A President Biden would double the tax rate on capital gains. The highest marginal rate on capital gains would rise from 20% to 39.6%. Add on the Obamacare surtax of 3.8% and you are looking at a 43.4% tax rate on capital gains. Why does Biden want to increase the capital gains tax rate? Do higher capital gains rates lead to more tax revenue? It’s not even close. Lower, not higher, capital gains rates generate more capital gains tax revenue. So why the focus on capital gains tax rate? For Biden and the progressive Left it’s about closing the wealth gap. Will higher capital gains … [Read more...]
The Cost of Retirement Income Has Never Been So Expensive
At the Financial Times, John Dizard explains how Fed policy is leaving retirees broke. He writes: At the present trajectory of Fed policy, the 10-year bond will be close to yielding zero per cent by election day in November. The Fed will be trying to defend the “zero lower bound”, a set of points on a yield curve just above negative interest rates, for short-term funding. But by the time the 10-year rate gets within 10 or 20 basis points of the ZLB, the curve is telling you that there is no reward for saving money for the long term. At that point, which by simple extrapolation comes in … [Read more...]
“Double Down” Ben Meng Leaves World’s Biggest Pension Fund
This should be a welcome relief to participants in California’s public pension plan. Ben Meng the man who steered the pension plan out of tail hedge strategies that soared just before the market crash and decided to leverage up the plan’s portfolio to meet return objectives is leaving. Hopefully, his successor will take a more prudent approach to risk management. The FT has more: Calpers, the $400bn Californian employee pension fund, said late on Wednesday that Ben Meng would leave effective immediately. The fund said Dan Bienvenue, deputy chief investment officer, would serve as interim … [Read more...]
Here’s How Tesla Really Became the Biggest Auto Manufacturer
At The Wall Street Journal, Holman W. Jenkins at the bizarre case of Tesla, the auto industry, and how politicians' efforts to combat emissions have created an actual deterrent to EV startups. He writes: Until the media starts doing its job, this slide toward policy idiocy will only accelerate. Such government interventions always tend to cartelize the industry they take aim at. That’s the drift here. Mandates that result in electric vehicles being dumped on the market are a deterrent to new EV entrants. Tesla wants to shelter behind these barriers too, though you would never get Mr. Musk to … [Read more...]
Is the Stock Market Too Big to Fail?
There is some truth in that headline. The central bankers' focus on the performance of financial markets and specifically the stock market has turned one of America’s greatest strengths into a liability. Last time the Fed bought Treasury securities to prop up the market. This downturn, they waded into corporate bonds. Is there any doubt that during the next big down cycle, the Fed’s emergency lending powers will be used to buy stock prices directly? What a sad state of affairs. Bloomberg has more on one analyst's take on the stock market's emerging too big to fail status. Lu Wang … [Read more...]
Here’s a Head Scratcher on Apple
Apple announced results last night that came in better than Wall Street was anticipating. Instead of reporting a drop of about 10% in quarterly net income on a year-over-year basis, Apple reported 10% growth. Results were driven by higher than expected sales of Macs and iPads. Shouldn’t be a big surprise with so many people working from home. But extrapolating those trends out for more than a quarter or two would be a mistake. A mistake that Wall Street analysts were of course more than willing to make. Taking a short-term trend and extrapolating forever into the future is apparently part … [Read more...]
Time to Privatize the Postal Service?
The United States Postal Service just reached an agreement to borrow $10 billion from the U.S. Treasury. The USPS is on an unsustainable track. Declines in first-class and marketing mail volumes are pointed to as the cause. Higher e-commerce deliveries that are more expensive to process are also cited as a culprit. The real problem here is there is no incentive to innovate or drive productivity and efficiency. Privatization via a concession with requirements for delivery set by the federal government looks like a sensible way forward. The Wall Street Journal's Paul Keirnan and Paul … [Read more...]
The Fed Can Fix It
We’ve officially jumped the shark with respect to monetary policy. Joe Biden wants to amend the Federal Reserve Act to push Powell & Co., to use monetary and regulatory policies to fight for racial economic equality. The Fed, as originally envisioned had one goal, and that goal was to be the lender of last resort in a panic. Today’s Fed is viewed as the white-knight for every financial, economic, health, and apparently social problem in America. Recession? The Fed can fix it. Did you borrow too much? The Fed can fix it. Pandemic? The Fed can fix it. Racism? Let’s see … [Read more...]
Sweden’s Unique Approach to COVID-19 Beats Expectations
Sweden has engineered what looks like a stronger-than-predicted economy in the face of COVID-19. Richard Milne reports for the Financial Times: It was supposed to be a terrible start to the summer. As a debate rages in Sweden over whether its lighter-touch approach to managing coronavirus has been the correct course, most European analysts were braced for dreadful quarterly earnings from the Scandinavian country during the height of the pandemic. But every day for the past two weeks, Swedish company after Swedish company has beaten expectations. From telecoms equipment maker Ericsson to … [Read more...]
Dotcom Crash Era Patterns Threaten Stock Market Today
James Mackintosh warns in The Wall Street Journal that patterns that preceded the Dotcom crash are once again taking hold of the stock market. He writes: But the forgotten story of the time was the extreme valuations reached by some very boring businesses as bond yields fell in the months before LTCM collapsed. From the start of 1997 to August 1998, the 10-year Treasury yield dropped from 6.4% to 5.4%. The fall justified higher valuations for companies with reliable earnings. The market, as usual, took it to excess. Coca-Cola led the way with a forward price/earnings ratio that almost doubled … [Read more...]
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