GOP Tax Plan Could Trigger a Domino Effect that Sends Interest Rates Shooting Higher

The Republican tax plan unveiled Wednesday seeks to spark economic growth through lower rates but could punish one key market area: U.S. government bonds.

A key provision of the reform plan calls for the repatriation of cash that multinational companies are holding overseas. While details remain thin, foreign holdings will get softer tax treatment when they are brought home. Companies have about $2.5 trillion stashed abroad.

Treasurys fit into the equation because much of that overseas money is held in cash, cash equivalents or short-term investments — a category that includes government debt.

So, when companies start pulling that money back to the U.S., that presumably would mean selling of Treasurys, a move that would push up yields. Buyers will be needed for those bonds as government debt and deficits increase, which also could see a demand for higher rates.

https://www.cnbc.com/2017/09/27/bonds-could-be-the-big-loser-under-the-gop-tax-plan.html

The Changing And Challenging Nature Of Jobs, The Middle Class And The American Dream

Recently, there have been several indicators that the economy has recovered from the Great Recession, and is firing on all cylinders again. After the start of the Great Recession, employment recovered to its “demographically adjusted pre-recession level.” This means that more than 10 million jobs were added in that 10 year period. Also, Income and Poverty in the United States disclosed that household incomes had grown for the second year in a row with the median household income climbing to a record $59,039. In addition to this, a Gallop Poll in June on class identity found that 62 percent of the respondents labeled themselves middle class compared to only 51 percent in 2015. All of this sounds great, right? Although these all sound like positives, there are indicators that tell otherwise. For starters, the overall labor force participation rate has fallen from 66.0 percent to 62.9 percent. Also, men’s median wages for full-time year round work has stagnated. The median income for male year round, full-time workers in 2016 was $51,460. In 1975, the median income was $51,766. On top of this, the upper middle class is flourishing – but not the lower classes. Using a threshold of $100,000 as upper middle class for a household, the share in that cohort has gone up from 19.4 percent in 1990 to 27.7 percent today. One thing that I find interesting from this article is how the media can use these statistics to influence Americans into believing that we are doing well as an economy, when in reality we might not be doing so hot. The article also proposes some potential solutions that should help the economy such as increasing the minimum wage, development of a 3-I (Industry, Innovation and Infrastructure) Bank, and special initiatives and reallocation of resources in metropolitan areas. Do you think that the proposed solutions will reduce the substantial inequality and shrunken incomes that still linger from the great recession? Do you think that there are any other potential solutions that arent listed above?

http://www.huffingtonpost.com/entry/the-changing-and-challenging-nature-of-jobs-the-middle_us_59c3f8bce4b0c87def883628 

Thoughts on how the GOP tax plan will affect the housing market

In an article published on CNBC, many speak specifically about the effects the proposed tax system could have on the housing market.

The article weighs the benefits of having the average American have more money in their pocket, which is "always a good thing" says Jerry Howard, CEO of National Association of Home Builders (NAHB). Putting more money into an average Americans pockets allows for economic growth. More money allows more spending relative to ones Marginal Propensity to Consume.

The tax plan also poses a threat to millions of homeowners. The National Association of Realtors (NAR) says that the new framework would get rid of certain deductions/exemptions that incentivize buying a new home. More specifically, state and local tax deductions.

On the other hand, the NAHB says the tax plan is a step in the right direction. Their perspective focuses specifically on making sure that their is more money in the consumers pockets, which could give them the possibility to move or build a new house. Builders of affordable rental housing could benefit from this as well. The retention of Low Income Housing Tax Credit and a few small business deductions are the specific tax pieces that can help those builders.

Personally, I am in agreement that increasing the amount of money in the average americans pocket can really help stimulate the economy. Also, the decrease in taxes on corporations will allow for the possibility of hiring more workers. All of these could be benefits to the tax plan. The downsides depend on how one looks at the importance of government intervention in daily life. Such as universal health care, social security, medicare/medicaid and any other government.

https://www.cnbc.com/2017/09/28/industry-groups-are-split-on-how-the-gop-tax-plan-will-affect-housing.html

Republicans unveil tax reform framework

An article published by The Journal of Accountancy highlights the goals for tax reform that lawmakers announced on September 27. While this is not the specific legislative language, it provides a guide on what the tax-writing committees plan on reforming. Some of the major changes include condensing the individual tax brackets from seven to three with the new rates being 12%, 25%, and 35% which drops the highest bracket from 39.5% to 35%. Another change is to the corporate tax rate dropping it to 20% in attempt to bring businesses back into the United States which currently has the highest corporate tax rate in the world. There will also be an increase in standard deductions- $12,000 for individuals and $24,000 for married couples. These increases will again lower the taxable income and the amount of tax people will owe.

These reforms seem to benefit the people, but this will lower the government's tax revenue especially because their number one source of tax revenue is through individual income tax. This means in return the government will have to make budget cuts in order to stay out of a deficit. People may be happy with the reforms on the forefront, but if government programs they take interest in have budget cuts there may not be as much excitement for the reforms.

https://www.journalofaccountancy.com/news/2017/sep/republican-tax-reform-framework-201717551.html

Will the Fed's mistake have an impact on interest rates?

There are many factors that the Fed looks at to determine interest rates based on expected inflation. Janet Yellen, current chair of the Federal Reserve recently made a statement claiming her, and the rest of her colleagues at the Fed misjudged the rate at which inflation was rising, likely also causing an unnecessary increase in interest rates in the country. Following the belief of hitting 2% inflation, the Fed raised interest rates to 1.25%. 

Yellen provides a few reasons as to why inflation may not be on the rise as anticipated. A few of these might be "a labor market that may not be as tight as it appears; weak long-running inflation expectations by investors, employers and consumers; and factors such as discounted online shopping." While these are only possible factors, they do appear to have had an effect on the interest rates today. Will the Fed be in a position of scrutiny from their mistake? At best, the Fed will hold of on rising the interest rate when the time comes to counter their mistake of rising the rates the most recent time. Will the Fed be able to predict inflation accurately in the future considering their miscalculation the time around? The Fed will use everything in its power to determine an accurate estimate for inflation, using its miscalculations to help its future predictions. 





Link:
https://www.usatoday.com/story/money/2017/09/26/yellen-fed-may-have-misjudged-inflation-keeping-rates-lower/703920001/

China set its sights on dominating the sunrise industries

Recently China has set a world record for fastest long-distance bullet train, which clocked in at 350 kph (217 mph). This feat of engineering is the result of China’s decade long progress of high speed transit due to a national focus in sunrise industries from their “Made in China 2025” industry policy. For years, the Chinese government has been concentrating funding and effort towards modernizing nine traditional industries like shipbuilding, steelwork, etc. This new initiative, “Made in Chine 2025,” targets ten new sectors like aerospace, new agriculture, etc. Officials have established over a thousand state guided funds totaling $8.07 billion for such new industries.

This industry-policy is patchy and notoriously so in China. One plan laid out hundreds of market shares at home and abroad, making this action obviously outside the realm of domestic ability and thus upsetting the EU Chamber of Commerce and World Trade Organization among others. The WTO strictly limits local content rules regarding the semi-official documents holding blurred guidelines, in addition to China’s hidden illegal state aid. Foreign trade competitors such as South Korea and Germany worry this new plan will steal business. China has always found ways to milk the joint ventures out of these plans with little innovation to show.

            Do you think China is working in the frowned upon “gray area” of industry development, or is it smart of them to do business this way if its proven so advantageous?

https://www.economist.com/news/finance-and-economics/21729442-its-record-industrial-policy-successes-patchy-china-sets-its-sights

Why don’t trade sanctions work in North Korea?

Many people around the world are worried about the unstable situation in North Korea. One way the US has tried to get North Korea to change its plans to continue launching missiles and testing weapons is by imposing trade sanctions.

But one reason these sanctions haven’t really worked is that North Korea’s domestic economy has been growing and so the country does not consider itself as dependent on foreign trade with many other countries. A recent Bloomberg article reported that North Korea’s economy (GDP) grew nearly 4% last year—the fastest pace in seventeen years. Another main reason the sanctions don’t work is that China which is a major trade partner, continues to trade strongly with North Korea. China has only really banned coal exports to North Korea but continues to allow trade in other goods. Finally, a third reason North Korea’s economy continues to do well, according to the Bloomberg article, is that it no longer is a pure socialist economy but has been moving in the direction of capitalism. There are signs of markets where equilibrium falls where supply equals demand—as laws have been loosened to permit firms to hire and fire workers more easily and do business with firms that they choose.

I can understand why continued trade with China would be a big reason for North Korea’s economy continuing to grow strongly. China makes so many goods cheaply and in large volume. Last week, it was reported by CNBC that Chinese banks were putting sanctions on North Korea to try to eliminate financial support, under US pressure. One point that’s worth keeping in mind in the CNBC article is that China is not happy for the US leaving the Trans-Pacific Partnership Agreement, a trade agreement involving many countries. So the US doesn’t really have a right to pressure China on trade policy when the US doesn’t play fair on other trade agreements. All in all, it’s clear that when countries make decisions about how and with which countries they trade (or do not), their can be some very complicated  side effects in other areas of policy.

https://www.bloomberg.com/view/articles/2017-09-14/north-korea-s-secret-weapon-economic-growth

https://www.cnbc.com/2017/09/26/wilbur-ross-on-north-korea-trade-with-china-and-economy.html

Economists see slower growth in the United States than Trump

According to the latest survey taken by the National Association for Business Economics, the pace of the United States will be stuck at about a 2% increase in the next two years (2017 and 2018) while Trumps projections included around a 3% increase. Although the economy has picked up over the course of the end of quarter, the slow start will have some impact on the overall growth of the United States.

There is good news to go along with this, though. Economists have predicted that recession will not hit in the next couple years. It was said there is a, "25% chance or less" that a recession will actually hit. In the long run, the Trump administration sees the GDP growing gradually to 3% by 2020. This is still lower than the average rate, but it is an improvement from the 2% the United States is currently sitting at.

This would be looked at negatively for Trump because he has been hoping for higher growth rates since he has taken office. With this being said, the economists have predicted that there will be tax cuts in the near future, with Trumps infrastructure plan being passed soon as well. This would have some effect on bridges, roads, etc. With these two being put in place, the GDP is expected to rise about a quarter percent (0.25%) by the end of 2018

This would be a plus for the United States economically, but this would also mean that the government would probably have to increase its spending.  I think this would be a plus for the economy as a whole, especially after the devastating hurricanes that have hit the United States which has set back the economy as a whole. But, that is if the GDP growth is predicted correctly.

https://www.usatoday.com/story/money/2017/09/25/economists-see-slower-growth-u-s-than-trump-does/699429001/

Japan PM Abe announces $17.8 billion economic stimulus package

Japanese Prime Minister Shinzo Abe instructed his Cabinet to start putting together an economic stimulus package that calls for $17.8 billion in spending. He said the initiative will emphasize encouraging business investment, extra funding for education and helping to cover the cost of child care. Does this imposed package mean someone is stimulated at the expense of another who is paying the tax and is therefore unstimulated. Will this plan be successful?

http://www.reuters.com/article/us-japan-economy-abe-stimulus/japan-pm-abe-announces-17-8-billion-economic-stimulus-package-idUSKCN1C004A

Poverty and Unemployment among the Global Youth

  Estimates by the International Labour Organization (ILO) state that global youth unemployment is expected to be at higher levels all through 2017, as developing economies continue to struggle to adapt to the demands for sustainability and equitable development along with the demands for economic growth. Disparities exist among not just different age groups, but also other demographics such as gender, especially among states in Southern Asia, Northern Africa, and Sub-Saharan Africa, and the gaps continue to widen as these young adults continue to transition to adulthood. Labor Force participation among youth continues to be a problem especially in developing economies as effective development is still lacking, leading to lack of opportunities.

Poverty is especially high among the young worker demographic in many developing countries, especially Sub-Saharan Africa South Asia and the Middle East as mentioned.The poor quality of employment goes along with other factors of lack of development and leads to a high proportion of the populations of these countries being willing to migrate, especially abroad where opportunities are better. This affects employment policies in these countries as well, as better equipped, skilled workers will usually, upon opportunity, seek avenues abroad, and this leads to lack of a highly skilled workforce, which eventually feeds back into the lack of development.

http://www.un.org/youthenvoy/2016/08/global-youth-unemployment-rise/

Tesla and the Trucking Market

     Tesla, an automaker company that specializes in electric motors, will soon unveil an electric semi-truck. Investors and competitors will be looking closely to see how this product will affect the commercial trucking market. Elon Musk has only high hopes for his latest invention. Tesla has informed that the truck has better torque than any regular semi and is way cheaper to operate. Tesla's passenger vehicles also have set the standard in the car market. They are becoming the safest and most inexpensive car to date. If Tesla produces this semi truck and the market responds positively they will impact many industries. The only down side will be waiting periods, since Tesla is already backed up with orders or their newest Model 3 car.

https://www.forbes.com/sites/greatspeculations/2017/09/18/can-tesla-disrupt-the-trucking-market-with-its-electric-semi-truck/#7d11d8d5626d

Are Trump's economics moves against North Korea more powerful than his insults?

There has been much talk in the news lately regarding President Trump and Kim Jong-Un and their political agendas. Many believe these interactions are and will stay in the political spectrum, but we haven't heard much of the economic side. President Trump recently signed an executive order saying that the United States "imposes sanctions on any on any foreign financial institution that conducts or facilitates 'any significant transaction in connection with trade with North Korea'". This ultimately leaves countries with no other option then to cut ties with North Korea with the risk of losing trade with America, which know "Losing access to America's $19 trillion market would be a stiff price to pay. If countries and entities decide to cut ties with North Korea, their economic market would crumble, likely putting that country in a much more dire state than it is already known to be in. The executive order by Trump certainly is the most effective move he has had in the recent heightened tensions between the US and North Korea. the move is also different of the recent trend of military action including nuclear warfare. The economic shift of DPRK will likely force Kim Jong- Un to make peace with the world, quickly to save North Korea from an economic downfall. Trump's executive order serves the DRPK a hand that they have not quite dealt with in the recent news, one that is already proven to be more successful than previous instances.

http://www.foxnews.com/opinion/2017/09/24/why-trumps-economic-moves-against-north-korea-may-do-more-to-tame-kim-than-any-insult.html

London to Ban Uber

London to Ban Uber

London's transportation regulator stated that as Uber's operating license expires on September 30th, they will not be renewing. Uber is believed to be "not fit and proper" to hold a private-hire operator license. The regulator also noted other issues such as their "lack of corporate responsibility in relation to a number of issues." The demand for Uber has not declined, the Government just sees Uber as being more of a risk. This could have a positive impact on taxi services and other public transportation as Uber customers would have to find another way to get around. This could also have a huge affect on the economy as Uber in London employs 40,000 people. London not allowing them to renew their license means 40,000 people are out of jobs.

US import prices post biggest gain in seven months

The U.S. import prices recorded their biggest increase in seven months this August as the cost of petroleum surged. Following the ecological turmoil that has been caused by the hurricanes in August, the cost of petroleum will continue to rise. This has many Americans turning to imports for fuels like gasoline, kerosene, and diesel oil, which are refined from petroleum. Since the hurricanes in the South, the U. S.'s refining capacity is operating at an estimated 30%. Prices for imported petroleum increased by 4.8% this past moth. Import prices outside of petroleum are also rising as the dollar's rally drops. This year, the dollar has weakened by 8.3% against the currencies of the U.S.'s main trading partners. There were also signs of a pickup in underlying imported inflation, which could cause domestic goods that use imported raw materials to rise in price as well. On Tuesday, the Labor Department said that import prices jumped 0.6 percent last month, the biggest gain since January, after a downward 0.1 dip in July.

https://www.cnbc.com/2017/09/19/us-import-prices-post-biggest-gain-in-seven-months.html

Fed Likely to Sell Assets from its Balance Sheet

In what would be a historic day the Fed is expected to sell the bonds and mortgage securities they totaled during the financial crisis.  They accumulated about 3.7 trillion in these assets over that time.  In this attempted plan they wouldn't be under the 3 trillion mark until around 2019.  This is a process that will take some time to have any effects and the Fed is happy about that because they want to keep the financial markets calm.  This could have great effects on monetary policy decisions in the future.  I am interested to see what decision the Fed will come too in their meetings on Tuesday and Wednesday and the economic and financial market effects that will ensue. 






   http://www.marketwatch.com/story/fed-to-take-historic-leap-into-the-unknown-2017-09-14

Uber pleads with London

This article is about Uber and the CEO pleading with the city of London to lift a ban on the ride-sharing service. Within the past week, London city officials have said that they will not renew Uber's license to operate in the city due to "a lack of corporate responsibility". Uber has faced many controversies recently and have just ousted their co-founder and CEO for PR problems and allegations.

The new Uber CEO, Dara Khosrowshahi, has been trying to repair Uber's image and get the company back in the spotlight in a positive manner. Khosrowshahi inherited a ton of PR and investor problems, as many both inside and outside of the company have pushed Uber to make corporate and structural changes.

Uber is still a private company, and is looking to have an IPO soon. These controversies and negative press has definitely taken a toll on the companies value, as consumers are starting to prefer other ride-hailing services like lyft. Uber must mend its image and reinvent its company culture if it wants to get back into the good spotlight.

Uber is a company that runs on margins and they rely on many rides being done in order to make money. Uber has struggled in recent years to make profit, and it is important that Uber does everything it can to increase and keep market share as well as keep the number of riders that use the app.

This article is mostly about the CEO pleading with the city via twitter to renew their license. His argument is that millions of Londoners have used Uber and rely on it as a form of transportation. He is claiming that Uber already has an established following and that those customers need the app. It will be interesting to see the outcome of this as London is a massive city with many visitors, tourists, and travelers. Hopefully, London will be able to work it out with Uber, as I believe Uber makes the market more efficient as it lowers prices consumers pay. Uber competes with regular taxi services, and their ability to provide cheap rides make the market more competitive.

http://money.cnn.com/2017/09/22/technology/business/uber-london-ceo-dara-khosrowshahi/index.html

Trump approves updated travel restrictions

President Trump on Sunday signed off on updated travel restrictions that limit people coming to the U.S from North Korea, Chad, Libya, Somalia, Syria, Venezuela and Yemen. The new travel restrictions are set to take effect October 18th. Also Iraqi citizens will subject to additional scrutiny to determine if they pose risks to U.S. security. President Trump during his campaign stressed that he wanted to make America safer and as President he has followed through with this. This announcement comes the same day that Trump's temporary ban on visitors from six-Muslim majority nations. Acting Homeland Security Secretary Elaine Duke stated that these restrictions are to protect Americans and allow DHS to better keep terrorists and criminals from entering our country. I personally don't think its that big of a deal to have travel bans. Some people have family's in other countries that they would like to see but I think making sure America is safe should be a top priority. Trump based a big portion of his campaign on making America safe and is sticking to it. A industry that could be effected could be the airline industry. I doubt a lot of their business comes from people flying to these countries so they wont be hurt by these changes. In relation to GDP if the United States is actively avoiding travel they are most likely actively avoiding trading with these countries. This could effect net exports in some way. However if some of these countries have something we need there are plenty of substitutes and I believe they can fill these holes with other countries.

Real Wages are on the Rise, Good or Bad?

This year inflation is projected to be under 2 percent for the 5th straight year, which is very rare. This leads to the Real Wage increasing, people still get these raises and bonuses and instead of devaluing like they have in the past, the money can be stretched even further. All of this begs the question, is this good or bad? Many people would say good at face value, which I would agree with, but there's an argument circulating that we are measuring productivity incorrectly. Productivity is advancing at a slower rate than real wage, which is very odd considering that is how we value labor. What is also odd is that a lot of real wage growth comes between recessions, I still think that this is a good sign overall because it is our economy on the rise. Though the rise is fairly unbalanced sticking more to the top than the bottom of the wage spectrum, I think that this is something that will even out in the years to come assuming that real wage keeps increasing. With all this in mind, do you think that this increase good, bad, or we don't have enough data to really tell if it is good or bad? To me this is a good sign of our growth as an economy and a sign that our standard of living has increased, what do you think?




https://www.wsj.com/articles/real-wages-keep-powering-ahead-but-can-the-trend-last-1506265200

The Fed and its Balance Sheet

This past Wednesday, the Federal Reserve stated that it believed the United States Economy was strong enough to start allowing their holdings in U.S. government bonds and mortgage securities to mature. Not many know that the Fed actually holds $4.5 trillion worth of these bonds and securities. How did they accumulate so much? Well, during the economic recession of 2008 the Federal Reserve deemed it necessary to increase their holdings from a mere $900 billion to $4.5 trillion. This allowed the economy to turn around and gradually pick up enough steam to hit record highs in the stock market and it is predicted that we will see unemployment drop to around 4% next year. Along with projected growth of 2.4% and Fed controlled interest rates staying around 1-1.25% this might be the perfect time for the Fed to reduce its holdings in the U.S. economy.  However, it is noted throughout several articles that the market will have somewhat of a reaction to these moves by the Federal Reserve, it is just unsure how and how strong the market will react. It is predicted that we will see some pullback as the Fed decreases its holdings, but if growth continues with increased deregulation the U.S. economy should have nothing to worry about. It should also help that Janet Yellen is going to start slowly with the reduction in holdings. Shes stated that we should expect the Fed to begin a reduction of $10 billion a month in October and then increasing the reductions to $50 billion until the holdings were at typical levels. All in all, with the economy showing strong recovery and growth the public shouldn't worry about anything. The Federal Reserve has made it extremely clear what their intentions are and they have followed through with them thus far. Therefore, the market should react accordingly if there are no surprises. The true surprise will come when Trump chooses to reappoint Yellen or not. Until then, the economy seems to be on a healthy path.

https://www.washingtonpost.com/news/wonk/wp/2017/09/20/in-sign-of-u-s-economys-strength-fed-to-start-reducing-4-5-trillion-balance-sheet/?utm_term=.97ad2373e228

http://www.marketwatch.com/story/feds-balance-sheet-unwind-will-be-moment-of-truth-for-financial-markets-2017-09-18

Mercedes Benz is going electric

Mercedes is spending $1 billion to go electric in Alabama

Mercedes, which is owned by Daimler, said the investment will create 600 new jobs in communities near its plant in Tuscaloosa.The automaker plans to make new electric SUV models at the existing factory, and construct a battery plant nearby.The investment will put the German firm in direct competition with Tesla  on its home turf. "With production locations for electric vehicles and batteries in Europe, China and, now, the U.S., our global network is ready for the era of electric vehicles," said Markus Schäfer, the automaker's head of production planning.The move to electric follows a global backlash against diesel cars that is motivated by concerns over climate change and pollution caused by dirty engines.Countries including India, France, Britain, Norway and China have pledged to ditch gas and diesel cars in favor of cleaner vehicles.

http://money.cnn.com/2017/09/22/news/economy/mercedes-alabama-billion-investment-jobs/index.html?iid=SF_River

NBA Jersey Ads and the Benefits for Both Sides

NBA teams are finally starting to make deals with different companies around the world to put the company’s brand on their jerseys.  It seems that both sides of the deals are expecting a lot out of the branding on the jerseys.  For the company’s side of it, their brand will be seen my millions of people everyday to help spread the name and logo of their company to hopefully help them grow in revenue and use of their product.  For the NBA teams they are going to be making a lot of money from these company’s by just putting a little picture of a logo on their jerseys, so it’s a win win for both sides. 

About two weeks ago the biggest NBA ad deal had gone down between a Japanese company, Rakuten, and last years NBA finals Champions, the Golden State Warriors.   From what has been released, the Japanese company is paying the Warriors $60 Million for a three-year deal of having their logo on their jersey.  Not surprised by the price because the Warriors are the most watched team in the entire NBA and showed Rakuten that if they want to be on the jersey of the most watched team they had to be willing to pay the big bucks to be on the jersey. 

This is a great way for the NBA teams to make produce easy revenue by just adding a patch on the jersey.  I am surprised that this did not happen earlier.  I know some people may believe that this is showing that the NBA is all about money and not about the skills of the players, but realistically it is just a little patch to give the company exposure in the United States and gives the NBA teams a chance to profit the easiest way it knows how to.

http://abc7news.com/sports/warriors-partner-with-rakuten-for-lucrative-jersey-sponsorship-deal/2409464/

For the second time in less than a month, North Korea on Friday fired a ballistic missile that flew over Japan in what was widely seen as payback for the U.N. Security Council's latest sanctions. As tensions continue to rise, this conflict could benefit some American companies. One example is Honeywell. Honeywell is a multinational company with a defense sector. These alarming moves by North Korea has lead to an arms race in Japan  and South Korea who are franticly increasing defense budget to defend themselves. This presents Honeywell with an opportunity for more business.



https://www.cnbc.com/2017/09/17/north-korea-crisis-may-boost-honeywell-sales-singapore-summit.html