took over student lending, direct government lending to students has gone from ~$200b to >$900b, creating dramatically increased student defaults, population that’s “rightfully angry” about how much money they owe, particularly since it reduces ability to get other credit.
• Healthcare costs are essentially twice as much per person vs most other developed nations.
• Labor force participation is too low.

Dimon also writes that the regulatory environment is “unnecessarily complex, costly and sometimes confusing;” says poorly conceived and uncoordinated regulations have damaged economy, inhibiting growth and jobs. He also says that he isn’t looking to throw out entirety of Dodd-Frank or other rules; “it is, however, appropriate to open up the rulebook in the light of day and rework the rules and regulations that don’t work well or are unnecessary.”

Furthermore, the JPM CEO sees need for “consistent, transparent, simplified and more risk-based capital standards” and says that it’s clear banks have too much capital, and more of that capital can be safely used to finance the economy,

Finally, in the most amusing twist, Dimon sees “Too Big to Fail” as essentially solved and adds that taxpayers won’t pay if a bank fails as shareholders and debtholders are at risk for all losses. Just like in the case of Monte Paschi a few months ago, right?

We will certainly check back on that #timestamp in several years.

* * *

Here is the full excerpt from Dimon (link to full letter):

It is clear that something is wrong — and it’s holding us back.

Our economy has been growing much more slowly in the last decade or two than in the 50 years before then. From 1948 to 2000, real per capita GDP grew 2.3%; from 2000 to 2016, it grew 1%. Had it grown at 2.3% instead of 1% in those 17 years, our GDP per capita would be 24%, or more than $12,500 per person higher than it is. U.S. productivity growth tells much the same story, as shown in the chart [below].

Our nation’s lower growth has been accompanied by – and may be one of the reasons why – real median household incomes in 2015 were actually 2.5% lower than they were in 1999. In addition, the percentage of middle class households has actually shrunk over time. In 1971, 61% of households were considered middle class, but that percentage was only 50% in 2015. And for those in the bottom 20% of earners – mainly lower skilled workers – the story may be even worse. For this group, real incomes declined by more than 8% between 1999 and 2015. In 1984, 60% of families could afford a modestly priced home. By 2009, that figure fell to about 50%. This drop occurred even though the percentage of U.S. citizens with a high school degree or higher increased from 30% to 50% from 1980 to 2013. Low-skilled labor just doesn’t earn what it used to, which understandably is a source of real frustration for a very meaningful group of people. The income gap between lower skilled and skilled workers has been growing and may be the inevitable consequence of an increasingly sophisticated economy.

Regarding reduced social mobility, researchers have found that the likelihood of workers moving to the top-earning decile from starting positions in the middle of the earnings distribution has declined by approximately 20% since the early 1980s.

Many economists believe we are now permanently relegated to slower growth and lower productivity (they say that secular stagnation is the new normal), but I strongly disagree.

We will describe in the rest of this section many factors that are rarely considered in economic models although they can have an enormous effect on growth and productivity. Making this list was an upsetting exercise, especially since many of our problems have been self-inflicted. That said, it was also a good reminder of how much of this is in our control and how critical it is that we focuson all the levers that could be pulled to help the U.S. economy. We must do this because it will help all Americans.

Many other, often non-economic, factors impact growth and productivity.

Following is a list of some non-economic  items that must have had a significant impact on America’s growth:

• Over the last 16 years, we have spent trillions of dollars on wars when we could have been investing that money productively. (I’m not saying that money didn’t need to be spent; but every dollar spent on  battle is a dollar that can’t be put to use elsewhere.)
• Since 2010, when the government took over student lending, direct government lending to students has gone from approximately $200 billion to more than $900 billion – creating dramatically increased student defaults and a population that is rightfully angry about how much money they owe, particularly since it reduces their ability to get other credit.
• Our nation’s healthcare costs are essentially twice as much per person vs. most other developed nations.
• It is alarming that approximately 40% (this is an astounding 300,000 students each year) of those who receive advanced degrees in science, technology, engineering and math at American universities
  are foreign nationals with no legal way of staying here even when many would choose to do so. We are forcing great talent overseas by not allowing these young people to build their dreams here.
• Felony convictions for even minor offenses have led, in part, to 20 million American citizens having a criminal record – and this means they often have a hard time getting a job. (There are six times more felons in the United States than in Canada.)
• The inability to reform mortgage markets has dramatically reduced mortgage availability. We estimate that mortgages alone would have been more than $1 trillion higher had we had healthier mortgage markets. Greater mortgage access would have led to more homebuilding and additional jobs and investments, which also would have driven additional growth.

Any one of these non-economic factors is fairly material in damaging America’s effort to achieve healthy growth. Let’s dig a little bit deeper into six additional unsettling issues that have also limited our growth rate.

Labor force participation is too low.

Labor force participation in the United States has gone from 66% to 63% between 2008 and today. Some of the reasons for this decline are understandable and aren’t too worrisome – for example, an aging  population. But if you examine the data more closely and focus just on labor force participation for one key segment; i.e., men ages 25-54, you’ll see that we have a serious problem. The chart below shows that in America, the participation rate for that cohort has gone from 96% in 1968 to a little over 88% today. This is way below labor force participation in almost every other developed nation.

If the work participation rate for this group went back to just 93% – the current average for the other developed nations – approximately 10 million more people would be working in the United States. Some other highly disturbing facts include: Fifty-seven percent of these non-working males are on disability, and fully 71% of today’s youth (ages 17–24) are ineligible for the military due to a lack of proper education (basic reading or writing skills) or health issues (often obesity or diabetes).

Education is leaving too many behind.

Many high schools and vocational schools do not provide the education our students need – the goal should be to graduate and get a decent job. We should be ringing the national alarm bell that inner city schools are failing our children – often minorities and children from lower income households. In many inner city schools, fewer than 60% of students graduate, and many of those who do graduate are not prepared for employment. We are creating generations of citizens who will never have a chance in this land of dreams and opportunity. Unfortunately, it’s self-perpetuating, and we all pay the price. The subpar academic outcomes of America’s minority and low-income children resulted in yearly GDP losses of trillions of dollars, according to McKinsey & Company.

Infrastructure needs planning and investment.

In the early 1960s, America was considered by most to have the best infrastructure (highways, ports, water supply, electrical grid, airports, tunnels, etc.). The World Economic Forum now ranks the United States #27 on its Basic Requirements index, reflecting infrastructure along with other criteria, among 138 countries. On infrastructure, the United States is behind most major developed countries, including the United Kingdom, France and Korea. The American Society of Civil Engineers releases a report every four years examining current infrastructure conditions and needs – the 2017 report card gave us a grade of D+. Another interesting and distressing fact: The United States has not built a major airport in more than 20 years. China, on the other hand, has built 75 new civilian airports in the last  10 years alone.

Our corporate tax system is driving capital and brains overseas.

America now has the highest corporate tax rates among developed nations. Most other developed nations have reduced their tax rates substantially over the past 10 years (and this is true whether looking at statutory or effective tax rates). This is causing considerable damage. American corporations are generally better off investing their capital overseas, where they can earn a higher return because of lower taxes. In addition, foreign companies are advantaged when they buy American companies – often they are able to reduce the overall tax rate of the combined company. Because of this, American companies have been making substantial investments in human capital, as well as in plants, facilities, research and development (R&D) and acquisitions overseas. Also, American corporations hold more than $2 trillion in cash abroad to avoid the additional taxes. The only question is how much damage will be done before we fix this.

Reducing corporate taxes would incent business investment and job creation. The charts on page 36 show the following:

• That job growth is highly correlated to business investment (this also makes intuitive sense).
• That fixed investments by businesses and capital formation have gone down substantially and are far below what we would consider normal.

And counterintuitively, reducing corporate taxes would also improve wages. One of the unintended consequences of high corporate taxes is that they actually depress wages in the United States. A 2007 Treasury Department review finds that labor “may bear a substantial portion of the burden from the corporate income tax.” A study by Kevin Hassett from the American Enterprise Institute finds that each $1 increase in U.S. corporate income tax collections leads to a $2 decrease in wages in the short run and a $4 decrease in aggregate wages in the long run. And analysis of the U.S. corporate income tax
by the Congressional Budget Office finds that labor bears more than 70% of the burden of the corporate income tax, with the remaining 30% borne by domestic savers through a reduced return on their savings. We must fix this for the benefit of American competitiveness and all Americans.

Excessive regulations reduce growth and business formation.

Everyone agrees we should have proper regulation – and, of course, good regulations have many positive effects. But anyone in business understands the damaging effects of overcomplicated and inefficient regulations. There are many ways to look at regulations, and the chart below and the two on page 38 provide some insight. The one below shows the total pages of federal regulations, which is a simple way to illustrate additional reporting and compliance requirements. The second records how we compare with the rest of the world on the ease of starting a new business – we used to be among the best, and now we are not. The bottom chart on page 38 shows that small businesses now report that one of their largest problems is regulations.

By some estimates, approximately $2 trillion is spent on regulations annually (which is approximately $15,000 per U.S. household annually). And even if this number is exaggerated, it highlights a disturbing problem. Particularly troubling is that this may be one of the reasons why small business creation has slowed alarmingly in recent years. According to the U.S. Chamber of Commerce, the rising burdens of federal regulations alone may be a main reason for a falling pace in new business formation. In 1980, Americans were creating some 450,000 new companies a year. In 2013, they formed 400,000 new businesses despite a 40% increase in population from 1980 to 2013. Our three-decade slump in company formation fell to its lowest point with the onset of the Great Recession; even with more businesses being established today, America’s startup activity remains below prerecession levels.

While some regulations quite clearly create a common good (e.g., clean air and water), it is clear that excessive regulation does not help productivity, growth of the economy or job creation. And even regulations that once may have made sense may no longer be fit for the purpose. I am not going to outline specific recommendations about non-financial regulatory reform here, other than to say that we should have a permanent and systematic review of the costs and benefits of regulations, including their intended vs. unintended consequences.

The lack of economic growth and opportunity has led to deep and understandable frustration among so many Americans.

Low job growth, a lack of opportunity for many, declining wages, students and lowwage workers being left behind, economic and job uncertainty, high healthcare costs and growing income inequality all have created deep frustration. It is understandable why so many are angry at the leaders of America’s institutions, including businesses, schools and governments – they are right to expect us to do a better job. Collectively, we are the ones responsible. Additionally, this can understandably lead to disenchantment with trade, globalization and even our free enterprise system, which for so many people seems not to have worked.

Our problems are significant, and they are not the singular purview of either political party. We need coherent, consistent, comprehensive and coordinated policies that help fix these problems. The solutions are not binary – they are not either/or, and they are not about Democrats or Republicans. They are about facts, analysis, ideas and best practices (including what we can learn from others around the world).

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"Somebody had better give this all a lot more thought before starting to put potential time parameters on when we might be setting off on this treacherous trek."

The journey that Bloomberg's Richard Breslow is referring to is ending the reinvestment of maturing securities held on the Federal Reserve’s bloated balance sheet.

All of a sudden, we’re not hearing it's a noble goal, deserves study and should start after considerable progress has been made in raising the Fed Funds level toward the neutral rate — the argument upon which the Fed’s dot plots are supposedly based. We’ve just had three Fed speakers, including NY President Bill Dudley, mention the latter part of this year as potentially appropriate. This is a big change and a very big deal.

 

With all due respect to everyone with an opinion on this subject, no one knows how this is going to work in practice, let alone what it will do to markets.

 

If stability of financial conditions is the unofficial third mandate then buckle up. It could be like being the passenger in a car driven by someone struggling to work out getting from neutral into first gear on a steep hill.

 

 

Remember when we were assured that dealing with disinflation was the hard part, and there was a plan for how it would all get unwound? It sounded good at the time. Buying securities on a well advertised schedule was not the tour-de-force. Reducing holdings on a potentially start stop basis will take the real moxie.

 

In the last two weeks we’ve gone from risk-off to risk-on to, this morning, when the jury is out. Will the Fed be able to ignore these bouts of severe mood swings, especially if they’re longer lasting? They’d better. But as Dudley said, projections are forecasts, not commitments. Now multiply the complexity if we’re talking asset dispositions instead of 25 basis point hikes.

 

Just for a little context, Bloomberg’s Stephen Spratt calculates that the balance sheet’s Treasury holdings longer than 20-years maturity represents a full three years worth of long-bond supply. Not even mentioning all the MBS. How’s that for crowding out? And how many years is this going to take? Ever wonder why corporate America is stockpiling cash?

 

Getting the balance sheet down is an important long-term objective. Long-term thinking is not something we’re good at. But doing it without a lot of Fed Funds firepower to facilitate it is not going to be smooth. Embarking on this project merely to claim it as a milestone would be a policy mistake.

And as a strong reminder, it's not just The Fed balance sheet that we have to worry about…

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Via TheAntiMedia.org,

Craving more of a science fiction-style existence? Perhaps you should seek a job with one of the companies at Epicenter, an employment hub in Sweden.

The Associated Press reported Monday that companies there have begun implanting microchips in their employees, marking the first time the practice has been used on a broad scale.

“What could pass for a dystopian vision of the workplace is almost routine at the Swedish start-up hub Epicenter,” AP reports. “

 

The company offers to implant its workers and start-up members with microchips the size of grains of rice that function as swipe cards: to open doors, operate printers or buy smoothies with a wave of the hand.”

Epicenter, home to more than 100 companies and about 2,000 workers, began offering the implants in January of 2015. Now, about 150 workers have been chipped.

“The biggest benefit, I think, is convenience,” Patrick Mesterson, Epicenter co-founder, told AP. “It basically replaces a lot of things you have, other communication devices, whether it be credit cards or keys.”

A “body hacker” shows up at your office, ready with a preloaded syringe. He injects the chip into the fleshy part of the hand near the thumb. Now you’re a cyborg.

The chips use near-field communication technology, the same as in credit cards. When swiped by a reader a few inches away, data flows via electromagnetic waves. The chips are passive, meaning they contain information but can’t read other devices.

The technology isn’t new. Such chips are used for things such as tracking deliveries and virtual dog collars. And there have been other, isolated cases of companies chipping their employees in the past.

But Epicenter is bringing it to a whole new level, and workers there seem alright with the idea. In the article, the general attitude is perhaps best captured by the comment of one 25-year-old worker:

“I want to be part of the future.”

via http://ift.tt/2oFbOZY Tyler Durden