Chinese Auto Sales Slump 43% Sequentially In January, But Tesla Bucks The Trend

Chinese Auto Sales Slump 43% Sequentially In January, But Tesla Bucks The Trend

All eyes are going to be on the state of China’s auto market this week as the China Passenger Car Association is slated to release final passenger vehicle sales data on Wednesday. But preliminary data shows sales of 1.24 units, down 43% from December. 

The decline is sequential can be attributed to some customers pulling forward demand in order to take advantage of subsidies before the end of the year.  

With regard to Tesla, the American EV manufacturer seemed to have bucked the trend thanks to price cuts. The company’s China segment shipped 66,051 vehicles in January, according to Bloomberg, citing preliminary data released by China’s Passenger Car Association. In December, that number stood at 55,800.

The figure is up 18% from December, while China’s new energy passenger vehicles, in total, are seen down 45% month over month from December to January. 

The company is now reportedly planning to increase output at its Shanghai plant – bringing its run rate back toward where it was in September 2022 – in order to continue meeting the demand from price cuts on its best selling models. 

Meanwhile, looking at the broader scope of EV sales in China, preliminary data we wrote about days ago showed domestic names like Nio, Xpeng and Li Auto all recorded monthly and YOY sales declines in January, per Jalopnik

SCMP reported this week: 

  • Shanghai-based Nio delivered 8,506 vehicles to mainland customers in January, down 46.2 per cent from December and 11.9 per cent from the same period in 2022.
  • Guangzhou-headquartered Xpeng said its January deliveries dropped 53.8 per cent from a month earlier to 5,218 units, representing a year-on-year decline of 59.6 per cent.
  • Li Auto in Beijing handed over 15,141 vehicles to buyers, 28.7 per cent fewer than in December and 23.4 per cent below January 2022 deliveries.

The report notes that almost all manufacturers suspended operations and sales during the Lunar New Year holiday, which ran from January 21 to January 27. 

Gao Shen, an independent analyst in Shanghai: “Apparently, Tesla’s huge discounts [on its Model 3 and Model Y vehicles] siphoned off drivers’ buying interest in the Chinese-developed smart EVs. Overall demand for expensive EVs appears to be weak, which could lead to price wars in the premium EV segment this year.”

Tyler Durden
Tue, 02/07/2023 – 11:40

via ZeroHedge News https://ift.tt/a4DX1pn Tyler Durden

Peter Schiff: Risk On; Economic Understanding Off

Peter Schiff: Risk On; Economic Understanding Off

Via SchiffGold.com,

We saw a big rotation into risk assets after last week’s Federal Reserve meeting. Then we had another big shock to the markets when the non-farm payroll report came out much stronger than expected. In his podcast, Peter Schiff broke down the market reaction to last week’s events and reveals that while risk was on, economic understanding was off.

Gold plunged by nearly $50 last Friday, dropping back below $1,900 an ounce and settling just above $1,860. That was after gold climbed above $$1,950 after the Federal Reserve meeting. Gold lost nearly 2/3 of its yearly gain in just two days. Peter said this is typical trading during a bull market.

Whenever you’re in a bull market, it’s the down moves that are more violent, that are larger, and they happen to shake people out. It’s not just that some people are taking profits, but other people are shaken out of the market. They get scared out by the big drop, and they think, OK, the move is over, I better get out, and they clear out a lot of the excess baggage. That paves the way for a move to new highs, which is what I think is going to happen with gold.”

There were a couple of big catalysts for the move down.

One was the big “risk-on” day on Thursday after the FOMC meeting. There was a big rotation out of safe-haven assets such as gold into riskier assets such as speculative stocks and cryptocurrency. In fact, there was a huge tech rally that wasn’t based on any fundamentals.

It was just based on a risk-on appetite, and of course, a lot of short covering.”

There was also some economic data on Thursday that fed the idea that the Federal Reserve will be able to stop raising rates sooner rather than later. In fact, the belief that the fight against inflation is about over was the primary driver in the markets on Thursday.

But the big news that blew up the gold market on Friday was the much stronger-than-expected non-farm payroll report. The number of jobs “created” nearly doubled expectations.

Peter said the big increase in jobs could be just a function of seasonal adjustments. But the drop in the unemployment rate from 3.5% to 3.4% was a factor that really spooked the markets. The last time the unemployment rate was this low was in 1969.

Now, of course, we didn’t measure the unemployment rate back in the 1960s the same way we measure it now. So, if it was an apples-to-apples comparison, today’s rate would be much higher than the 1969 rate. But as far as the markets are concerned, that just takes government numbers at face value, this is the lowest unemployment rate since the 60s.”

This was seen as a good report on the economy and therefore bad news for the markets. Stocks fell on the news, along with gold. Peter said he thinks this report is making people think that maybe we’ll get a soft landing after all — meaning the Fed can get price inflation back to 2% without tanking the labor market or the economy more broadly.

After all, so many people now believe that the Fed has made significant progress in its goal of returning inflation to 2%, yet that progress has not come at the expense of jobs. It has not come at the expense of an increase in the unemployment rate. In fact, unemployment is now hitting new lows even as the Fed continues to raise interest rates to bring down the rate of inflation. So, more investors are thinking maybe the Fed can pull off this miracle.”

Everybody also believes that once the Fed gets price inflation to 2%, it can start cutting interest rates.

Nobody seems so to understand that even if the Fed is successful in bringing inflation back down to 2%, which it will not be, but even if it were able to do that, it does not mean the Fed can take interest rates back down to zero or anywhere close to zero. In fact, even if inflation is around 2%, the appropriate interest rate under normal circumstances with a 2% inflation rate is probably at least a 4% Fed funds rate. It’s not a Fed funds rate that’s anywhere near where it was in previous years. That was the aberration. We can’t go back to those artificially low interest rates. And, if the Fed even attempted to return to those rates, then any progress on inflation would immediately be lost.”

The markets don’t get the fact that even if price inflation goes down to 2%, it won’t stay there if the Fed cuts rates. The central bank would have to raise rates significantly above neutrality before it could successfully cut rates back to a neutral level.

But I don’t even think we’ve gotten there yet. In fact, if you look at what the actual inflation rate is, the current rate is still stimulative. We haven’t even reached neutral. But if we were able to restore inflation to 2% with a 5% Fed funds rate, there isn’t much room for the Fed to cut in the aftermath of its victory. But of course, what the markets still don’t get is all of this improvement in inflation is transitory. We are going to see an increase in the inflation rate before the end of the year. The progress that the Fed believes it’s made is going to be lost.”

Peter said when the interest rate gets to 5% and price inflation is going up, the markets will be in for a real shock. It will mean the Fed has to raise rates even more.

If 5% didn’t have the desired effect, then maybe we need 7% or 8%. What is that going to do to the market? In fact, 5% is already more damage than the markets and the economy can bear.”

A lot of people are looking at the current situation and assuming that the economy can withstand the higher rates.

Higher rates haven’t been there long enough for the full impact to be felt by the economy. All of that is going to happen. It just takes a little more time. Yet, investors are jumping to the wrong conclusion — that because they haven’t seen that full impact yet that what they’ve seen is it. Well, they’ve barely seen anything because you can’t take this highly levered economy and then go from such low interest rates to where we are now.”

So, we’re going to see economic fallout from the moves the Fed has already made. And if price inflation starts going up again, it’s going to be an even bigger problem.

Peter goes on to dig deeper into the job numbers and some other economic data.

Tyler Durden
Tue, 02/07/2023 – 11:20

via ZeroHedge News https://ift.tt/h8QATci Tyler Durden

A Record Number Of Americans Expect Stocks To Tumble Over Next Six Months

A Record Number Of Americans Expect Stocks To Tumble Over Next Six Months

In a glowing testament to the disaster that is the administration of Biden’s handlers, Americans now predict negative rather than positive outcomes for five key aspects of the U.S. economy over the next six months. Higher inflation, unemployment and interest rates, as well as reduced economic growth and stock market values, are all expected. Furthermore, a record 48% of Americans expect the stock market to fall over the next 6 months, while just 18% think the market will stay the same in the next six months, and 31% think it will go up, according to Gallup.

Here are the details from the latest Gallup poll.

A majority of U.S. adults (67%) expect inflation to rise, although more (79%) predicted that it would last year. At the same time, the public’s outlook for unemployment and the stock market have become more pessimistic and are now negative on balance. Expectations for economic growth and the stock market are the most pessimistic in Gallup’s periodic trend.

Gallup first asked Americans in October 2001 what they expected would happen with these five aspects of the economy and updated them monthly until 2006. Since then, Gallup has asked about them eight times, though not during the late 2007-early 2009 Great Recession. The latest results are from the Jan. 2-22 Mood of the Nation poll, which also found that Americans’ confidence in the economy remains low, mentions of inflation as the nation’s most important problem are still elevated and perceptions of the job market are positive but weakened compared with a year ago.

The public’s gloomy outlook for the economy was similarly predicted in a November-December Gallup poll that found eight in 10 Americans thought 2023 would be a year of economic difficulty. Majorities expected that inflation and unemployment would rise and the stock market would fall.

Rise in Inflation Expected by Smaller Majority Than in 2022

While Gallup has typically found U.S. adults predicting inflation will rise, last year’s 79% was the highest percentage on record. In 2021, the U.S. inflation rate began to climb to levels last seen more than 40 years earlier, and 55% of Americans said in late 2022 that inflation had created hardship for them. After peaking in June 2022, the inflation rate has been slowly declining.

The 67% of U.S. adults who now expect inflation will rise in the coming months, though down 12 percentage points from 2022, far outpaces the 20% who think it will decline and the 12% who say it will remain the same. The current figure is similar to readings in late 2004 and 2005, although high inflation did not materialize at that time.

Record-High Percentage Predict Stock Market Decline

Americans are likely factoring the stock market’s recent poor performance into their outlook for 2023, after just ending its worst year since the Great Recession. A record-high 48% plurality of U.S. adults now predict the market will fall in the first half of 2023; 18% expect that it will remain the same, while 31% say it will go up.

It is possible Americans would have been even more pessimistic than now about the stock market during the Great Recession and financial crisis, when stocks lost much more value than they did in 2022. Gallup didn’t ask this question during that period but did find in April 2008 that 62%, near the record high, thought it was a bad time to invest in the stock market.

Broad Majority Continue to Say Interest Rates Will Rise

In most years since 2001, Americans have been far more likely to say interest rates would go up rather than go down or remain the same. In response to high inflation, the Federal Reserve raised interest rates seven times in 2022, and 74% of Americans predict that interest rates will increase over the next six months. (The January poll was completed before the Fed’s Feb. 1 announcement of the latest rate increase.) Equal percentages think rates will go down (12%) or remain the same (13%).

Unemployment Increase Expected in Coming Months

Although the U.S. unemployment rate was relatively low and steady throughout 2022, Americans’ expectation that it will increase in the first half of 2023 rose seven points over the past year, to 41%.

Last year, more U.S. adults thought the unemployment rate would decrease rather than remain the same or increase — but this year, belief that the jobs situation will worsen outpaces optimism by 12 points. While 41% say unemployment will rise, 29% say it will go down and the same proportion think it will remain the same. This change may stem from the recent highly publicized layoffs in the technology sector and concerns by some economists that the interest rate hikes may lead to an economic recession. The poll was completed before the January U.S. unemployment data were released. These data show an unexpected improvement in the labor market, resulting in the lowest unemployment rate since 1969.

Views of Economic Growth Have Worsened Slightly Since 2022

The U.S. economy grew in the last two quarters of 2022, but Americans are skeptical about gross domestic product continuing on that path in 2023. More U.S. adults now say they expect GDP will go down (43%) than think it will go up (36%) or stay the same as it is now (20%).

Last year, the public was evenly divided between predicting an increase and a decrease in the economy. This is the first time Gallup has seen more Americans believing it will decrease rather than increase, though it is likely that would have been the case during the Great Recession.

Republicans More Pessimistic Than Democrats on Most Economic Aspects

Republicans’ expectation that inflation will rise is 23 points higher than Democrats’, and Republicans are more likely to predict the stock market and GDP will go down. The only metric that doesn’t garner a majority of Republicans holding negative views is unemployment, yet nearly half think it will rise in the coming months, while the others are divided over whether it will decrease or remain steady.

Nearly equal majorities of Republicans and Republican-leaning independents (76%) and Democrats and Democratic-leaning independents (72%) think interest rates will rise over the first six months of 2023, but Republicans are much more pessimistic than Democrats about the other four aspects.

Democrats are most positive about GDP, with just over half saying they think it will increase. They are nearly evenly divided in their predictions for the stock market and unemployment.

Bottom Line

High inflation, interest rate hikes, a rough end to 2022 for the stock market and recent big tech layoffs are all likely contributing to Americans’ pessimistic views of key U.S. economic conditions for the first half of 2023. Despite the stock market’s strong start to the year, indications that inflation may be easing, better-than-expected economic growth in late 2022 and continued low unemployment, the public is bracing for a 2023 marked by worsening economic conditions.

Tyler Durden
Tue, 02/07/2023 – 11:05

via ZeroHedge News https://ift.tt/93UsLNQ Tyler Durden

Bankrupt Crypto-Lender Genesis’ Creditors To Expect 80% Recovery Under Proposed Restructuring Plan

Bankrupt Crypto-Lender Genesis’ Creditors To Expect 80% Recovery Under Proposed Restructuring Plan

Authored by Jesse Coghlan via CoinTelegraph.com,

Digital Currency Group (DCG) plans to hand its equity stake in Genesis’ trading arm to Genesis Global, which will then be sold, pending court approval…

A Genesis creditor has revealed the new proposed restructuring plan between Genesis, Digital Currency Group and creditors will see creditors getting back at least 80% of their funds. 

On Feb. 6, Genesis Global announced it reached an “agreement in principle” with Digital Currency Group (DCG) and its creditors, which will eventually see its crypto trading and market-making arm sold as part of restructuring efforts.

DCG would contribute its share of equity in Genesis Global Trading — Genesis’ brokerage subsidiary business — to Genesis Global Holdco, the holding entity for Genesis.

The transaction would bring all Genesis-related entities under the same holding company.

The terms of the agreement will see DCG exchanging an existing $1.1 billion promissory note due in 2032 for convertible preferred stock.

It will also refinance its existing 2023 term loans with an aggregate value of $526 million and make them payable to creditors.

The agreement will also see crypto exchange Gemini contribute $100 million for its Gemini Earn users who have funds frozen with the bankrupt firm.

Pending the close of these transactions, which need the necessary court approval, Genesis will seek to put its then-owned Genesis Global Trading entity up for sale.

A Feb. 6 user update from the Genesis creditor and crypto yield platform Donut said the plan “has a recovery rate of approximately $0.80 per dollar deposited, with a path to $1.00” for Genesis creditors.

It added the recoverable amount depends on the “equity note, realized liquidation prices and considers the unknown costs associated with the remainder of this bankruptcy.”

Genesis is currently restructuring as part of its Chapter 11 bankruptcy proceedings stemming from a liquidity crisis in November brought on by the bankruptcy of crypto exchange FTX.

Genesis Global Trading was not included in the company’s Chapter 11 filing at the time, with Genesis Global Holdco saying the business would “continue client trading operations.“

At an initial bankruptcy hearing in January, Genesis lawyers said that the firm was looking for a quick resolution to its creditor disputes and expressed optimistic that the company would come out of Chapter 11 proceedings by late May.

Tyler Durden
Tue, 02/07/2023 – 10:52

via ZeroHedge News https://www.zerohedge.com/crypto/bankrupt-crypto-lender-genesis-creditors-expect-80-recovery-under-proposed-restructuring Tyler Durden

AMC Now Charging Moviegoers Extra For “Preferred” Seating

AMC Now Charging Moviegoers Extra For “Preferred” Seating

AMC Theaters is taking a page out of the airlines’ books to try and help salvage its business.

The company announced this week that it is going to be rolling out a new pricing system, wherein it charges different prices for different seats within the theater. For a while, customers have been able to select their seats when buying their tickets.

Now, it looks like those coveted premium seats…will come at an actual premium. 

The program, called “Sightline at AMC”, will allow moviegoers to pay less or more per ticket depending on seat, according to Fox News. Members of the AMC Stub rewards program will be offered extra benefits under the plan, according to Fox News

“There are three seating selections, which are based on a viewer’s sightline of the screen, according to the company. AMC will also have a detailed seat map that outlines each seating option online, in its app and in person at the box office,” the report says.

“Standard sightline” tickets, which are said to be the most common in theaters, will cost the same as a traditional ticket. But “Value” seats – like the ones in the front row and certain ADA accessible seats, will be cheaper than a regular ticket. 

However, if you feel like flying first class for your movie, you’ll want the “Preferred” seats, which are generally the ones in the middle of the theater. These will cost the most and will be priced at a “slight premium” to the standard seats, the report says. 

The pay scale is going to be applied to all movies that start after 4PM, the report says. Eventually, the seating pricing will be expanded to all AMC and AMC Dine-In locations by the end of 2023. AMC has about 950 venues worldwide that it plans on outfitting.

AMC’s equity is down about 55.5% over the last 12 months as the company continues to try and find ways to stock its cash coffers and keep its business, which has been unable to generate free cash consistently, afloat. 

How soon until there’s a $30 checked bag fee?

Tyler Durden
Tue, 02/07/2023 – 10:24

via ZeroHedge News https://ift.tt/mQ4IFWe Tyler Durden

Markets On A Precipice As Speculation Runs Rampant

Markets On A Precipice As Speculation Runs Rampant

Authored by Simon White, Bloomberg macro strategist,

A rapid rise in speculative behavior driven by FOMO and a growing belief in a soft landing contains the seeds of its own destruction. Lower equity prices, significantly higher equity volatility and much wider credit spreads lie ahead.

If you thought that one of the steepest rate-hiking cycles would be enough to tame the most egregious of speculative behavior, think again. Equities have so far managed to navigate a narrow channel that presupposes recession and persistent inflation will be avoided.

Macro funds and CTAs are getting longer, suggesting they are chasing the move, while speculators remain net short, implying there is more buying capacity available.

But once again, speculation is overreaching and leaving the market on increasingly unstable ground. As we saw in 2018, ever-declining volatility is not a good sign. The more it is repressed, the more likely it will spring back violently. The VIX recently hit lows not seen since the beginning of the bear market last January.

Why? One probable driver is the explosive rise in so-called 0DTE option trading. This has not only been a factor in lowering the VIX, it also increases crash risk for the market.

0DTE options are those with zero days to expiry. Their big advantage is they do not require margin to be posted as they are not held overnight. They have risen from 10%-20% of total S&P option volume in 2018-2021 to well over 40% in the last year. That’s a lot of implicit leverage that’s been added to the market.

Source: Goldman Sachs

S&P options now expire Monday to Friday, meaning people can trade 0DTE every day. Generally they are sold as the time decay is very steep on the last day. 0DTE strategies can be lucrative if you get them right.

The VIX is made up of options with ~30-day maturity so 0DTE does not directly impact it. Nonetheless, if more trading is done very close to expiry, and less in options with longer to run, this would be a factor in why the VIX has stubbornly moved lower despite the worst bear market in many years.

But as more people trade and hedge on the day of expiry, the market becomes increasingly exposed to sudden moves.

A large overnight move could be catastrophic, as it would lead to a big follow-through move when the market opens due to those who are not hedged properly – with any move exacerbated by the prevailing low liquidity in markets.

The VIX has also been depressed by falling demand for crash insurance, reflected in a drop in S&P put skew. This has led to the VIX being historically very cheap versus at-the-money implied volatility. Other assets’ volatility has not experienced the same downward pressure, with the VIX historically low compared to cross-asset volatility.

A preternaturally low VIX is also a factor causing credit spreads to tighten.

The two move closely together, one key reason being that equity volatility is used to estimate company default risk (via the Merton model), and hence model where the firm’s credit spread should trade. (The equity of a firm is taken to be a perpetual call option on the solvency of the firm, and the observable equity volatility is used to help estimate the firm’s probability of default via Black-Scholes).

The rising linkage between credit spreads and equity volatility can be seen by considering that buying HY debt in a company is functionally similar to selling a put. But that similarity has become increasingly closer over the last few decades, with the correlation between HY debt and an S&P put-writing strategy steadily rising.

That’s all good and well but it means that speculative behavior in equity markets can lower equity volatility, which can mechanically make default risk look better, even though the company’s fundamentals may not have changed.

The flipside is that a jump in equity volatility would lead to wider credit spreads – which already look biased much higher due to the credit cycle showing signs of nearing its end.

We are drawing closer to the denouement of this latest market saga. Both put and call skew are rising as upside is chased through call buying and cheap downside hedges are available, leading to upward pressure in the VIX in recent days.

Fevered speculation has led to inherent market instability which sets up equity and credit markets for a potentially fierce repricing. Rising equity volatility is the canary in the coal mine that should be watched very closely.

Tyler Durden
Tue, 02/07/2023 – 10:05

via ZeroHedge News https://ift.tt/PJ02Ryg Tyler Durden

US Trade Deficit Surges To Record High In 2022 As China Flows Rebound

US Trade Deficit Surges To Record High In 2022 As China Flows Rebound

The US trade deficit for all of 2022 rose 12.2% to $948.1 billion, the widest gap on record, as the US continued to depend heavily on imports from other countries to meet domestic demand.

As The Wall Street Journal reports, exports also rose last year as global demand for American-made products picked up (but a soaring USDollar last year drove up the cost of American goods, exaggerating the annual deficit).

Global demand for U.S. exports has eased, Gregory Daco, chief economist, Ernst & Young LLP, said, adding imports are likely to come “under increased pressure in an environment where consumer spending and business investment growth are moderating,” he added.

Perhaps most notably, Bloomberg reports that trade in goods between the US and China climbed to a record in 2022, keeping the world’s two biggest economies deeply connected despite their governments’ efforts to forge separate paths amid a range of geopolitical tensions.

Total merchandise trade between the two countries rose to $690.6 billion last year, exceeding the record set in 2018, Commerce Department data showed Tuesday. we do note that the data are not adjusted for inflation.

The annual goods-trade deficit with China widened 8% to $382.9 billion, the biggest on record after the $419.4 billion shortfall in 2018.

The value of merchandise exports to China climbed to an all-time high of $153.8 billion, while imports increased to $536.8 billion, just under the record set in 2018.

The commercial relationship between the economic rivals showed few signs of unraveling despite the ongoing tensions…

“It shows that consumers have minds of their own,” said William Reinsch, who served as a top Commerce official in the Clinton administration and is now a senior adviser at the Center for Strategic and International Studies, a Washington-based think tank.

“At the market level, we’re still doing a lot of business, despite the efforts of both governments. The macro relationship hasn’t changed that much; we’re still trading a lot.”

Finally, we note that international commerce weakened across the globe at the end of the year. Trade trends reflect a normalization of commerce as the impact of the pandemic fades, Daco concluded: “Both supply and demand are rebalancing after a massive shock.”

Tyler Durden
Tue, 02/07/2023 – 09:56

via ZeroHedge News https://ift.tt/TMfdRyB Tyler Durden

Big Majority Of Dems Don’t Want Biden To Run Again: AP-NORC Poll

Big Majority Of Dems Don’t Want Biden To Run Again: AP-NORC Poll

While President Biden is soon expected to announce his intention to seek reelection, a solid majority of Democrats wish he wouldn’t. That’s the finding of a new Associated Press-NORC poll conducted Jan. 26 to 30.  

The trend is as bad as the headline number, as Democrat enthusiasm for Biden 2024 has plummeted since October. Today, only 37% of Democrats want him to run again, down from 52% in the run-up to the midterms.  

The biggest blow to Biden’s aspirations comes from the younger crowd. Only 23% of Democrats between 18 and 44 support another run for the White House, down from 45% in the fall.

Meanwhile, a mere 22% of all Americans want him to run again, and just 41% approve of his handling of the job

Asked about the grim survey results on the eve of Biden’s State of the Union address, White House Press Secretary Karine Jean-Pierre suggested reporters should look in the rear view mirror. The way that we should look at this is what we saw from the midterms,” saying Democrats’ outperformance of expectations was ‘because the president went out there and spoke directly to the American people.

At 80, Biden has already set the record as the oldest U.S. president in office, and he’d be 86 if he survived to the end of a second term. Only 21% of Americans have “a lot of confidence” in Biden’s ability to handle a crisis. 

Ross Truckey, a 35-year-old lawyer in Michigan who didn’t vote for Biden or Trump in 2020, told AP he has doubts about Biden’s fitness for office. “His age and possibly his mental acuity is not where I would want the leader of the country to be. He, at times, appears to be an old man who is past his prime. Sometimes I feel a little bit of pity for the guy being pushed out in front of crowds.”

Of course, the White House is picky about which crowds he faces: it’s been 85 days since his last solo press conference on Nov. 14.  

Tyler Durden
Tue, 02/07/2023 – 09:40

via ZeroHedge News https://ift.tt/tl0cdI6 Tyler Durden

A Balanced Budget is Now “Irresponsible”

“Irresponsible.”

That’s the word that some politicians in the United States Congress have been using this week to describe their opponents’ demands to balance the federal budget.

Just imagine what that says about the state of US public finances: that even the mere thought of having a balanced budget… of living within your means… is “irresponsible”.

What’s really sad, though, is that even the politicians who want to balance the budget don’t seem to have a firm grasp of the facts.

Consider that, in fiscal year 2022, the federal government brought in $4.9 trillion dollars of tax revenue.

That is an insane, record amount of money. With nearly $5 trillion in tax revenue, you should be able to do anything you want and still have plenty of money left over.

In fact even as recently as 2019, $5 trillion in tax revenue would have easily covered the entire federal budget, with about half a trillion dollars left over to start paying down the debt.

So if the government had just kept the budget steady, last year it could have paid off $500 billion of its $31.5 trillion national debt.

Instead, last year the government opted to ADD $1.375 trillion to the debt by spending $6.27 trillion in FY2022.

Now politicians insist on raising the debt ceiling, so that the government can once again borrow to overspend its revenue by more than a trillion dollars.

The obvious solution is to slash spending. But this is a lot more complicated than most people realize.

In FY2022, for example, the government spent $706 billion just to pay the interest on the national debt. In other words, they had to borrow money just to pay interest on money they have already borrowed.

And if rates keep rising, the government’s annual interest bill will quickly reach $1 trillion or more.

Then there’s the obvious problem of entitlements, like Social Security… and the spending that is considered ‘sacrosanct’, like defense spending.

These components of federal spending are so vast, in fact, that if you take Defense, Veterans Affairs, Social Security, and Medicare off the table for cuts, you would have to cut 85% of all other federal spending in order to balance the budget.

National parks. The electric bill at the White House. John Kerry’s private jet travel to Davos. Highway spending. Thousands of federal agencies that most of us have never heard of, like the Office of Human Research Protection.

85% of all of that would need to be eliminated in order to balance the budget… and few politicians have the courage to make such deep cuts.

Compounding the problem is that tax revenue could easily fall if there is a recession.

During recessions, consumer spending slows, company profits shrink, unemployment increases, and incomes contract. That means the government will not collect as much money from corporate taxes, income taxes, and capital gains taxes.

A recession probably also means more federal stimulus, i.e. higher spending. So the deficit would increase even more.

Another major issue, of course, is that Social Security is set to run out of money in the early 2030s. And this is not some wild conspiracy theory.

As I’ve pointed out on many occasions, the Social Security Administration admits every year in its annual report that Social Security will be insolvent within a decade or so.

This is most certainly going to require a multi-trillion dollar bailout… which is going to put even more extreme pressure on public finances.

It also practically guarantees higher taxes, especially payroll taxes.

In the United States, federal payroll taxes currently take 15.3% of each paycheck when you add up both the employer and employee contributions to Social Security and Medicare.

15.3% is actually quite low when compared to other countries internationally. For example, after recent increases, the combined employee and employer payroll taxes in the UK have reached 28.3% of each paycheck (with certain exclusions).

Even Estonia, which is generally considered a low-tax country because of its flat 20% corporate income tax rate, charges a 33% payroll tax.

So the US has a LONG WAY up on its payroll tax before getting anywhere close to international averages.

And there are already calls for higher individual income tax rates, wealth taxes, higher capital gains taxes, and more.

Most likely this is going to be part of the “solution”, i.e. the grand bargain that politicians will finally be forced to make a few years down the road.

On one hand, they will agree to deep cuts to countless government programs. They’ll also likely roll back the retirement age on Social Security, which essentially constitutes a default on the promises they’ve made to millions of Americans.

So instead of retiring at 62 or 65, it will be increased to more like 72 or 75.

But in exchange, politicians will also agree to radically increase taxes…

Naturally, the guy who shakes hands with thin air won’t say any of this in his State of the Disunion address tonight. But realistically it’s the only path forward over the next few years.

There are a few key implications here:

One, don’t rely on Social Security to fund your retirement.

Two, take steps now to reduce your tax rate.

You can actually do both of these things in one step by using tax advantaged retirement accounts.

For example, if you contribute an extra $5,000 per year to your 401(k), that reduces your current taxable income by the same amount…

PLUS that $5,000 invested through your retirement account will grow tax free.

If you do that every year, and it compounds at a rate of 9%, you are talking about an extra $461,000 saved for retirement after 25 years.

Meanwhile, you contributed $125,000 that you didn’t have to pay taxes on.

Sure, you’ll have to pay taxes when you collect distributions. But FIRST it will grow tax free for 25 years.

And that makes a huge difference. (You’d earn about $111,000 LESS over 25 years if you first paid a 24% tax on each $5,000 BEFORE investing it.)

This is just one example to highlight the fact that while these problems are unlikely to to be solved by the government, you can make sure that they don’t destroy your retirement.

And you can make sure you don’t get left holding the bag by paying higher tax rates than necessary.

That’s the whole point of a Plan B — to take control of your own circumstances, so your future is not a gamble left up to politicians.

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Masks Make ‘Little or No Difference’ on COVID-19, Flu Rates: New Study


Mask mandates

The wearing of masks to prevent the spread of COVID-19 and other respiratory illnesses had almost no effect at the societal level, according to a rigorous new review of the available research.

“Interestingly, 12 trials in the review, ten in the community and two among healthcare workers, found that wearing masks in the community probably makes little or no difference to influenza-like or COVID-19-like illness transmission,” writes Tom Jefferson, a British epidemiologist and co-author of the Cochrane Library’s new report on masking trials. “Equally, the review found that masks had no effect on laboratory-confirmed influenza or SARS-CoV-2 outcomes. Five other trials showed no difference between one type of mask over another.”

That finding is significant, given how comprehensive Cochrane’s review was. The randomized control trials had hundreds of thousands of participants, and made useful comparisons: people who received masks—and, according to self-reporting, actually wore them—versus people who did not. Other studies that have tried to uncover the efficacy of mask requirements have tended to compare one municipality with another, without taking into account relevant differences between the groups. This was true of an infamous study of masking in Arizona schools conducted at the county level; the findings were cited by the Centers for Disease Control and Prevention (CDC) as reason to keep mask mandates in place.

“Comparing Pima and Maricopa counties is a pointless way to study masks—because the people are fundamentally different—apart from masking,” noted Vinay Prasad, an epidemiologist who has opposed COVID-19 mandates. “They have different rates of vaccination and different levels of caution.”

Cochrane employed randomized control trials (RCTs), which are considered the gold standard for review. And the results are inarguable: Zoom out to the population level, and masks had a scarcely discernible impact on COVID-19 cases.

“The pooled results of RCTs did not show a clear reduction in respiratory viral infection with the use of medical/surgical masks,” write the authors. “There were no clear differences between the use of medical/surgical masks compared with N95/P2 respirators in healthcare workers when used in routine care to reduce respiratory viral infection.”

David Zweig, a writer who helped call attention to the flaws in the Arizona study, noted that these negative findings reflect basic reality: While individual mask wearers might get some benefit for a while if they consistently, perfectly wear masks, this does not comport with the aggregate experience. According to Zweig:

Even the most ardent mask supporters, who want to wear them properly, fail to do so. And, as this study and others illustrate, even when masks are required they are either not worn properly, or not worn at all by a significant number of people. These images from a NY Times article comically show that children are no exception to this problem. And nor are teachers — this study, published by the CDC, on a school outbreak encapsulates the problem quite well: “the teacher read aloud unmasked to the class despite school requirements to mask while indoors.”

Succinctly, Benjamin Recht, a statistician at UC Berkeley, who co-authored a re-analysis of the Bangladesh RCT, which negated that trial’s findings, said: “At this point, I doubt any study will change anyone’s mind about masking. But the one consistent finding of all of the randomized studies is that the effect of this intervention at the population level is vanishingly small.”

The findings have yet to penetrate the mainstream media’s bubble: Whereas flawed studies like the Arizona one received rave reviews in the pages of The New York Times and The Washington Post, so far the Cochrane review has not attracted coverage from these outlets. Nor has it garnered commentary from the CDC—an agency that has routinely seized on less compelling evidence in order to recommend the maintenance of intrusive COVID-19 interventions like mask mandates and lockdowns.

Indeed, while mask mandates are no longer a typical part of American life, there are still enclaves that require masking. Some U.S. schools have kept mask mandates in place, or brought them back during flu season. Within the nation’s capital, George Washington University still requires masks in classrooms.

If following the science means updating one’s priors when new evidence becomes available, then institutions that require masks should finally concede—three years into the pandemic—that indefinitely forcing them on unwilling people, especially children, is not a defensible strategy. As for any lingering government requirements, let this be the final and long overdue word: no more mandates.

The post Masks Make 'Little or No Difference' on COVID-19, Flu Rates: New Study appeared first on Reason.com.

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