Friday, November 11, 2016

Trump Proclaims Hike in Infrastructure Spending, Investors Bet on Global Reflation

Donald Trump declared in his acceptance speech of the presidency that America would now focus on an economic plan that would induce infrastructure spending to inadvertently create more American jobs: “we are going to fix our inner cities, and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.”

It is likely that if Trump delivers on his promise that the effects are not only going to be felt within US borders. Because the US economy is the world’s largest, the US bond market is ultimately the reference point for all other bonds around the world. This led analysts at M&G Investments to contemplate whether his election victory sparked “the end of global austerity” as investors bet on a long-lived surge in global inflation.

Right now, inflation is relatively at a minimum, sunk to historic lows since the start of the recession almost a decade ago. Much of the developed world is currently battling deflation – less money in circulation, more purchasing power – so if a notable hike in inflation or reflation comes, several markets around the world would be on a learning curve. Investors have bet that the American fiscal stimulus will be recreated in European and Asian markets, therefore amplifying the universal effect.

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Wednesday, November 9, 2016

Wall Street Effects of Trump’s Presidential Victory

There are several economic impacts of the presidential win Donald Trump took home last night, and some are immediate! Investors are relocating money to where they believe will produce the higher return based on predicted upcoming policy changes. For example, it is noted that the election of Trump effectively marks the end to the gun control agenda pushed by Democrats over the course of the last few years (or at the very least, puts a pin in it). Thus, firearm manufacturer stocks plummeted overnight, causing Smith & Wesson’s shares to drop 10.21% and Sturm Ruger’s to drop 12.29%!

Text Box:  It is believed that it was Trump’s acceptance speech that helped reassure investors, encouraging hopes that he will moderate his more extreme positions when actually in office. This was the final push, however capital economists suspect the first factor that played was the Brexit incident, where the majority of British voters called to leave the European Union. That initial shock may have created better preparation for a surprise outcome and to quickly re-position for a fast recovery.

Fitch, one of the Big Three credit rating agencies, released a report warning of the Trump Plan’s effect for America’s creditworthiness in the medium-term. An excerpt is quoted, “tax cuts would increase household disposable income, which could boost short-term growth when coupled with deregulation and higher public investment. But this would depend on how far such measures are offset by potential negative factors such as a hit to private investment from policy uncertainty, financial market developments (for example a rising dollar and falling equities), and adverse trade effects."

Fitch also forewarns suffering of US growth and rising prices if Trump were to pull out of NAFTA and impose new tariffs on Chinese imports.

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Wednesday, November 2, 2016

Will the Fed Hike Interest Rates this December?

This week, the Federal Reserve Board is to meet to go over interest rate policy and the current economic standing of the United States. It is not expected that interest rates will rise this session, due to the election and the Fed’s strategy to not step into that spotlight, however it won’t be a surprise if members of the Fed’s policy making Open Market Committee (FOMC) lock in a higher rate during it’s next meeting in December.

Those pushing for an increase in interest rates argue that because the economy is nearing its full employment capacity, further reductions in the unemployment rate will pressure wages to raise with the rates. This translates to higher inflation.

The opposing ARGUMENT sheds light on the fact that the percentage of prime age (25 – 54) workers who have jobs is still down almost 2.0% since the 2008 recession; even though the unemployment rate is low, it may not be accurate due to people giving up looking for work because hope of finding a job was lost.

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Wednesday, October 19, 2016

Tax Policy Center Releases New Analysis: Trump’s Tax Plan Will Shrink GDP by 4% Over the Next Two Decades

Donald Trump, 2016 presidential candidate, created a tax plan (titled The Trump Plan), boasting it will create 25 million jobs, boost growth up 4 percent, that it is revenue neutral and that it might even pay for itself.
As according to Trump’s campaign website, The Trump Plan will (1) Reduce taxes across-the-board, especially for working and middle-income Americans who will receive a massive tax reduction, (2) Ensure the rich will pay their fair share, but no one will pay so much that it destroys jobs or undermines our ability to compete, (3) Eliminate special interest loopholes, make our business tax rate more competitive to keep jobs in America, create new opportunities and revitalize our economy and (4) Reduce the cost of childcare by allowing families to fully deduct the average cost of childcare from their taxes, including stay-at-home parents. 
The Trump Plan will collapse the current seven tax brackets to three: (for joint-filers) 12% for income less than $75,000, 25% for income between $75,000 and $225,000 and 33% for income above $225,000 (*brackets for single-filers are ½ the above amounts)
The nonpartisan Tax Policy Center (TPC) organized a new analysis, de-bunking Trump’s vision-statements from the true effects of his proposed policy. Rather than increasing growth, The Trump Plan would substantially reduce economic growth due precisely to the fact that it is not revenue neutral; not even in the slightest! It turns out that his tax plan would be a massive giveaway to the wealthy class, costing over $6 billion to taxpayers, before interest payments, over its first decade in progress. Half the profits would then be directed to the top one percent.
The Wharton Budget Model (PWBM) from the University of Pennsylvania was used to determine TPC’s results. They project larger amounts of spending money being directed into the pockets of average people in the shorter time-span, however by 2025, the plan would make the national debt inflate exponentially causing interest rates to skyrocket for both businesses and consumers.

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Wednesday, October 12, 2016

MGI Conducts New Study: ¼ Workers Included in “Gig” Workforce

Recently, the McKinsey Global Institute (MGI) conducted a study on the “gig” economy and found several comparisons to both lower-income countries and pre-Industrial Revolution United States and Europe.

A “gig” economy refers to a market in which temporary positions and short-term engagements are common, whether the workers be independent contractors, temporary workers, self-employed, part-timers, freelancers and free agents.

Probably the most well-known “gig” company today is Uber, alongside Lyft and TaskRabbit, who all refrain from hiring full-time employees, but rather only hire independent contractors as workers. Jobs such as these may be flexible at times, allowing employees the freedom to set their own schedules and such; however, there are downsides, all of which drip down to the primary concern of every “gig” worker: no predictable earnings or hours.

McKinsey found at the end of their study that approximately one-quarter of the working-age population (U.S. & EU-15) is consolidated in the “gig” workforce with Uber and its digital peers. The actual numbers were between 20% and 30% or 160 million people or so.

Friday, September 30, 2016

Billionaire Calls Chinese Real Estate Market “Biggest Bubble in History”

Chinese billionaire Wang Jianlin, the richest man in China and C.E.O. of Dalian Wanda Group, during an interview with CNNMoney on Wednesday called the Chinese real estate market the “biggest bubble in history”. He believes the major problem originates to rising prices in major metropolises and simultaneous falling prices in thousands of smaller cities with several vacant properties. The economy continues to slow, but debt levels rise higher and higher, creating a lot of stress for Chinese investors.

"I don't see a good solution to this problem," Jianlin stated. "The government has come up with all sorts of measures -- limiting purchase or credit -- but none have worked."

The Chinese stock market crashed in June last year, leaving millions of small investors penniless. Now after months of battling to contain the situation, the country’s leaders might have similar issues in the real estate department. Jianlin’s real estate company, Dalian Wanda Group, has gradually reduced business lately because of this, cutting back on their regular services such as developing large shopping malls and office complexes.

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Monday, September 26, 2016

FedEx & UPS Portray U.S. Economic Indicators

One of the easiest ways to analyze the U.S. economy and its activity levels is to look at two of the largest express-delivery companies in the world: FedEx and UPS. Due to the rapid growth of online shopping and to the recovering U.S. economy, both companies have seen rising revenues and margins.

Providing air-express services, carrying packages and freight in over 200 countries is FedEx who reported on Tuesday strong results from 2016’s first-quarter fiscal year. Earnings increased to $2.65 per share, summing up to a grand total of $715 million, up from 2015’s first quarter of $692 million ($2.42 per share). FedEx’s stock price, as of Thursday, was $173 finally up from its 1-year low of $119.

UPS, who holds the title “the largest express-delivery company in the world”, brought $58.3 billion in net income in 2015 (annual total) and is expected to increase 4.4% throughout the end of 2016 and another 4.5% in 2017! Jim Corridore, equity analyst at S&P Global, rated UPS’ stock at $130 per share, although, as of Tuesday, their Class B stock was priced at $109 per share, still up from its 1-year low of $87.

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