Month: March 2021

On Wednesday, President Biden will unveil the first part of a two-part stimulus plan aimed at infrastructure, climate change, and social programs.

While initial reports pegged the next round of stimulus at $3 trillion, the Washington Post‘s Jeff Stein now reports that new spending could top $4 trillion, while new taxes to pay for it – some of which Biden will also unveil Wednesday – could total over $3 trillion.

There are four main tax increases Biden is immediately eying, according to Axios: 

• A corporate tax increase from Trump’s 21% to 28%, raising an estimated $730 billion over a decade, according to the Tax Policy Center.

• A global minimum tax on profits from global subsidiaries worth $550 billion over the same period.

• Taxing capital gains for the wealthy as ordinary income, as opposed to the current rate of 20% for those making $441,451 or more per year, and a tax on unrealized capital gains at death: $370 billion

• Return the top individual tax rate for people earning over $400,000 per year to the pre-Trump rate of 39.6%: $110 billion

Given the slim majority Democrats hold in the Senate, they will need to appeal to centrist Democratic colleagues, most notably Sen. Joe Manchin (D-WV) in order to pass legislation via a budgetary process called reconciliation, which allows for a simple majority as opposed to 60 votes normally required to pass legislation.

According to Axios, Democrats close to the White House don’t expect the Biden Administration to fight for certain harder-to-pass proposals – such as one which could raise around $740 billion with new Social Security taxes on the wealthy.

Other items which may not make the final cut per Axios:

• His campaign plan to impose a 28% minimum rate on the wealthy, which would raise $220 billion, is unlikely to cross the finish line.

• And making it harder for small businesses to claim deductions, which would bring in $140 billion, will likely encounter serious roadblocks.

• Changing the ways estates are taxed, which would raise $220 billion, may not make it into the final legislation.

None of the above remotely add up to $3 trillion in new taxes outlined by WaPo‘s Stein, which leads us to wonder just who else is going to pay them?

Submitted by Joe Carson, former chief economist at Alliance Bernstein

Policymakers and analysts involved in the lively debate on the future path of inflation need to consider whether the government statistical agencies have the tools or information to provide an accurate general inflation assessment. According to the Bureau of Labor Statistics (BLS), half of the data comprised in the consumer price index (CPI) was “imputed” in the past year.

Reported inflation can be whatever you want it to be. Still, it needs to be measuring what policymakers believe it is for it to be appropriate as a monetary policy tool. Price mismeasurement is a policy problem and perhaps soon a credibility problem for policymakers, as “missing prices” make inflation-targeting a meaningless policy tool.

CPI – “Missing Prices’

Since the pandemic, the standard practice of personal visits, which historically accounted for three-fourths of price quotes, was temporarily discontinued. Instead, price data was obtained entirely from online sources or through telephone interviews.

According to BLS, the change in data gathering practices has significantly lowered consumer price response rates. For example, the scale of uncollected prices for non-shelter goods and services ran between twenty and thirty-five percent in the past year, more than twice the average. Shelter prices for homeowners, which account for one-fourth of the price index, are regularly “imputed” each month. Taken together, that means price “imputations” and not actual transaction prices have accounted for more than half of the CPI index for the past year.

Price imputations have always been a controversial issue. Government statisticians have used “imputed” prices for things like owner housing since it was conceptually estimating a cost-of-living index and not a standard price index. However, the inclusion of “price imputations” creates ambiguity and subjectivity, lessening its use as a market-based inflation index and a policy tool.

The pandemic has magnified the issue of price imputations. The measurement of owner housing has become more absurd. In the past year, all of the rent data was collected by telephone, far above the two-thirds average. Also, roughly thirty-five percent of rents every month were uncollected. While that sounds high, and it is, before the pandemic uncollected rent response rates ran consistently in the high twenties.

During the pandemic, a record number of rents were unpaid. Still, data collectors classified due rents as fully paid if the landlord “expect payment in full, regardless of when.”

With no proof of current or future payment, word-of-mouth rents are included in the CPI to estimate primary residence rents and implied rents for owner housing. But house prices based on actual transactions, with proof of payment, are not. From an economic and statistical standpoint, why isn’t this called-out to be what it is, “price-construction-trickery. “

The monetary policy oxymoron; price stability drives its decisions but reported price indexes do not offer a stable or steady flow of actual prices. They are replete with ” missing” and “imputed” prices.

In the past few decades, changes in measurement practices coupled with “missing prices” have resulted in the “noise” of inflation being louder than the “signal” (i.e., reported inflation). Policies that follow the noise can preempt inflation cycles and awful economic outcomes, but targeting the signal can’t. During the housing bubble, the Fed ignored the “noise” and followed the “signal.” Will history repeat?

The giant Ever Given container ship was dislodged from the Suez Canal bank on Monday, and traffic has since resumed, with more than 400 ships waiting to transit the world’s most vital shipping lane. The blockage, one of the longest in half a century, is just the beginning of problems as it could take upwards of ten days to normalize canal traffic. With the Suez crisis abating, it’s now time to tally up the damages. 

“The legal issues are so enormous,” Alexis Cahalan, a partner at Norton White in Sydney, which specializes in transport law, told Bloomberg.

“If you can imagine the variety of cargoes that are there — everything from oil, grain, consumer goods like refrigerators to perishable goods — that is where the enormity of the claims may not be known for a time.”

According to Fitch Ratings, the blockage is expected to dent global reinsurers’ earnings, already crushed by the virus pandemic disrupting global supply chains, winter storms in the US, and flooding in Australia. After the Suez crisis, marine reinsurance is expected to rise. 

According to Inchcape Shipping Services, a maritime services provider, 421 vessels are waiting to transit the canal. The canal handles approximately 50 ships per day and could take 8-10 days to normalize. 

Suez Canal Authority Chairman Osama Rabie told reporters that it could take more than four days for traffic to return to normal during a presser conference. It was initially noted that it might take about a week. 

“It’s going to take them five or six days to clear up all the backlog of traffic,” Rustin Edwards, the head of fuel-oil procurement at shipping firm Euronav NV, said on a conference call on Tuesday. “You’re going to start seeing congestion at delivery ports when the ships that diverted and the ships that went through start arriving at the same destinations. It’s going to cause a bit of a headache for a lot of container companies for the next couple of weeks.”

As of 1020 ET Tuesday, Ever Given is moored in Greater Bitter Lake, awaiting an inspection of its hull after the grounding incident. 

Still, there’s a massive parking lot of vessels waiting to enter the south and north part of the canal. 

D-Day invasion fleet or ships waiting for the Suez Canal to open? pic.twitter.com/OGQUojBxDN

— Zero Blog Thirty (@ZeroBlog30) March 29, 2021

Bloomberg explains the mounting legal action for owners of goods on board Ever Given:

In a potential merry-go-round of legal action, owners of the goods on board the Ever Given and other ships could seek compensation for delays from their insurers. Those insurers for the cargo can in turn file claims against Ever Given’s owners, who will then look to their insurers for protection.

Evergreen says Japan’s Shoei Kisen Kaisha Ltd. — the ship’s owner — is responsible for any losses. Shoei Kisen has taken some responsibility but says charterers need to deal with the cargo owners.

Evergreen’s legal adviser is Ince Gordon Dadds LLP, according to people familiar with the matter, who asked not to be identified because they aren’t authorized to speak to the media. London-based Ince Gordon Dadds and Evergreen declined to comment.

An official at Shoei Kisen said the company hasn’t received any compensation claim yet. The firm is still examining what it is responsible for. The ship’s hull is insured through three Japanese companies.

… and legal action for the grounding of Ever Given has yet to be determined as an investigation is still ongoing. So far, Rabie said the authority isn’t at fault and that the ship’s captain is one to blame. 

Authored by Dave DeCamp via AntiWar.com,

President Biden has no “intention” of holding talks with North Korean leader Kim Jong-un, White House Press Secretary Jen Psaki said on Monday.

Tensions between North Korea and the Biden administration are on the rise after the US and South Korea announced they are resuming military drills and Pyongyang conducted missile tests.

At his first press conference last week, President Biden vowed a “response” if North Korea chooses to “escalate” further, but also said he was prepared for “some form of diplomacy” with North Korea.

When asked if Biden’s plans for diplomacy could include meeting with Kim, Psaki said, “I think his approach would be quite different, and that is not his intention.”

Considering what President Biden has said about former President Trump’s meetings with Kim, it’s no surprise the new administration has no plans for face-to-face talks. At the presidential debate last October, Biden slammed Trump for his relationship with Kim.

“He’s talked about his good buddy, who’s a thug,” Biden said of Kim at the time.

“That’s like saying we had a good relationship with Hitler before he invaded Europe — the rest of Europe. Come on.”

Also on Monday, US Ambassador to the UN Linda Thomas-Greenfield said the US was looking at taking “additional actions” in response to the recent missile test, although it’s not clear what actions those actions could be.

Biden’s going to set things straight with Kim Jong-un just like he dealt with Corn Pop back at the pool in 1962 https://t.co/nkXPOLIKjL

— JgaltTweets (@JgaltTweets) March 25, 2021

The Biden administration is currently reviewing its North Korea policy, but US officials are calling for a denuclearization of the Korean Peninsula, which is a non-starter for negotiations with Pyongyang.

A realistic approach that was explored by the Trump administration would be to offer sanctions relief in exchange for a freeze in North Korea’s nuclear arsenal.

There has been a clear shift in market mood and sentiment ever since the covid pandemic: whereas previously Fed intervention was always spoken of glowingly, especially by members of the establishment and career finance professionals, this has changed and for the best example of that look no further than Lisa Shalett, Morgan Stanley’s chief investment officer for the company’s massive wealth unit, who said that the Fed’s policy of keeping its “foot on the accelerator” to boost the economy has left the market showing signs of “fragility.”

That said, she was quick to ease concerns about fallout from the implosion of Archegos, saying it doesn’t “threaten” the financial system, although it would be easy for Morgan Stanley to say that – after all, together with Goldman – the bank decided to break ranks with other Prime Brokers and dumped its exposure to the liquidating fund.

“This, unlike some other issues, is not of an order of magnitude where there’s systemic risk,” Shalett says, although for some banks – such as Credit Suisse and Nomura – which lost billions, it certainly does have the taste of systemic risk.

Archegos aside, Shalett admitted that Fed policymakers are making a massive bet, that the liquidity being pumped into the financial system is more important for the economy than the “financial accidents or bubbles” that have popped up as a result.

“It’s time for investors to retool portfolios,” she says, arguing that the shift should be in favor of active management and shorter duration. Economic growth will be “much stronger” than it’s been, and that’s good for cyclicals and good for the labor market, but creates headwinds for the bond market and for stock multiples.

Full clip below