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ericvick · 3 years

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A Record Buyout Is Just the Start as Wealthy Flee Tax Hike

(Bloomberg) — For 110 years, four generations of Mills family members earned their money by expanding their great-grandfather’s Chicago apron business into a medical supplier that ranked among the nation’s largest private companies.

But soon after Democrats turned their attention toward raising taxes for the wealthy this year, the family signed a deal to cash out billions.

It was no coincidence, according to people close to the more-than $30 billion transaction, which sold part of Medline Industries Inc. to a consortium of Wall Street investors in the health-care industry’s biggest leveraged buyout. The threat of subjecting billions in proceeds to additional capital gains taxes motivated the clan to get it done before the end of 2021, when higher rates could take effect, the people said.

Such maneuvers are suddenly in the works throughout the opaque world of private U.S. corporations, as founders and their offspring discreetly consult tax experts and bankers with a pointed question: How much might they save by selling quickly?

Suddenly, in just a matter of a few months, the vast dealmaking machinery that caters to wealthy entrepreneurs has started buzzing with a level of activity that some industry veterans say they haven’t seen before, potentially setting up a cascade of sales for later this year. A combination of high valuations on companies and potentially higher taxes in the future is proving to be a potent motivator.

A spokeswoman for the Mills family said there were a number of family members not involved in the business and the sale was a way to provide liquidity to the family while maintaining leadership of the company. Earlier this month, Medline President Andy Mills told the Chicago Tribune that about 20 to 30 family members will benefit.

The spokeswoman didn’t address the role taxes played in the deal — a motive that hasn’t been reported before.

The family may be worth about $30 billion, according to the Bloomberg Billionaires Index.

Story continues

Many scenes are playing out far beyond Wall Street’s gilded towers: In an old, brick roofing-supply building in Birmingham, Alabama, executives atop boutique M&A firm Founders Advisors are settling into a freshly expanded office space and completing a hasty hiring spree to increase staffing 50%. They’re signing up millionaire owners of companies, eager to start the process of selling at least part of what they built.

“For as long as we’ve been in business, it’s the most vibrant” market yet, Chief Executive officer Duane Donner said. More than half of his clients hail from nearby states and Texas, where the firm has two outposts. “We’ve got more engagements than we’ve ever had.” The No. 1 reason, he said: “taxes.”

In the Midwest, the co-founder of an online marketing company is giving up his dream of stepping into a less active role and letting the business keep growing in coming years under the next generation. Now, selling just makes more financial sense, he said, speaking on the condition his company not be identified. He and his partners are in the midst of setting up their exit.

Founders aren’t the only owners facing pressures. In Manhattan, Boston and other hubs of the private equity world, senior managers are talking with companies in their portfolios about potentially reducing or selling stakes this year to lower tax liabilities and maximize returns, executives and their advisers said in interviews. They’re also looking for opportunities to buy companies that might come up for sale because of tax changes. Company owners would be smart to get out now, one private equity executive noted, because by this fall in the U.S. there will be too many sellers crowding into the market.

“It’s clear from a seller’s perspective — whether family-owned or private equity sponsor-owned — that there is increasing debate,” said Rick Landgarten, the global head of health-care and real estate advisory teams at Barclays Plc, said in an interview. They’re asking “‘Can I get done this year? Because I expect sometime later this year or early next year for there to be tax-rate increases.’”

Calling Lawmakers

The irony is that Democrats haven’t even coalesced around a plan yet.

President Joe Biden has proposed raising the capital-gains tax rate to 39.6% from 20% for those earning $1 million. But any such measure almost certainly faces months of negotiation before it could be passed. More than 20 House Democrats from high-tax states have threatened to reject Biden’s tax plans unless they also address the so-called SALT cap imposed under President Donald Trump. And recently, a new debate has broken out among Democrats over whether to also seek an even more controversial wealth tax.

QuickTake: How Capital Gains Are Taxed and What Biden Would Do

Meanwhile, company owners are eager for certainty — pressing tax experts, bankers and even their congressional representatives to specify how much higher tax bills will jump if they wait to sell in the future. Many are concerned that Democrats might thwart such an escape anyway, by making any capital gains tax hike retroactive. Biden’s proposal assumes the increase would be retroactive to late April, when it was proposed. But it’s unclear whether Congress would approve such a measure.

“Frankly, just the volatility of the tax discussion — what will pass, when will it pass, whether it will be retroactive — is making it hard to drive the boat when you are not entirely sure what each of these entrepreneurs should do and how they should plan,” Brad Bernstein, managing partner at private equity firm FTV Capital, which specializes in working with founders of fintech businesses.

Some are floating alternative tax strategies.

Private equity funds could, for example, decide to take portfolio companies public and then have the general partners collect their performance fee, known as the carry, in shares, said Bernstein. That would put off capital gains and income taxes until they sell their stock.

Another approach for company owners is to trigger a tax bill this year, such as by moving abroad and renouncing U.S. citizenship or engaging in other transfers that constitute a deemed sale, said David Lesperance, an international tax and immigration adviser at Lesperance & Associates. The idea is to pay taxes before rates rise, giving owners more time to arrange a sale with optimal terms.

Eager Buyers

To be sure, there are many factors contributing to talk of deals. The stock market is near an all-time high, burnishing valuations of private companies. Buyout firms are loaded with dry powder for takeovers after the pandemic. Blank-check firms known as SPACs, which flooded into the stock market in the past year, are under pressure to find desirable takeover targets. Low interest rates also make it easier for companies to finance strategic acquisitions. And investor interest in IPOs remains robust, behooving private equity firms to unload holdings before it softens.

It’s all adding up to a surge in dealmaking. The value of global deals has raced past the $2 trillion milestone this year, and could hit a new first-half record, data compiled by Bloomberg show.About 65% of the private equity executives surveyed by EY in February and March expect changes in tax policy to have an impact on the timing of their exits.

“We’ve seen a strong resurgence in exit activity overall,” Pete Witte, EY global private equity lead analyst, said in an interview. “As we go into the balance of the year, the tax piece will be particularly important here as well.”

(Updates with Mills family comment in sixth paragraph, and volume of deal-making in third from last paragraph.)

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brassring2020 · 5 years

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AYA Analytica financial health memo March 2019

As of March 2019, this regular podcast is available on our Andy Yeh Alpha fintech network platform.

Congresswoman Alexandria Ocasio-Cortez proposes greater public debt finance with minimal tax increases for the Green New Deal. Congresswoman Alexandria Ocasio-Cortez proposes greater public debt finance with minimal tax increases for the Green New Deal. In accordance with the modern monetary theory, the central bank can print money to support greater government expenditures without tax increases as greater labor participation helps close the economic output gap. In reality, however, the modern monetary theory seems bizarre to many eminent economists such as Paul Krugman and Lawrence Summers. For the fiscal year 2019-2020, the Trump budget proposal would increase defense expenditures by 5% with 30% budget cuts to health care and environmental protection. For better border security and immigration, Trump asks for another $5 billion public finance to fulfill his campaign promise of a southern border wall.

The Trump $4.75 trillion budget plan has a slim chance of passing through the Democrat-majority House. All these fiscal details set the stage for another acrimonious battle between Trump and Congress. Alternatively, the Sargent-Wallace monetarist arithmetic analysis suggests that the government would have to tolerate higher inflation when the central bank raises seigniorage taxes on money supply growth to absorb any discrepancy between new budget deficit and public bond issuance. The subsequent Federal Reserve interest rate adjustments may thus inadvertently offset the positive economic effect of fiscal stimulus that the Trump administration proposes in the current budget deal.

OECD cuts the global economic growth forecast from 3.5% to 3.3% for the fiscal year 2019-2020. OECD cuts the global economic growth forecast from 3.5% to 3.3% for the fiscal year 2019-2020. The global economy suffers from economic protraction and uncertainty amid the recent Sino-U.S. trade and Brexit standoffs. OECD downgrades real GDP growth rates from 6.5% to 6% for China and from 1.5% to 1% for Europe. The Chinese Xi administration seeks to assuage U.S. concerns about the bilateral trade deficit, unfair technology transfer, and intellectual property protection. Meanwhile, the British May administration needs to delay Brexit to buy time for a plausible second referendum on whether the U.K. should leave the European trade bloc. These trade issues cloud macroeconomic momentum in Europe and East Asia. Several chief economists recommend the European and Asian central banks not to follow the Federal Reserve interest rate hikes too soon. To the extent that these non-U.S. central banks decelerate the global financial cycle with less hawkish monetary policy decisions, Europe and East Asia can insulate themselves from volatile exchange rates, stock market gyrations, and cross-border capital flows that might arise from the next Federal Reserve interest rate adjustments. The subsequent international interest rate hikes are likely to reflect recent upticks in consumer confidence, wage growth, and core inflation.

America seeks to advance the global energy dominance agenda by toppling Saudi Arabia as the top oil exporter by 2024. America seeks to advance the global energy dominance agenda by toppling Saudi Arabia as the top oil exporter by 2024. The International Energy Agency (IEA) now forecasts that U.S. crude oil exports will double to 9 million barrels per day by 2024. This U.S. crude oil production surpasses Russian shipments and may eventually overtake Saudi exports. The same IEA report shows that global oil demand can grow by 1.2 million barrels per day year-in-year-out through 2024. In recent times, U.S. State Secretary Mike Pompeo meets with top oil executives to help the Trump administration boost oil exports to Asia with draconian economic sanctions on Iran in the form of crude oil embargoes. This outreach represents a significant new effort to achieve American energy dominance that helps enhance the economic prospects of U.S. oil and natural gas. This effort wins success and support from China, Japan, and South Korea with more purchases of U.S. oil and gas units. In contrast to greater U.S. crude oil production, Saudi Arabia seeks to drain global supply glut to support higher oil prices by cutting oil exports to 7 million barrels per day while the Saudi oil output remains well below 10 million barrels per day.

Fed Chair Jerome Powell answers CBS News 60 Minutes questions about the recent U.S. economic outlook and interest rate cycle. Fed Chair Jerome Powell answers CBS News 60 Minutes questions about the recent U.S. economic outlook and interest rate cycle. Powell views the current U.S. economic outlook as a favorable one. The federal funds rate hits the neutral threshold where the U.S. economy operates near full employment with low inflation. Powell reiterates the *patient* approach to further raising the interest rate as the U.S. economy grows at a moderate pace. Although about 7 million Americans fall behind their auto loan payments and retail sales decline at the highest pace in the post-crisis period, Powell remains positive about U.S. economic growth in 2019-2020. As the U.S. real GDP growth rate increases above 3%, there are healthy upticks in both consumer confidence and wage growth. In light of the recent Sino-U.S. trade and Brexit negotiations, Powell considers the biggest macro risk to be a probable economic output slowdown in China and Europe. Powell considers the U.S. financial system to be more resilient with high capital buffers that help absorb extreme losses in rare times of severe financial stress. The Federal Reserve is independent in the generic sense that the monetary authority needs to execute monetary policy decisions in a strictly non-political way.

Senator Elizabeth Warren proposes breaking up tech titans such as Facebook, Apple, Microsoft, Google, and Amazon (FAMGA). Senator Elizabeth Warren proposes breaking up tech titans such as Facebook, Apple, Microsoft, Google, and Amazon (FAMGA). These tech titans have become too dominant and so tend to leverage their market power to squelch competition to the detriment of consumers. In addition to bulldozing free market competition, these tech titans use private user information for profits, tilt the playing field against small-to-medium enterprises, and thus stifle R&D innovation as their M&A deals encapsulate niche competitors. For better scale economies and network effects, several strategic M&A examples include the recent acquisitions of Instagram, Whatsapp, and Oculus (by Facebook), DoubleClick, Waze, and Nest (by Google), Whole Foods and Zappos (by Amazon), and Shazam, Texture, InVisage, Regaind, and Lattice Data (by Apple). Warren further proposes to bar these top platform orchestrators (FAMGA) from sharing private user data with third parties. Under the Warren proposal, small tech startups would have a fair shot to sell their products on Amazon without the fear of facing fierce competition from Amazon and its affiliates; Google could not smother competitors by demoting their products and services on the Internet search engine; and Facebook would face real pressure from Instagram and WhatsApp to improve the user experience with better privacy protection.

U.S. tech titans now increasingly recruit PhD economists to help solve business problems. U.S. tech titans now increasingly recruit PhD economists to help solve business problems. These tech titans include Facebook, Amazon, Microsoft, Google, Apple, Netflix, and Twitter (FAMGANT). PhD economists exhibit at least 2 critical knowledge-intensive skills that can contribute to effective business solutions. First, many economists can apply effective empirical methods and quantitative tools to ferret out causal relations in business data. Second, PhD economists can understand the useful design of both effective incentives and market mechanisms for better business optimization. In practice, these economists help demystify many empirical puzzles in the tech sector. For instance, some economists empirically find that Uber Express Pool may inadvertently draw in active users from other Uber products without growing the full Uber user base. Also, several other economists show that eBay tends to syphon off people who would have come through organic search when the online auction website advertises on Google. Moreover, some recent economic research demonstrates that many African-American Airbnb users experience rampant racial discrimination. If tech platforms involve matching users or businesses, market design economists can likely help guide these decisions. Modern examples of disruptive platform design include Amazon, Airbnb, Tinder, and TripAdvisor etc. If scale economies are important for the business, major mergers, acquisitions, and exclusive deals may dramatically alter the strategic industry structure and market environment. For instance, Apple and Alphabet are the dominant duo in the iOS-Android market for mobile devices; Microsoft remains a primary software market player with its Office Suite and Windows operating system; Intel and Qualcomm specialize and dominate in the tech-savvy market for microchips; Google acquires 90% of U.S. online search traffic; Facebook extracts hefty profits in social media advertisements; and Netflix retains key niches in the lucrative business of high-speed original video content distribution. If tech companies need to analyze large-scale user data to make better business decisions, econometricians can apply logistic regressions, panel estimation methods, and time-series models etc to derive informative business insights into user behaviors, product reviews, and customer interests and preferences. Smart tech data analyzers include Amazon, Apple, Facebook, Twitter, eBay, PayPal, and IBM etc. In stark contrast to doctors, engineers, and lawyers who may focus on specific mechanical details and techniques, most economists focus on the bigger picture when they implement empirical methods to solve practical business problems. On balance, most economists can see both the trees and the forest in critical business decisions when push comes to shove.

U.S. trade envoy Robert Lighthizer recommends America to require regular touchpoints to ensure Sino-U.S. trade deal enforcement. U.S. trade envoy Robert Lighthizer recommends America to require regular touchpoints to ensure Sino-U.S. trade deal enforcement. America has to maintain the threat of tit-for-tat tariffs on Chinese goods for many years even though the Trump administration seeks to strike a new agreement with China to end the prohibitively costly Sino-U.S. trade war. U.S. trade negotiators and lawmakers need to monitor-and-enforce Chinese compliance with the new trade rules. The Trump administration aims to eradicate the $350 billion bilateral U.S. trade deficit. In response, the Chinese Xi administration offers to buy $1.2 trillion U.S. goods and services over the next 6 years. Also, the Trump team plans to deter the Chinese government from forcing U.S. tech companies to involuntarily transfer trade secrets, tech advances, and other major intellectual properties such as patents, trademarks, and copyrights. On balance, tariffs remain an important tool for the Trump administration to push China to initiate structural trade policy changes in light of the specific perennial enforcement issue. Due to few major surprises, most U.S. stock market indices such as S&P 500, Dow Jones, and Nasdaq remain steady after the congressional testimonies by U.S. trade envoy Robert Lighthizer and Federal Reserve chairman Jerome Powell.

CNBC stock host Jim Cramer recommends Caterpillar and Home Depot as the current U.S. bull market is likely to continue in light of the recent Fed Chair comments. CNBC stock host Jim Cramer recommends Caterpillar and Home Depot as the current U.S. bull market is likely to continue in light of the recent Fed Chair comments. Fed Chair Jerome Powell reaffirms a patient approach to U.S. interest rate adjustments. In his biennial congressional testimony, Powell suggests that there are both economic crosscurrents and headwinds in the U.S. economy. Although the U.S. economic outlook remains solid, these crosscurrents and headwinds (such as the Sino-American trade and Brexit negotiations) may conflict with the Federal Reserve dual mandate of maximum employment and price stability. Economic policy uncertainty revolves around optimal Treasury debt positions, U.S. government budget decisions, and near-term political considerations. Specifically, Powell reiterates the Federal Reserve plan for balance sheet shrinkage with at least $1 trillion bank reserves through the U.S. real business cycle. In response, CNBC stock host Jim Cramer recommends well-known stocks such as Caterpillar and Home Depot in light of the patient Federal Reserve monetary policy stance. These stocks tend to lose hefty market valuation over the Christmas season. As the Federal Reserve switches from a hawkish monetary policy stance to a dovish one, the current U.S. bull market can elevate asset prices in stocks, bonds, and real estate properties.

Uber seeks an IPO in close competition with its rideshare rival Lyft and other tech firms such as Slack, Pinterest, and Palantir. Uber seeks an IPO in close competition with its rideshare rival Lyft and other tech firms such as Slack, Pinterest, and Palantir. Uber expects to complete one of the largest tech IPOs with $120 billion firm valuation in April 2019. Both Uber and its rideshare rival Lyft announce their recent S-1 confidential paperwork as of December 2018. With $50 billion taxi reservations and $11 billion net revenue, Uber runs a rideshare user network that is more diverse than the Lyft counterpart. As a global tech-savvy transportation company, Uber now operates in more than 70 countries with probable stock market valuation as high as $120 billion (well above its current $76 billion private market valuation). As a smaller rideshare tech firm, Lyft seeks stock market valuation of $20 billion to $25 billion (well above its current private market valuation of $15 billion). With these astronomical stock market figures, both companies can handle their net losses below $1 billion per annum. SoftBank Vision Fund and Toyota Motor Corp are now part of a consortium of investors that invest $1 billion in the Uber autonomous car unit. The current IPO proposal serves as a major strategic move for Uber to garner greater capital.

Lyft seeks to go public with a dual-class stock ownership structure that allows the co-founders to retain significant influence over the rideshare tech unicorn. Lyft seeks to go public with a dual-class stock ownership structure that allows the co-founders to retain significant influence over the rideshare tech unicorn. Within this dual-class structure, Class A shares follow the one-share-one-vote rule for new investors, whereas, Class B shares empower the co-founders John Zimmer and Logan Green and their executive managers to have 20 votes per share. The co-founders and their executive team may end up owning well more than 27% of equity stakes with near-majority control. The dual-class structure has become prevalent among U.S. public companies such as CBS, Comcast, Facebook, Ford, Google, News Corp, Nike, Snap, and Viacom etc. The co-founders retain significant influence over most matters that require shareholder approval, such as director elections and significant corporate transactions from M&A deals and capital investment projects to R&D expenditures and other asset sales. Harvard law professor Lucian Bebchuk criticizes the dual-class stock ownership structure. The probable costs of a lifetime lock on control tend to be especially large when the co-founders are young at the time of the IPO. The costs of inferior leadership can substantially rise when the co-founders fail to address dynamic changes in the business environment. This concern further aggravates when the dual-class structure enables a transfer of founder control to an heir who might be unfit to lead the company. Many dual-class structures allow controllers to substantially reduce their fraction of equity capital over time without relinquishing control, and controllers often do so to diversify their stock portfolios to fund other investment projects. When the wedge between the interests of controllers and public investors grows over time, the agency costs of a dual-class structure are likely to increase. Corporate controllers with a small fraction of equity capital have perverse incentives to retain an inefficient dual-class structure. The reason is that these controllers would capture only a fraction of efficiency gains (which would be shared by all shareholders), but would fully bear the costs of forgoing the private benefits of control that arise from the dual-class structure. Bebchuk proposes a sunset provision that stipulates the eventual expiration of dual-class structures after a specific period of time such as 10 years or 15 years. This proposal empowers founders to retain their lock on corporate control with minimal short-term market pressure in the early-IPO stage of their entrepreneurial efforts; whereas, the dual-class stock ownership structure should eventually converge toward the more efficient first-class structure.

Pinterest files a $12 billion IPO due in mid-2019. Pinterest files a $12 billion IPO due in mid-2019. This tech unicorn allows users to pin-and-browse images through its social media app and website. Pinterest seeks stock market valuation of at least $12 billion that would match the current valuation of Snap Inc, which owns another photo-centric social media app Snapchat. Pinterest differentiates itself from Facebook, Instagram, Twitter, and Snapchat etc because this new tech unicorn empowers active users to pin their recent real-life photos that hyperlink to external websites. For instance, a Pinterest user can pin her photo of a recent restaurant meal that links to an external website where others can find the recipe for the same meal. In contrast, most other social media apps and websites prefer to retain active users within their respective digital platform ecosystems. Pinterest has grown its user base to 250 million active users per month as of February 2019; whereas, Facebook keeps 2 billion active users, Instagram has 1 billion, Twitter has about 320 million, and Snapchat has almost 300 million as of early-2019. As Pinterest moves fast to disrupt the image search space via a $12 billion IPO, several other rideshare rivals Lyft and Uber seek opportunities to go public too.

A physicist derives a mathematical formula that success equates the product of both personal quality and the potential value of a given subject matter. A physicist derives a mathematical formula that success equates the product of both personal quality and the potential value of a given subject matter. As a Northeastern University expert on network theory, Albert-Laszlo Barabasi comes up with this simple and ingenious formula when he learns the transformative life stories of numerous people who achieved late-in-life successes. For instance, a U.S. analytical chemistry professor, John Fenn, conducted his revolutionary research on electrospray ionization at the age of 67 (which contributed to the quick mass measurement of viruses and ribosomes with incredible accuracy) and then received the Nobel Prize in Chemistry for this major contribution at the age of 85. Also, English actor and director Alan Rickman had his first movie role at 46; Julia Child brought French cuisine to the American public in her first TV show at 50; Yitang Zhang derived a revolutionary mathematical proof in his first journal publication and later earned full professorship with several special achievement awards at 57; and Nelson Mandela emerged after 27 years in jail and then became the President of South Africa at 76. The Barabasi success formula is S=Q*r where S denotes the success of a new deal, or the impact of a major discovery, which equates the product of the Q-factor (innate talent) and the value of a random idea r.

A highly creative and smart person may encounter some ordinary random idea, and this combination leads to a mediocre outcome. Conversely, an average person may come across a great idea, and this combination still leads to a mediocre result. Then there are perfect-storm instances where the idea and its creator both shine. When the Q-factor and the value of a new idea are both high, they enhance each other and result in a major breakthrough. A classic example is the revolutionary Apple iPhone that integrates the flash of genius in Steve Jobs, an Internet-connective telephone, a music player, and a digital camera into one mobile device. What illuminates the Barabasi success formula is the realization that if a person has an insufficiently high Q-factor in one vocation, he or she might want to consider switching to a different field where it is attainable to get an exceptionally high Q-factor. Amazon founder and chairman Jeff Bezos had considered becoming a physicist when he studied at Princeton, and later he realized that this ambition was too remote; as a result, he became an investment banker early in his career and then founded Amazon as an e-commerce startup, and the rest was history. Overall, these life lessons suggest that one should combine his or her high Q-factor with a healthy quantity of good ideas before the next eureka moment.

We may need to reconsider the new rules of personal finance. We may need to reconsider the new rules of personal finance. First, renting a home can be a smart money move, whereas, buying a home cannot always be a good investment. It can be reasonable to rent a home without opportunity costs such as down payments, maintenance fees, property taxes, interest expenses, and insurance premiums etc. Investing these opportunity costs in stocks and bonds may yield better long-term returns. Second, money is an important resource for long-term investment, and time is another key element of successful wealth accumulation. It takes time for compound interest to exponentially grow at the 6%-11% stock market annual rate of return. Third, it would be wiser to invest retirement finance in some stock market index to earn the average equity premium around 5%-9% in recent times. With longer lifespans and lower bond returns, stock market investors can reap higher rewards. Fourth, it is important to demystify the conventional wisdom that student loans are good debt because education pays handsomely in the form of higher future wages. However, only postgraduate degrees provide the higher *incremental* wage boost than college degrees. We should consider these new rules of personal finance during the recent Trump stock market rally.

Tech companies seek to serve as quasi-financial intermediaries. Tech companies seek to serve as quasi-financial intermediaries. Many retail traders can now list items for sale on eBay and then acquire these items economically on Amazon for direct shipments when busy buyers place orders on eBay. These retail traders serve as information arbitrageurs and clip spreads between the divergent prices on Amazon and eBay. This information arbitrage occurs often enough to be a viable business. In a practical sense, this information arbitrage proves to be a valuable service at a market price. Time is finite and human attention is precious such that this intermediary service often turns out to be worthwhile for better immediacy and convenience. In a similar vein, the online search website for real estate, Zillow Group, now attempts to serve as a quasi-financial intermediary for home purchases and mortgage loans. Zillow brings back its co-founder and former CEO Rich Barton to lead this ambitious transformation. Zillow transforms how Americans buy and sell their real estate properties as the tech platform uses both big data analysis and artificial intelligence to change how these residential owners and investors shop for homes with mouse clicks and satellite maps. Busy buyers pay for immediacy and convenience when they shop for homes on Zillow. In addition to Amazon-eBay retail arbitrage and Zillow real estate, Apple and Goldman Sachs enter into a strategic alliance to expand the joint credit card business. Apple pairs the new credit card with key iPhone features such as Face ID to better serve its active users. This credit card piggybacks on the Mastercard network and offers 2% cash rewards for the vast majority of U.S. online purchases. Beyond cash bonuses, Apple and Goldman Sachs hope to leverage the Wallet app for tracking account balances and rewards for better personal finance management. Like Goldman Sachs, big banks shift operational focus from their prior reliance on capital-intensive risk businesses to tech platforms for their tech-savvy clients. In light of financial distress and post-crisis regulation, these banks prefer to build online platforms for their institutional clients to trade bonds, funds, and other complex securities. The banks accumulate fees and commissions when these transactions take place for the mutual benefits of both banks and institutional investors themselves. This fresh logic explains why Apple and Goldman Sachs work together to strengthen their credit card business. Nowadays Amazon-eBay arbitrageurs and tech titans such as Apple and Zillow seek to serve as quasi-financial intermediaries.

Global economic uncertainty lurks in an even thicker layer of mystery. Global economic uncertainty lurks in an even thicker layer of mystery. This uncertainty arises from Sino-U.S. trade tension, Brexit fallout, monetary policy normalization, and financial fragility due to U.S. interest rate and greenback appreciation. As the Trump administration makes positive progress on Sino-U.S. trade negotiations, most economic pundits and experts expect U.S. monetary policy normalization to continue in 2019-2020 as financial asset returns and factor premiums reflect structural changes in the interest rate and dollar valuation. Also, the U.K. parliament may initiate a major delay or a second referendum on Brexit. At the turn of the new century, big data analysis, cloud computation, artificial intelligence, and robotic automation displace many workers and so irrevocably alter the tech structure of employment. Globalization is another powerful force. The free movement of goods, services, and people transforms economic integration and global value creation. This economic trend intensifies competition in the labor market, and the middle class faces higher wage growth, price inflation, human capital depreciation, and unemployment in OECD countries. In the financial sector, deregulation and capital account liberalization boost international capital flows well above trade. Post-crisis fintech advances such as crowd funds, peer-to-peer loans, and shadow banks shed skeptical light on the role of financial intermediaries in the monetary transmission mechanism. As a result, many central banks encounter real wage stagnation, deterioration in both income and wealth distribution, and a major slowdown in productivity growth. E-commerce tech titans such as Amazon and Alibaba now induce frequent, accurate, and competitive retail price adjustments. These faster price adjustments effectively flatten the Phillips curve or the inexorable and mysterious trade-off between inflation and unemployment. This macroeconomic transformation coincides with the new cycle of U.S. interest rate hikes. Through cross-border capital flows and exchange rate gyrations, U.S. monetary policy changes and trade imbalances can create global financial cycles that radically distort credit conditions in European and Asian economies. Central banks now need to adopt a cautious, gradual, and data-driven monetary policy approach for sound risk management in light of substantial macro uncertainty. Also, central banks need to monitor a wide variety of macroprudential indicators such as asset prices, risk premiums, credit supply shocks, and other financial imbalances. To the extent that both global capital flows and external supply-side shocks aggravate exchange rate volatility, central banks need to preserve greater price flexibility and monetary autonomy. When push comes to shove, the law of inadvertent consequences counsels caution.

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caplofan · 4 years

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Airlines and Service-Sector Struggles Amidst COVID Global Financial Collapse

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Airlines and Service-Sector Struggles Amidst COVID Global Financial Collapse

Economic activity is crashing around the world.

IHS Markit’’ s studies of buying supervisors in Japan and Europe reveal general activity dropping in March, led by a service-sector collapse as business took out of conferences, travelers canceled travel stores, dining establishments and strategies closed and federal governments limited motions to assist include the unique coronavirus.

General activity in the eurozone and the U.K. contracted at the fastest rate on record and Japan’’ s composite study was the weakest given that 2011. Getting supervisors, individuals who being in the center of a business’s supply chain and make choices about whether to buy more materials, modification stocks or change costs, state an economic crisis is coming, if it’’ s not currently here. ““

Clearly there’s scope for the recession to heighten even more as a lot more heavy-handed policies to handle the infection are possibly carried out in coming months,” ” IHS Markit financial expert Chris Williamson stated of the eurozone study.

IHS Markit launches its initial figures for the U.S. at 9:45 a. m. ET.

IHS Markit’’ s initial U.S. production index for March is anticipated to sink to 42.5 from 50.7 at the end of February and the services index is anticipated to drop to 42.0 from 49.4. (9:45 a.m. ET)

U.S. new-home sales for February are anticipated to inch down to 757,000 from 764,000 a month previously. (10 a.m. ET)

The Richmond Fed’’ s making study for March is anticipated to be up to minus-12.5 from minus-2 a month previously. (10 a.m. ET)

The Bank of Japan launches minutes from its Jan. 20-21 conference at 7:50 p.m. ET.

The Senate on Monday stopped working to advance a rescue bundle amounting to a minimum of $1.6 trillion. Negotiations resume today .

Hard Landing

Major U.S. airline companies are preparing prepare for a possible voluntary shutdown of essentially all traveler flights throughout the U.S., according to market and federal authorities, as federal government companies likewise think about purchasing such the country and a relocation’’ s air-traffic control system continues to be damaged by the coronavirus contagion, Andy Pasztor and Alison Sider report.

Boeing stated it would suspend airliner production in the Seattle location and General Electric stated it would lay off employees making jet engines as the coronavirus pandemic locations a heavy drag on U.S. market .

Lots of makers have actually kept factories running as validated cases of the infection have actually increased, however more are closing a minimum of a few of their plants as need plummets and a few of their employees test favorable for the infection.

Winnebago Industries and Polaris stated they were suspending some operations. Harley-Davidson and U.S. automobile makers have actually likewise cut or suspended some production.

Lower automobile production indicates lower need for steel. ArcelorMittal, the world’’ s biggest steelmaker by production, stated it prepares to idle heaters in Indiana and Ontario, Andrew Tangel and Thomas Gryta report.

Everything and the Kitchen Sink

Federal Reserve Chairman Jerome Powell’’ s whatever-it-takes minute showed up Monday. The reserve bank indicated it would do almost anything —– extending loans to little and huge services and acquiring unrestricted quantities of federal government financial obligation—– to assist an American economy in a race versus time, Nick Timiraos reports.

Americans Are Stocking Up on More than Toilet Paper

U.S. home usage patterns have actually gone crazy throughout the early phases of the international coronavirus health crisis. A Wall Street Journal analysis of high-frequency information from a series of U.S. markets revealed sharp decreases in costs on hotels, dining establishments, airline companies and other travel, while investing expanded in other locations consisting of groceries, basic product shops, weapon and ammo stores and cannabis providers, Gwynn Guilford reports.

Those sort of investing shifts will be shown throughout the economy. Walmart, Amazon.com and CVS Health are amongst about a lots big business aiming to hire almost 500,000 Americans in coming weeks. The business are handling a rise in need for food and other home items that have actually taxed their storage facilities and shops.

Separately, Instacart, a grocery-delivery business, stated it prepares to include 300,000 employees over the next 3 months, more than doubling the size of its present labor force of about 200,000, Sarah Nassauer and Jaewon Kang report.

The separated employing sprees, nevertheless, are not likely to surpass a huge wave of layoffs—– Morgan Stanley anticipates Thursday’’ s weekly out of work claims report might reveal that about 3.4 million Americans applied for advantages, a big dive from 281,000 a week previously and almost 5 times the previous record.

The White House is going over alleviating social-distancing standards as early as next week as advisors and magnate press President Trump to increase an economy beleaguered by deepening task losses. The president has actually informed individuals that he wishes to open the economy as quickly as possible. The talks have actually fixated relaxing or reorganizing the 15-day standards the administration released recently to stem the spread of coronavirus, Michael C. Bender and Rebecca Ballhaus report.

How much financial loss can the U.S. bear to conserve an unknowable variety of lives from the pandemic? The WSJ’’ s Jon Hilsenrath and Stephanie Armour look inside the expensive debate within the Trump administration, and amongst epidemiologists and financial experts.

Chinese authorities are preparing to raise the mass quarantine on the main province of Hubei, where the coronavirus pandemic very first emerged, as part of across the country efforts to rejuvenate an economy gave a near dead stop by the contagion. Simply over 2 months back, on Jan. 23, China began locking down the province’’ s capital, Wuhan, in a quote to stem the spread of the infection. Comparable procedures were extended throughout Hubei province that month, while partial lockdowns were likewise enforced throughout much of China, impacting numerous countless individuals, Chun Han Wong reports.

The WSJ has actually reduced its paywall for live coronavirus protection.

There ’ s a progressively noticeable financial expense to including the coronavirus—– an economic downturn.

The advantage? ““ By lowering financial interactions … these policies intensify the economic downturn however raise well-being by minimizing the death toll brought on by the epidemic.

We discover that it is optimum to present massive containment procedures that lead to a sharp, continual drop in aggregate output.

This ideal containment policy conserves about 600,000 lives in the U.S.,” ” Martin Eichenbaum, Sergio Rebeloy and Mathias Trabandt compose in a National Bureau of Economic Research working paper .

Original Source: blogs.wsj.com

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tortuga-aak · 7 years

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A part of the new GOP tax plan will be a tough sell for Republicans in New Jersey, New York, and California

Reuters

The House GOP unveiled its massive tax reform bill Thursday.

One of the biggest hangups for Republicans in states like New York, New Jersey, and New York has been the proposed elimination of the state and local tax (SALT) deduction, which allows people to deduct those taxes from their federal bill.

House Ways and Means Committee Chair Kevin Brady said Tuesday the GOP reached a deal that would allow people to deduct state and local property taxes up to $10,000 but not income or sales taxes.

The Trump administration and congressional Republicans took a step forward in their attempt to overhaul the US tax code on Thursday by releasing legislation proposing sweeping changes.

The "Tax Cuts and Jobs Act" will include a broad set of proposed changes to the corporate and individual tax system, building off a nine-page framework the White House and congressional Republican leaders dropped in September.

Among the details of the new bill emerging Thursday morning is a proposed elimination of the state and local tax (SALT) deduction, which is a benefit that allows people to deduct those taxes from their federal bill. House Ways and Means Committee Chair Kevin Brady said Tuesday the GOP reached a deal that would allow people to deduct state and local property taxes up to $10,000 but not income or sales taxes.

While most House Republicans are in favor of getting rid of the SALT deduction, this proposal is likely to be one of the biggest hangups for those House Republicans in states like New York, New Jersey, and California, which could prove to be an obstacle to the bill's passage.

Andy Kiersz/Business Insider

The two largest beneficiaries of the SALT deduction are higher earners and states with a lot of high-income residents, according to the Tax Policy Center.

Most of the claimants that benefit from the deduction live in traditionally Democratic states like California and New York. The Committee for a Responsible Federal Budget found that New York and California receive about 30.5% of the total benefits from the SALT deduction.

52 congressional districts held by Republicans registered above-average use of the SALT deduction in 2015, according to data from the Internal Revenue Service cited by Bloomberg. Those include a number of districts in New York, New Jersey, California, and an Illinois district of Representative Peter Roskam, the chairman of a key panel on tax policy.

Check out of the full run down on the "Tax Cuts and Jobs Act" here.

NOW WATCH: THE BOTTOM LINE: Chipotle's earnings disaster, Amazon's new headquarters, and the unstoppable stock market

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brassring2020 · 6 years

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AYA Analytica financial health memo February 2019

As of February 2019, this regular podcast is available on our Andy Yeh Alpha fintech network platform.

AYA Analytica finbuzz podcast channel on YouTube February 2019

AYA Analytica free finbuzz podcast provides fresh insights into the latest stock market news, economic trends, and investment portfolio strategies.

In this podcast, we discuss several topical issues as of February 2019: (1) our proprietary alpha investment model outperforms S&P 500 and MSCI; (2) the Trump team makes progress on Sino-U.S. trade negotiations; (3) Trump signs a compromise deal to avert another government shutdown; (4) Federal Reserve remains patient on future interest rate increases; (5) U.S. wealth inequality rises to pre-Great-Depression levels.

New York Fed CEO John Williams sees no need to raise the interest rate unless economic growth or inflation rises to a high gear.

New York Fed CEO John Williams sees no need to raise the interest rate unless economic growth or inflation rises to a high gear. After raising the interest rate 7 times since early-2017 to 2.25%-2.5%, the Federal Reserve now keeps the economically neutral federal funds rate. This neutral interest rate helps restore healthy economic growth on the steady-state trajectory with low inflation when the economy operates near full employment. As of January 2019, the U.S. CPI inflation rate declines from 1.9% to 1.6% slightly below the 2% target level as the U.S. unemployment rate continues to hover around the 3.7% historically low level. As New York Fed CEO and Federal Reserve Vice Chair, Williams considers the current neutral interest rate to be in a good place. This current monetary policy stance accords with the congressional dual mandate of both price stability and maximum employment. After the most recent FOMC rate-hike holiday, Federal Reserve governors and presidents indicate their clear intention that it may be about time to end their 3-year drive to tighten monetary policy due to a cloudy U.S. economic outlook. This cloudy economic outlook arises from several complications such as the Sino-U.S. trade and government budget negotiations.

Chicago financial economist Raghuram Rajan views communities as the third pillar of liberal democracy.

Chicago financial economist Raghuram Rajan views communities as the third pillar of liberal democracy in addition to states and markets. Rajan suggests that communities serve as an indispensable part of a healthy economic society in stark contrast to a major source of market frictions (which may inhibit the smooth operation of the global economy). In recent times, both Brexit and the electoral successes of Donald Trump have shaken the dismal science. Prominent economists begin to consider what can constitute an efficient response to regional economic inequality. For instance, Lawrence Summers and his co-authors empirically find that both employment subsidies and tax credits should target U.S. regions with more elastic labor participation.

As markets and states interact with socioeconomic webs of human relations, values, and norms, technological phase shifts tend to rip markets out of those old webs with populist backlashes throughout human history. Socioeconomic interactions eventually gravitate toward a new equilibrium with a messy and arduous transition. When markets and states scale up, political clout and economic power concentrate in vibrant hubs that prosper to the detriment of peripheral communities. Democracy preserves market competition, and market competition preserves democracy. Rajan proposes strengthening communities as an antidote to new socioeconomic challenges.

Apple shakes up senior leadership to initiate a new transition from iPhone revenue reliance to media and software services.

Apple shakes up senior leadership to initiate a smooth transition from iPhone revenue reliance to media and software services. These changes include the recent promotion of John Giannandrea to senior vice president with primary focus on machine-learning artificial intelligence. After his promotion, Giannandrea moves Bill Stasior, Head of Siri, to a lower role at the company. In terms of high-profile departures, Apple retail chief manager Angela Ahrendts decides to leave the company for greener pastures. These 3 major senior leadership changes take place within the current quarter 2019Q1. In addition to these personnel updates, Apple trims about 200 employees from its autonomous vehicle project, and continues to redirect its engineering resources into the media services ahead of the next launch of TV video content curation by 2020. HR reorganizations shift Apple operational focus from iPhone revenue reliance to media and software services. On balance, these services are likely to generate about $50 billion in sales by 2020 and may account for more than 60% of Apple revenue growth in the next 5 years.

A top Taiwanese Apple analyst, Ming-Chi Kuo, predicts the next phase that Apple will launch 3 brand-new mobile design devices in the fiscal year of 2019-2020. Kuo is well-known for accurately predicting Apple product launches and their probable revenue and profit forecasts. These products include a new MacBook Pro laptop with either a 16-inch or 16.5-inch display, a new 31.6-inch monitor with 6,144x3,072 resolution, and a Mac Pro desktop computer. Kuo believes Apple will release 2 new iPad Pros in 2019, a new iPad Mini, and a new regular iPad to replace the 9.7-inch model with a larger 10.2-inch screen. Also, Kuo indicates that Apple will unveil 3 new iPhones. The flagship iPhones have 5.8-inch and 6.5-inch OLED screens, and the more affordable iPhone has a 6.1-inch LCD screen. These iPhones may come with bigger batteries, better Face ID and wireless navigation, and frosty-glass cases. With respect to AirPods, Kuo suggests that Apple will launch a new model with wireless charging capability and better Bluetooth in 2019H1. As Apple transforms its organizational focus from iPhone revenue reliance into both product differentiation and media service diversification, the new Apple income structure can translate both flagship iPhones and non-iPhone mobile design devices into better topline and bottomline figures. We can expect to see greater operational synergies from these key changes in Apple senior leadership and product and service provision.

U.S. economic inequality increases to pre-Great-Depression levels.

U.S. economic inequality increases to pre-Great-Depression levels. Berkeley economics professor Gabriel Zucman empirically finds that the top 0.1% richest adults own about 25% of total household wealth in America (in accordance with a similar economic inequality situation back in the 1920s). When we broaden the core definition of the upper socioeconomic echelon, the top 1% richest households own 40% of total national wealth as of 2016. This high household wealth share compares with the 25%-30% thresholds back in the 1980s. Over the past 3 decades, the bottom 90% wealth share has significantly declined in similar proportions. Russia is the only comparable country with similar wealth inequality. The current Zucman empirical study resonates with the main themes of persistent global economic inequality in the recent book, Capital in the new century, written by Thomas Piketty. The root causes of U.S. economic inequality include information technology adoption, elite education, talent concentration, and high-skill human capital shortage. The government can design affordable college and graduate school education for all young adults to better prepare for their future vocational pursuits. More ubiquitous information technology adoption allows fresh talents to better appreciate the knowledge productivity gains from smart data analysis, robotic automation, and artificial intelligence etc.

President Trump is open to extending the March 2019 deadline for raising tariffs on Chinese imports.

President Trump is open to extending the March 2019 deadline for raising tariffs on Chinese imports if both sides are close to mutual agreement. These bilateral negotiations hinge on how both governments can enforce the Sino-U.S. trade pledges. U.S. Trade Rep Robert Lighthizer, Treasury Secretary Steven Mnuchin, and Chinese Vice Premier Liu He demonstrate credible progress on the top trade issues between China and America: perennial Sino-U.S. trade deficit and intellectual property protection. Several economic commentators suggest that it should be relatively easy for China to buy more American goods to help eradicate the current bilateral trade imbalance. These goods include U.S. aircrafts, automobiles, soya beans, and software products etc. However, it may be rather difficult for the Trump administration to monitor-and-enforce the defensive protection of U.S. intellectual properties such as patents, trademarks, and copyrights. The latter perennial dilemma remains a relevant and important issue in the current round of Sino-U.S. bilateral trade negotiations. If both sides cannot deliver mutual agreement on a sound and reasonable trade deal before the March 2019 deadline, the Trump administration may decide to impose 25% tariffs on $200 billion Chinese goods and services. President Trump may choose to extend the deadline when he receives mutual assurance that both sides are close to delivering a trade deal to avert the trade war when these negotiations come to fruition in time. Most U.S. stock market benchmarks such as S&P 500, Dow Jones, and Nasdaq reap 2%-3% healthy gains as investor optimism stokes over high hopes that both the bilateral diplomats and negotiators can work together to iron out a mutually beneficial trade deal. Meanwhile, benign U.S. CPI inflation data suggest that the Federal Reserve would maintain steady interest rates in the foreseeable future. Across Wall Street, the economic consensus view suggests another 2 interest rate hikes in the fiscal year of 2019-2020. These recent macro milestones mark the new age of international economic policy uncertainty under the Trump administration. Tax cuts trump trade, and greater government expenditures and capital investments help revamp U.S. public infrastructure, high-skill education, and better border security and immigration. Pervasive information technology adoption can help augment both capital investment and human capital accumulation to cause greater long-term productivity growth. This widespread positive externality can lead to healthy spillovers and network effects in light of significant improvements in real macroeconomic indicators such as national income per capita, employment, capital investment, and R&D innovation.

President Trump may reluctantly sign the congressional border wall deal in order to avert another U.S. government shutdown.

President Trump may reluctantly sign the congressional border wall deal in order to avert another U.S. government shutdown. With his executive power to declare a national emergency, President Trump expresses his displeasure with this compromise, but he has to accept the $1.4 billion border wall deal. House and Senate negotiators tentatively reach a border security agreement in principle to avoid another partial government shutdown. Several commentators view this presidential ploy as a risky maneuver that may open the Pandora box of future challenges both in court and in Congress. The Trump administration seeks alternative public finance to fund the $5 billion southern border wall. This flagship immigration reform reflects the fact that President Trump faces political opposition from House Democrats with respect to public finance. This public finance standoff may exacerbate the current U.S. fiscal budget deficit. In accordance with the Sargent-Wallace unpleasant monetarist arithmetic principle, the monetary authority would need to allow greater money supply growth (or inflation) in the form of higher seigniorage taxes if the fiscal authority continues to fund the budget deficit with incessant public bond issuance. In this light, the congressional border wall deal has profound policy implications for fiscal equilibrium as well as monetary price stability.

Corporate America uses Trump tax cuts and offshore cash stockpiles primarily to fund share repurchases for better stock market valuation.

Corporate America uses Trump tax cuts and cash stockpiles primarily to fund share repurchases for better stock market valuation. Share repurchases are a ubiquitous payout practice where public corporations buy back their own shares to return excess capital to most shareholders. Share repurchases boost stock demand and so artificially inflate EPS concentration. U.S. public companies initiate $1 trillion share repurchases in the fiscal year of 2018-2019. In contrast, business investments and job opportunities decelerate as a result. Rather than spending billions on share repurchases, U.S. public corporations would help society more by reinvesting in profitable projects, plants, and high-skill human resources etc. For instance, Apple spends more than $30 billion on share repurchases in the fiscal year of 2018-2019. Apple also plans to pay $38 billion in taxes on offshore cash repatriation with 20,000 new jobs and $30 billion domestic capital investments in the next 5 years. Several economic pundits and experts suggest that share repurchases disproportionately help the rich because the top 10% income earners own about 80% of U.S. stocks. This negative feedback loop self-perpetuates and exacerbates income and wealth inequality as the rich reap rewards on their stock market bets to the detriment of the middle class.

Apple provides positive forward guidance on both revenue and profit forecasts for iPhones, iPads, and MacBooks.

Apple provides positive forward guidance on both revenue and profit forecasts for iPhones, iPads, and MacBooks. Over the Christmas 2018 season, MacBook revenue grows 9%; iPad sales climb 17%; and wearable devices such as Apple Watch and AirPods surge by an impressive 50% growth margin. Apple reports the first holiday-quarter revenue decline since 2001 primarily because the pricey iconic iPhone X handsets experience a 15% decrease in global sales. As Apple CEO Tim Cook delivers the non-iPhone revenue results to spark a hefty 4% relief rally in the tech stock market, Apple regains the title of the most valuable U.S. corporation well beyond Microsoft, Amazon, and Google. With respect to media services, Apple points to the substantial increase in Apple Pay and Apple Music worldwide usage. The number of global service subscriptions is likely to top half a billion by 2020 (up from 360 million now). Apple completes several M&A deals such as the music recognition app Shazam and the digital news provider Texture with the grand ambition of quadrupling revenue from media services by 2022. Without specifying techy details in Apple media services, Cook suggests that the tech titan expects to expand its original video content business in the foreseeable future.

President Trump picks David Malpass to run the World Bank to curb international multilateralism.

President Trump chooses David Malpass to run the World Bank to curb international multilateralism. The Trump administration seems to prefer bilateral negotiations for favorable fiscal budgets and trade deals. The World Bank serves the core mission of extending $10+ billion loans to low-income countries to fund investment projects from global markets. A close competitor is the Chinese Asia Infrastructure Investment Bank that uses dollar diplomacy to win allies without stringent concessions (which the World Bank often would require due to multilateral involvement). Justin Sandefur, senior fellow at the Center for Global Development, suggests that Malpass shows disdain for the World Bank mission of fighting global poverty just as John Bolton, U.S. national security advisor, shows respect for numerous U.N. endeavors. The recent nomination of David Malpass as World Bank president threatens an implicit multilateral agreement that the U.S. appoints the head of the World Bank while the European Union appoints the head of the International Monetary Fund (IMF). The current IMF head, Christine Lagarde, is a former French finance minister and warns against the Sino-American trade war, which may be detrimental to the long-term global economic revival. The Malpass appointment may tilt the delicate balance from E.U. multilateral agreement toward U.S. dominance.

President Trump delivers his second state-of-the-union address to U.S. Congress.

President Trump delivers his second state-of-the-union address to U.S. Congress. Several main themes emerge from this presidential address. First, President Trump praises the current 2-year U.S. economic boom and stock market rally. As Trump remains upbeat about the current U.S. economic outlook, several sectors such as big pharma, transport, and technology benefit much from the current stock market rally. Second, the Trump administration seeks a bipartisan solution to public finance for his southern border wall for better immigration. President Trump may find it difficult to compromise on this fiscal issue in the near-term. Third, Trump aims to implement a structural change to unfair trade practices and chronic trade imbalances in the current trade war resolution with China. The next summit between Presidents Trump and Xi can reach trade war resolution soon after Trump shakes hands with the North Korean leader Kim Jung-Un in the historic conference in Vietnam in late-February 2019. Fourth, Trump asks Congress to pass the current bill for modern infrastructure with more than $1 trillion public finance. Fifth, Trump vows to help reduce astronomical medical costs and drug prices in America. Through his second state-of-the-union address, President Trump now seeks to make progress on these socioeconomic issues.

President Trump remains optimistic about the Sino-American trade war resolution.

President Trump remains optimistic about the Sino-U.S. trade war resolution of both trade deficit eradication and tech transfer enforcement. Trump now seeks to enact new economic sanctions with 25% tariffs on Chinese goods and services if the Chinese Xi administration cannot agree to help reduce the U.S. $375 billion bilateral trade deficit. President Trump suggests a handshake deal instead of a firmer trade agreement when he meets President Xi soon after the second summit between Trump and the North Korean leader Kim Jung-Un in Vietnam later in February 2019. The Trump trade team continues to be optimistic about the next Sino-U.S. trade war resolution of both better trade balance and tech transfer enforcement. Trump economic advisors indicate that it is easier for China to buy more American products such as soybeans, cars, and aircrafts etc in order to reduce the current Sino-U.S. trade imbalance. However, it can be difficult for the Trump administration to strictly enforce complete, verifiable, and irreversible protection of U.S. intellectual properties such as patents, trademarks, and copyrights. The latter chronic problem persists for years because it is virtually impossible for the U.S. government to meter unfair intellectual property infringement by Chinese tech firms such as HuaWei.

Federal Reserve remains patient on future interest rate adjustments due to trade and fiscal budget negotiations.

Federal Reserve remains patient on future interest rate increases due to global headwinds and impasses over trade and government budget negotiations. Fed Chair Jerome Powell pledges that future interest rate adjustments react to generic macroeconomic conditions. Patience is a virtue. U.S. economic history suggests that the federal funds rate tends to peak in the reasonable range of 5.5%-6.5%. In contrast, several eminent economists such as former Fed Chairs Janet Yellen and Ben Bernanke suggest that we may enter a new era of persistently low interest rates. This putative scenario can be good news for debtors such as U.S. households and federal government, the latter of which now carries about $16 trillion public debt. The same putative scenario may become bad news for most retirees who live off meager interest income on their deposits and annuities. This low-interest-rate environment can continue to inflate asset prices. As a result, U.S. stocks soar in response to the dovish monetary policy stance with balance sheet flexibility. As the Federal Reserve keeps the interest rate in the target range of 2.25%-2.5%, the trade-weighted average U.S. dollar index slips to 91%. This recent greenback depreciation reflects a major reversal of U.S. credit flows in comparison to the 95% dollar peak back in January 2017.

It can be practical for the U.S. to impose the 2% Warren wealth tax on the rich.

It can be practical for the U.S. to impose the 2% Warren wealth tax on the rich. Democratic Senator Elizabeth Warren proposes a 2% wealth tax on the richest Americans with more than $50 million in total assets. For the even richer Americans with more than $1 billion total assets, the wealth tax should rise to 3%. This radical tax proposal may help raise almost $2.5 trillion to $3 trillion in a decade, although this proposal affects only less than 0.1% of American households in accordance with the fiscal estimates of Berkeley economic advisor Emmanuel Saez. On one hand, this wealth tax can help reduce economic inequality in America by closing the wealth gap between the rich and the middle class. At the same time, this wealth redistribution can promote better social mobility as the rich Americans may find it difficult to transfer their socioeconomic advantages to the next generation via business ownership, education, and political power. On the other hand, this wealth tax proposal helps fight tax evasion by wealthy Americans who might try to renounce their U.S. citizenship by tunneling funds abroad. This proposal is now subject open debate and controversy as the American consensus tilts toward progressive taxation.

The Trump administration teams up with western allies to bar HuaWei and other Chinese tech firms.

The Trump administration teams up with western allies to bar HuaWei and other Chinese tech firms from building the 5G ultra-high speed infrastructure due to national economic security concerns. Justice Department unseals a pair of cases against HuaWei. The first indictment accuses HuaWei of trying to steal trade secrets from T-Mobile by promising obscene bonuses to employees who would collect confidential information on telecom competitors. The second indictment suggests that HuaWei might have worked to skirt U.S. economic sanctions on Iran. Robert Williams, executive director at Yale Law School and former consultant to the U.S. State Department, suggests that these criminal investigations should not be viewed as part of the current Sino-American trade negotiations because the U.S. law enforcement takes place well in advance of bilateral trade discussions. The Trump administration now asks its western allies from Britain and Canada to France and Germany to ban HuaWei and Ant Financial Group from getting access to critical technologies such as 5G high-speed telecom networks, fintech payment solutions, smart sensors, and autonomous robots and vehicles. This case indicates potential fraud on the part of HuaWei CFO and so sends a negative signal that China might rip off American tech firms with chronic trade deficits and unfair tech transfer practices.

Our proprietary alpha investment model outperforms the major stock market benchmarks such as S&P 500, MSCI, Dow Jones, and Nasdaq.

Our proprietary alpha investment model outperforms the major stock market benchmarks such as S&P 500, MSCI, Dow Jones, and Nasdaq. We implement our proprietary alpha investment model for positive U.S. stock signals. A complete model description is available on our AYA fintech network platform. Our U.S. Patent and Trademark Office (USPTO) online publication is available on the World Intellectual Property Office (WIPO) official website. Every freemium member can sign up for free to check out our proprietary alpha signals on our AYA fintech network platform. Each freemium member can thus learn from these proprietary alpha signals over time. The proprietary alpha investment model estimates long-term average abnormal returns for U.S. individual stocks and then ranks these stocks in accordance with their dynamic conditional alpha signals. Several virtual members follow these dynamic conditional alpha signals to trade U.S. stocks on our AYA fintech network platform.

We track the stock prices and returns for the recent 2-year period from early-February 2017 to early-February 2019. This data span allows us to conduct an out-of-sample test to assess our proprietary alpha investment model performance in comparison to the major stock market benchmarks such as S&P 500, MSCI, Dow Jones, and Nasdaq etc. S&P 500 yields an 8.5% net overall return per annum (NORPA) while Dow Jones and Nasdaq generate 11.6%-13.4% NORPAs. MSCI stock market benchmarks deliver 2.5%-8.9% NORPAs (MSCI USA, MSCI World, MSCI Europe, and MSCI Asia). With our proprietary alpha investment model, all of our virtual members from Chanel Holden and Charlene Vos to Jonah Whanau and Joseph Corr outperform the S&P 500 and MSCI stock market benchmarks with 10.3%-21.9% NORPAs (cf. the above tabular results for all net overall returns per annum (NORPAs)). In fact, 12 of the 17 virtual stock portfolios deliver higher NORPAs than Dow Jones; and 9 of the 17 virtual stock portfolios yield higher NORPAs than Nasdaq. The recent double-digits model performance corroborates the scientific fact that our proprietary alpha investment model outperforms almost all of the major stock market benchmarks.

Our recent research suggests that the proprietary alpha investment model captures dynamism in several fundamental factors such as size, value, momentum, asset growth, operating profitability, and market risk exposure (cf. Fama-French fundamental factors). Also, the empirical evidence indicates substantial mutual causation between macroeconomic innovations and dynamic conditional alphas. This causal relation serves as a core qualifying condition for fundamental factor selection in our modern asset pricing model design and performance evaluation.

In conclusion, we help demystify the pervasive misconception that it is often difficult for individual investors to beat the long-term average 11% stock market return. Our proprietary alpha investment model outperforms the major stock market benchmarks such as S&P 500, MSCI, Dow Jones, and Nasdaq. We implement our proprietary alpha investment model for positive U.S. stock signals. A complete model description is available on our AYA fintech network platform. Our U.S. Patent and Trademark Office (USPTO) patent publication is available on the World Intellectual Property Office (WIPO) website. Every freemium member can sign up for free to check out our proprietary alpha signals on our AYA fintech network platform. Each freemium member can thus learn from these proprietary alpha signals over time.

AYA finbuzz podcast February 2019